RISK FACTORS
The following discussion reflects business risks that are evaluated by Delhaize Group's
management and the Board of Directors. This section should be read carefully in
relation to Delhaize Group prospects and the forward-looking statements contained
in this Annual Report. Any of the following risks could have a material adverse effect
on the Group's financial condition, results of operations or liquidity and could lead
to impairment losses on goodwill, intangible assets and other assets. There may be
additional risks of which the Group is unaware. There may also be risks the Group now
believes to be immaterial, but which could evolve to have a material adverse effect.
Strategic Risks
Macro-economic Risk
Expansion Risk
Acquisition and Integration Risk
Divestiture Risk
RISK FACTORS
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Potential macro-economic risks facing Del
haize Group include a reduction in consumer
spending, cost inflation or retail price deflation,
and possible consequences of public spend
ing cuts in Europe.
General economic conditions such as
unemployment rates, business conditions,
interest rates, energy and fuel costs and tax
rates could reduce consumer spending or
change consumer purchasing habits. Weaker
consumer spending can negatively impact
profitability due to pressure on sales and
margins. If labor costs and the cost of goods
sold, which are the Group's primary operating
costs, increase above retail inflation rates, this
could have an adverse effect on the Group's
profitability. Where possible, cost increases
are recovered through retail price adjustments
and increased operating efficiencies.
Delhaize Group is particularly susceptible to
macroeconomic conditions in the U.S. In 2014,
63% of the Group's revenues were generated
in the U.S. (2013: 61%), where its stores are
located on the East Coast. Consequently, the
Group's operations depend significantly upon
the economic conditions in this area.
In Europe, core and retail inflation are particu
larly low, which may in turn result in a slide into
a deflationary environment. This could impact
consumers and suppliers resulting in reduced
consumer spending. In Greece and Serbia,
public spending cuts could put additional
pressure on consumer spending. Furthermore,
in Greece, Delhaize Group is exposed to the
possible aftermath of the sovereign debt crisis.
This will likely continue to have an adverse
impact on consumer spending and may cause
the company to impair assets and record
lower contribution in operating results.
Delhaize Group's ability to open new stores
is dependent on purchasing or entering into
leases on commercially reasonable terms, for
properties that are suitable for its needs.
If the Group fails to secure such properties on
a timely basis, its growth may be impaired.
Similarly, its business may be harmed if it is
unable to renew leases on its existing stores
on commercially acceptable terms.
Delhaize Group may pursue acquisition
opportunities in the food retail industry.
Delhaize Group generally focuses on the
acquisition of businesses operating the same
or similar store formats in geographical areas
where it currently operates or in adjacent
areas. By acquiring other businesses, the
Group will face risks related to the integration
of these businesses. These risks include, but
are not limited to, incurring significantly higher
than anticipated financing costs and operating
expenses, failing to assimilate the operations
and personnel of acquired businesses, failing
to install and integrate all necessary systems
and controls, the loss of customers, entering
markets where Delhaize Group has no or lim
ited experience, the disruption of the Group's
ongoing business and the overburdening of
Delhaize Group's management resources. In
addition, the realization of the anticipated ben
efits of an acquisition, store renovation, market
renewal or store opening may take several
years or may not occur at all. The above risks
may also have a negative impact on good
will recognized in the financial statements in
connection with such acquisitions (see also
Note 6 "Goodwill" in the Financial Statements).
Acquisitions may, in general, place a signifi
cant strain on Delhaize Group's management,
operational, financial and other resources. The
lack of suitable acquisition targets at accept
able prices also may limit the Group's growth
opportunities.
Delhaize Group regularly evaluates the
potential disposition of assets and businesses
that may no longer help meet the Group's
objectives. When selling or disposing of assets
or businesses, the Group may encounter
difficulty in finding suitable buyers or develop
ing alternative exit strategies on acceptable
terms in a timely manner. Delhaize Group may
also dispose of a business at a price or on
terms that are less desirable than anticipated.
In addition, the Group may experience greater
dis-synergies than expected. After reaching
an agreement with a buyer for the disposi
tion of assets or a business, Delhaize Group
is subject to the risk of reaching satisfactory
closing conditions as well as to the risk of
failing to obtain necessary regulatory and
governmental approvals on acceptable terms,
which, if not satisfied or obtained, may prevent
the completion of the transaction. Dispositions
may also involve continued financial commit
ments related to the divested business, such
as through continuing service agreements,
equity ownership, guarantees, indemnities
