Analysts’ Meeting
2002 Annual Results
Delhaize Group
Brussels - March 13, 2003
Safe Harbor
“This
presentation
includes
forward-looking
statements that involve risks and uncertainties.
Actual results may differ materially from those
stated in any forward-looking statements based on a
number of factors. Delhaize Group assumes no
obligation to update the information contained in
this presentation.”
2
Summary
Financial Results 2002
Craig Owens, CFO of Delhaize Group
Accomplishments in 2002 and Priorities of
Delhaize Group for 2003
Pierre-Olivier Beckers, CEO of Delhaize Group
Strategic Sales and Cost Initiatives at Food Lion
Rick Anicetti, CEO of Food Lion
3
Financial Results 2002
Craig Owens, CFO of Delhaize Group
Highlights 2002 Results
 Continued organic sales growth
 Strong operating margins
 Growth in reported earnings per share
 High free cash flow
 Significant dollar impact
5
Delhaize Group 2002 Sales
(in millions)
2002
2001
% Change
USD
15,020
15,141
-0.8%
of which Delhaize America USD
15,020
14,891
+0.9%
United States
Belgium
EUR
3,420
3,213
+6.5%
Southern and Central Europe
EUR
1,666
1,091
+6.9%
Asia
EUR
218
187
+16.6%
Delhaize Group
EUR
20,688
21,396
-3.3%
* Organic sales growth of + 2.1%
6
*
EBITDA Margin
7
2002
2001
United States
8.4%
8.6%
Belgium
5.3%
5.4%
Southern and Central Europe
4.2%
4.3%
Asia
1.0%
1.2%
Delhaize Group
7.4%
7.7%
Income Statement
(in millions EUR)
Sales
2001 % Change
20,688
21,396
-3.3%
EBITDA
1,535
1,649
-6.9%
Depreciation
(549)
(561)
-2.2%
Amortization of goodwill
and intangibles
(176)
(158)
+11.5%
807
921
-12.4%
Operating profit
8
2002
Income Statement
(in millions EUR)
Operating profit
2001 % Change
807
921
-12.4%
(455)
(464)
-2.0%
(12)
(96)
-85.6%
Income taxes
(160)
(192)
-16.8%
Tax rate
47.0%
53.2%
-
Minority interests
(2)
(19)
-91.8%
Reported earnings
178
149
+19.3%
Cash earnings
336
339
-0.8%
Financial expense
Exceptional expense
9
2002
Per Share Information
(in EUR)
2001 % Change
Reported earnings
1.94
1.88
+3.0%
Cash earnings
3.65
4.26
-14.4%
92,068
79,494
+15.8%
0.88
0.66
1.44
1.08
-38.9%
-38.9%
Average number of shares
(000)
Gross dividend
Net dividend
10
2002
Results at Actual and at Identical
Exchange Rates
Actual
Exchange Rates
Identical
Exchange Rates
Sales
-3.3%
+0.7%
EBITDA
-6.9%
-2.5%
-12.4%
-7.9%
+19.3%
+27.8%
-0.8%
+4.0%
Reported earnings per share
+3.0%
+10.3%
Cash earnings per share
-14.4%
-10.2%
Operating profit
Reported earnings
Cash earnings
Dollar weakening by 5.3% on average in 2002
(1 EUR = 0.9456 USD in 2002 compared to 1 EUR = 0.8956 USD in 2001)
11
Better than Expected Results
Final results 2002: cash EPS -10.2% at identical exchange
rates instead of expected -20% to -25% due to:
 Better than expected sales at Food Lion and in
Belgium in December 2002
 Higher than expected EBITDA margins at Food Lion
and in Belgium due to aggressive cost control
 Tax rate lower because of:
- Improved pre-tax income versus non-deductible
amortization of goodwill and intangibles
- Adjustment to deferred tax liability to reflect Belgian
tax rate reduction in 2003
12
Highlights Cash Flow Statement
(in millions EUR)
2002
2001
179.8
168.8
1,291.0
1,302.5
43.4
70.1
Net cash provided by
operating activities
1,036.8
1,208.5
Capital expenditures
(634.9)
(553.6)
(13.3)
(69.9)
(135.8)
(144.4)
300.2
455.8
Net earnings
Adjustments for non-cash items
Working capital improvement
Purchase of shares in
consolidated companies
Dividends
Free cash flow
13
Working Capital Improvements
at Delhaize America
2002
2001
2000
1999
1998
3.5
4.9
5.2
7.0
7.1
Inventory days on hand
44.9
42.8
47.5
57.8
58.2
Trade payable days
24.9
22.8
25.8
25.5
25.5
55.7
35.8
93.3
(41.0)
(130.7)
Trade receivables days
(in millions of USD)
Working capital change
Receivables + inventory + accounts payables
14
Uses of Free Cash Flow
(in millions EUR)
Inflow
Free cash flow
300.2
Outflow
Repayment short-term loans
Repayment long-term loans
Buyback own shares, net of stock options exercise
Cash movement before translation
Foreign exchange translation difference
(on cash portion)
Net increase of cash - balance sheet
15
(85.2)
(120.2)
(8.5)
86.3
(53.3)
33.0
(205.4)
Net Debt Delhaize Group
5,000
+45.3
+4.7
(636.4)
(205.4)
4,000
(86.3)
4,775.9
3,897.8
3,000
2,000
Net debt
31/12/01
16
Capital
leases
In millions of EUR
Other
Net
Net
Cash
exchange repayment movement
differences of debt
Net debt
31/12/02
Net Debt to Equity Ratio
160%
127%
109%
71%
51%
1998
17
1999
2000
2001
2002
Debt Maturity Profile Delhaize Group
1,200
Delhaize America
1,049
Other
(in millions of EUR)
1,000
815
753
800
600
491
400
157
189
200
117
28
14
0
18
Revolving
Credit
5.2%
7.4%
7.0%
7.5%
5.3%
8.1%
8.0%
9.0%
2003
2004
2005
2006
2007
2008-2010
2011
2012-2030
2031
Outlook 2003
EUR 1 =
USD 0.94
EUR 1 =
USD 1.09
21,000-21,300
18,800-19,100
Reported earnings
150-185
130-150
Earnings before amortization
of goodwill and intangibles and
exceptional items
320-350
285-305
(in millions of EUR)
Sales
19
Outlook 2003
 97 new stores (+ 3.9%) to 2,617 stores
 Comparable store sales growth of Delhaize America:
between -2.0% and flat
 USD 1 billion free cash flow Delhaize America (2001-2003)
 Net debt to equity ratio of approximately 100% at the end of
2003
20
Outlook 2003
(in millions of EUR)
Capital expenditures
Depreciation and amortization
Financial charges
Average tax rate on earnings
before non-deductible expense
2003
2002
650
635
740-750
725
± 455
455
± 38% *
36.8%
* Non-deductible expense is estimated to be approximately EUR 90 million in 2003
(At identical exchange rates)
21
Accomplishments in 2002 and Priorities
of Delhaize Group for 2003
Pierre-Olivier Beckers, CEO of Delhaize Group
Accomplishments in a Challenging Year





Strong sales at Delhaize Belgium and Alfa-Beta
Confirmation of success of Hannaford
Aggressive cost management in the second half of 2002
Reorientation of Food Lion to a sales focus
Continued strong free cash generation (7.4% EBITDA
margin) and reduction of net debt
 Fast growing regional and global cooperation
 Further strengthening corporate governance and
continued transparent communication
23
Four Key Priorities in 2003
1. Build sustainable sales growth
2. Immediate reduction of structural costs
3. Continued focus on cash flow and deleveraging
balance sheet
4. Regional and global cooperation
24
Continued Strengthening of Concepts to
Accelerate Sales Growth
25

Food Lion: sales building initiatives, reinforced price
leadership and continued expansion

Hannaford: continuation of the Festival strategy

Kash n' Karry: reinforced focus on meat and produce

Delhaize Belgium: ongoing differentiation by continued
renewal of our store network and further reinforcement of
the fresh products offering

Alfa-Beta - Trofo & Delvita: completing Trofo integration
and expansion

Asia: network strengthening
Reducing Cost Base to Reinforce Competitive
Position and Protect Profitability
26

Store closings in the U.S. and streamlining of the Food
Lion support structure

New commercial policy at Delhaize Belgium resulting in
lower operations and marketing costs

Major savings of USD 40 million in purchase of indirect
goods and supplies at Food Lion

Integration Trofo in Alfa-Beta

Merging Czech and Slovak support services at Delvita
Reducing Cost Base to Reinforce Competitive
Position and Protect Profitability
27

Supply chain optimization: evaluation project at Food
Lion and fully automated break pack facility at Delhaize
Belgium

Continued investment in information systems: new
inventory management system at Delhaize Belgium and
Food Lion

Regional and global synergies: buying, energy, supply
chain, benefits, retail practices, IT, organizational
development, risk management
Deleveraging Balance Sheet Through
Strong Free Cash Flow Generation
Significant free cash flow generation by Delhaize America
of USD 667 million (2001-2002) through:
 Strong EBITDA:
USD 2.4 billion (2001-2002)
 Working capital improvements of USD 91.5 million
(2001-2002):
Inventory turnover
Inventory days on hand
28
1999
6.5x
57.8
2000
8.0x
47.5
2001
8.2x
42.8
2002
8.3x
44.9
Commitment to USD 1 Billion
Free Cash Flow Target Delhaize America
(2001-2003)
29

Sales and EBITDA expansions

Working capital improvements

Capital spending controls

Dividend management

Portfolio management
Regional and Global Cooperation
Simplified financial and management structure
Efficient corporate structure supporting banners
Rapidly increasing synergies on regional and global level
Exchange of best practices and knowledge
30
Characteristics Delhaize Group
A focused organization
 One business: food retail
 Lean and aligned management team
A disciplined organization
 Immediate cost reductions
 Building sustainable sales growth
 Prudent in our approach
A profitable organization
 Leading local banners with strong market shares
 Ongoing high margins
 Strong free cash flow generation
31
Food Lion Strategy
Rick Anicetti, CEO of Food Lion, LLC
Food Lion
33
Challenges
• Depressed economic conditions in the Southeast of the U.S.
– Higher unemployment rates in North and South Carolina
– Significant military deployment from our major markets
• Competition
– Most large supermarket operators and many regional and local chains
operate in the Southeast market
– Competing with Wal-Mart Supercenters for almost 10 years
– New non-traditional formats: dollar stores, limited assortment stores,
drugstores
• Customer choices
– Food Lion serves approximately 10 million loyal customers each week,
a stable number compared to 2001
– But transaction size and frequency have decreased in 2002 due to:
• Economy
• Competition
34
Food Lion Strategy Addresses Consumer
Expectations
Consumer Expectations
Low prices
On-sale items or special promotions
High-quality fruits and vegetables
High-quality meats
Convenient locations
Store layout
Fast check-out
Clean, neat store
Friendly associates
Source: Food Marketing Institute (2002)
35
Food Lion Strategy
Low price leadership
Quality and variety in fresh
departments
Convenience
Store experience and atmosphere
Low Price Leadership
• Cost Efficient Operation
– Cost reduction – USD 100 million in 2003
• Close 41 unprofitable stores
• Revise store labor model to focus on high value
activities that are aligned with strategy
• Eliminate non-value added activities throughout the
support structure
– Reduction in workforce – 400 positions
• Consolidate fragmented activities and reduce
redundancy
– Indirect purchasing project
36
Low Price Leadership
• Cost Efficient Operation, continued
– Additional opportunities
• Optimize supply chain processes and systems
• Introduce manufacturing techniques in labor
intensive departments
• Continue U.S. and global synergy identification
37
Low Price Leadership
• Delivering Price
– Maintain strong consumer images related to price
leadership
– Leverage cost efficient operation to support
investment in price position
– Continued refinement of zone pricing (rolled out in
2001-2002)
– Refine pricing strategy to deliver the appropriate
balance between everyday shelf pricing and
promotional activity
– Deliver consistent and dependable pricing message
to customers
38
Quality and Variety in Fresh Departments
• Capitalize on progress achieved to date
– Produce sales distribution increased in 2002
• Optimize supply chain processes and systems
–
–
–
–
–
39
Product sourcing
Quality assurance
Variety
Fresh chain management
Store delivery frequency
Locational Convenience through a
Dense Store Network
40
Store Prototypes
Current new store prototypes 28,000 and 38,000 square feet
 Modern convenient store
 More focus on fresh offering
 Increased services
 Low breakeven point
• 45 new Food Lion stores in 2003
• 150 potential additional new sites
in next three years
41
38,000 Sq. Ft. Prototype – Very
Favorable Consumer Response
90%
80%
70%
60%
50%
40%
30%
20%
10%
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Store Experience and Atmosphere
• Consistent execution across retail stores
– Standard Practices
• Clean and well-kept store environment
• In-stock conditions
• Increase variety in fresh departments
• Effective store signage and messaging
• Prepare for peak customer traffic
• Fast, efficient check-out
• Friendly associates
• Available associates
43
Mid/Long-Term Strategy
– Further develop an exciting and compelling
shopping experience as defined by on-going
consumer research
• Leverage and maintain strong price perception
• Transform offering in fresh departments
• Redefine customer service
• Design and deliver distinguished convenience
– Raleigh Project
• Leverage planned remodel activity to implement
these concepts
44
Focused on Consumer Expectations to
Support Continued Success and Growth
Focused Strategy
Current Initiatives
45
Low Price
Leadership
Fresh Products Quality and Variety
Convenience
Store Experience and
Atmosphere
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