Annual Report2013

2.2 // Development and business results

2.2.1. Main financial and non-financial indicators

Gross sales under banner reached EUR11,476m in 2013, up 2.4% in Euros and 7.2% in local currency. Adjusted EBITDA increased by 4.3% to EUR641.6m in the full year 2013 (6.8% in local currency), with a 18 bps improvement in the margin over net sales.Adjusted EBIT grew by 8.1% to EUR374.7m in the full year 2013(10.9% in local currency), reflecting a margin improvement of 24bps. Gross Margin has a continued growing supported in the improvement of productivity, the profits of the franchise and the positive contribution of Schlecker/Clarel.

The net attributable profit was EUR209.3m, up 32,5%, while the underlying net profit grew 11,7% to EUR227.7m. Net financial expenses of EUR39.8m increased by 53% due to the EUR18.2m positive contribution from the equity swap included in 2012 financial accounts, compared with the EUR3.9m included in 2013. Adjusted by the equity-swap effect, finantial cost would be decreased by a 0.9% in 2013. The effective tax rate stood at 33.3% in 2013 from the 35.9% of 2012, in line with the rank between 31%-33% that the company established as a middle term objective. Excluding the negative tax basis of France and China, the adjusted tax rate of full year 2013 would be 28.4%.

FY 2013 RESULTS
(EURm) 2012 (1) % 2013 % INC INC w/o FX
Gross sales under banner 11,210.0   11,476.3   2.4% 7.2%
Net sales 9,707.6 100.0% 9.844,3 100.0% 1.4% 6.0%
Cost of sales & other income (7,622.6) -78.5% (7,678.6) -78.0% 0.7% 5.7%
Gross profit 2,085.0 21.5% 2,165.7 22.0% 3.9% 7.3%
Labour costs (781.4) -8.0% (820.1) -8.3% 5.0% 8.7%
Other operating expenses (393.9) -4.1% (387.6) -3.9% -1.6% 3.8%
Real estate rents (294.3) -3.0% (316.4) -3.2% 7.5% 9.6%
OPEX (1,469.6) -15.1% (1,524.1) -15.5% 3.7% 7.6%
Adjusted EBITDA (2) 615.4 6.3% 641.6 6.5% 4.3% 6.8%
D&A (268.8) -2.8% (266.9) -2.7% -0.7% 1.5%
Adjusted EBIT (2) 346.6 3.6% 374.7 3.8% 8.1% 10.9%
Non-recurring items (38.4) -0.4% (49.1) -0.5% 27.8% 31.7%
EBIT 308.1 3.2% 325.6 3.3% 5.7% 8.3%
Net financial income/expenses (25.9) -0.3% (39.8) -0.4% 53.3% 67.9%
Associate companies 1.1 0.0% 0.6 0.0% -48.3% -48.3%
EBT 283.3 2.9% 286.4 2.9% 1.1% 2.6%
Income taxes (101.8) -1.0% (95.5) -1.0% -6.2% -4.7%
Consolidated profit 181.4 1.9% 190.9 1.9% 5.2% 6.7%
Discontinued operations (35.1) -0.4% 5.1 0.1% -114.6% -105.9%
Minority interests (11.5) -0.1% (13.2) -0.1% 14.8% 16.9%
Net attributable profit 157.9 1.6% 209.3 2.1% 32.5% 32.5%
Underlying net profit 204.0 2.1% 227.7 2.3% 11.7% 13.5%

(1) Figures with Turkey and Beijing activities re-expressed as discontinued, (2) Adjusted by non-recurring items.

Underlying net profit grew by 11.7% to 227.7m in 2013, supported by the very dinamic progression of net attributable profit. The details of the adjustments made to the net attributable profit to calculate underlying net profit are presented in the following table.

(EURm) 2012 (1) 2013 INC
Net attributable profit 157.9 209.3 32.5%
Non-recurring items 38.4 49.1 27.8%
Equity-swap and other finantials (13.0) (1.1)
Discontinued operations 23.6 (18.3)
Tax (3.0) (11.2)
Underlying net profit 204.0 227.7 11.7%

(1) Figures with Turkey and Beijing activities re-expressed as discontinued

In 2013, non-recurring items increased by 27.8% to EUR49.1m, an increase that is almost fully attributable to the integration of Schlecker.

NON-RECURRING ITEMS
(EURm) 2012 (1) % 2013 % INC
Restructuring costs (20.1) -0.2% (33.9) -0.3% 68.3%
Impairment & other (7.8) -0.1% (4.6) -0.0% -40.8%
Gains/losses on disposal of assets (10.5) -0.1% (10.6) -0.1% 0.9%
Total non-recurring items (38.4) -0.4% (49.1) -0.5% 27.8%

(1) Figures with Turkey and Beijing activities re-expressed as discontinued.

During the year 2013 a general reduction in the average figures of net sales per employee was observed in Iberia and France. The main reasons for this development are the integration of Schlecker in Iberia (whose concept of cleaning, perfumery and household has naturally lower sales than food) and the poor business performance in the case of France.

NET SALES PER EMPLOYEE
2012 (1) 2013 (1) INC
IBERIA 239,596 224,161 -6.4%
EMERGING MARKETS 214,559 220,082 2.6%
FRANCE 320,243 263,022 -17.9%
TOTAL 246,004 229,552 -6.7%

(1) Average workforce figures with pro-forma data excluding Turkey and Pekin activities.

Source: DIA

The evolution of sales with the loyalty card was slightly negative in all countries in which it is implemented, except for China, where it should be noted that the launch of the program for 2013 has been met with great acceptance reaching the second country where the highest percentage of sales made through this way.

DIA CLUB SALES CONTRIBUTION
2012 2013 2012/2013 INC (bps)
SPAIN 71.0% 70.2% -83
PORTUGAL 71.0% 73.8% -193
ARGENTINA 83.0% 83.0% 1
BRAZIL - - 0
CHINA - 77.0% 7,697
FRANCE 61.8% 59.7% -205

Source: DIA

WORKING CAPITAL AND NET DEBT

The DIA Group’s negative working capital was EUR1.032m at the end of December 2013, a 0.9% increase versus December 2012, in line with the growth of the business specially taking into account the integration of Schlecker business generates less working capital. As of 31 December 2013 , negative working capital represented 10.5% of net sales, or 48.2 days over the cost of goods sold.

WORKING CAPITAL
(EURm) 2012 (1) 2013 INC
Inventories 490.7 544.9 11.0%
Trade & other receivables 172.9 209.7 21.2%
Trade & other payables (1,687.0) (1,786.9) 5.9%
Trade working capital (1,023.4) (1,032.4) 0.9%

(1) Figures with pro-forma data excluding Turkey activities.

In 2013, DIA’s net debt grew by EUR21.7m to EUR651m. This change in net debt does not reflect the healthy cash flow generation of the company’s operations, as it contains some exceptional factors: a EUR53.4m of net outflow related to the investment in the share buy-back program (execution of the equity-swap), EUR21.4m of tax records accrued and disbursed during 2013 and EUR24.3m of the depreciation of the cash in emerging countries. Additionally, the company distributed EUR83.9m in dividends in 2013, EUR11.4m more than last year.

At the end of 2013 the financial leverage remained in a stable position, with a ratio of 1.0x net debt to adjusted EBITDA in the last twelve months.

NET DEBT
(EURm) 2012 2013 INC
Long-term debt 553.1 700.7 26.7%
Short-term debt 426.6 212.3 -50.2%
Total debt 979.7 913.0 -6.8%
Cash & cash equivalents (350.4) (262.0) -25.2%
Net debt 629.3 651.0 3.4%
Net debt / Adjusted EBITDA 12M 1.0x 1.0x -0.8%
STORE EXPANSION

At the end of 2013, the DIA Group operated 7.328 stores, which represents 378 net openings in the last twelve months (of which 60 Schlecker/Clarel stores). All these opening figures are adjusted by the 1,129 stores added with the integration of Schlecker and the 1,093 stores divested in Turkey in July 2013.

The total number of franchised DIA Group stores (COFO and FOFO) continued to grow from 2,411 in 2012 to 2.964 in 2013, which represents 48.3% of the total DIA stores versus 41.4% in December 2012. In the case of Shclecker, S.A., the company has transferred 27 stores to the COFO model in 2013.

NUMBER OF STORES
2012 (1) % 2013 % CHANGE
DIA Urban 408 19.2% 242 8.1% -166
DIA Market 1,722 80.8% 1,602 53.3% -120
Schlecker/Clarel - - 1,162 38.7% 1,162
DIA Proximity Stores 2,130 36.6% 3,006 49.0% 876
DIA Parking 44 3.4% 13 1.0% -31
DIA Maxi 1,236 96.6% 1,318 99.0% 82
DIA Attraction Stores 1,280 22.0% 1,331 21.7% 51
Total DIA COCO stores 3,410 58.6% 4,337 59.2% 927
FOFO 1,359 56.4% 1,481 49.5% 122
COFO 1,052 43.6% 1,483 49.6% 431
Schlecker/Clarel - - 27 0.9% 27
Total FRANCHISED stores 2,411 41.4% 2,991 40.8% 580
Total DIA stores 5,821 100.0% 6,139 83.8% 318
Total Schlecker/Clarel stores - - 1,189 16.2% 1,189
TOTAL NUMBER OF STORES 5.821 100.0% 7,328 100.0% 1,507

(1) Figures with Turkey and Beijing activities re-expressed as discontinued.

The integration of Schlecker and the disposal of DIA Turkey in 2013 changed the structure of the stores by operational model. Adjusted for these factors, the net number of stores the company added to the franchised network during 2013 is 580, of which 27 related to Schlecker. Thanks to that, in December 2013, the DIA Group operated 2.991 stores under different franchised models, which represented 40.8% of the total network (48.3% adjusted for Schlecker). In Emerging Markets, this ratio reached 62.1%, while in France the franchised stores only accounted for 26.6% of the network.

NUMBER OF STORES BY OPERATIONAL MODEL
    2012 (1) % 2013 % CHANGE
Iberia COCO 1,948 55.7% 1,907 52.9% -41
COFO 652 18.6% 804 22.3% 152
FOFO 897 25.7% 892 24.8% -5
IBERIA DIA stores 3,497 100.0% 3,603 100.0% 106
COCO - - 1,162 97.7% 1,162
COFO - - 27 2.3% 27
FOFO - - - - -
IBERIA SCHLECKER/CLAREL stores 1,189 100.0% 1,189
EMERGING MARKETS COCO 829 57.7% 633 37.9% -196
COFO 177 12.3% 478 28.6% 301
FOFO 430 29.9% 560 33.5% 130
EMERGING MARKETS 1,436 100.0% 1,671 100.0% 235
FRANCE COCO 633 71.3% 635 73.4% 2
COFO 223 25.1% 201 23.2% -22
FOFO 32 3.6% 29 3.4% -3
FRANCE 888 100.0% 865 100.0% -23
DIA stores COCO 3,410 58.6% 3,175 51.7% -235
COFO 1,052 18.1% 1,483 24.2% 431
FOFO 1,359 23.3% 1,481 24.1% 122
TOTAL DIA stores 5,821 100.0% 6,139 100.0% 318
SCHLECKER/CLAREL stores COCO - - 1,162 97.7% 1,162
COFO - - 27 2.3% 27
FOFO - - - - -
TOTAL SCHLECKER/CLAREL stores 1,189 100.0% 1,189
TOTAL COCO 3,410 58.6% 4,337 59.2% 927
COFO 1,052 18.1% 1,510 20.6% 458
FOFO 1,359 23.3% 1,481 20.2% 122
TOTAL stores 5,821 100.0% 7,328 100.0% 1,507

(1) Figures with Turkey and Beijing activities re-expressed as discontinued

STORE SELLING AREA
(Million SQM) 2012 (1) % 2013 % INC
Spain 1.2429 47.9% 1.4614 50.2% 17.6%
Portugal 0.2172 8.4% 0.2295 7.9% 5.7%
IBERIA 1.4601 56.3% 1.6909 58.1% 15.8%
of which Schlecker/Clarel - - 0.1909 6.6% -
Argentina 0.1649 6.4% 0.1883 6.5% 14.2%
Brazil 0.2573 9.9% 0.3277 11.3% 27.3%
Shanghai 0.0713 2.7% 0.0806 2.8% 13.0%
EMERGING MARKETS 0.4935 19.0% 0.5966 20.5% 20.9%
FRANCE 0.6418 24.7% 0.6221 21.4% -3.1%
TOTAL DIA 2.5954 100.0% 2.9096 100.0% 12.1%

(1) Figures with Turkey and Beijing activities re-expressed as discontinued.

The DIA Group’s total capital expenditure in 2013 grew by 9.1% to EUR361.8m. As planned, during 2013 the DIA Group continued to concentrate on openings, with a 45.8% increase in investment to EUR139.4m. In addition, investment in the key regions (Iberia and Emerging Markets) increased by 31.5% in 2013 to EUR314.9m, representing 87% of the total capital expenditure in 2013.

CAPEX
BY SEGMENT (EURm) 2012 2013 INC
Iberia 133.2 187.4 40.6%
Emerging Markets 106.2 127.5 20.1%
France 92.3 46.9 -49.2%
TOTAL 331.7 361.8 9.1%
BY CONCEPT (EURm) 2012 2013 INC
Openings 95.6 139.4 45.8%
Remodelling & On-going 236.1 222.4 -5.8%
TOTAL 331.7 361.8 9.1%

In addition to the EUR361.8m recurrent capital expenditure, during 2013 DIA invested EUR67.0m in the acquisition of the Schlecker business in Iberia. From the divestment of the 60% stake held in DIA Turkey, the company obtained EUR27.3m in cash and a EUR32.1m debt reduction.

BUSINESS REVIEW BY GEOGRAPHICAL SEGMENT

In Iberia, gross sales under banner increased by 4.7% to EUR6,143.4m in 2013, of which EUR289.5m were contributed by Schlecker. Like-for-like gross sales under banner decreased by 3.3% in 2013. The continuous process of improving efficiencies captured in the operations together with the franchised stores and the positive effect of Schlecker were reflected in a 63bps improvement in the adjusted EBITDA margin over net sales and 80bps gain in the case of the adjusted EBIT margin. Adjusted EBITDA and adjusted EBIT increased by 10.5% and 17.4% respectively.

IBERIA
(EURm) 2012 2013 INC
Gross sales under banner 5,868.9 6,143.4 4.7%
of which Schlecker/Clarel - 289.5 -
LFL gross sales under banner -  - -3,3%
Net sales 5,117.5 5,283.7 3.2%
Adjusted EBITDA 456.9 504.7 10.5%
Adjusted EBITDA margin 8.9% 9.6% 63 bps
Adjusted EBIT 300.0 352.2 17.4%
Adjusted EBIT margin 5.9% 6.7% 80 bps

In Emerging Markets, where the DIA Group maintained a very dinamic business performance, the gross sales under banner grew by 27.7% in local currency (8.9% in Euros due to the devaluation of the Argentinian Peso and the Brazilian Real) thanks to the high number of openings and the dynamic behaviour of sales.

Despite the acceleration in openings in Rio Grande do Sul and the expansión carried out in Minas Gerais, the DIA Group managed to achieve a 23bps expansion in Adjusted EBITDA to 2.9% in full year figures.

EMERGING COUNTRIES
(EURm) 2012 (1) 2013 INC INC w/o FX
Gross sales under banner 2,896.0 3,153.5 8.9% 27.7%
LFL gross sales under banner - - 16.4%
Net sales 2,450.5 2,661.9 8.6% 27.0%
Adjusted EBITDA (2) 65.0 76.6 18.0% 41.9%
Adjusted EBITDA margin 2.7% 2.9% 23 bps
Adjusted EBIT (2) 33.0 40.2 21.7% 50.7%
Adjusted EBIT margin 1.3% 1.5% 16 bps

(1) Figures with Turkey and Beijing activities re-expressed as discontinued, (2) Adjusted by non-recurring items.

Francia saw a continuation of the weak performance in sales in previous quarters. Like-for-like sales decrease by 9.4% in 2013. Gross sales under banner decreased by 10.9% in 2013 to EUR2,179.4m, while adjusted EBITDA came down by 35.6% to EUR60.2m, reflecting a 3.2% margin over net sales.

FRANCE
(EURm) 2012 2013 INC
Gross sales under banner 2,445.1 2,179.4 -10.9%
LFL gross sales under banner -  - -9,4%
Net sales 2,139.5 1,898.8 -11.3%
Adjusted EBITDA (1) 93.6 60.2 -35.6%
Adjusted EBITDA margin 4.4% 3.2% -120 bps
Adjusted EBIT (1) 13.6 -17.7 -230.4%
Adjusted EBIT margin 0.6% -0.9% -157 bps

(1) Adjusted for non-recurring items.

GLOSSARY

Gross sales under banner: total turnover value obtained in stores, including indirect taxes (sales receipt value) in all the company’s stores, both owned and franchised.

Net sales: sum of the accounting sales generated from the total gross sales under banner after deduction of indirect taxes and sales to franchises.

LFL sales growth under banner: growth rate of gross sales under banner at constant currency of all DIA stores that have been operating for more than twelve months.

Adjusted EBITD: operating profit after adding back restructuring costs, impairments, re-estimation of useful life and gains/losses arisen on the disposal of assets and depreciation and amortization of fixed assets.

Adjusted EBIT: operating profit after adding back restructuring costs, impairment and re-estimation of useful life and gains/losses arisen on the disposal of assets.

Underlying net profit: net income calculated on net profit attributable to the parent company, excluding non-recurring items (restructuring costs, impairment and re-estimation of useful life, gain/losses on disposal of assets, tax litigations and exceptional financial expenses), discontinued operations and the corresponding tax impact.

2.2. Questions related to environment and personnel

Environment

DIA works to reduce its environmental impact by continually fine-tuning all of its processes. Its efforts on the energy savings front are particularly noteworthy, as are the plethora of initiatives undertaken to enhance its logistics management, which are translating into significant savings in fuel consumption, a reduction in truck journeys, more efficient use of goods, etc.

This policy has resulted in an EUR10 million investment by the company in the purchase of 320,000 LED tubes for their use in all its stores in Spain and Portugal during 2013 and 2012. This project will reduce the Group’s carbon dioxide emissions by 20,800 tonnes and will be extended to France and Brazil in the future. In the same order, the DIA Group in Spain has carried out in 2013 an investment of about EUR5 millions in the installation of doors in their murals of cold.

Although the elements of management are defined, the company is working on the development and publication of its environmental policy.

Personnel
WORKFORCE

During 2013 the workforce in the DIA Group remained from the previous year, despite the crisis situation in Europe.

The workforce in Spain and Portugal has been increased significantly because of the acquisition of the company Schlecker present in both countries, with more than 1.100 stores and four logistic warehouses.

If anything stands in the DIA Group is the stability between the hierarchical levels of management, because of its low rotation and its moderated increase, according to the Group’s philosophy.

Another success of the stability of the workforce, is the selection and training system for base and functional personnel, that allows attract and retain the best professionals. The selection and training of the store employees, is performed by qualified professionals in the stores-schools, that after the selection process – test and personal interview- it is imparted training formation for the store work. The training process in the logistic centers is directed mainly to the use of machinery and to the occupational risk prevention.

COMPANY-EMPLOYEE RELATION

In 2013 it has been developed a Work Environment Evaluation system through an on-line survey in Spain, Argentina and Portugal. Results were satisfactory, with a share of 9,700 employees between the three countries, with a 64% of satisfaction on average and a 78% of high commitment with the company. Results in the same line as similar companies in each country or even with a higher percentage of commitment. From these results, action plans are being carried out in order to improve the more demanded aspects by the employees.

About the Internal Communication, several measures had been implemented to improve the information and the employee commitment degree with the business Project. The first action has been the renovation of the internal magazine, not only with a new image centered on the employee, but also with content about and for the employee, and the importance is given to people and environment. During 2013, the Group has been working on the Employee Portal which will be released in the coming months.

HEALTH AND SAFETY AT WORK

Being aware of the importance of maintaining appropriate conditions to prevent risks, DIA scrupulously complies with the current legislation. About the accident at work data, there wasn’t any accident with fatal outcome and the percentage of sick leave hours per accident is 0.7% and per disease of 1.5%.

In warehouses and stores, exist specific training about occupational risk prevention, and all employees training about the use of the specific machinery that they use in their Workstation. Furthermore, for personnel in office, information and sensitization about health and safety at Workstation are carried out.

EDUCATION AND TRAINING

In the DIA Group an occupational training is provided for employees applying for jobs in stores to prepare them for the managing of a sale terminal (cash register), inside the DIA values and in basic concepts of product emplacement and collaboration and teamwork.

About the training on business offices includes mainly two types. The largest is the training on languages, mainly English, the same as Spanish and French, as this is important for the negotiation with suppliers around the world. Technical training affects to most of the workforce, with the specific knowledge for the Workstation or for the managing of office tools and other software applications.

During 2013 the DIA Development Program (PDD) was carried out for high potential managers in Spain. 20 people of the different areas of the company participated on it. For 2014 this program will be adapted for the international character and will be focused to Managers, in order to share the comprehensive knowledge of the company and the singularities of each country.

Another important fact during 2013 has been the design and specific training delivery for the new concept of the Clarel store of Schlecker for Spain and Portugal.

DIVERSITY AND EQUAL OPPORTUNITIES

The DIA Group is a group where the presence of women is majority, reaching a 69% of the workforce. About the representation of women in management positions, is of 36%, but this amount changes with the world region, being of 50% or even more in countries as Spain or China.

The distribution of the employees by country in 2013 is as follows:

being the distribution by occupational categories as follows:

02-personal-azul-en.jpg

PERFORMANCE AND REMUNERATION

In the DIA Group there are mechanisms for performance assessment for the 100% of the workforce. For store and warehouse personnel, objectives of performance of productivity in workplace and individual are assessed. For the business office, individual objectives are focused on the individual performance and in the same line as the company objectives.

For this reason, different own assessment systems have been developed. Nowadays the company is working on a new application for the assessment of the management, valid for all the countries.

For the directors level the company has started a system for the talent management with a global scope.

The remuneration is established on general terms by the Management of the Group, according to the market, the inflation, agreements with unions and collective agreements.

The DIA Group’s remuneration policy is based on the following principles and foundations:

  • Moderation and fitness to trends and references on remunerations followed in companies of similar size and activity, so as to be aligned with the best market practices.
  • Reward quality, dedication, responsibility, business knowledge and commitment to the Company of people who occupy key posts and lead the organization.
  • Linkage between compensation and results of Company’s operations, so that the weight of the variable remuneration is adequate to effectively reward the achievement of objectives and adding value to the Company.
  • Internal equity and external competitiveness.

Credits

Edit:
DIA, S.A.
Parque empresarial de las Rozas - Edif. TRIPARK
C/ Jacinto Benavente 2 A 28232 Las Rozas. Madrid - España

Production and coordination:
DEVA | Comunicación financiera y sostenibilidad

Design:
STROCEN.COM | New Corporate Design

Web development:
efe6 <Rebuilding ideas/>

Translation:
Tara O’Donoghue

Photography:
Jesús Umbría / DIA

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