delhaize group & spartannash - global credit services€¦ · 6/5/2014 proprietary &...
TRANSCRIPT
Jonathan Kanarek, CFA – Director of Analysis
Delhaize Group & SpartanNash
Webinar Presentation
June 5, 2014
Proprietary & Confidential to Global Credit Services LLC 6/5/2014
ECONOMIC OVERVIEW GDP Growth
Real GDP growth was -1.0% in Q1 ‘14 after rising 2.6% in Q4 ‘13
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Proprietary & Confidential to Global Credit Services LLC 6/5/2014
ECONOMIC OVERVIEW Consumer Confidence Versus Unemployment
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Proprietary & Confidential to Global Credit Services LLC 6/5/2014
DELHAIZE GROUP Firm Profile
• A Belgian international food retailer with operations in 7 countries • Adjusted for stores being held for sale, its network included 3,308
stores as of March 31, 2014 • Annualized revenue of $17.1B
• Roughly 41% of its stores are based in the U.S.
• Account for 62% of firmwide revenues • Account for 70% of firmwide underlying operating profits
• Leadership Team • Delhaize Group CEO - Frans Muller • Delhaize America CEO - ????
• Retail banners that you’re liking familiar with include: • Food Lion, Hannaford, and Bottom Dollar Food • Sweetbay, Harveys, and Reid’s are no longer part of Delhaize
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Proprietary & Confidential to Global Credit Services LLC 6/5/2014
DELHAIZE GROUP U.S.-Based Retail Banners
Banner Market Count
Food Lion DE, FL, GA, KY, MD, NC,
PA, SC, TN, VA, WV 1,113
Hannaford ME, MA, NH, NY, VT 184
Bottom Dollar Food PA, NJ, OH 65
U.S. Total * 1,362
* - excludes 119 stores that been held for sale as of 3/31/2014 that have since been sold.
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Proprietary & Confidential to Global Credit Services LLC 6/5/2014
Delhaize Group U.S. Store Map
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Proprietary & Confidential to Global Credit Services LLC 6/5/2014
Delhaize Group Prior Strategy – “New Game Plan”
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• Among other things, this strategic plan guided Delhaize Group’s actions in 2009-2013 • Across the enterprise, this program yielded ~€500mm of
annualized cost savings • Growth, efficiency, and corporate responsibility were key
pillars of emphasis
• Converged and standardized several functions under
Delhaize America • Mainly done in 2010; affected areas included accounting,
financial analysis, business development, and legal
• Undertook a chain-wide effort to reposition the Food Lion
banner in the U.S. • As of November 2013, the fifth and final wave of Food Lions
were repositioned • Efforts were not overly capital intensive
• Expanded Bottom Dollar Food format and invested in price at Hannaford
Proprietary & Confidential to Global Credit Services LLC 6/5/2014
Delhaize Group Food Lion’s Current Strategy - “Easy, Fresh & Affordable”
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• Roll-out of assortment changes impacting 50% of center store SKUs • Expanded product variety based upon consumer research
• Roll-out of improved check-out hardware and software
• Associates training
• More of customer-centric focus
• New pricing tool
• Refining its private brands architecture
• Market test of 77 stores for a cap-ex investment of $77mm
• Storewide remodels to be done over time; newest format will launch in 29 Wilmington, NC stores in Q3 2014
Proprietary & Confidential to Global Credit Services LLC 6/5/2014
Delhaize Group High Profile Management Changes
• Top post in the U.S. has changed hands again • In October 2012, Roland Smith replaced Ron Hodge as CEO of
Delhaize America • In May 2013, Delhaize Group CEO Pierre Oliviers-Becker announced
he would be retiring by year-end • In September 2013, CEO Smith suddenly left the organization and
shortly thereafter surfaced at Office Depot. Some insiders have suggested that Smith’s departure was a function of him being passed over for the Group CEO slot, which went to Frans Muller
• Ever since, Delhaize America has reported into Delhaize Group CEO Muller
• More changes overseas
• In May 2014, Delhaize Belgium and Luxembourg CEO Dirk Van den Berghe resigned to take a new opportunity outside of the firm
• This unit’s recent struggles have partly undermined the in-process turnaround occuring in the U.S.
• In June 2014, 22-year Delhaize veteran Denis Knoops was appointed to this post
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Proprietary & Confidential to Global Credit Services LLC 6/5/2014
Delhaize Group Divestment Update
• In June 2014, the company completed the divestitures of its non-core grocery banners in the U.S. for ~$246mm • Sweetbay, Harveys, and Reid’s were all sold to Bi-Lo Holdings, a
private equity-owned grocer based in the southeastern U.S.
• Separately and also in June 2014, the firm also sold its
distribution center in Plant City, FL to C&S Wholesale Grocers for $28mm • There was little need to retain this DC after divesting the stores
above, most notably Sweetbay
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DELHAIZE GROUP Latest Quarterly Results
$ in millions 13 Weeks 3/31/14
13 Weeks 3/31/13
Var.
Revenue €5,120 €5,104 0.3%
Adj. EBITDA €304 €337 (9.8%)
Adj. EBITDA Margin 5.94% 6.60% (66 bps)
Adj. Operating Profit €161 €193 (16.6%)
Adj. Operating Margin 3.14% 3.78% (64 bps)
RA Interest Coverage 3.11x 3.26x
Net Income From Continuing Operations €90 €99 (9.1%)
Average U.S. Dollar Per € Exchange Rate $1.3696 $1.3206 93.8%
Proprietary & Confidential to Global Credit Services LLC 6/5/2014 11
Proprietary & Confidential to Global Credit Services LLC 6/5/2014
DELHAIZE GROUP U.S. Same Store Sales Growth
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14
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Proprietary & Confidential to Global Credit Services LLC 6/5/2014
DELHAIZE GROUP U.S. Revenue & Store Count
$18,172$19,239 $18,994 $18,807 $19,230
$16,797 $17,117
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
$20,000
FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13
$ in
millio
ns
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
U.S. Sales Store Count
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Proprietary & Confidential to Global Credit Services LLC 6/5/2014
DELHAIZE GROUP U.S. Operating Profits & Margin
$1,023$1,060
$1,016 $998
$921
$676$639
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
$1,100
$1,200
FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13
$ in
millio
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0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
U.S. Operating Profits U.S. Operating Margin
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Proprietary & Confidential to Global Credit Services LLC 6/5/2014
DELHAIZE GROUP Liquidity
• Cash, cash equivalents & current financial assets totaled €1.366B as of March 2014, up 13.7% • Affords the firm flexibility as it deals with performance challenges
on both sides of the Atlantic
• No borrowings on its €600mm multi-currency, unsecured revolving credit facility as of December 2013 • Only reported annually • No evidence to suggest this changing
• No borrowings on its remaining €170mm worth of European bank facilities as of December 31, 2013 • Also, only reported annually
• Liquidity is therefore on solid footing, and provides an important safety net
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Proprietary & Confidential to Global Credit Services LLC 6/5/2014
DELHAIZE GROUP Rent-Adjusted Leverage
0.0x
0.5x
1.0x
1.5x
2.0x
2.5x
3.0x
3.5x
4.0x
4.5x
5.0x
FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 Q1 14
Rent-Adjusted Debt to EBITDAR
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Proprietary & Confidential to Global Credit Services LLC 6/5/2014
DELHAIZE GROUP GCS Observations & Conclusions
• GCS Rating & Outlook: elevated risk, “D” credit with a stable outlook • Raised rating to an elevated risk, “D” from a “D-” on March 29, 2013
• Rationale considers: • Encouraging evidence that shoppers have taken notice of the Food
Lion repositioning • Continuing phenomenon of margin compression in the U.S. • Cost structure in need of rationalizing • Willingness to divest non-core assets • Weakening performance overseas • Recent leadership changes/voids • Firm’s ability to manage rent-adjusted leverage even as performance
has worsened • Solid liquidity position • External factors, which include competition and the reduction in SNAP
benefits
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Proprietary & Confidential to Global Credit Services LLC 6/5/2014
SPARTANNASH COMPANY Firm Profile
• Formed from an all-stock merger on November 19, 2013 valued at $1.3B including existing debt at each firm
• More diversified, balanced revenue stream • Nearly $8.0B of annualized revenue • Retail segment of 172 stores
• 90 of which have pharmacies • 34 of which have fuel centers
• 21 distribution centers supporting business in 37 states • Leading position in distributing to 174 military commissaries and
more than 400 exchanges globally
• Leadership Team • President & CEO Dennis Eidson (Spartan) • CFO David Staples (Spartan) • President – Military, Edward Brunot (Nash Finch)
• Retail banners include: • Family Fare Supermarkets (54), Sun Mart (20), No Frills (17), VG’s
Food & Pharmacy (13), Bag ‘n Save (12), Econofoods (12), Glen’s Markets (11), D&W Fresh Markets (10), Valu Land (6), and others (17)
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Proprietary & Confidential to Global Credit Services LLC 6/5/2014
SPARTANNASH COMPANY Retail Locations
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Proprietary & Confidential to Global Credit Services LLC 6/5/2014
SPARTANNASH COMPANY Food Distribution & Military Locations
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Proprietary & Confidential to Global Credit Services LLC 6/5/2014
SPARTANNASH COMPANY Merger Rationale
• Pressures to consolidate • Competition in food retail coming from numerous formats • Demand for food distribution services being outstripped by supply
• More diversified, balanced revenue stream
• 40% food distribution • 30% food retail • 30% military
• Nash Finch brings significant scale and geographic reach to the marriage
• Spartan Stores brings a strong management team and a familiarity with operating in markets many supermarket chains would not dare touch
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Proprietary & Confidential to Global Credit Services LLC 6/5/2014
SPARTANNASH COMPANY Integration Proceeding As Planned
• Integration Update • On track to reach or perhaps exceed its $52mm synergy target by
fiscal 2016 • Year 1: $20mm • Year 2: $35mm • Year 3: $52mm
• Lots of heavy lifting yet to be done, including general ledger & retail stock ledger consolidation, as well as distribution and merchandising systems
• Synergy target is significant when considering size of adjusted EBITDA • $222mm in the new recast fiscal 2013 • $230mm to $239mm projection for fiscal 2014
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SPARTANNASH COMPANY Latest Quarterly Results
$ in millions 16 Weeks 4/19/14
16 Weeks 4/27/13
Var.
Revenue $2,334 $780 199.2%
Adj. EBITDA $65 $36 80.6%
Adj. EBITDA Margin 2.78% 4.62% (184 bps)
Adj. Operating Profit $37 $23 60.9%
Adj. Operating Margin 1.59% 2.95% (136 bps)
RA Interest Coverage 3.87x 3.40x
Net Income From Continuing Operations $12 $9 41.4%
Proprietary & Confidential to Global Credit Services LLC 6/5/2014 23
Proprietary & Confidential to Global Credit Services LLC 6/5/2014
SPARTANNASH COMPANY Same Store Sales Growth
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q1 14
(new)24
Old New
Proprietary & Confidential to Global Credit Services LLC 6/5/2014
SPARTANNASH COMPANY Same Store Sales Growth Explained
• Same store sales growth figures include currently only the legacy Spartan Stores retail locations • That subset of stores experienced a 0.7% benefit from the
typically slow post-Easter sales week moving into the firm’s new second quarter
• Foot traffic in these stores declined slightly, while average ticket was positive thanks to items per transaction increasing
• D&W outperforming rest of chain by ~200 bps
• Management intimated that the retail locations acquired in the
merger with Nash Finch were comping relatively similar to their recent history (see next slide) • Last reported quarter ending November 15, 2013 saw these
stores’ suffer a 3.9% comp decline • After Nash Finch increased its investment into the Omaha, NE
market in 2012 with its acquisitions of No Frills and Bag ‘n Save, the firm has since experienced the opening of a new Wal-Mart Neighborhood grocery store
• Management looking to implement a loyalty program in time, re-merchandise, and re-organize the flow of these stores over the next six months
• North Dakota properties seen as being particularly attractive given its 2.7% unemployment rate
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Proprietary & Confidential to Global Credit Services LLC 6/5/2014
SPARTANNASH COMPANY Legacy Nash Finch Same Store Sales Growth
-4.5%
-4.0%
-3.5%
-3.0%
-2.5%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13
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Proprietary & Confidential to Global Credit Services LLC 6/5/2014
SPARTANNASH COMPANY Pro Forma Recast Quarterly Revenue
$0
$500
$1,000
$1,500
$2,000
$2,500
$ in
mill
ion
s
Q1
11
Q2
11
Q3
11
Q4
11
Q1
12
Q2
12
Q3
12
Q4
12
Q1
13
Q2
13
Q3
13
est
Q4
13
est
Q1
14
Spartan Stores Nash Finch SpartanNash
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Revenue contributions: Spartan Stores – 35% & Nash Finch – 65%
Proprietary & Confidential to Global Credit Services LLC 6/5/2014
SPARTANNASH COMPANY Pro Forma Recast Quarterly Adjusted EBITDA
$0
$10
$20
$30
$40
$50
$60
$70
$80$
in m
illio
ns
Q1
11
Q2
11
Q3
11
Q4
11
Q1
12
Q2
12
Q3
12
Q4
12
Q1
13
Q2
13
Q3
13
est
Q4
13
est
Q1
14
Spartan Stores Nash Finch SpartanNash
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Adjusted EBITDA contributions: Spartan Stores – 57% & Nash Finch – 43%
Proprietary & Confidential to Global Credit Services LLC 6/5/2014
SPARTANNASH COMPANY Retail Segment: Pro Forma Recast Quarterly Revenue
$0
$100
$200
$300
$400
$500
$600
$700
$ in
mill
ion
s
Q1
11
Q2
11
Q3
11
Q4
11
Q1
12
Q2
12
Q3
12
Q4
12
Q1
13
Q2
13
Q3
13
est
Q4
13
est
Q1
14
Spartan Stores Nash Finch SpartanNash
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Retail revenue contributions: Spartan Stores – 68% & Nash Finch – 32%
Proprietary & Confidential to Global Credit Services LLC 6/5/2014
SPARTANNASH COMPANY Retail Segment: PF Recast Quarterly Adjusted EBITDA
$0
$5
$10
$15
$20
$25
$ in
mill
ion
s
Q1
11
Q2
11
Q3
11
Q4
11
Q1
12
Q2
12
Q3
12
Q4
12
Q1
13
Q2
13
Q3
13
est
Q4
13
est
Q1
14
Spartan Stores Nash Finch SpartanNash
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Retail adjusted EBITDA contributions: Spartan Stores – 74% & Nash Finch – 26%
Proprietary & Confidential to Global Credit Services LLC 6/5/2014
SPARTANNASH COMPANY Retail Segment: PF Recast Quarterly Adjusted EBITDA Margin
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Proprietary & Confidential to Global Credit Services LLC 6/5/2014
SPARTANNASH COMPANY Distribution Segment: Pro Forma Recast Quarterly Revenue
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
$ in
mill
ion
s
Q1
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Q2
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Q3
11
Q4
11
Q1
12
Q2
12
Q3
12
Q4
12
Q1
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Q2
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Q3
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est
Q4
13
est
Q1
14
Spartan Stores Nash Finch SpartanNash
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Distribution revenue contributions: Spartan Stores – 36% & Nash Finch – 64%
Proprietary & Confidential to Global Credit Services LLC 6/5/2014
SPARTANNASH COMPANY Distribution Segment: PF Recast Quarterly Adjusted EBITDA
$0
$5
$10
$15
$20
$25
$30
$35
$ in
mill
ion
s
Q1
11
Q2
11
Q3
11
Q4
11
Q1
12
Q2
12
Q3
12
Q4
12
Q1
13
Q2
13
Q3
13
est
Q4
13
est
Q1
14
Spartan Stores Nash Finch SpartanNash
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Distribution adj. EBITDA contributions: Spartan Stores – 65% & Nash Finch – 35%
Proprietary & Confidential to Global Credit Services LLC 6/5/2014
SPARTANNASH COMPANY Distribution Segment: PF Recast Quarterly Adjusted EBITDA Margin
34
Proprietary & Confidential to Global Credit Services LLC 6/5/2014
SPARTANNASH COMPANY Military Segment: Pro Forma Recast Quarterly Revenue
$0
$100
$200
$300
$400
$500
$600
$700
$800
$ in
mill
ion
s
Q1
11
Q2
11
Q3
11
Q4
11
Q1
12
Q2
12
Q3
12
Q4
12
Q1
13
Q2
13
Q3
13
est
Q4
13
est
Q1
14
Spartan Stores Nash Finch SpartanNash
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Military revenue contributions: Spartan Stores – 0% & Nash Finch – 100%
Proprietary & Confidential to Global Credit Services LLC 6/5/2014
SPARTANNASH COMPANY Military Segment: PF Recast Quarterly Adjusted EBITDA
$0
$5
$10
$15
$20
$25
$ in
mill
ion
s
Q1
11
Q2
11
Q3
11
Q4
11
Q1
12
Q2
12
Q3
12
Q4
12
Q1
13
Q2
13
Q3
13
est
Q4
13
est
Q1
14
Spartan Stores Nash Finch SpartanNash
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Military adjusted EBITDA contributions: Spartan Stores – 0% & Nash Finch – 100%
Proprietary & Confidential to Global Credit Services LLC 6/5/2014
SPARTANNASH COMPANY Military Segment: PF Recast Quarterly Adjusted EBITDA Margin
37
Lingering effects of sequestration & harsh winter?
Proprietary & Confidential to Global Credit Services LLC 6/5/2014
SPARTANNASH COMPANY Liquidity
• Cash & cash equivalents totaled $15.1mm as of April 2014, up 174.6% • Both Spartan Stores and Nash Finch historically kept fairly minimal
levels of cash on their respective books; we do not anticipate this changing with the merged entity
• $1.0B secured credit facility matures in November 2018 • Availability of $341.0mm as of April 2014 after considering
$482.5mm of direct borrowings, $11.0mm of letters of credit outstanding, and an excess availability covenant of 10% of the borrowing base
• Facility is secured by substantially all of SpartanNash’s assets
• Total liquidity of $356mm appeared to be sufficient for the combined entity this spring
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Proprietary & Confidential to Global Credit Services LLC 6/5/2014
SPARTANNASH COMPANY Rent-Adjusted Leverage – Last 8 Quarters
0.0x
1.0x
2.0x
3.0x
4.0x
5.0x
6.0x
Oldest Latest**
Rent-Adjusted Debt to EBITDAR
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Latest period (pre-recast) of 12/28/2013 included minimal EBITDA contribution;
we estimate the true leverage run rate to be ~3.4x
Proprietary & Confidential to Global Credit Services LLC 6/5/2014
SPARTANNASH COMPANY GCS Observations & Conclusions
• GCS Rating & Outlook: elevated risk, “D” credit with a stable outlook • Raised rating to an elevated risk, “D” from a “D-” on April 18, 2014
• Rationale considers: • Merger offers economies of scale, business and geographical
diversification, and attractive synergies • Integration risk, particularly given how dispersed Nash Finch
business is relative to legacy Spartan Stores operations • Military segment still struggling from government sequestration cuts
and more recently winter storms • Supply of food distribution continues to exceed demand • Leverage that is comfortable assuming fiscal 2014 adjusted EBITDA
projections are on the mark has recently moved in the right direction • Individual companies’ inability to generate significant levels of free
cash flow • Strong management team • Adequate liquidity for now • External factors, which include competition and the reduction in SNAP
benefits
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Proprietary & Confidential to Global Credit Services LLC 6/5/2014
ADMINISTRATIVE ITEMS Contact Information
• Jonathan Kanarek, CFA – Director of Analysis
– Phone: (917) 388-8809
– Email: [email protected]
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Proprietary & Confidential to Global Credit Services LLC 6/5/2014
ADMINISTRATIVE ITEMS Upcoming Webinars
• Toys “R” Us
• Thursday, June 19th
• Iwan Juwana, CFA - Senior Industry Analyst
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Proprietary & Confidential to Global Credit Services LLC
ADMINISTRATIVE ITEMS GCS Ratings Definitions
6/5/2014 43
Proprietary & Confidential to Global Credit Services LLC 6/5/2014
ADMINISTRATIVE ITEMS Map of GCS Scores & Ratings To Agencies
Global Credit Services
Score Rating
From To S&P / Fitch Moodys
- - 0 NR NR
1.00 1.32 A+ AAA Aaa
1.00 1.32 A+ AA+ Aa1
1.33 1.65 A AA Aa2
1.66 1.99 A- AA- Aa3
2.00 2.32 B+ A+ A1
2.33 2.65 B A A2
2.66 2.99 B- A- A3
3.00 3.32 C+ BBB+ Baa1
3.33 3.65 C BBB Baa2
3.66 3.99 C- BBB- Baa3
4.00 4.32 D+ BB+ Ba1
4.00 4.32 D+ BB Ba2
4.33 4.65 D BB- Ba3
4.66 4.99 D- B+ B1
5.00 5.32 E+ B B2
5.00 5.32 E+ B- B3
5.33 5.65 E CCC+ Caa1
5.33 5.65 E CCC Caa2
5.66 5.99 E- CCC- Caa3
6.00 6.32 F+ CC+ Ca1
6.00 6.32 F+ CC Ca2
6.33 6.65 F CC- Ca3
6.66 6.99 F- C C
6.66 6.99 F- D D
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