BELGIUM: Delhaize profits slide on investments
By Katy Askew | 7 November 2012
- Underlying operating profit down 3%
- Margins hit by pricing
- Sales up 1.6%
Delhaize encouraged by trends at repositioned Food Lion stores
Delhaize booked a decline in third-quarter earnings, which were hit by spending on pricing in Belgium and the US.
The company announced today (7 November) that operating profit fell by 3% in the three months to the end of September, dropping to EUR231m (US$294.7m). However, excluding the impact of currency exchange, underlying operating profit slid by 9.4%.
The company said margins were hit by its decision to invest in pricing initiatives in a bid to improve market share trends in its two largest markets - Belgium and the US. As a result, the company was able to report a 1.6% lift sales at identical exchange rates, which climbed to EUR5.81bn.
Nevertheless, Delhaize added EBITDA remained "resilient", increasing by 4.1% at actual exchange rates to EUR398m. Stripping out currency exchange EBITDA dropped 3%.
"Despite tough market conditions, we are seeing signs that our investments are yielding positive results, with revenues increasing and strong cash generation in the last three months," CEO Pierre-Oliver Beckers said.
According to Beckers, the group's US Food Lion chain saw same-store sales rise at the 60% of outlets that have been repositioned. In Belgium, Beckers said he was not "happy" with the evolution of Delhaize's market share, but added price investments have resulted in the company's second consecutive quarter of comparable domestic sales growth.
"We remain focused on improving our price competitiveness while maintaining our cash flow discipline. This approach should lead to sustainable revenue growth and the realization of shareholder value," Beckers said.
Delhaize confirmed full-year operating profit guidance is expected to come in at the bottom-end of its forecast for a 15-20% decline. In May, the company issued a warning suggesting its plans to invest in price would result in steep drop in profits.
Delhaize Group Third Quarter Results
Financial Summary Third Quarter 2012
» Revenue growth of 1.6% (2.1% organic growth) at identical exchange rates
» Comparable store sales decreased by 1.6% in the U.S. and increased by 0.6% in Belgium
»Food Lion repositioning is delivering encouraging results with positive comparable sales growth in repositioned stores. The Food Lion network posted flat real growth during Q3.
» Strong revenue and profitability increase in SEE&A
» Underlying operating margin of 4.0%, impacted by ongoing price investments
» Reiterate free cash flow target of EUR500 million in 2012 following EUR323 million generated over the first nine months, EUR197 million in Q3
» Confirm full year underlying operating profit guidance at the bottom-end of the range of a 15-20% decline
» CEO Comments
Pierre-Olivier Beckers, President and Chief Executive Officer of Delhaize Group, commented: "Despite tough market conditions, we are seeing signs that our investments are yielding positive results, with revenues increasing and strong cash generation in the last three months. The repositioning of Food Lion continues to give us confidence for the future. In the third quarter, the repositioned stores, which account for over 60% of the Food Lion network, delivered positive comparable store sales, leading to a flat performance for the Food Lion banner when adjusted for inflation. The recent arrival of Roland Smith, who joined as CEO of Delhaize America, will help to further accelerate the ongoing transformation of our U.S. operations."
"In Belgium, the economic and competitive environment has not improved. While we are not happy with the evolution of our market share, we are encouraged by the second consecutive quarter of positive comparable store sales growth. In addition, in Southeastern Europe & Asia, our initiatives are gaining momentum and delivering solid revenue growth coupled with improved profitability."
"We remain focused on improving our price competitiveness while maintaining our cash flow discipline. This approach should lead to sustainable revenue growth and the realization of shareholder value. We have made considerable progress towards realizing our free cash flow target of EUR500 million for 2012, generating EUR323 million through the first nine months of 2012. However, during the quarter, the Group's underlying operating margin continued to be impacted by our efforts to structurally improve our price positioning across the group. We are confident that we will reach the
bottom-end of our full year underlying operating profit guidance range."
Original source: Delhaize
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