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Etablissements Delhaize Frères et Cie "Le Lion" (Groupe Delhaize) Société Anonyme (NYSE:DEG)

Q3 2013 Earnings Call

November 07, 2013 3:00 am ET

Executives

Frederic van Daele

Pierre-Olivier Beckers - Chief Executive Officer, President and Director

Pierre Bruno Charles Bouchut - Chief Financial Officer and Executive Vice President

Analysts

Edouard Jean Aubin - Morgan Stanley, Research Division

Fabienne Caron - Kepler Capital Markets, Research Division

Cedric Lecasble - Raymond James Euro Equities

Sreedhar Mahamkali - Macquarie Research

Fernand de Boer - Petercam S.A., Research Division

Andrew Gwynn - Exane BNP Paribas, Research Division

Marc de Speville - Redburn Partners LLP, Research Division

Operator

Good day, and welcome to the Delhaize Group Third Quarter 2013 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Frederic van Daele. Please go ahead, sir.

Frederic van Daele

Thank you, operator, and good morning, everyone. Welcome to the conference call regarding Delhaize Group's results for the third quarter of 2013. I just want to remind you again that today's presentation and discussion will include forward-looking statements. We want to caution you that such statements are predictions and that actual events or results can differ materially. Factors that may have a material impact on our business are detailed in the cautionary note in our earnings release and are contained in our SEC filings. Statements are made as of the date of this presentation, and Delhaize Group assumes no obligation to update this.

Today, we have the following people with us: Pierre-Olivier Beckers, CEO, Delhaize Group; and Pierre Bouchut, CFO, Delhaize Group. During this call, we will first look back on our performance in the third quarter, followed by comments on operations, mind that the activities of Sweetbay, Harveys, Reid's and Montenegro are all in discontinued operations. Afterwards, we will take questions for those unable to stay on the call or who wish to listen to it again. A replay will be available on the company's website.

I now turn to Pierre-Olivier Beckers.

Pierre-Olivier Beckers

Thank you, Frederic. Hello, everyone, and thank you for joining our conference call to discuss our third quarter results.

Slide 3 is familiar to you. And we confirmed our priorities for 2013. Our focus is, first of all, strengthening the different banners we operate in our market through a combination of targeted price investments, focusing on elements of differentiation and by accelerating growth in selected markets. We have imposed discipline on our working capital and capital expenditures. This is a result from an increased focus on free cash flow generation. Also, we have reiterated today that we are confident to generate approximately EUR 500 million of free cash flow in 2013. Finally, we remain committed to continuing proving our focus and reducing our complexity.

Slide 4 provides the highlights of the quarter. In the U.S., we delivered another solid quarter with positive volume growth for Delhaize America and still minimal inflation. At Food Lion, we have now 4 consecutive quarters of positive volume growth, and we are about to launch Phase 5 next week in the seaboard markets of North and South Carolina. It will represent around 168 stores and finalizes the whole phase repositioning program.

We maintained a good level of profitability in the U.S. in the quarter. Although, the year-on-year comparison is difficult, it was impacted by the release of the bonus accrual in the third quarter of last year. In Belgium, our performance was mixed. We have, on the one hand, been able to maintain our market share thanks to further improvement in our comparable store sales growth and network expansion. However, we have also decided to invest more aggressively in prices and promotions, which is reflected in our margin performance of the third quarter.

In Southeastern Europe, we have managed to improve our results, both in terms of revenues and in terms of profitability. At the same time, it is clear that the overall trading background in Southeastern Europe remains quite challenging. While Maxi in Serbia remains a strong market leader, generating a high level of profitability, we have flagged in recent quarters that mostly, as a result of the difficult economic environment, it has not lived up to the expectations we have set initially. As a result, we have booked an impairment charge of EUR 195 million to goodwill and trade names in this quarter. Further, we are reporting for the group, flat SG&A as a percentage of sales over the first 9 months. And while we had incurred nonrecurring items, we continue to focus on reducing SG&A as a percentage of sales. Finally, we have generated a strong free cash flow of EUR 463 million year-to-date.

And I will now hand over to Pierre to walk you through the financial in more details, and I will come back afterwards for further comments. Pierre?

Pierre Bruno Charles Bouchut

Thank you, Pierre-Olivier, and good morning to everyone. The following Slide 5 provides you with a summary of the third quarter income statement.

At EUR 5.3 billion of sales decreased by 0.5% at actual exchange rates due to the weakening of the U.S. dollar, but increased by 2.9% at identical action rates. Organic revenue growth was 3.1%. Our gross margin stood at 24% and decreased by 30 basis points year-over-year at identical exchange rates. This is explained by your 40 basis points investment in sales prices at Delhaize America, both at Food Lion and Hannaford, but also by your increased level of promotion and price investments in Belgium as a result of a more competitive landscape.

In Southeastern Europe, our gross margin increased by 10 basis points. At EUR 176 million our underlying operating profit decreased by 22% at actual exchange rates and by 18.7% at identical exchange rates. This is mainly a consequence of the 6.2 increase of our SG&A at identical exchange rates due to the release of the bonus accruals in the U.S. in Q4 last year -- in Q3 last year for an amount of $43 million as adjusted for the divestiture of Sweetbay, Harveys and Reid's. Therefore, our underlying operating margin amount to 3.3%, down 88 basis points at identical exchange rates compared to last year. When taking into account the EUR 195 million impairment charge relating to Maxi, to which I'll come back later on, but also EUR 47 million of net finance expenses and EUR 12 million of tax expense, we recorded a group share in net loss of EUR 87 million. We were able to generate EUR 142 million of free cash flow in this third quarter.

Slide 6 provides you with a summary of our Q3 year-to-date income statement. Group revenues increased by 0.7% at actual rates and by 2.5% at identical exchange rates to EUR 15.8 billion. Gross margin decreased by 4 basis points at identical rates compared to last year as most of our sales price investments and promotional activities were offset by improved cost of goods, reduced shrink and better results at Bottom Dollar Food.

Our SG&A, as a percentage of sales, was flat at 21.3%. For the full year 2013, we still expect our SG&A, excluding one-off, to be slightly down, as a percentage of sales as compared to last year. We are, however, facing a number of nonrecurring elements, such as severance payments and last quarter -- and last year's Q3 release of bonus accruals, which negatively impact our full year SG&A evolution. Were it not for these nonrecurring elements, Q3 year-to-date SG&A, which stand at 21.2% of sales, posting a 26% -- I'm sorry, a 26 basis point improvement compared to last year. Our underlying operating profit had decreased by 3.1% at actual and by 1.2% at identical exchange rates to EUR 571 million.

The underlying operating margin at the end of the first 9 months was 3.6%, a decrease of 14 basis point compared to last year. When taking into account other operating income and expense, that's also EUR 142 million of net finance expenses, EUR 64 million of tax expenses and EUR 45 million loss from discontinued operation, we recorded a group share in net profit of EUR 78 million. Let's highlight that we posted a strong increase of almost 50% in free cash flow up to EUR 463 million at actual exchange rates.

The following Slide 7 shows the evolution of our EBITDA and underlying EBITDA for the first 9 months of the year. As you can note, at identical exchange rates, our EBITDA has increased by 12.7%, up to EUR 985 million, while our underlying EBITDA is quasi-stable at EUR 1,026,000,000. At actual exchange rates, EBITDA rose by 10.7%, and underlying EBITDA decreased by 2.7%.

The following Slide 8 gives you more insight on the revenue evolution at Delhaize America. In this third quarter, we reported comparable store sales growth of 2.2% with very modest inflation of 0.5% in all stores. Real growth was positive at 1.7% for our 3 U.S. banners combined and was higher than in the second quarter. When taking into account the 40 basis point positive impact from store openings, our organic revenue growth stands at 2.6%. And with a negative 0.4% impact of our store closures, our Q3 revenue growth is 2.2%. On a year-to-date basis, we reported comparable store sales growth of 1.8%. If we add a 10 basis point positive calendar impact and 60 basis point from store openings, organic growth was 2.5%. This translate into a 1.6% overall revenue growth after a 90 basis point negative impact from store closures.

The following Slide 9 provides you with background information on our underlying operating margin evolution at Delhaize America. We reported a UOP margin of 3.9% in the third quarter, which represent 100 basis point drop over last year, fully explained by the impact of the release of the bonus accrual in Q3 2012. The 40 basis points of price investment during the third quarter were offset by the positive impact from volume growth, improved cost of goods and reduced shrinkage. For the first 9 months of 2013, our UOP margin dropped by 18 basis points to 4%. As already discussed, this is mainly explained by the release of the bonus accrual when cost of goods -- when good cost control and volume growth has offset our sales price investments. Bear in mind that in the fourth quarter, the launch of a Food Lion Phase 5, our ongoing adjustment in sales price at Hannaford and new store openings at Bottom Dollar will result in increased price investment, extra advertising and additional labor costs.

The next Slide 10 presents Delhaize Belgium's sales evolution over the third quarter and the first 9 months of the year. The 1.5% comparable store sales growth in the third quarter was driven by a 2.4% internal retail inflation, which is 100 basis point lower than what we experienced in the second quarter. Moreover, these 2.4% internal food inflation stay well below the national food inflation level of 3.5%. With a positive calendar effect of 190 basis points and a positive 90 basis point impact from network expansion, our organic growth stands at 4.3%. As you can note, over the first 9 months of 2013, our organic growth was 3.2% and when adding up 1.6% comparable store sales, a negative 10 basis point calendar impact and a 1.7% network expansion. It is worth highlighting that both in Q3 and in Q3 year-to-date, our market share in Belgium is stable at 25.5%.

As shown on Slide 11, our Delhaize Belgium UOP margin decreased by 90 basis point over Q3 to 2.6% and by 10 basis points year-to-date to 3.9%. This drop is largely explained by our gross margin decrease as a result of our decision to increase our promotion and price investment in the more competitive market and by the development of our affiliated business, which generates a lower gross margin. In addition, we also faced higher SG&A expenses in the second half of the year compared to H1 because of increased advertising and higher labor expenses.

On Slide 12, we provide you with another view of the sales evolution in our Southeastern Europe segment. Our same-store sales for Q3 stand at minus 1.2% for the segment, but the performance varies quite a lot across the region, in Greece our market share gain 130 basis points in the third quarter as a result of price investment and the good positioning of Alfa Beta, and volumes were positive.

As a result, of our strong expansion, in Romania, revenues in local currency increased by almost 30%. And we now secure the market share in excess of 20% in Bucharest. In Serbia, volume evolution is negative in a very adverse economic environment with a high inflation of 8.3% over the last 12 months. Despite such conditions, Maxi has been able to maintain its market share in Serbia. With a positive 70 basis point calendar impact and a 4.4% positive impact from store openings, our organic growth was 3.9% for the third quarter. On a year-to-year basis, we reported comparable store sales growth of 0.2% -- of minus 0.2%. If we add a 30 basis point positive calendar impact and 500 basis points from store openings, organic growth stands at 5.1%.

Slide 13 provides you with more detail on the margin evolution for Southeastern Europe. In Q3, our gross margin in Southeastern Europe is slightly increased as price investments in Greece were offset by improved procurement conditions in Romania and Serbia, while our underlying operating margin improved by 30 basis points to 3.2% with, in particular, good cost control. For the first 9 months of the year, our underlying operating margin was flat at 2.8%.

I am now on Slide 14. This slide gives you more details on the EUR 195 million impairment charge at Maxi recorded in our Q3 financials. Out of the total impairment, EUR 124 million realized to goodwill in Serbia, while EUR 67 million is for our different brands in Serbia. The Mini Maxi brand is now fully written down as we are converting our convenience stores to the Shop & Go banner. We also recorded a EUR 4 million impairment on our brands in Bulgaria.

While our revenue growth and profit growth performance has been below expectation at Maxi, largely because of the tough ongoing economic environment, Serbia remains a strategic market for Delhaize Group going forward. We have market leadership in the country and our profitability level is amongst the highest within the group. In the coming years, we therefore intend to consolidate our leadership position, while maintaining our current levels of profitability. The opening of a new distribution center in late 2014, in particular, will be key to support our organic expansion plans and profitability levels.

The following Slide 15 provides a separate breakdown of our cash flow generation for the first 9 months of this year. Clearly, our free cash flow generation is supported by our CapEx discipline, lower restructuring cash outflows, lower interest and taxes paid, and lower bonuses paid out in the first half of 2013. On the other hand, our working capital has increased by EUR 107 million in Q3 year-to-date. It is, nevertheless, worth highlighting that as of the end of September 2013, our core working capital needs are EUR 330 million lower than it was at the end of September 2012. We are, therefore, on track to meet our EUR 500 million free cash flow generation target for the year.

The next Slide 16 gives you another view of our financial debt situation. Mainly as a result of strong free cash flow generation this year, our net debt has decreased by EUR 377 million since December 2012 to EUR 1,695,000,000 at the end of September. Our cash balance position stands at EUR 959 million at the end of December 2013, and our debt capacity stands out at around EUR 700 million.

I now hand over to Pierre-Olivier for some operational comments and the conclusion.

Pierre-Olivier Beckers

Thank you, Pierre. On the following Slide 17, I would like to provide you with an update on our strategic initiatives and discuss our progress in each of our geographies.

At Delhaize America, we are close to completing our phase repositioning of Food Lion with the launch of Phase 5 next week in the seaboard markets of North and South Carolina. While we are pleased with the results, we are also convinced that Food Lion needs to be more differentiated in the marketplace. This is why we are developing the USP strategy on which I will come back to you in a minute.

At Hannaford, the response to our price investments made earlier in the year has been positive. And we are hopeful that we can continue this positive trend in items and comparable store sales also in fourth quarter. In Belgium, we continue to focus on reinforcing our historical strength. We have identified our efforts on how we can make our assortment more efficient and innovative while putting more emphasis on the quality and variety of our fresh offer and of our private brands.

Like we indicated earlier, part of our differentiation should also come from an improved store experience. This is not only driven by offering our customers better service in the stores, but also by having an up-to-date store portfolio. As a result, we have since last year accelerated our store remodeling activity and expect to have remodeled 46 stores in Belgium over 2012 and 2013. Separately, we have developed a new proxy format, which we hope to gradually rollout with the support of our affiliates.

Let's now move to Southeastern Europe. In Greece, we have reported positive comparable store sales growth, driven by continued progress in transactions as retail inflation is still negative. We have also added 2 stores during the quarter. And notice that, slowly, consumer confidence seems to be picking up again in Greece. Alfa Beta continues to differentiate on the quality and variety of its fresh assortments, its local and trustworthy image, friendly associates and dynamic price investments and promotions.

While the economic situation in Serbia continues to be a challenge, we are pleased with our profitability level and also with the fact that we have maintained our market share over there in the total food market. Going forward, as Pierre just mentioned, Serbia is and remains a strategic market for us. We have half of our store network centered in Belgrade, and therefore, we continue to see plenty of opportunities to grow our network in the country and improve our profitability.

In Romania, major image has shown another quarter of close to 30% sales growth in combination with positive comparable store sales growth. And in the fourth quarter, we expect Mega Image to open around 40 stores, bringing the total to approximately 100 new stores in Romania for the year.

On the next slide, Slide 18, we give an overview of our performance of the repositioned stores at Food Lion. As indicated in the graphs, our phase stores continue to show positive growth both in terms of items and comparable store sales. All phases are contributing to the positive development in items and comparable store sales growth, with Phase 4 clearly showing the best performance as this phase was most recently launched.

Before I provide you with an update on our USP work, let me explain again why we decided to implement the phase repositioning, which we are now completing back in late 2010. Food Lion has seen a number of years of slowly deteriorating top line trends. And market share also declined, which required a change in strategic direction. The repositioning was, therefore, a commitment to reinvest in the fundamentals of the Food Lion business, being the friendliness of our staff, service, the shopping experience, and of course, a significant investment in shelf prices to place the customer back at the center of our strategy. The result has been that our sales, our market share and volumes have stabilized, and in fact, began to grow again. Doing so, we have, therefore, created strong foundations. And we are convinced that Food Lion today is on the right track to focus on a strategy to more fully differentiate itself.

And this brings me to the next slide, Slide 19. We are confident on the value of the Food Lion brand. Therefore, we are currently defining the next step of our journey, which is to further differentiate Food Lion. We call this a unique selling proposition, USP, on which our team is now working. This will be centered around the concept of easy, fresh and affordable. So what kind of elements do we associate with easy? Well, firstly, our dense network of stores offers an element of convenient locations and proximity. Secondly, compared to our traditional grocery peers and discount competitors, we have a smaller, easier store format, which should give our customers a quick shopping experience, and we want to exploit this. This explains, for example, why we are looking at ways to streamline our checkout process.

The next pillar of the strategy after easy is fresh. The variety and the quality of the assortment needs at Food Lion to be updated, and we have not always been consistent in our execution. And most of the work we are doing at the moment is therefore, focused on this part of the strategy. We just completed a significant assortment review and are currently testing different elements of how to look at assortments in different categories in our 3 test stores.

The final pillar of our USP strategy is affordable. While maintaining, obviously, the more competitive price level we had reached with the phase work, we are currently running also strong promotions, and we are looking at how we can better tailor these promotions with our customers. Also, our private brands will be part of this exercise, and we will keep you informed going forward on the changes we are making in this area. By early December, we expect to open a full pilot store, including all the elements of our USP and the changes to the assortment, including a new store layout, which will be assessed. The idea is then that we will rollout this concept to larger number of stores in 2014.

To conclude, on Slide 20, we have reiterated our guidance today. We expect our underlying operating profits for full year to be at least EUR 755 million at identical exchange rates. In addition, we expect net finance expenses at around EUR 200 million, capital expenditure of EUR 650 million. And we should be opening 200 stores and generate EUR 500 million of free cash flow this year. All numbers, which I just gave, are at identical exchange rates.

As you know, today is my last day as CEO. And tomorrow, I will hand over my position to Frans Muller. Frans has recently joined the company and has already spent a lot of time at our various European and American operations. Frans and I have closely worked together in order to create a smooth transition. In these past few weeks, I have started to know him as an operator at heart with great knowledge of the business, great energy and visible passion for food retail. And so I believe that Frans has the right expertise and personality to lead Delhaize Group in the future. And we are pleased that he has joined the group.

And so now, I would like to open up for questions. And I will call on to the operator. Please, operator, could you give us instructions and lead the Q&A session?

Question-and-Answer Session

Operator

[Operator Instructions] We will take our first question from Edouard Aubin of Morgan Stanley.

Edouard Jean Aubin - Morgan Stanley, Research Division

Three questions for me. First of all, on Belgium. The drop in margin that you experienced in the third quarter, should it be viewed as a one-off or a rebasing of your margin in Belgium? Second question regarding Food Lion, the like-for-like sales gap between the phase store and the non-phase store has been reduced quite significantly since the beginning of the year, if you could provide some explanation on that? And lastly, on the cash flow for 2014 next year, I think you have the guidance of EUR 650 million into the CapEx for this year. What should we be expecting for next year? Is it EUR 800 million to EUR 850 million kind of a correct number? And in terms of working capital, should we expect some further working capital benefit next year as well?

Pierre-Olivier Beckers

Let me take a crack at the first 2 questions. And Pierre, perhaps, you can take the third question on free cash flow. So in Belgium, I don't think you should see this as a one-off. The market is -- has heightened its competitive reality. We believe that volumes are actually declining for the market as a whole. We have seen that our own volumes, while they have been negative, a lot less though in Q3 than Q2, are beating the market. Hence, we have had good market share performance. But the market is tough, and I think everyone is chasing volumes at the moment in Belgium. So we are obviously doing our work in terms of maintaining our momentum, top line momentum. And we see that we are doing the right work in this regard. In fact, our customer satisfaction, the latest report is that our customer satisfaction is at the highest level since 2011. So clearly, we're moving in a number of good directions. But it's difficult, and I'm not going to try to say what would be the right level in terms of margin in Belgium. But I think that for the foreseeable future, we will all continue to work hard at keeping our customers, chasing new ones and; pleasing them with competitive prices. And therefore, certainly, the reduction of margin in the third quarter was not -- should not be seen as a one-off. Then when it comes to the phase work, indeed, you have seen that a reduction of the gap between the phase and non-phase stores, this is absolutely normal for 2 reasons: The first reason is that we started our phase work with the more challenged markets where we had a tougher time with our competition. And we've been pleased with the results, as you've seen. And of course, the rest of the network progressively was left with the better stores, the stores that were already performing much better. And this is why, gradually, we see that the rest of the network producing actually a pretty nice result as well. The second reason is that we have -- don't, of course, if you will, the full work in the phase stores, but the non-phase stores have also benefited from a number of improvements in terms of execution, private brands and other elements as well over time since we started the repositioning work. And that's why the non-repositioned stores have also benefited from that. So these are the 2 reasons why you have seen this decline in the gap at the repositioned stores. And for the third question, Pierre, I'm turning to you.

Pierre Bruno Charles Bouchut

Yes. Well, if you remember, a year ago, we committed to generate for 2012, 2013 and 2014 at an average free cash flow generation per annum between EUR 450 million and EUR 500 million. And we are confident that, not only we will achieve over this timeframe, 2012, 2014, this guidance, but that we should exceed it. And obviously, after having generated EUR 770 million of free cash flow last year, being today at EUR 460 million at the end of Q3, we are on good track to meet this target for this figure timeframe. Regarding specifically your question on working capital improvement, yes, we do have a reservoir, a further reservoir of working capital improvement in the future. As you know and as I was explaining it, we have been able to reduce from September last year to September this year, our working capital by EUR 300 million. We have been slowing down our efforts in the last weeks and the last month for very obvious reason after such an achievement. But our team are rolling up again their sleeves, and we will improve our free cash flow -- our working capital in the near future.

Operator

We will take our next question from Fabienne Caron of Kepler.

Fabienne Caron - Kepler Capital Markets, Research Division

Two questions from me. The first one on management for you, Pierre. Given all your press coverage regarding your person and could you give us a bit more visibility if you see your futures within Delhaize? I think it's quite important for the financial community. And the second question on the U.S., I think I remember there's a change in food stamp from the 1st of November. Can you exactly remind us what the change is, and how much of the U.S. sales are done with food stamps, please?

Pierre-Olivier Beckers

Pierre?

Pierre Bruno Charles Bouchut

Well, as you know, Fabienne, there is no certainty in life. But let me tell you 2 things. First of all, I'm confident on the value-creation potential at Delhaize in the coming years. And secondly, after having worked with Frans over the last 4 weeks or so, I'm confident that he's addressing the right issues with the right energy, the right determination, the right skill and the right spirit. And therefore, I look forward to partnering with him in the coming years. Regarding the food stamps, as you know, there has been a decrease of the SNUP, I think this is the precise wording, by 5.5%. This has been announced this month actually. And those food stamps represent as an average throughout our stores in the U.S., about 10% of sales, something like that. Yes, we anticipate a negative impact on our sales, but not to a dramatic stand at this stage. This is what we can say.

Operator

We will take our next question from Cedric Lecasble of Raymond James.

Cedric Lecasble - Raymond James Euro Equities

I have 3 follow-up questions, if I may. So first one, could you quantify the performance of the non-repositioned stores? You said the gap was smaller as these were not the most difficult stores, but could you give us and quantify the gap, just to have an idea of what can be improved with Phase 5? That's the first question. So second one on Hannaford, you seem to be slashing prices quarter after quarter. What's the price gap you would like to reduce? Could you help us understand how long you are going to cut prices at Hannaford? And the last question is on the free cash flow guidance. You've been keeping -- saying that you will exceed this guidance, so why didn't you raise it after this report on this strong cash performance?

Pierre-Olivier Beckers

Okay, Well, Pierre, perhaps, I can let you get started with the answers.

Pierre Bruno Charles Bouchut

Well, once again, I repeat what I said earlier. We gave a guidance of between EUR 450 million and EUR 500 million as an average over 3 years, so it's -- it was both fairly precise. But it was also leaving us some margin of maneuver from 1 year to another. And I think it is precise, it is also -- it's variable. It's between EUR 450 million and EUR 500 million. You know free cash flow is not something -- the cut-off time can have a very, can have a significant impact on the free cash flow from 1 year to another. You know that in food retail. And at this stage, we want to meet this guidance. And we still have more and more year to do it, though.

Pierre-Olivier Beckers

Okay. Well, on the non-repositioned stores, we don't give a specific figure, but clearly -- so the performance of the non-repositioned store is positive in terms of volume in the third quarter and same-store sales. It is less than the performance of our repositioned stores, but it's positive. And I don't think we've given the specific breakdown there, so I will not give more than that. The Hannaford performance was pretty much in line with the performance our repositioned stores at Food Lion. So we had a good, good strong momentum both coming from Food Lion and Hannaford in the third quarter. The price gap, it's a moving beast. As we are looking in the region in the Northeast, we've been competing with Wal-Mart for a long period of time, and we believe that we have -- that our price investments are addressing the Wal-Mart competition effectively. But of course, we continue to monitor this. At the same time, we have some new price operators, who come with specific stores. And on that front, we are addressing our price competitiveness, I would say, more from a local price decision, more targeted price investments in various submarkets of the Hannaford overall and Northeast markets. So we are addressing it, I would say, in a targeted way case-by-case and with good results as you've seen as we have a performance at Hannaford, of comparable store sales, pretty much in line with the performance of our repositioned stores at Food Lion, so quite positive.

Operator

We will take our next question from Sreedhar Mahamkali of Macquarie.

Sreedhar Mahamkali - Macquarie Research

Three questions as well, please. First one, Pierre, I'm not sure if you've answered that, sorry, if I missed it. CapEx for the year, EUR 650 million, seems -- it's still quite high compared to what you've done so far in the 9 months except Q4 might be a bit higher. But still, EUR 650 million for the year seems quite high. What should we be really thinking about for this year, and perhaps, also next year, I think Edouard tried to ask that question? Secondly, in terms of Hannaford, can you say something about where the market shares are, either value or volume? Since you started repositioning pricing, has market shares actually improved, or are they stable? And the last one is Food Lion, kind of evolution, next step into the USP that you've talked about, Pierre-Olivier? Am I right in thinking this doesn't involve any material changes, at least, to pricing and pricing strategy, per se? And this is more about the assortment? And to what extent we should be thinking about what sort of CapEx is going to be involved? Is it CapEx intensive or it's just minor tinkering of the stores? Those are the 3 things.

Pierre-Olivier Beckers

Okay, Pierre, would you like to address the CapEx question?

Pierre Bruno Charles Bouchut

Yes, well, as you know, it is true that in Q4, normally, we have the higher CapEx because of plenty of store openings we repositioned at the end of the year. So we expect to -- that in Q4, a part of this CapEx gap would be feel -- would it be 100% feel? We don't know. But we still have a relatively high number of store opening, for instance, scheduled in Q4.

Pierre-Olivier Beckers

The second question was regarding market share at Hannaford. We -- the good results have given us the opportunity to stabilize our market share there. We were losing a bit of market share last year, but since we started investing in prices, we've stabilized our market share. We don't have the most updated Q3 market share at this stage. But until Q2, we've seen that we're moving in the right direction with stabilized in spite of some new stores by competition, obviously, adding square meters -- square feet in the overall market. When it comes to the USP, obviously, we want to stick to our much better price levels. And we're going to do this through the maintaining of our shelf price competitiveness that was, I would say, the bulk of that work has been achieved with the repositioning. We are also looking at complementing this, and we have started doing it with the strong promotions. And we continue to look for the best mix between shelf prices and promotions. We are also going to implement a pricing tool that will help us manage this mix and this balance in a more effective way. But the USP is not going to be mostly about price because price was the main element in the repositioning. The USP is going to be much more focused, as I said, on the convenience of the shopping experience. The first word of the 3: easy, of the easy, fresh and affordable, is going to be key in differentiating Food Lion from its competition, focusing on of the convenient size of our stores and the very convenient locations of our stores, and of course, by working tremendously on the assortment. I have said that we have started a significant review of our assortment. We're testing the new approach, and we believe that we can create quite an exciting store, easy to shop, fast to shop, with not only easy in the way consumers can shop, but can get out of the store as well through their checkout. There will be some CapEx, obviously, probably a bit more than the CapEx involved in the repositioning work. But there was very light CapEx involved in the repositioning work, but we are not going to discuss yet any specific required CapEx at this stage. I think we'll do that later after we have fully tested 1 store and begin to roll out the test to a larger number of stores next year.

Sreedhar Mahamkali - Macquarie Research

Can you give me an idea in terms of just a quick follow-up? In terms of promotional intensity, how much promotion's today in Food Lion, and what level are you testing at? How different is the promotional intensity in the new stores?

Pierre-Olivier Beckers

Well, we've been -- over the last 10 years, Food Lion had too much of its sales coming from a lot of promotions, but not necessarily exciting or best-suited promotion. So we got to a point where some of the sales -- where the sales of Food Lion came from -- probably for about -- more than 35% of the sales were coming from promotions, but not the appropriate promotions. So the work we're doing is looking at how we can take this number down, but we're not going to take it to the teens, I mean, or around 10% because this would not reflect the reality of the markets in the Southeast. The Southeast is generally very promotional focused, so we'll keep a higher level of promotions. And more than anything, we want to make sure that we have the right items with the best prices on promotions. And that's what we are testing. I'm not going to disclose any specific targets, but it's going to be somewhere lower than where we used to be in the high 30s, but obviously, not -- Food Lion is not going to become almost an everyday low-price operator.

Operator

We will take our next question from Fernand de Boer from Petercam.

Fernand de Boer - Petercam S.A., Research Division

Fernand de Boer, Petercam. Just one question left, that's with regard to Belgium. You just mentioned that you will see, let's say, the same competitive environment. But I had a feeling that in the last month, actually, the price gap with you and Colruyt and Carrefour is moving up again, that you might be looking a little bit -- starting to look a little more on margin. Is that a correct conclusion?

Pierre-Olivier Beckers

No, it is not correct. It's not a correct conclusion. In fact, we can see both in Q2 and Q3 that the gap between our internal inflation and the national inflation is increasing. So we are -- this clearly indicates that we are investing more than the -- in prices than the rest of the market. And the rest of the market can -- must be driven by, first and foremost, the 2 retailers that you just mentioned because of their market share and the impact that they have on the overall market. So there might have been some local changes. Of course, I cannot guarantee this. But overall, we have continued to invest during the summer in an appropriate way to decrease the volume losses. The volume loss that we had in the third quarter was smaller than what we experienced in the second quarter. So we're making progress there in a difficult market, but again, our -- the inflation gap is actually increasing versus our competitors, and this clearly indicates for me that we are moving in the right direction. But there might be some items, obviously, on which the gap might have changed. And I will not make any such specific comments. But the goal remains to be on top of our price goals, and that's what we have done in the third quarter. By the way, it makes me think that I would not want to leave you with the impression that we are simply going to -- and this is in response also to the first question, that we are simply going to continue maintaining our price momentum and do nothing else in the meantime to protect our operating margins as much as we can. So in the meantime, we continue looking at generating further efficiencies at all levels and generating cost savings, and we'll continue to do that. We are going to open our third automated distribution center in a couple of weeks, which will give us new efficiencies. You remember that we've been extremely successful in taking cost out of the system with our automated warehouse systems. We are continuing to grow the affiliate network. We are implementing SAP across Belgium, which will help us streamlining both our distribution and back-office functions. We are continuing to accelerate our remodels, which help us creating more efficient, more productive stores and other elements as well, helping us to counter the effect of our -- of the competitive market and our response to it.

Fernand de Boer - Petercam S.A., Research Division

I actually meant the price trends in October and November, but just too soon to elaborate on that.

Pierre-Olivier Beckers

It's too soon to elaborate, and I don't see a reason why this should be different from what we have done in the past.

Operator

We will take our next question from Andrew Gwynn of Exane.

Andrew Gwynn - Exane BNP Paribas, Research Division

So just 3 questions, if I could. The first one is on the comparatives for the U.S. I mean, how much should we read into those? It becomes slightly more difficult as you go from a recently negative number in Q3 2012 to flat in Q4. Should we expect that deterioration in performance in the U.S., or just, are we looking at it too closely? The second question is, as we come toward the end of the re-phasing work, it doesn't look like your margin in the U.S. is sort of settling around about the 4% level. Do you think that's sort of the right long-term margin? Is there any sort of thoughts on that? And then finally, just on the Maxi goodwill write-off, how much further -- I mean, is there a possibility that we see further write-off on that, or is there much more goodwill left there?

Pierre-Olivier Beckers

Okay. Pierre, can I ask you to answer the questions?

Pierre Bruno Charles Bouchut

The last question, well, the total impairment so far, which have been made for the Maxi acquisition, amount to EUR 435 million. And we are left with a goodwill of about EUR 200 million, slightly below EUR 195 million. Well, as you know, we do conduct impairment test on a regular basis. We put together a new budget and business plan for business in Serbia for the coming 3 years. And I think that this business and budget for the coming 3 years is realistic, and that we will achieve it. And therefore, that the risk of further impairment are extremely reduced. This being said, we are exposed to some sort of underlying country risk in Serbia. We are optimistic for the long run in this country because it has a strong asset. But it is currently going through a very, I would say, difficult economic environment. We've, as mentioned already, high inflation, high unemployment. And as a result, the government has been taking some austerity measures. But we took that into account in our business plan. And therefore, once again, given the amount of impairment which has been made on one hand, given I would say, our capacity to realize business plan in the future, I think that the risk of further impairments in the coming years are limited, extremely limited.

Pierre-Olivier Beckers

Perhaps you can address the other questions as well, Pierre.

Pierre Bruno Charles Bouchut

The other question was on the -- what was it?

Andrew Gwynn - Exane BNP Paribas, Research Division

At 4% margin in the U.S., you seem to be settling there. Are you happy with that sort of right kind of level?

Pierre Bruno Charles Bouchut

Well, we don't want to give any forward statement for the future on this call, in particular, for 2014 and beyond. We are extremely pleased by the volume reaction both at Food Lion and Hannaford. We're extremely pleased by the same-store sales trend. Obviously, that helped us to offset, to a large extent, the price investment that we have been making. But we will not release any indication of operating profitability going forward. And the other question was?

Andrew Gwynn - Exane BNP Paribas, Research Division

The comparatives, should we read anything into comparatives?

Pierre Bruno Charles Bouchut

Should we -- I'm sorry?

Andrew Gwynn - Exane BNP Paribas, Research Division

The comparatives in the U.S. go from minus 1.6% to flat in Q4, should we read anything into that? Is Q4 2013 going to be a more difficult trading period, or should we just ignore the comparatives?

Pierre Bruno Charles Bouchut

Q4 in the U.S. is clearly going to be more challenging than last year as we have the full impact of Phase 4, the repositioning of Phase 4. We have the implementation of Phase 5. We have the continued impact of the price investments at Hannaford, which we didn't have before. And so clearly, we should have -- and we fully expect that the holiday season is going to be quite competitive given the current environment. So for all these reasons, we are prudent about the fourth quarter in terms of trading numbers and, therefore, margins as well in the U.S.

Pierre-Olivier Beckers

One more question at this stage, Operator. I see that time is flying fast, but of course, our IR team will stay available for those of you, who would have further questions. So one more question at this stage.

Operator

We'll take our next question from Marc de Speville of Redburn.

Marc de Speville - Redburn Partners LLP, Research Division

Actually, my questions have pretty much been answered, or I can follow-up some details with IR afterwards.

Pierre-Olivier Beckers

Okay, great. Thank you very much. Well, so at this stage, I think Frederic, I will turn it back to you for concluding remarks. And I wish you all a very, very much, the best success in your work. And the world is small, so we might meet again.

Frederic van Daele

Okay. Thank you, all, for participating in today's conference call. A replay is available on the company's website. And if you have any additional questions, do not hesitate to contact the IR Department. Delhaize Group will announce its fourth quarter and full year revenues on Thursday, January 23, 2014. Thank you, and have a nice day.

Operator

That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.

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Source: Etablissements Delhaize Frères et Cie "Le Lion" (Groupe Delhaize) Société Anonyme Management Discusses Q3 2013 Results - Earnings Call Transcript
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