Food Lion 2002 Annual Report Download

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LOCAL STRENGTH, GROUP EXPERTISE
Annual Report 2002

Table of contents

  • Page 1
    LOCAL STRENGTH, GROUP EXPERTISE Annual Report 2002

  • Page 2
    ... international food retailer operating in 10 countries on three continents. Delhaize Group is listed on Euronext Brussels (ticker symbol: DELB) and the New York Stock Exchange (ticker symbol: DEG). At the end of 2002, Delhaize Group's sales network consisted of 2,520 stores. In 2002, Delhaize Group...

  • Page 3
    ...% change vs prior year 2002 2001 RESULTS OF OPERATIONS Sales EBITDA(1) Operating profit Cash earnings(1) Net earnings 20,688 1,535 807 336 178 21,396 1,649 921 339 149 18,168 1,275 739 188 161 -3.3% -6.9% -12.4% -0.8% 19.3% 17.8% 29.4% 24.6% 80.6% -7.0% FINANCIAL POSITION Total assets Group equity...

  • Page 4
    ...were closed, and we also decided earlier this year to streamline the management support structure of Food Lion. Initiatives in collective buying, information systems and the exchange of best practices will further contribute to the reduction of our costs. 2 | Delhaize Group | Annual Report 2002

  • Page 5
    ... period: our associates, our customers and our shareholders. The management and the Board of Directors are confident that, with your continued support, we will fully leverage Delhaize Group's strengths and hear the lion's roar for many years. Pierre-Olivier Beckers, President and Chief Executive...

  • Page 6
    ... the largest market for Delhaize Group. At the end of 2002, Delhaize Group operated 1,485 stores in the U.S. under the Food Lion, Hannaford and Kash n' Karry banners. Delhaize U.S. posted USD 15.0 billion (EUR 15.9 billion) sales in 2002 and accounted for 76.8% of Delhaize Group's total sales. This...

  • Page 7
    ... Europe is a leading supermarket operator in these regions. At the end of 2002, Delhaize Group operated 225 stores in Southern and Central Europe, realizing EUR 1.2 billion sales, which is 5.6% of Delhaize Group's total sales. Asia Delhaize Group's Asian activities form the Group's most recent...

  • Page 8
    What Drives 6 | Delhaize Group | Annual Report 2002

  • Page 9
    Our Business? Our Offer to Customers Our Pursuit of Operational Excellence Our Commitment to Our Associates Our Efforts for Our Stakeholders | 7

  • Page 10
    Our Offer to Customers Locally Adapted Assortments Va l u e f o r M o n ey S p e n t P l ea s a n t S h o p p i n g E x p e r i e n ce 8 | Delhaize Group | Annual Report 2002

  • Page 11
    ...for Money Spent In 2002, Food Lion continued to reinforce its price leadership among its supermarket competitors. Delhaize Belgium abandoned all weekly price promotions in order to offer its customers consistent daily low prices. The same policy was already in use at Hannaford. Through private label...

  • Page 12
    Our Pursuit of Operational Excellence P u rc h a s i n g Supply Chain Te c h n o l o g y Fo o d S a f e t y 10 | Delhaize Group | Annual Report 2002

  • Page 13
    ... their customers that they buy safe products in the best hygienic circumstances. Food Lion rolled out a computer-based food safety training system for its associates in 2002. Each month Food Lion stores receive a fact sheet reinforcing a specific food safety issue. Delhaize Group's private label...

  • Page 14
    Our Commitment to Our Associates Fo c u s e d Tra i n i n g At t ra c t i ve C a re e r D eve l o p m e n t S t ro n g Re co g n i t i o n L o c a l E m p owe r m e n t 12 | Delhaize Group | Annual Report 2002

  • Page 15
    ... place in Bruges, Belgium. As one of its efforts to promote diversity, Food Lion developed a management training program aimed at new graduates of African-American colleges and universities. Food Lion CEO Rick Anicetti welcomes the participants in the Salisbury, North Carolina store support center...

  • Page 16
    Our Efforts for Our Stakeholders A C l ea n e r E n v i ro n m e n t A Better Society Tra n s p a re n t S h a re h o l d e r Co m m u n i c a t i o n s 14 | Delhaize Group | Annual Report 2002

  • Page 17
    ...addition, in-store collections of money and food were organized by all banners. Delhaize Belgium collected 680 tons, or 78 trucks, of food products for the Food Banks. Food Lion was named America's Second Harvest Regional Retailer of the Y ear. Hannaford was honored by the Association of Fundraising...

  • Page 18
    Our Business Business and 16 | Delhaize Group | Annual Report 2002

  • Page 19
    Fi nancial Review in 2002 Added 76 stores for a total of 2,520 Realized organic sales growth of +2.1% Posted EBITDA margin of 7.4% Increased net earnings per share with 3.0% Achieved free cash flow of EUR 300.2 million | 17

  • Page 20
    ...-line growth at Food Lion Created synergies and economies of scale between U.S. companies 1,207 1,276 1,420 1,459 1,485 10.2 10.9 12.7 14.9 15.0 2002 Number of stores Sales* Operating profit* Operating margin Net earnings* * in millions of USD ** excluding Super Discount Markets 2001** 1,459 14...

  • Page 21
    ... energy, benefits and risk management. In December 2002, the management of the state-of-the-art Butner, North Carolina break-pack distribution center was transferred from Hannaford to Food Lion. Hannaford's consumer affairs department is using technology and procedures designed by Food Lion. In 2002...

  • Page 22
    ... shows where store management teams gather information on new items and effective merchandising techniques helped to increase sales and customer satisfaction. Hannaford also changed the name of most of its Shop 'n Save 20 | Delhaize Group | Annual Report 2002 stores to Hannaford Supermarkets. This...

  • Page 23
    ...DE Number of Stores* Maine (ME) New Hampshire (NH) Vermont (VT) Massachusetts (MA) New York (NY) Pennsylvania (PA) Delaware (DE) Maryland (MD) Virginia (VA) West Virginia (WV) Kentucky (KY) Tennessee (TN) North Carolina (NC) South Carolina (SC) Georgia (GA) Florida (FL) Total: (*) December 28, 2002...

  • Page 24
    ... store sales growth of +3.7% Increased market share from 24.6% to 24.8% Grew the affiliated network and opened three corporate supermarkets Added a new warehouse in the Grand Duchy of Luxembourg 515 553 615 675 707 2.7 2.8 3.0 3.2 3.4 2002 Number of stores Sales* Operating profit* Operating...

  • Page 25
    ... important price investments under the new commercial policy. Sales Network Delhaize Belgium wants to offer customers, wherever they are in the country, a store for each shopping need and at each shopping occasion. In 2002, 32 stores were added to the network, including three corporate supermarkets...

  • Page 26
    ... market share at Alfa-Beta Remodeled Delvita stores Created European IT, Technical and Supply Chain Departments 147 211 177 224 225 749 895 959 1,091 1,166 2002 Number of stores Sales* Operating profit* Operating margin Net earnings* * in millions of EUR 2001 224 1,091.0 13.5 1.2% (30.0) change...

  • Page 27
    ... and Supply Chain departments were created. Efficiencies were reached in store design, supply chain and collective procurement. In 2002, the first private label products bought through the buying organization EMD were put on the shelves of all Delhaize Group supermarkets in Europe. Delvita Delvita...

  • Page 28
    ...16.6% to EUR 218.1 million Launched Shop N Save Express convenience store in Singapore 17 52 68 86 103 21 107 155 187 218 2002 Number of stores Sales* Operating profit* Operating margin Net earnings* * in millions of EUR 2001 86 187.0 (3.4) -1.8% (4.3) change +17 +16.6% -32.4% - -67.4% 98...

  • Page 29
    ... position, the three Asian banners of Delhaize Group are cooperating in many fields, sharing strategies and exchanging successful practices. Synergy groups have been established in human resources, buying, operations and systems and methods. This year, the Asian Fair, the annual collective promotion...

  • Page 30
    ..." strategy resulted in positive comparable store sales growth at Hannaford. Comparable store sales rose 3.7% in Belgium thanks to the successful implementation of a new commercial policy delivering every day fair price and the continued renewal of its store formats. In 2002, Delhaize Group added 76...

  • Page 31
    ...indicates the ability of Delhaize Group to react rapidly to changes in sales and competitive environment by adjusting its expense base. In the U.S., increased store labor costs to support improved customer service and charges related to the reorganization of the senior management team were offset by...

  • Page 32
    ... Delvita and Food Lion Thailand. In 2001, net exceptional result (EUR -96.4 million) was significantly more negative because of merger and financing costs related to the Delhaize America share exchange and the acquisition of Hannaford, the closing of Super Discount Markets and Delvita stores, and an...

  • Page 33
    ... in 2001). Delhaize America remodeled 127 existing stores. The rollout of the Festival strategy at Hannaford and the change of the Shop 'n Save banner to the Hannaford banner, led to major expenditures at Hannaford. Capital spending in information technologies (IT), logistics and distribution, and...

  • Page 34
    ... stores at Food Lion and one Kash n' Karry were closed in January and February 2003. Additionally Food Lion has announced a reduction of 400 jobs in its support and management structure in 2003. These measures will have a positive impact on the ongoing operational results of Delhaize Group...

  • Page 35
    ... program. Delhaize Group had, through its different companies, more than EUR 400 million committed bilateral credit facilities in Europe and Asia. In December 2002, Standard & Poor's changed the credit rating of Delhaize America from BBB- to BB+ with a stable outlook and Moody's Investors Service...

  • Page 36
    .... Food Lion, Delhaize Group's largest operating company representing approximately 54% of its employee base, has a defined contribution pension plan, for which Food Lion does not bear any funding risk. Delhaize Group has defined benefit plans only at Delhaize Belgium and Hannaford. Delhaize Belgium...

  • Page 37
    ...and closings. Selling Area (in square meters) 2002 Delhaize America Belgium and G.D. Luxembourg Greece Czech Rep. & Slovakia Romania Thailand Indonesia Singapore Subtotal Super Discount Markets France Total (1) Net selling area in stores, excluding storage. Net area = ± 84% gross area. (1) (year...

  • Page 38
    Number of Associates 2002 Full-time Part-time Full-time equivalent Male Female Delhaize America Super Discount Markets Delhaize Belgium Alfa-Beta Delvita Mega Image Food Lion Thailand Super Indo Shop N Save Total 62,771 81,123 105,491 70,198 73,696 109,823 15,787 6,329 5,348 898 1,584 2,968 1,157 ...

  • Page 39
    Financials || 3 37 7

  • Page 40
    ... Investments Other companies Investments Receivables and deposits paid Current assets Long-term receivables Other receivables Deferred taxation Inventories and work in progress Inventories Consumables Goods for resale Payments to account Short-term receivables Trade receivables Other receivables...

  • Page 41
    ... Amounts falling due within one year Current portion of long-term debts Financial liabilities Credit institutions Other borrowings Trade creditors Suppliers Bills payable Payments received on account Liabilities for taxes, salaries and social security Income taxes Salaries and social security Other...

  • Page 42
    ... Profit/(Loss) Consolidated profit Interest of third parties in the results Group share in the results Appropriations and transfers Profit of the current year to be appropriated Transfer to reserves Profit to be distributed 26 Dividends Directors' fees 40 | Delhaize Group | Annual Report...

  • Page 43
    ...) (154,443) 670,490 Net income Minority interest Share in results of companies accounted for under the equity method Adjustments for Depreciation and amortization Provisions for losses on accounts receivable and inventory obsolescence Stock option expenses Income taxes Interest expense and similar...

  • Page 44
    ....8 23.8 0.26 3rd Quarter 4,987.1 210.3 59.7 0.65 4th Quarter Sales Operating profit Net earnings Net earnings per share 21,395.9 921.3 149.4 1.88 4,993.6 203.0 26.7 0.51 5,496.8 236.5 46.8 0.58 5,453.2 240.1 (14.9) (0.16) 5,452.3 241.7 90.8 0.99 42 | Delhaize Group | Annual Report 2002

  • Page 45
    ... * Distribution centers Inventories are valued at net purchase price or at market price at t h e end of the year, whichever is lower. * Sales outlets Inventories are valued: • either according to the "Retail Inventory Method" used by retail companies which corresponds to the use of the sales price...

  • Page 46
    ... rate). The profit and loss accounts are translated at the average daily rate, i.e. the yearly average of the rates each working day of the currencies involved. The differences arising from the use of the average daily rate for the profit and loss account and the closing rate for the balance sheet...

  • Page 47
    ... other accounts • Translation difference • Change in the scope of consolidation At the end of the financial year Net book value at the end of the financial year 4. Establishment Costs Establishment costs represent debt issuance costs at Delhaize America, Delhaize Group SA and Delhaize "The Lion...

  • Page 48
    ...) 12 5,164 (37) 442 (3,087) 38,439 Delhaize Group Stores Ownership (end of 2002) Owned Corporate Stores Capital Leases Operating Leases Affiliated Stores Total Delhaize America Delhaize Belgium Alfa-Beta Delvita Mega Image Food Lion Thailand Super Indo Shop N Shave Total 125 90 26 43 12 2 298...

  • Page 49
    .... Delhaize Group uses a discount rate based on the current treasury note rates to calculate the present value of the remaining rent payments on closed stores. Parent company reserves : Legal reserve Reserves not available for distribution Untaxed reserves Distributable reserves Profit carried...

  • Page 50
    ... the end of 2001 by Delhaize Group to cover its share of the estimated future expenses (mainly employee benefits and non-cancellable lease obligations) that were guaranteed by Super Discount Markets' two shareholders. Southern and Central Europe Asia Belgium Total Changes in minority interests are...

  • Page 51
    ...% 11.3 6.99% 3.4 9.09% 11.4 7.00% 1999 Eurobonds 2001 Eurobonds Medium-term treasury program notes Medium-term credit institution borrowings & other 112.5 132.8 12.7 18.3 Interest rates on long-term financial liabilities are on average 7.8% (8.5% including capitalized lease commitments). | 49

  • Page 52
    ... shares, stock options, direct financing costs) New debt under capital leases Change in consolidation scope Translation difference Net debt at the end of the year Reconciliation of Net Debt 4,775.9 (436.0) 135.8 8.5 45.3 4.7 (636.4) 3,897.8 Short-term revolving credit facilities (Delhaize America...

  • Page 53
    ...of Operating Companies in 2002 (in millions of EUR) United States Belgium Southern and Central Europe Asia Corporate Total Sales 15,883.7 Cost of goods sold (11,505.7) Gross profit 4,378.0 Gross margin 27.6% Depreciation (459.1) Amortization (166.7) Salaries, miscellaneous goods and services, other...

  • Page 54
    ...Hannaford acquisition and the Delhaize America share exchange, EUR 34.5 million for the closing of Super Discount Markets and EUR 19.1 million for an asset impairment charge on seven Delvita stores and the closing of eight other Delvita stores. Employment costs a) Salaries and other direct benefits...

  • Page 55
    ... EUR 32.2 million. Dividends and directors' remuneration related to financial year 2001 rose to EUR 134.5 million because of the 5.9% increase in the 2001 dividend per share paid in 2002. Cash and Cash Equivalents 27. Consolidated Statement of Cash Flows Operating Activities Net cash provided by...

  • Page 56
    ..., 2170 Merksem 2110 Executive Drive, Salisbury NC 28145-1330, U.S.A. Martinus Nijhofflaan 2, 2624 ES Delft, The Netherlands 76 St. Paul Street, Suite 500, Burlington, VT 05401-4477, U.S.A. 55/5, Moo 1 Srinakarin Road Nongborn, Pravate, Bangkok, Thailand 950, East Paces Ferry Road, Atlanta, GA 30326...

  • Page 57
    ... S.A. Wintrucks S.A. B. Proportionately Consolidated Shop N Save II. Associated Companies A. Accounted for at Equity Debarry Center B. Maintained at Cost Special Event S.A. 55/5, Moo 1 Srinakarin Road Nongborn, Pravate, Bangkok, Thailand 2110 Executive Drive, Salisbury NC, 28145-1330, U.S.A. Rue de...

  • Page 58
    ... weighted average of several of them. Generally, it is the net value of the asset, adjusted as required to reflect underlying appreciation, which is used. For foreign investments, the valuation is based on the exchange rates applicable at the end of the financial year. The valuation method thus...

  • Page 59
    ... Summary Company Accounts of Delhaize Group SA Balance Sheet ASSETS Fixed assets (in thousands of EUR) 2002 2001 Income Statement 2002 (in thousands of EUR) 2001 Establishment costs Intangible fixed assets Tangible fixed assets Financial fixed assets Current assets Long-term trade receivables...

  • Page 60
    ... consolidated accounts for the year ended 31 December 2002 give a true and fair view of the Group's net worth, financial position and the consolidated results of its operations for the year then ended, in accordance with the legal and regulatory requirements applicable in Belgium and the information...

  • Page 61
    ... been established in accordance with applicable legal requirements and customary practices in each country. Benefits are generally based upon compensation and years of service. Delhaize Group accounts for pension plans for its U.S. subsidiaries under the provisions of SFAS 87, Employees' Accounting...

  • Page 62
    ... Principles Board Opinion (APBO) N° 25, Accounting for Stock Issued to Employees, for grant of shares, stock options and other equity instruments. This resulted in the recording of compensation expense relating to Delhaize America's restricted stock plans and Delhaize Group's stock option plans. In...

  • Page 63
    ...) 2002 2001 2000 Net income in accordance with Belgian GAAP Items having the effect of increasing (decreasing) reported net income: Goodwill Fixed asset accounting Lease accounting Pensions Foreign currency transactions Income taxes Directors' remuneration Derivate instruments Treasury shares Stock...

  • Page 64
    ... to new shares issued in the context of the Delhaize America share exchange. Excluding these payments, the pay-out-ratio amounted to 38.2% on cash earnings and 44.6% on reported earnings. (2) After deduction of 25% Belgian withholding tax (3) Return on equity (cash earnings) was 9.3% in 2002, 13...

  • Page 65
    (EUR in millions, except per share amounts) 1998 1997 1996 1995 1994 1993 12,912 573 4,4% 455 (162) 35.6% 149 12,608 511 4.1% 337 (124) 36.8% 122 10,222 414 4.0% 331 (...

  • Page 66
    ... a stock option plan for its management employees of non-U.S. operating companies. The Board of Directors authorized the offer of a maximum of 220,000 options to acquire 220,000 Delhaize Group ordinary shares as incentive compensation to approximately 540 managers in Belgium and other executives in...

  • Page 67
    ... of the 2002 Incentive Plan, Delhaize America's stock incentive plan also provided for restricted stock grants, primarily for officers and employees. The grants of restricted stock generally were made to executive officers and normally 25% of the grant will become unrestricted each year starting on...

  • Page 68
    ...) Bill McCanless Executive Vice President, Chief Executive Officer of Delhaize America (until September 1, 2002) Craig Owens Executive Vice President, Chief Financial Officer Michael Waller Executive Vice President, General Counsel Pierre Dumont Senior Vice President, Human Resources, Secretary of...

  • Page 69
    ... 1, 2002, Delhaize Group reorganized its U.S. management team. Rick Anicetti, until then President and Chief Operating Officer of Food Lion, was promoted to Chief Executive Officer of Food Lion. Rick Anicetti and Ron Hodge, President and Chief Executive Officer of Hannaford, now report directly to...

  • Page 70
    ...Category Management Hannaford President and Chief Executive Officer Senior Vice President, Corporate Development Senior Vice President, Finance and Analysis Senior Vice President, Business Strategy, Marketing and Communication William L. Homa Senior Vice President and Chief Information Officer Beth...

  • Page 71
    ... * Member Management Board Executive Director, Technical Department, Expansion and Legal Affairs Executive Director, Slovakia Executive Director, Buying (from Feb. 1, 2003) Executive Director, Buying (until Feb. 1, 2003) Executive Director, Operations and Sales Development Director, Human Resources...

  • Page 72
    ... financial statements are discussed. The Chief Executive Officer develops the strategy of the Company with senior management and presents such strategy for discussion and approval by the Board of Directors. The Board of Directors reviews and approves the annual budget for the following fiscal year...

  • Page 73
    ... for Delhaize Group's executive directors and executive officers. The Compensation Committee also reviews general compensation policy, any stock option or other profit-sharing programs for the associates of the Company and other compensation issues. In 2002, the Compensation Committee met five times...

  • Page 74
    stock awards and stock options representing an aggregate number of 249,315 Delhaize Group shares were allocated to the members of the Executive Committee in 2002. Executives benefit from corporate pension plans which vary from banner to banner, including a defined benefit group insurance system for ...

  • Page 75
    ....euronext.com) and the New York Stock Exchange (www.nyse.com). Detailed information on trading activity and share prices can also be found in the financial section of most major newspapers. One operating company of Delhaize Group is also listed. Alfa-Beta is listed on the Athens Stock Exchange (www...

  • Page 76
    ...same website or directly from the Delhaize Group investor relations team (see contacts at the end of this section). Since Delhaize Group is subject to the reporting requirements of the U.S. Securities and Exchange Commission (SEC) governing foreign companies listed in the U.S., an annual report will...

  • Page 77
    ... to [email protected]. Information regarding Delhaize Group (press releases, annual reports, share price, frequently asked questions) can be found in three languages (English, French and Dutch) on Delhaize Group's website www.delhaizegroup.com. Delhaize Group News, the Company's quarterly...

  • Page 78
    ... Affiliated store An independent retailer to whom Delhaize Group sells its products at wholesale prices and who benefits from the trade name and know-how of Delhaize Group. American Depository Receipt (ADR) An American Depositary Receipt represents ownership of the shares of a non-U.S. corporation...

  • Page 79
    ...OPERATIONS United States FOOD LION P.O. Box 1330, 2110 Executive Drive Salisbury NC 28145-1330 U.S.A. Tel: +1 704 633 82 50 Fax: +1 704 636 49 40 www.foodlion.com HANNAFORD 145 Pleasant Hill Road Scarborough - ME 04074 U.S.A. Tel: +1 207 883 2911 Fax: +1 207 883 7555 www.hannaford.com KASH N' KARRY...

  • Page 80
    www.delhaizegroup.com