Delhaize Singapore sale raises doubt on Asia plans
Delhaize Singapore sale raises doubt on Asia plans
Dow Jones, Brussels
Delhaize Group's (DEG) sale Friday of its Singapore operations lightens the group's heavy debt load but raises questions over the retailer's strategy in Asia.
The Belgian grocer is selling its 49 percent stake in Singapore's Shop N Save to Hong Kong-based Dairy Farm International Holdings Ltd. for 21.9 million euro, resulting in a 10 million euro capital gain.
"The attractive purchase allows Delhaize Group to generate additional cash and to refocus on our two original Asian ventures," said Jean-Claude Coppieters, executive vice president in charge of Asian operations.
Delhaize's Asia unit is small, with its 106.7 million euro in sales representing only 1.2 percent of group revenue for the first six months of the year. The unit reported a 3 million euro operating loss in the first six months, compared with a 2.1 million euro loss in the year-earlier period.
But some analysts said they would like to see the company stay in the region. "Asia is a market with great growth potential over the long term," said Eric Tibi, analyst at UBS Warburg in Paris.
Thierry Francois of Fortis Bank in Brussels made a parallel to the U.S., where Delhaize went from a dozen supermarkets in the mid-1970s to more than 226 in 1983. Today, U.S. operations represent 80 percent of group turnover.
"It was a nice little position they had in Singapore," Francois added.
Delhaize says it will remain active in Thailand and Indonesia - but analysts are not convinced.
"The sale throws Delhaize's Asia strategy into question," said Pascale Nachtergaele, analyst at Delta Lloyd Securities in Antwerp.
Delhaize would have to invest heavily in Asia to build a significant position, something it can't afford to at this time, analysts said. Despite posting strong third-quarter figures Nov. 6, the grocer's margin to maneuver is limited.
The company's debt load stands at 3.4 billion euro and, while the company has been successful in gradually reducing debt, its gearing remains high at 98.2 percent. Analysts usually consider a ratio above 50 percent as risky.
"Delhaize needs to defend its position in the U.S. and focus on debt reduction. Asia isn't a priority for Delhaize," said Pascale Weber, analyst at KBC Securities in Brussels.
In its major U.S. market, Delhaize is fighting off intense competition from rival giants such as Wal-Mart Stores Inc. And at home, it is battling against French retailer Carrefour SA and local discounter Etablissements Franz Colruyt NV. This has put pressure on margins and profitability as Delhaize has had to cut prices.