Delhaize to divest loss-makers after solid Q2 returns
continue its policy of divesting loss-making ventures following
favourable second quarter results published today.
The group's net earnings amounted to €81.9 million compared to €9.3 million the previous year, while earnings before goodwill and exceptionals grew by 21.4 per cent to €1.25 per share (€1.03 in 2003). Delhaize, keen to continue this upturn, has announced its decision to divest its loss-making subsidiary, Food Lion Thailand, through the sale and closure of its 26 stores.
The operating margin of Delhaize Group rose from 4.1 per cent to 4.9 per cent, and the group posted an operating profit of €226.2 million, an increase of 19.3 per cent compared to 2003.
Delhaize claims that at identical exchange rates, operating profit would have increased by 25.4 per cent.
"We are very pleased with our strong second quarter results," said Pierre-Olivier Beckers, Delhaize Group president. "Our successful commercial strategies resulted incontinued strong sales momentum in the US and Belgium.
"The operating margin in the US and Belgium increased significantly thanks to the good sales and continued cost discipline. As a result, we are confident that we will achieve our goals for the year."
However, total Q2 sales increased by just 0.4 per cent to €4.6 billion, impacted by theweakening of the U.S. dollar by 5.6 per cent against the euro. And in the first half of 2004, total sales decreased to €9.0 billion, or 2.8 per cent compared to the first half of 2003. This was influenced by the weakening of the US dollar by 10 per cent against the euro; the closing of 34 Kash n' Karry stores in the first quarter of 2004 and the divestiture of Shop N Save in the fourth quarter of 2003.
However, financial income was positively influenced in the second quarter of 2004 by $5.6 million in pre-tax interest income related to a US tax refund. Prior year net earnings were negatively impacted by an exceptional charge of €51.8 million after tax related to a change in accounting principle.
A geographical overview reveals Delhaize's reliance on the buoyancy of both the Belgian and US markets. In the second quarter of 2004, the contribution of the US operations to the sales of Delhaize Group amounted to $4 billion, an increase of 5.4 per cent over the second quarter of 2003 due to the rise of comparable store sales by 1.4 per cent and the expansion of the store network to 1,493 stores.
The sales trend remained strong in the second quarter at the four US banners. The US sales of Delhaize Group grew by 5.2 per cent to $7.9 billion in the first six months of 2004 compared to the previous year, supported by the acquisition of Harveys in the fourth quarter of 2003 and despite the closing of 34 Kash n' Karry stores in the first quarter of 2004.
In the second quarter of 2004, sales of the Belgian operations grew by 5.9 per cent to €965.3 million due to the expansion of the sales network and comparable store sales growth of 3.8 per cent. In June 2004, Delhaize Belgium successfully opened its first company-operated supermarket in the Grand-Duchy of Luxembourg.
Delhaize claims that the ongoing strong comparable store sales growth was due to the continued success of Delhaize Belgium's commercial strategy. The market share of Delhaize Belgium continued to grow in the second quarter of 2004, reinforcing its position as second largest Belgian food retailer.
During the first half of 2004, sales at Delhaize Belgium grew by 7 per cent to €1.9 billion.In the second quarter of 2004, while continuing to invest in its price competitiveness, Delhaize Belgium grew its operating margin to 6.1 per cent (5.6 per cent in 2003) due to the good sales momentum and disciplined cost management.
In the second quarter of 2004, sales in the Southern and Central European operations of Delhaize Group (Greece, Czech Republic, Slovakia and Romania) grew by 0.4 per cent to €304.5 million (+0.8 per cent in the first half of 2004 to €598.3 million). Sales in the Alfa-Beta supermarkets continued to grow, supported by a reinforced price position due to price reductions on approximately 2,300 products in the first half year.
This sales performance was partially offset by weaker sales at our "ENA" Greek cash and carry business, and at Mega Image in Romania because of increased competitive hypermarket openings.
Sales of the Asian operations of Delhaize Group decreased to €37.5 million compared to EUR 53.8 million in the second quarter of 2003 due to the deconsolidation of Shop N Save, Delhaize Group's former Singaporean business, from 1 October 2003 and due to the depreciation of the Asian currencies against the euro. The operating loss of the Asian activities of Delhaize Group amounted to €-1.3 million in the second quarter and €-2.2 million in the first half of 2004.
As a result of these losses, the Delhaize Group decided, on 4 August 2004 to divest its loss making Thai operations. Delhaize Group is in an advanced stage of negotiations on the possible sale of a significant number of stores. Any store not sold will be closed.
As a result of this operation, Delhaize Group expects to record an exceptional charge between €12 million and €16 million after tax in the third quarter of 2004.
In 2004, the sales network of Delhaize Group is expected to grow by approximately 14 stores to a total of 2,573 (including the impact of the 34 Kash n' Karry store closings and the divestiture of Food Lion Thailand). And at identical exchange rates, it is expected that sales of Delhaize Group will grow in 2004 by 2.5 per cent to 3.5 per cent.
