After more than a year of waiting for its merger agreement to be finalized, the Ahold Delhaize marriage is off to a good start according to CEO Dick Boer. Both retailers released individual financial results on August 25 for their second quarters which ended on July 17 (pre-merger). “We have started our new chapter as Ahold Delhaize with good momentum, with these two strong sets of pre-merger results. Building on our solid financial foundation, common values and great local brands, we are driving ahead with full energy to deliver even more for customers and communities, associates and shareholders. We look forward to continuing to shape Ahold Delhaize, with a strong commitment to delivering great food, value and innovations for customers across our 11 markets, both in stores and online.”
While European sales and earnings for both Ahold and Delhaize will be combined next year, the company will continue to break out financials for Ahold USA and Delhaize America separately.
The financial results for both companies were solid, particularly in the U.S. where Ahold USA posted ID sales growth of 1.2 percent (ex-fuel) while maintaining its 3.9 percent underlying operating margin. Net sales for the period ended July 17 were $5.53 billion, a 3.4 percent increase at constant exchange rates (overall revenue was primarily achieved through the acquisition of 25 former A&P stores in the Metro New York market).
At Delhaize America (Food Lion, Hannaford), comp store sales increased 2.9 percent while underlying operating margin also increased from 3.9 percent to 4.1 percent. “We are pleased with our second quarter results,” said Frans Muller, deputy chief executive of Ahold Delhaize, who previously served as CEO of the entire Delhaize Group. “We grew revenues and underlying profit in our three operating segments (U.S., Belgium and Southeast Europe) while we also generated euro 258 million ($288 million) of operating free cash. With 3.9 percent real growth during the quarters, Delhaize America continued to experience good sales momentum at both Food Lion and at Hannaford, while inflation remained negative.”
“We are confident that we will meet our synergy target of euro 500 million [on an annual run-rate basis by mid-2019. In 2016, synergies are expected to positively impact operating income by euro 30 million $33.5 million] in the second half of 2016.
“We continue to expect euro 350 million ($390 million) in one-off costs related to the merger, of which euro 61 million ($68 million) has been booked by Ahold and Delhaize year-to-date 2016 and euro 80 million ($89 million) is expected for the second half of 2016. This excludes transaction costs, which we continue to expect to be within euro 140 million ($156 million), of which euro 62 million ($69 million) has been booked by Ahold and Delhaize in 2015 and euro 15 million ($16.7 million) year-to-date in 2016, with the remainder expected for the second half of 2016, Ahold Delhaize noted in a statement.”
Its free cash flow for 2016 is expected to be euro 1.3 billion $1.45 (billion), including expected capital expenditure of euro 1.8 billion ($2.01), euro 0.2 billion ($0.22) of transaction, integration and Delhaize Belgium’s transformation plan costs and estimated cash flows from divestments of euro 0.1 billion ($1.1 billion).
Then newly combined organization said it would hold a “Capital Markets Day” on December 7 in London, where it will provide an update on its future strategy framework for Ahold Delhaize, share more details on integration and synergies, and give guidance on its capital structure going forward.
At the follow-up analyst conference call after the financials were released, Ahold Delhaize executives said that sales will be finalized by the end of 2016 for about two-thirds of the 86 stores identified as potential anti-trust conflicts by the FTC. Deals for the remaining unsold – but agreed to be sold – stores, most of which were acquired by Publix in Richmond, will be completed by the first half of 2017. Ten remaining unsold Martin’s stores in the Richmond market will be disposed of and the Martin’s banner will exit the area while Food Lion will continue to operate about 45 stores in the Richmond market. The newly combined entity said the proceeds from those divestments are estimated $174 million.
The 86 units represented about $1.4 billion of total net sales and $88 million of underlying operating income in 2015.
