Sligro Food Group half-year results
As forecast at the time of the trading update published on 21 April 2005, Sligro Food Group N.V. saw its result after tax fall by almost 8% to €18.8 million in the first half of 2005. Turnover, however, was up by more than 16%, at €754 million. On an organic basis, the increase in turnover for the group was 1.7%.
Turnover on the food retail activities was down by 2.9% at €212.9 million. The drop in turnover is partly due to the intense price war among the supermarkets but is also accounted for by the disposal of the Milo activities in the second quarter of 2005. On an organic basis, excluding this transaction, food retail sales were down by 1.6%. The operating result was accordingly also down, although the fall was limited by cost savings.
Turnover on the food service activities increased by 25.8% to €541.3 million. On an organic basis, sales in this segment were up by 3.3%, the remainder of the increase being accounted for by the acquisition with effect from 1 October 2004 of wholesalers VEN Groothandelcentrum. The organic growth is due to the successful Sligro format and expansion of the branch network. The operating result of the food service activities has decreased by the mentioned unexpected loss of a large customer reported on a previous occasion coupled with the costs of the accelerated integration of VEN Groothandelcentrum. Considerable progress was made on this last front during the first half of 2005 and the process is expected to be completed in the second half of the year. This will yield substantial cost savings and also creates the opportunity, given a strong and efficient back office, of strengthening our commercial position with renewed vigour, commencing in 2006, leading to sharply improved results.
With VEN Groothandelcentrum included in the consolidation, there was an increase in the gross margin of the group as a percentage of turnover but selling and administrative costs also increased disproportionately.
The net effect was a decrease of 9.4% in the operating result to €28.7 million. As a percentage of turnover, this represents a decrease from 4.9% in the first half of 2004 to 3.8% this year. Earnings per share, calculated on the average number of shares in issue, work out at €0.90 compared with €0.99 for the corresponding period of 2004, a drop of 9.1%.
Prospects
As in the first half we expect the general market situation to be characterised by a price squeeze and some loss of volume. This applies to both the food retail as the food service markets. We nevertheless expect Sligro Food Group once again to post organic sales growth in the second half, leading to increased market share. It should be noted that VEN Groothandelcentrum has been included in the consolidation since the fourth quarter of 2004, which will have the effect of reducing the overall increase in sales compared with the first half of this year.
The second six months will be dominated by the completion of the VEN integration process. The associated capital expenditure programme will run into 2006.
As far as results are concerned we expect a similar picture to that for the first half of 2005. This excludes the effect of the non-recurring income of €5.9 million after tax in the second half of 2004. There are unlikely to be any substantial windfalls in the second half of 2005. Under IFRS, the result after tax achieved in 2004 amounts to €52.7 million, before the non-recurring income, and €58.6 million including that income.
We shall be publishing a more specific forecast of developments in the second half of the year on 20 October 2005.
Veghel, 21 July 2005
On behalf of the Executive Board of Sligro Food Group N.V.
A.J.L. Slippens
H.L. van Rozendaal
Tel: +31 413 34 35 00
www.sligrofoodgroup.com
