Delhaize Group SA — Q3 2014 Earnings Presentation
36 slides from Delhaize Group SA's earnings presentation, Nov 6, 2014
Slide 1: Q3 2014 results
Q3 2014 results November 6, 2014
Slide 2: Forward looking statements
Forward looking statements This presentation includes forward-looking statements within the meaning of the U.S. federal securities laws that are subject to risks and uncertainties. Forward-looking statements describe further expectations, plans, options, results or strategies. Actual outcomes and re
Slide 3: Delhaize Group has clear priorities...
Delhaize Group has clear priorities... Who we are Principles Priorities • Preferred food retailer • The customer is at the center • Put the customer back at the center • Differentiated concept • Business is local and market share matters • Focus on core markets • Fresh specialist, Private Label expe
Slide 4: ... and is executing on its action plan
... and is executing on its action plan 2012 2013 2014 2015 • Reduce complexity through divestitures of • Finalise divestiture of non-core assets peripheral non-core assets • Differentiate Food Lion • Deleverage Balance Sheet • Implement Delhaize Belgium’s intended • Improve Working Capital Transfor
Slide 5: Q3 2014: decidedly mixed performance between the US and Belgium
Q3 2014 : decidedly mixed performance between the US and Belgium • U.S. • Further positive CSS and real growth at both Food Lion and Hannaford • Hannaford sales helped by temporary competitive dynamics • Positive sales leverage and UOP margin evolution • Belgium • Revenues negatively impacted by Tra
Slide 6: Financial results – Q3 2014
Financial results – Q3 2014 Q3 % Growth (€ in Millions) 2013 2014 Actual Rates Identical Rates Revenues 5,299 5,462 3.1% 3.3% Gross Margin 24.0% 24.0% (2 bps) (2 bps) SG&A as % of revenues 21.1% 20.9% (16 bps) (17 bps) Underlying Operating Profit 188 192 2.4% 3.0% Underlying Operating Margin 3.5% 3.
Slide 7: EBITDA
EBITDA (€ in Millions) EBITDA Underlying EBITDA Q3 YTD Q3 YTD 2013 335 975 331 1,013 At Identical -0.8% +0.5% +3.0% -2.3% Rates 332 979 342 990 2014 2013 335 975 331 1,013 At Actual -1.1% -1.6% +2.6% -4.3% Rates 339 969 330 959 2014 7
Slide 8: Delhaize America - organic revenue growth and comparable store sales growth
Delhaize America - organic revenue growth and comparable store sales growth Delhaize America +0.6% 0.0% +5.9% 2014 Q3 +5.3% CSS Calendar Expansion Organic Impact Revenue Growth +0.5% 0.0% +4.4% +4.9% 2014 YTD CSS Calendar Expansion Organic Impact Revenue Growth 8
Slide 9: Delhaize America – underlying operating margin
Delhaize America – underlying operating margin Delhaize America Underlying Operating Margin Q3 2013 4.1% Q3 2014 4.2% - Q3 margin impacted by: • Good sales momentum at both banners • Lower SG&A as % of revenues due to positive sales leverage • Price investments of around ~30bps YTD 2013 4.0% (Food L
Slide 10: Delhaize Belgium - organic revenue growth and comparable store sales growth
Delhaize Belgium - organic revenue growth and comparable store sales growth Delhaize Belgium -4.2% -5.0% 2014 Q3 +0.7% +0.1% CSS Calendar Expansion Organic Impact Revenue Growth -1.7% -2.3% 2014 YTD +0.7% -0.1% CSS Calendar Expansion Organic Impact Revenue Growth 10
Slide 11: Delhaize Belgium – underlying operating margin
Delhaize Belgium – underlying operating margin Delhaize Belgium Underlying Operating Margin Q3 2013 2.7% Q3 2014 1.4% - Q3 margin impacted by: • Strong deflation in fruit and vegetable • Higher logistic expenses • Negative sales leverage YTD 2013 3.9% YTD 2014 2.6% 11
Slide 12: SEE - organic revenue growth and comparable store sales growth
SEE - organic revenue growth and comparable store sales growth Southeastern Europe +4.3% +5.9% 2014 Q3 -1.5% -0.1% CSS Calendar Expansion Organic Impact Revenue Growth +4.4% +5.2% 2014 YTD -0.6% -0.2% CSS Calendar Expansion Organic Impact Revenue Growth 12
Slide 13: Southeastern Europe – underlying operating margin
Southeastern Europe – underlying operating margin Southeastern Europe Underlying Operating Margin Q3 2013 4.0% Q3 2014 4.3% - Q3 margin impacted by: • Better procurement terms in Greece and Romania • Price investments and negative sales leverage in Serbia YTD 2013 3.5% YTD 2014 3.4% 13
Slide 14: Free Cash Flow generation
Free Cash Flow generation (€ in Millions) YTD 2014 Free Cash Flow evolution 964 73 228 389 426 171 255 19 EBITDA Changes Net Cash Other Operating Proceeds FCF in core payment capex FCF (1) from working of interest Sweetbay, capital and taxes Harveys and Reid’s (1) YTD 2014 Free Cash Flow included €2
Slide 15: Net Debt Position and Cash position evolution
Net Debt Position and Cash position evolution (€ in Millions) Net debt evolution Cash position 2011 2,660 2011 419 2012 2,072 2012 920 2013 1,473 2013 1,149 Sep-14 1,295 Sep-14 1,239 15
Slide 16: Delhaize America CEO diagnostic
Delhaize America CEO diagnostic Delhaize America has a strong …and also faces some foundation… challenges • 2 strong banners with distinct and • Competitive markets at Food Lion compelling growth opportunities • Increasingly competitive markets at • #1 or 2 position in the majority of our Hannaford
Slide 17: Food Lion: good momentum and further opportunities
Food Lion: good momentum and further opportunities STRENGTHS OPPORTUNITIES • 8 consecutive quarters of positive CSS • Capital investment needed to fully modernize store base • Dense network of stores in convenient locations • Share of wallet lags best in class competitors • High market share in the
Slide 18: Today there exists a significant opportunity for Food Lion to grow
Today there exists a significant opportunity for Food Lion to grow Average weekly sales Estimated share of per square foot ($)(1) wallet potential(4) Food Lion 2010 7,5 Food Lion 18% 82% today +5.8% Food Lion 2013 7,9 Average of 26% 74% local peers(3) Average selected 10,2 peers(2) Spend at food ret
Slide 19: Food Lion's strategy aims at differentiating the offering…
Food Lion’s strategy aims at differentiating the offering… Differentiated offering… Center Store Produce Meat & Seafood Deli, Bakery, Prepared Food • The most • Abundant • Easy to prepare • Optimized bakery important items in selection of the meal solutions assortment each market items customers imp
Slide 20: … and will improve overall shopping experience, aiming to deliver an increased share of wallet
… and will improve overall shopping experience, aiming to deliver an increased share of wallet …enabled by foundational changes across the store Pricing Front end People Product and Store checkout Placement experience • Competitive • Staffing • Count on Me • Layout makes • Décor pricing enhancements
Slide 21: While early, our test formats are showing encouraging results
While early, our test formats are showing encouraging results Roll out Continuing to test Summer 2013: 3 lab stores with • Garden cooler selected strategy elements • New Deli proposition December 2013: 1st concept store with most strategy elements • Continue to analyse sales response and seek to und
Slide 22: In addition to Easy, Fresh & Affordable, other initiatives across the Food Lion network
In addition to Easy, Fresh & Affordable, we are also implementing different initiatives throughout the Food Lion network Assortment Associate & Customer Experience • Upgrade of front end POS system underway; • Finetune center store assortment ~900 stores by end of 2014 • Remove 6,700 SKUs, add 3,300
Slide 23: Food Lion will continue the implementation of its strategy
Going forward, Food Lion will continue the implementation of its strategy while further monitoring the results in its test market Next steps Number of remodeled stores per year • Plans to roll out to ~215-255 stores in total by the end of 2015 • Pace of future roll out determined by results • Averag
Slide 24: Hannaford: a strong brand to further expand
Hannaford: a strong brand to further expand STRENGTHS OPPORTUNITIES • Market leadership • Accelerate organic growth • Sales productivity • Roll-out e-commerce • Share of Wallet • Continued improvement in price position and perception • Customer perception, particularly around product quality, fresh
Slide 25: Hannaford's key initiatives will provide the ability to withstand increasing competition
Hannaford’s key initiatives will provide the ability to withstand increasing competition Organic growth Price investments • Store openings • Continue targeted price investments • Fill-in store acquisitions • Focus on WOW items and • Development of new in-store merchandising formats Merchandising E-c
Slide 26: Thus far, Hannaford To Go results are encouraging
Thus far, Hannaford To Go results are encouraging Number of Hannaford To Go (cumulative) Early results • Strong customer adoption 0 • Volume of orders and basket size encouraging 2 • In store technology delivering efficiencies 10 Next steps 40-50 • 10-15 new additional Hannaford To Go per year • Dev
Slide 27: Delhaize America is building on its momentum and focused on value enhancing projects
Delhaize America is building on its momentum and focused on value enhancing projects VISION ACTION PLAN • Priorities are clear • Easy, Fresh & Affordable • Optimistic about Delhaize America’s • Accelerate growth at Hannaford ability to maintain momentum and improve its market position, grow • Look f
Slide 28: Delhaize Belgium operates in an intense competitive environment
Delhaize Belgium operates in an intense competitive environment Market share (%) 27 26 25 • #2 position, ~25% market share 24 23 • Strong affiliated network 22 2008 • Excellent locations Q3 2014 • Differentiated assortment Customer satisfaction • Large fresh offering • Broad private label range 28
Slide 29: and has started to address its labor cost handicap
and has started to address its labor cost handicap Cost per productive hour (Delhaize = 100) Proposed Transformation Plan • Introduce a more efficient structure for Delhaize 100 company-operated stores Colruyt 84 • Full focus on new technologies in working methods and procedures Carrefour 78 • Adapt
Slide 30: Following the Loi Renault legal framework
Following the Loi Renault legal framework Statement of Phase I Phase II Phase III intention to Information & Negotiation of Implementa- Workers Council Consultation social plan, new tion of social wage & labour plan conditions Constructive Application of June 11, 2014 Answer questions dialogue focus
Slide 31: Delhaize Belgium is testing its strengthened commercial strategy in 4 concept stores
Delhaize Belgium is testing its strengthened commercial strategy in 4 concept stores … • Launch of 2 pilot stores in April and 2 in October centered around ‘Bien acheter, bien manger’ (‘Buy well, eat well’) • New look & feel and customer experience • Focus on Fresh • Efficient checkout • Ongoing ass
Slide 32: …with good customer feedback received so far
…with good customer feedback received so far Braine l’Alleud Reopened in April 2014 Wezembeek Customer satisfaction Reopened in April 2014 Marked customer satisfaction improvement in the 2 stores opened in April Eeklo Reopened in October 2014 Marcinelle Reopened in October 2014 32
Slide 33: We are joining Coopernic to generate additional sourcing savings
We are joining Coopernic to generate additional sourcing savings European Buying Alliance • Private label development, innovation and procurement • National brand sourcing First tangible • Non-food and indirect procurement Scope results already • Enlarged perimeter expected in 2015 • Delhaize Belgiu
Slide 34: Southeastern Europe continues expansion albeit facing a difficult economic environment
Southeastern Europe continues expansion albeit facing a difficult economic environment • Greece • Pressured market (continued high unemployment, further austerity measures and weak summer) • Focused on further store expansion and CSS growth • Serbia • Tough economic conditions (public spending cuts,
Slide 35: Conclusion – we will deliver on our 2014 commitments…
Conclusion – we will deliver on our 2014 commitments… • Two important strategic initiatives underway • Food Lion Easy, Fresh and Affordable • Transformation Plan in Belgium • Trends for Q4 2014 • Expect positive CSS at Delhaize America • Belgium sales and profitability impacted by disruptions follow
Slide 36: …and are preparing for 2015 prospects
…and are preparing for 2015 prospects • Further focus and careful roll-out of Easy, Fresh and Affordable • Accelerate growth at Hannaford • Implement the Transformation Plan in Belgium • Maximise potential benefits of Coopernic • Accelerate organic growth in selected markets • Further financial disc