Food Lion 2007 Annual Report Download - page 36

Financial Review
636 700 729
2005 2006 2007
Capital
Expenditures
(IN MILLIONS OF EUR)
149 215 328
2005 2006 2007
Free Cash Flow
(IN MILLIONS OF EUR)
supermarkets underwent a remodeling and 20 Cash Fresh stores were converted
into Delhaize banners. Capital spending in information technologies, logistics
and distribution, and miscellaneous categories amounted to EUR 240.0 million
(32.9% of total capital expenditures), compared to EUR 238.0 million in
2006.
Net cash used in fi nancing activities decreased from EUR 636.8 million
to EUR 333.7 million mainly due to a signifi cant decrease in the redemption
of long-term loans. In February and April of 2006, Delhaize Group redeemed
EUR 627.5 million of long–term debt. In 2007, the Group’s net repayment
of long-term debt was EUR 181.5 million, mostly the redemption of
USD 145.0 million (EUR 105.8 million) Delhaize America notes.
In 2007, Delhaize Group generated free cash fl ow of EUR 326.7 million,
compared to EUR 215.1 million in 2006. This increase was the result of
higher cash provided by operating activities and the cash proceeds from the
divestitures of Delvita and Di.
BALANCE SHEET
At the end of 2007, Delhaize Group‘s total assets amounted to EUR 8.8 billion,
5.1% lower than at the end of 2006. This decrease was due to the 10.5%
weakening of the U.S. dollar compared to the euro between the two closing
dates.
At the end of 2007, Delhaize Group’s sales network consisted of 2,545 stores,
160 less than one year earlier because of the divestiture of Di and Delvita. Of
these 2,545 stores, 325 were owned by the company, 720 were held under
fi nance leases and 1,139 under operating leases. The remaining 361 stores
were affi liated stores owned by their operators or directly leased by their
operators from a third party. Delhaize Group owned 12 of its 13 warehousing
and distribution facilities in the U.S., six of the seven distribution centers of
Delhaize Belgium, two of its four distribution centers in Greece and two of its
four distribution centers in the Emerging Markets
At the end of 2007, total equity, including minority interests, increased to
EUR 3.7 billion. The increase in equity as a result of the recognized income
and expense of the year, the exercise of warrants and stock options and the
conversion of convertible bonds, was partially offset by the purchase of treasury
shares and dividends declared.
The number of Delhaize Group shares, including treasury shares, increased in
2007 by 3.8 million shares to 100.3 million due to the exercise of warrants and
the conversion of convertible bonds. In connection with stock option exercises,
the Group repurchased 536,275 of its shares and used 515,925 treasury
shares in 2007. At the end of 2007, Delhaize Group owned 938,949 treasury
shares, at a value of EUR 62.3 per share, compared to an average purchase
price of EUR 61.6 per share.
In May of 2007, Delhaize Group implemented debt cross-guarantees with
its U.S. subsidiary Delhaize America and received an investment grade rating
of Baa3 (with stable outlook) from Moody’s, while S&P gave a BB+ rating with
a positive outlook. Delhaize Group thus became the rated entity instead of
Delhaize America.
In June of 2007, Delhaize America purchased USD 1,050 million of its 2011
debt and USD 50 million of its debentures due in 2031 through a public
tender. The transaction was fi nanced with the issuance by Delhaize Group of
EUR 500 million 7 year senior notes at 5.625% and USD 450 million 10 year
senior notes at 6.50%. The euro bond was entirely swapped to USD in order
to match the currency of the debt to the currency of the underlying assets and
earnings.
The refi nancing transformed Delhaize’s debt profi le to a more balanced set of
maturities. At year-end 2007, 80% of profi t from operations of Delhaize Group
was generated in USD and 80% of its fi nancial obligations were in USD. The
transaction allowed Delhaize Group to reduce its average cost of long-term
debt from 7.2% in 2006 to 6.7% for 2007, with a fi rst full-year impact in
2008.
At the end of 2007, Delhaize Group had fi nancial debt of EUR 2.7 billion, a
12.7% decrease compared to the end of 2006 primarily due to the weakening
of the U.S. dollar, the conversion of EUR 129.3 million convertible bonds and
the generation of free cash fl ow. Of the total fi nancial debt at year-end, 25.3%
was at variable interest rates and 74.7% at fi xed interest rates; 80.3% was
denominated in U.S. dollar and 19.7% in euro. Approximately 98% of fi nancial
debt excluding fi nance leases is long-term. The average maturity of the debt,
excluding fi nance leases, increased due to the refi nancing transaction to
10.7 years compared to 9.2 years in 2006.
On December 31, 2007, Delhaize Group had fi nance lease obligations
outstanding of EUR 634.9 million compared with EUR 636.5 million at the end
of 2006. The average interest rate on fi nancial lease obligations was 11.7%
in 2007.
At the end of 2007, Delhaize Group’s net debt amounted to EUR 2.2 billion,
a decrease of EUR 390.5 million or -14.8% mainly due to the weakening of
the U.S. dollar between the two balance sheet dates (currency translation effect
DELHAIZE GROUP / ANNUAL REPORT 2007
34