Food Lion 2003 Annual Report Download

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Lo c a l s t r e n g t h
g r o u p e x per t is e
Annual Report 2003

Table of contents

  • Page 1
    Lo c a l s t r e n g t h g r o u p e x pe r t is e Annual Report 2003

  • Page 2
    ... international food retailer operating in ten 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 2003, Delhaize Group's sales network consisted of 2,559 stores. In 2003, Delhaize Group...

  • Page 3
    ...89.8% 7.4% 3.9% 0.9% 109.4% 7.7% 4.3% 0.7% 127.0% - Other information Capital expenditures 448 Number of sales outlets 2,559 Number of associates (thousands) 141.7 Weighted average number of shares (thousands) 92,097 Average EUR/USD rate 0.8840 EUR/USD rate at year-end 0.7918 635 2,527 143.9 92,068...

  • Page 4
    ...Hannaford, Delhaize Belgium and Alfa-Beta continued to post strong sales; the sales trends at Food Lion and Kash n' Karry improved throughout the year. In the second half of 2003, all U.S. companies posted positive comparable store sales growth. Delhaize Belgium delivered 5.6% comparable store sales...

  • Page 5
    ... commercial position, offering an innovative variety of quality products and outstanding service at competitive prices. Kash n' Karry will be rebranded into a new banner, Sweetbay Supermarkets, over a three-year period and will focus on offering the best fresh products in its markets. Leading...

  • Page 6
    ... under the Food Lion, Hannaford, Kash n' Karry and, since November 2003, Harveys banners. Delhaize U.S. posted USD 15.5 billion (EUR 13.7 billion) sales in 2003 and accounted for 73.0% of Delhaize Group's total sales. This performance made it the third largest supermarket operator on the East Coast...

  • Page 7
    ... 74 stores in two Asian countries: Thailand and Indonesia. In 2003, the Asian activities of Delhaize Group posted EUR 203.3 million sales, 1.1% of Delhaize Group's total sales 89 supermarkets, 20 proximity stores, and 10 cash & carry stores in Greece High-quality fresh products and service Broad...

  • Page 8
    6 Delhaize Group - Annual Report 2003 Delhaize Group is committed to offering a locally differentiated shopping experience to its customers in each of its markets, to delivering superior value and to maintaining high social, environmental and ethical standards. This commitment is supported by four ...

  • Page 9
    7 Concept Leadership 8 Executional Excellence 10 t a b l e Gr o w t h A Learning Company 12 Corporate Citizenship 14

  • Page 10
    8 Delhaize Group - Annual Report 2003 Concept Leadership Building a customer-driven, differentiated market position with a unique combination of strengths in assortment and shopping experience. This differentiation is developed along three key axes: product and service offering, pricing and store ...

  • Page 11
    ...locations, a well-planned store layout, attractive product presentations and quick checkout. In 2003, Food Lion remodeled its stores in the Raleigh, North Carolina market to make them more appealing to customers. To answer the needs of time-pressed urban customers, the European companies of Delhaize...

  • Page 12
    ... in-store processes, service, supply chain, information technology and procurement. In 2003, Delhaize Group started to roll out a system providing full visibility to itemlevel data, allowing better margin analysis, shrink control and inventory management at Food Lion, based on Hannaford's experience...

  • Page 13
    ... certifications for its technical department and its wine cellar have been renewed for three years. Additionally, Delhaize Belgium increased the number of products under the Control & Origin label, an additional assurance of quality and traceability. Delhaize Group's U.S. companies responded to the...

  • Page 14
    ...year assortment during a five-day culinary fair. Delvita rolled out a new training system for all key in-store functions. Food Lion associates have access to a library of over 25 computerbased training modules. In 2003, Kash n' Karry launched its Manager-In-Training program for future store managers...

  • Page 15
    ...areas of our business: store concepts, information technology, supply chain, indirect procurement, communications, and many more. Every year, high-potential managers from all companies of the Group gather for a one week seminar focused on Delhaize Group's strategy, sharing individual experience and...

  • Page 16
    .... In 2003, Delhaize Group's companies donated about EUR 30 million in cash and in products to charitable organizations. Delhaize Belgium provides financial support to organizations for which its associates are volunteering. Several companies continued their close partnerships with local Food Banks...

  • Page 17
    ... 100 Energy Star stores. c ar e fo r t h e c o r po r at e Delhaize Group's companies take significant steps to limit their possible negative impact on the environment. A major focus is energy reduction. At the end of 2003, Food Lion had more than 100 Energy Star stores, a recognition of its lead...

  • Page 18
    16 Delhaize Group - Annual Report 2003 Added 32 stores for a total of Realized organic sales growth of 2,559 2.4% Increased operating margin to 4.3% Bu s i n e s s a n Fi n a n

  • Page 19
    17 Posted net earnings of EUR 171 million Achieved free cash flow of EUR 357 million Decreased net debt to equity ratio to 89.8% d Our business in 2003 c i a l Re v i e w

  • Page 20
    .... Hannaford continued to perform strongly, thanks to the completion of the successful Festival strategy rollout. Sales momentum at Food Lion and Kash n' Karry improved, and in the second half of the year, all U.S. companies posted positive comparable sales growth. As a result, comparable store sales...

  • Page 21
    ... at Hannaford Launch market renewal program in second key Food Lion market, Charlotte, North Carolina Refocus Kash n' Karry on its core Florida markets and introduce Sweetbay Supermarket brand 19 1,276 1,420 1,459 1,485 1,515 10.9 12.7 14.9 15.0 15.5 2003 Number of stores Sales* Operating...

  • Page 22
    ... the transition from the Shop n' Save banner to Hannaford, a name that has a heritage and tradition that customers recognize as quality, service and value. Hannaford improved productivity through the use of information technology. The Direct Store Delivery Invoice Matching system gives additional...

  • Page 23
    ...18 11 73 469 123 102 183 1,515 PA MD WV KY VA DE 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) TN SC GA NC FL Florida (FL) TOTAL * January 3, 2004

  • Page 24
    ...for the wine bottling installation and the technical department were renewed for three years. Delhaize Belgium's efforts to promote healthy food are not limited to offering healthy products. The company also strives to educate its customers on healthy eating habits. In 2003, it launched the "5 a day...

  • Page 25
    ...-year remodeling plan for all company-operated supermarkets Roll out new inventory management system Start building new distribution center for fresh products, operational in 2005 23 553 615 675 707 728 2.8 3.0 3.2 3.4 3.7 2003 Number of stores Sales* Operating margin Operating profit...

  • Page 26
    ... resulted in improvements in assortment in 2003 with the launch of a range of environmentally friendly products under the "Green-Leaf" label, the increase of its organic offering, the creation of new categories like sushi meals and the expansion of the wine and the home and beauty departments.

  • Page 27
    ... of deliveries, resulting in higher quality and product freshness. In 2003, the Company prepared for the introduction of the first European City store in Bucharest, to be opened in the Spring of 2004. A new warehouse was constructed and will distribute meat and produce to the Mega Image stores from...

  • Page 28
    ... will be fine-tuned and, depending on their customer acceptance, rolled out via a remodeling program. In 2003, Food Lion Thailand added two stores to its network, for a total of 36. In 2004, Food Lion Thailand expects to decrease its sales network by one store after several years of expansion.

  • Page 29
    ... customers a broad selection of fresh products, convenience, service and low prices. At the end of 2003, Lion Super Indo operated 38 stores. The company further developed its in-house procurement function and started distributing goods through its central warehouse, replacing direct store deliveries...

  • Page 30
    ... and Kash n' Karry improved throughout the year due to a continued focus on better execution and successful sales initiatives. In 2003, Food Lion experienced 91 net competitive openings in its market areas and Hannaford experienced 13 net competitive openings, increasing the amount of grocery square...

  • Page 31
    .... In the third quarter of 2003, Food Lion began rolling out a new inventory and margin management system, which was supported by a change from the Retail Inventory Accounting Method to the Average Item Cost Inventory Accounting Method at Food Lion and Kash n' Karry. The difference between the two...

  • Page 32
    ... and expansions (EUR 198.5 million in 2002). In the U.S., 94 existing stores were remodeled, including 79 Food Lion stores (of which 68 stores were in the Raleigh, North Carolina, market), eight Hannaford stores and seven Kash n' Karry stores. In Belgium, five company-operated supermarkets were...

  • Page 33
    ... charges totalled EUR 280.9 million. These provisions relate primarily to store closings at Delhaize America (EUR 110.8 million), self-insurance reserves related to workers' compensation, general liability, vehicle accident and druggist claims (EUR 102.8 million) and pension liabilities at Hannaford...

  • Page 34
    ... business of Delhaize Group, will focus its resources on Kash n' Karry's core markets on the west coast of Florida where it will open six and remodel 14 stores, mostly in the Ft.Myers/ Naples market that will be completely renewed. The new Kash n' Karry strategy includes a rebranding and name change...

  • Page 35
    ...market quotes from banks. The Delhaize Group interest rate risk management objectives are to limit the effect of interest rate changes on earnings and cash ï¬,ows and to lower borrowing costs. The mix of fixed-rate debt and ï¬,oating-rate debt is managed within policy guidelines. At the end of 2003...

  • Page 36
    ... risk through self-insurance, the Company considers its success in managing risk through safety and other internal programs and the cost of external insurance coverage. Delhaize Group is committed to providing the safest possible working and shopping environment for its associates and customers...

  • Page 37
    ..., Delhaize Group's largest operating company representing approximately 52% of its associate base, has a defined contribution pension plan for which Food Lion does not bear any investment risk. Delhaize Group has defined benefit plans only at Delhaize Belgium and Hannaford and a post-employment...

  • Page 38
    ... 20 1,564 13 33 1,610 1,039 425 19 12 1,495 13 30 1,538 Number of Associates (at year-end) Full-time Part-time Full-time equivalent Male Female Delhaize U.S. Delhaize Belgium Alfa-Beta Delvita Mega Image Food Lion Thailand Super Indo Shop N Save Total 62,303 79,408 104,691 70,742 70,969 107,747 16...

  • Page 39
    37 fi n a n c ia l s

  • Page 40
    ...115 26,769 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 Short-term investments Treasury shares Other investments Cash...

  • 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
    ... goods and services Salaries, social security and pensions Depreciation and amounts written off establishment costs, intangible and tangible fixed assets Amortization of goodwill arising on consolidation Amounts written off stocks, work in progress and trade debtors (charged +, applied or released...

  • Page 43
    ... Stock option expenses Income taxes Interest expense and similar charges Investment income Loss on disposal of fixed assets Gain on disposal of fixed assets Change in accounting method Changes in working capital requirement Inventories Receivables Prepayments and accrued income Trade payables...

  • Page 44
    42 Delhaize Group - Annual Report 2003 Consolidated Statements of Changes in Shareholders' Equity (note 1) (in thousands of EUR) Number of Shares Outstanding Share Premium Account Cumulative Translation Adjustment and Other Total Shareholders' Equity Capital Revaluation Reserves Group Reserves ...

  • Page 45
    ... reorganization and store closing costs; • self-insurance reserves for workers' compensation, general liability, vehicle accident and druggist claims; • charges for which the company may be liable as a result of current litigation. Deferred taxes are calculated using the liability method on...

  • Page 46
    ...to Mega Image (EUR 5.5 million) and Food Lion Thailand (EUR 1.8 million). (in millions of EUR) 2003 2002 3. Scope of Consolidation Main changes during 2003. Delhaize Group acquired Harveys, a chain that operates 43 supermarkets located in central and south Georgia and the Tallahassee, Florida area...

  • Page 47
    ... to 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, Delhaize "The Lion...

  • Page 48
    ... financial year of which: land and buildings plant, machinery and equipment Delhaize Group Stores Ownership (end of 2003) Owned Company-Operated Stores Capital Leases Operating Leases Affiliated and Franchised Stores Total Delhaize America Delhaize Belgium Alfa-Beta Delvita Mega Image Food Lion...

  • Page 49
    ...50 per new share issued); the share premium account increased by EUR 8.9 million. In accordance with the Delhaize Group 2002 Stock Incentive Plan the subscription price of the new shares was partially funded by Delhaize America in the name and for the account of the Optionees. Minimum payments have...

  • Page 50
    ... closing of 60 stores. • A pension liability (EUR 24.4 million), recorded to reflect the difference between the accumulated benefit obligation related to the Hannaford defined benefit pension plan and the value of plan assets. The provisions at Corporate level mainly represent: • Self-insurance...

  • Page 51
    ... taken into account) and related interest rates (before effect of interest rate swaps) of Delhaize Group long-term debt : 2005 in millions of USD 2006 2007 2008 Thereafter Fair value Notes, due 2006 Notes, due 2011 Debentures, due 2031 Medium term notes Debt securities Mortgage payables Other notes...

  • Page 52
    ... and directors' share of profit Other investing activities (treasury shares, stock options, direct financing costs) New debt under capital leases Change in consolidation scope Unrealized losses on debt securities Translation difference Net debt at the end of the year Reconciliation of Net Debt 2003...

  • Page 53
    ... of Operating Companies in 2003 (in millions of EUR) United States Belgium Southern and Central Europe Asia Corporate Total Sales 13,743.3 Cost of goods sold (9,990.3) Gross profit 3,753.0 Gross margin 27.3% Depreciation (378.2) Amortization (148.7) Salaries, miscellaneous goods and services, other...

  • Page 54
    ... 2003, the net exceptional expenses consisted primarily of : • EUR 84.7 million for the change from the Retail Inventory Accounting Method to the Average Item Cost Inventory Accounting Method at Food Lion and Kash n' Karry • EUR 30.7 million for the Food Lion restructuring, including the closing...

  • Page 55
    ... income tax rate Items affecting the Belgian statutory income tax rate: Effect of tax rate applied to the income of Delhaize America (incl. non-deductible goodwill amortization) Amortization of non-deductible goodwill related to acquisitions, incl. the Delhaize America share exchange Tax charges...

  • Page 56
    ...Real Estate Development, Inc. Atlas A.S. ATTM Consulting and Commercial, Ltd. Bonney Wilson & Sons, Inc. De Wolf N.V. Delanthuis N.V. Delhaize America, Inc. Delhaize Deutschland GmbH Delhaize Finance B.V. Delhaize Insurance Company, Inc. Delhaize Luxembourg S.A. Delhaize Siam, Ltd. Delhaize The Lion...

  • Page 57
    ... Corp. Hannaford Trucking Company J.H. Harvey Co., LLC. Kash n' Karry Food Stores, Inc. Lion Garden Food Company Lithia Springs, LLC Martin's Food of South Burlington, Inc. Mega Doi S.A. Mega Dolphin S.A. Mega Image S.A. NP Lion Leasing & Consulting, Ltd. Plain Street Properties, Inc. Points Plus...

  • Page 58
    ... - Annual Report 2003 REPORT OF THE STATUTORY AUDITOR ON THE CONSOLIDATED ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2003 PRESENTED TO THE ORDINARY GENERAL MEETING OF DELHAIZE BROTHERS AND CO "THE LION" (DELHAIZE GROUP) S.A. To the shareholders, As required by law and the articles of association, we...

  • Page 59
    ... defined benefit pension plans at certain of its subsidiaries. Such plans have 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...

  • Page 60
    ...price when stock options are exercised, are reversed for US GAAP. The Delhaize America share exchange resulted in a new measurement date for the Delhaize America's stock option and restricted stock plans. As a result, a one-time, non-cash compensation expense of EUR 13.1 million pre-tax was recorded...

  • Page 61
    ... income: Goodwill Fixed asset accounting Lease accounting Pensions Foreign currency transactions Income taxes Directors' remuneration Derivate instruments Treasury shares Stock based compensation Inventories Other items Total US GAAP adjustments before tax effects Tax effects of US GAAP adjustments...

  • Page 62
    ... 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 63
    ... Summary Company Accounts of Delhaize Group SA Balance Sheet ASSETS Fixed assets (in thousands of EUR) 2003 2002 Income Statement 2003 (in thousands of EUR) 2002 Establishment costs Intangible fixed assets Tangible fixed assets Financial fixed assets Current assets Long-term trade receivables...

  • Page 64
    ...Including the dividend payable to new shares issued in the context of the Delhaize America share exchange. Excluding these payments, the pay-out ratio amounted to 44.6% on reported earnings. Calculated using the average number of shares. Calculated using the number of shares outstanding at year-end.

  • Page 65
    63 (EUR in millions, except per share amounts) 1999 1998 1997 1996 1995 1994 14,310 648 4.5% 511 (190) 37.1% 170 12,912 573 4.4% 455 (162) 35.6% 149 12,608 511 4.1% 337 (...

  • Page 66
    ... activities. The Company may carry out in Belgium or abroad all industrial, commercial, movable property, real estate or financial transactions that favor or expand directly or indirectly its industry and trade. It may acquire an interest, by any means whatsoever, in all businesses, corporations, or...

  • Page 67
    ... Dec. 31, 2003 Exercise Price Number of Beneficiaries (at the Moment of Issuance) Exercise Period (as Applicable)** Plans for Management Associates of non-U.S. Operating Companies 2003 Stock Option Plan 2002 Stock Option Plan 2001 Stock Option Plan 2000 Warrant Plan June 2003 June 2002 June...

  • Page 68
    ...Company electronically files such material with the SEC. ADRs of Delhaize Group are listed on the New York Stock Exchange under the symbol "DEG," and its reports and other information can be inspected and copied at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York...

  • Page 69
    67 Management Structure (overview on December 31, 2003) Board of Directors Chief Executive Officer Executive Committee Communications Finance Global Procurement Human Resources Information Technology Legal Risk Management UNITED STATES Food Lion Hannaford Kash n' Karry Harveys EUROPE Belgium, ...

  • Page 70
    ... Distribution and Quality Assurance Michael J. Haaf Senior Vice President, Sales, Marketing and Business Strategy Margaret M. Ham Senior Vice President, Dry Merchandising L. Darrell Johnson Senior Vice President, Human Resources Terry E. Morgan Senior Vice President, Information Technology and Chief...

  • Page 71
    ... Image John Kyritsis Lucian Savu Bart Van De Velde Thanasi Spiropoulos Mircea Moga General Manager Director, Human Resources Director, Commercial Director, Buying Director, IT Delhaize Asia Dirk Van den Berghe Vice President of Delhaize Group, Chief Executive Officer Peter Brodbeck Vice President...

  • Page 72
    ... Articles of Association, the decisions of the Board are taken by a majority of votes present or represented at such meetings. At the scheduled meetings of the Board of Directors, the Chief Executive Officer presents a report on the results of the Company's operations and the most recent financial...

  • Page 73
    ... to the Board of Directors concerning the compensation for Delhaize Group's executive directors and executive officers. The Compensation Committee also reviews general compensation policy, any stock option or profit-sharing programs for the associates of the Company and other compensation...

  • Page 74
    ... the cost related to a management change at Delhaize America). An aggregate number of 284,855 Delhaize Group stock options were granted to the members of the Executive Committee in 2003. The members of the Executive Committee benefit from corporate pension plans which vary regionally, including...

  • Page 75
    ...Delhaize Group shares trade on Euronext Brussels under the symbol DELB. American Depositary Receipts, each of them representing one Delhaize Group ordinary share, are listed on the New York Stock Exchange under the symbol DEG. Information on Delhaize Group's share price can be found on the websites...

  • Page 76
    74 Delhaize Group - Annual Report 2003 Information for ADR Holders ADSs (American Depositary Shares), each representing one ordinary share of Delhaize Group, are traded on the New York Stock Exchange under the symbol DEG. ADSs are evidenced by American Depositary Receipts (ADRs). The Delhaize Group...

  • Page 77
    ... of Articles of Association, special reports from the Board of Directors, publication of annual report, statutory accounts, dividend payment, number of outstanding shares and warrants, and transparency notifications. Delhaize Group Investor Relations Department P.O. Box 1330 Salisbury, NC 28145...

  • 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 Depositary Receipt (ADR) An American Depositary Receipt represents ownership of the shares of a non-U.S. corporation...

  • Page 79
    ...currency exchange rates, changes in foreign, state, regional or federal legislation or regulation, adverse determination with respect to litigation or other claims, inability to develop new stores or to complete remodels as rapidly as planned, stability of product costs and supply or quality control...

  • Page 80
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