Thailand . Delhaize Group entered the Thai market in June 1997 through a partnership in a company called Bel-Thai Supermarkets, Ltd., which was later renamed Food Lion Thailand Ltd. Currently, Delhaize Group directly and through its affiliates owns all of the shares of Food Lion Thailand. As of December 31, 2003, Food Lion Thailand’s sales network consisted of 36 stores operated under the Food Lion banner.

      Indonesia . In 1997, Delhaize Group entered Indonesia by acquiring an interest in P.T. Lion Super Indo LLC, an operator of 11 stores. The company has grown steadily and operated 38 stores as of December 31, 2003. Delhaize Group owns 51% of Lion Super Indo with the remaining 49% being owned by the Indonesian Salim Group. In 2002, Lion Super Indo launched its own central buying department that was further developed in 2003. In 2003, Lion Super Indo started distributing goods through its central warehouse, reducing direct store deliveries.

      Singapore . Delhaize Group entered a partnership in the Singapore market in 1999. In November 2003, Delhaize Group sold its 49% shareholding in the Singaporean retailer Shop N Save for a total amount of EUR 21.8 million. The sale resulted in a capital gain of EUR 9.8 million.

D. Property

     The following is a summary of Delhaize Group’s sales network as of December 31, 2003.

Store Ownership of Sales Network

     The majority of Delhaize Group’s company-operated stores are leased. Most stores under lease are located in the U.S. With the exception of 133 owned stores in the U.S., as of January 3, 2004, Food Lion, Hannaford, Kash n’ Karry and Harveys occupied various store premises under lease agreements providing for initial terms of up to 27 years, with renewal options generally ranging from three to 27 years. Delhaize Group operates 13 warehousing and distribution facilities (totaling approximately 946,500 square meters or approximately 10.2 million square feet) in the U.S. Delhaize Group also owns and operates its U.S. transportation fleet. In Belgium, as of December 31, 2003, Delhaize Group owned five of its six principal distribution centers, leased its three ancillary distribution centers and owned approximately 42% of its company-operated stores. At December 31, 2003, Delhaize Group owned one distribution center and 26 stores in Greece, with 78 stores under leases, and in the Czech Republic and Slovakia Delhaize Group owned two distribution centers and 43 stores, with 66 stores under leases.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

      The following section contains forward-looking statements that involve risks and uncertainties. Delhaize Group’s actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under “B. Risk Factors” of Item 3 “Key Information” above and those set forth under “D. Factors Affecting Financial Condition and Results of Operations” of this Item 5 below.

     This discussion is intended to provide the reader with information that will assist in understanding Delhaize Group’s financial statements, the changes in certain key items in those financial statements from year to year, and the primary factors that accounted for those changes, as well as how certain accounting principles affect Delhaize Group’s financial statements. The discussion also provides information about the financial results of the various divisions of Delhaize Group’s business to provide a better understanding of how those divisions and their results affect the financial condition and results of operations of Delhaize Group as a whole.

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     In reading the following discussion and analysis, please refer to Delhaize Group’s audited consolidated financial statements for the years ended December 31, 2003, 2002 and 2001, included under Item 18 in this document. The financial statements referred to above were prepared in accordance with accounting principles generally accepted in Belgium (“Belgian GAAP”) and include a discussion of the principal material differences between Belgian GAAP and accounting principles generally accepted in the United States of America (“US GAAP”) as they apply to Delhaize Group. The reconciliation of Belgian GAAP to US GAAP is presented in Note 22 to the consolidated financial statements. This discussion and analysis of general financial condition and results of operations was prepared using Belgian GAAP.

     Amounts presented in U.S. dollars in the following discussion and analysis are translated into euros at the exchange rate used to prepare the consolidated financial statements of the year when the transaction discussed occurred. The year-end rate is used for balance sheet items; the average rate is used for income statement and cash-flow statement items.

     The results of operations of Delhaize Group’s subsidiary, Delhaize America, covered 53 weeks through January 3, 2004 in Delhaize Group’s year ended December 31, 2003 and 52 weeks through December 28, 2002 and December 29, 2001 in Delhaize Group’s years ended December 31, 2002 and 2001, respectively. The results of operations of Delhaize Belgium and other companies of Delhaize Group outside the United States are presented on a calendar year basis. The results of operation of Harveys were included in Delhaize Group’s year ended December 31, 2003, prospectively from October 26, 2003, the date Delhaize Group acquired Harveys. Shop N Save’s results of operations included in Delhaize Group’s year ended December 31, 2003 covered the period through September 30, 2003, as Delhaize Group sold its 49% interest in Shop N Save in 2003. The results of operations of Super Discount Markets, Inc. (“SDM”) included in Delhaize Group’s year ended December 31, 2001, covered the period through November 12, 2001, the date SDM filed for bankruptcy.

     The financial information of Delhaize Group contained in this Item 5 includes all of the assets, liabilities, sales and expenses of all fully consolidated subsidiaries. Net income of Delhaize Group excludes the portion of consolidated results attributable to minority interests. Generally, all companies in which Delhaize Group can exercise control or where Delhaize Group has a direct or indirect interest of more than 50% are fully consolidated. Delhaize Group’s businesses in Belgium, the Grand-Duchy of Luxembourg and Germany are collectively referred to as Delhaize Belgium.

     Delhaize Group consolidated and controlled (through a majority ownership of Delhaize America’s voting shares) the operations of Delhaize America for all periods presented in this Item 5. At December 31, 2003, 2002 and 2001, Delhaize Group owned 100% of Delhaize America’s non-voting Class A common stock and voting Class B common stock. On April 25, 2001, Delhaize Group and Delhaize America consummated a share exchange whereby Delhaize Group exchanged each outstanding share of the Delhaize America Class A and Class B common stock not already directly or indirectly held by Delhaize Group for 0.4 Delhaize Group American depository shares (“ADS”) listed on the New York Stock Exchange (“NYSE”), or at the option of each shareholder, 0.4 Delhaize Group ordinary shares listed on Euronext Brussels. Delhaize America became a wholly-owned subsidiary of Delhaize Group as a result of the share exchange. Prior to the date of the share exchange, Delhaize Group owned 36.8% of Delhaize America’s non-voting Class A common stock and 56.3% of Delhaize America’s voting Class B common stock, resulting in an effective ownership interest in Delhaize America of 44.9%.

Executive Summary

     Delhaize Group is an international food retailer offering a locally differentiated shopping experience to its customers in each of its markets. Delhaize Group revenues are earned and cash is generated through the sale of consumer products to customers in our stores and to wholesale and affiliated customers. We earn revenues predominantly by selling products at price levels that exceed our direct procurement costs and operating expenses. Such costs and expenses include cost of goods and distribution costs, facility occupancy and operational expenses, and overhead expenses.

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Operations

     At the end of 2003, Delhaize Group operated 2,559 stores. Delhaize Group engages primarily in one line of business, which is the operation of retail food supermarkets. Delhaize Group’s sales network also includes other store formats, particularly in Europe. Most stores are Company-operated. A limited number of stores are operated as affiliated or franchised stores.

     Delhaize Group’s stores sell a variety of groceries, produce, meats, dairy products, seafood, frozen food, delicatessen and bakery items, prepared foods, and non-food items such as health and beauty care products, pet products, prescriptions and household and personal products. Delhaize Group’s stores offer nationally and regionally advertised brand name merchandise as well as products sold under private labels.

Delhaize Group’s operations are comprised of three geographical divisions:

The Food Retail Industry

     Delhaize Group operates in the highly competitive food retail industry in North America, Europe and Southeast Asia. The operating companies of Delhaize Group face strong sales competition from traditional food retailers and from alternative formats that increasingly sell food products. Consumers, particularly in the U.S., purchase grocery items from a variety of competing stores, and purchasing behavior is sensitive to economic conditions.

     Delhaize Group competes with a number of companies for prime retail site locations, as well as for attracting and retaining quality employees. Delhaize Group, along with other retail companies, is influenced by a number of factors including, but not limited to: economic conditions, cost of goods, customer preferences, currency exchange fluctuations, fuel prices and weather patterns.

Delhaize Group Challenges

     Delhaize Group identified the following as its key challenges:

Strategic Company Initiatives

     Delhaize Group has identified and implemented three primary strategic initiatives to drive the Company’s competitiveness, profitability and return on invested capital: concept leadership, executional excellence and learning within the Company.

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     Delhaize Group furthered its concept leadership initiative in 2003 through actions taken at many of its companies. Food Lion, the largest company of Delhaize Group, initiated a market renewal program in Raleigh, North Carolina where it reinforced and expanded its perishable offerings, remodeled the stores with new merchandising fixtures, and enhanced its associate training program. Hannaford, Delhaize Belgium and Alfa-Beta continue to develop innovative concepts through which a broad range of quality products and services are offered. In 2004, Kash n’ Karry will be rebranded to Sweetbay Supermarket to support the repositioning of the company in western Florida.

     The Company’s focus on executional excellence is designed to sustain its concept leadership initiative. Delhaize Group’s companies invest in training and information systems to support the day-to-day execution within the organization which enables the companies to consistently complete projects successfully; improve customer service; and increase profitability by reducing costs and expenses.

     At Delhaize Group, becoming a learning company is a strategic process through which the know-how, experiences and expertise of the companies and employees are spread and shared throughout the entire organization. Learning networks have been established and best practices identified and distributed. Cross company learning occurs in many areas of our business including store concepts, information technology, supply chain management, indirect procurement and communications.

Key Items in Fiscal 2003

     Significant financial results during fiscal 2003 were:

Critical Accounting Policies

     Delhaize Group has chosen accounting policies that it believes are appropriate to accurately and fairly report its consolidated financial statements, and Delhaize Group applies those accounting policies in a consistent manner. Delhaize Group believes that the accounting policies discussed below are our critical accounting policies. For a summary of all our significant accounting policies, including the critical accounting policies discussed below, please see Note 1 to our consolidated financial statements included in this annual report.

     The preparation of the financial statements in conformity with Belgian GAAP requires that Delhaize Group make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions are based on historical and other factors believed to be reasonable under the circumstances. Delhaize Group evaluates these estimates and assumptions on an ongoing basis and may retain outside consultants, lawyers and actuaries to assist in its evaluation. Actual results may differ from these estimates under different assumptions and conditions. Delhaize Group believes the following accounting policies are the most critical because they involve the most significant judgments and estimates used in preparation of its consolidated financial statements. For Belgian GAAP policies that differ significantly from those under US GAAP, Delhaize Group’s accounting policy applied for the reconciliation to US GAAP is also provided.

Asset Impairment

     Under Belgian GAAP, Delhaize Group reviews long-lived assets for impairment when an event has occurred that would indicate that a permanent diminution in value exists (e.g., store closing decision). If the net book value of a long-lived asset is greater than its fair value, Delhaize Group will record an impairment reserve to reduce the asset’s net book value to fair value in the period the change in the operational or economic circumstances of the asset is observed. If the impairment reserve is no longer justified in future periods, due to recovery in the asset’s fair value, the impairment reserve is reversed.

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     Under US GAAP, Delhaize Group adopted Statement of Financial Accounting Standards (“SFAS”) No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), which is effective for financial statements issued for years beginning after December 15, 2001. In accordance with SFAS 144, Delhaize Group periodically evaluates the period of depreciation and amortization for long-lived assets to determine whether current circumstances warrant revised estimates of useful lives. Delhaize Group monitors the carrying value of its retail stores, its lowest level asset group for which identifiable cash flows are independent of other groups of assets and liabilities, for potential impairment based on projected undiscounted cash-flows. If impairment is identified for retail stores, Delhaize Group compares the assets’ estimated fair market value to its current carrying value and records provisions for impairment as appropriate. With respect to owned property and equipment associated with closed stores, the value of the property and equipment is adjusted to reflect estimated recoverable values based on Delhaize Group’s previous experience in disposal of similar assets and current economic conditions.

     Impairment losses are significantly impacted by estimates of future operating cash flows and estimates of fair value. Delhaize Group estimates future cash flows based on the experience and knowledge of the markets in which the stores are located. These estimates are adjusted for variable factors such as inflation and general economic conditions. Delhaize Group estimates fair value based on its experience and knowledge of the real estate markets where the store is located and also includes an independent third-party appraiser in certain situations.

Goodwill and other intangible assets

     Intangible assets primarily include goodwill and rights to use trade names, distribution networks, assembled workforce, favorable lease rights and prescription files. Delhaize Group separates goodwill created from equity purchases of businesses, classified in “goodwill arising on consolidation, net,” and goodwill created from asset purchases of businesses, classified in “intangible assets, net.” Goodwill created from equity purchases of businesses is amortized over their estimated useful lives on a straight-line basis. The choice of rate depends on the country where the investment is made: up to 40 years for countries with mature economies and up to 20 years for countries with emerging economies. The rights to use trade names, other intangible assets, and goodwill created from asset purchases of businesses are amortized on a straight-line basis over their estimated useful lives.

     On January 1, 2002, under US GAAP, Delhaize Group adopted SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”)”, which required that we cease amortizing goodwill and other intangible assets with indefinite lives, and begin an annual assessment of potential impairment of goodwill and other indefinite lived intangible assets by comparing the book value of these assets to their current fair value. Fair value is estimated based on discounted cash flow projections provided by reporting unit management. When the carrying value of the reporting unit exceeds its fair value, a provision for impairment is recorded. Delhaize Group conducts an annual impairment assessment in the fourth quarter of each year in accordance with SFAS No. 142.

     The evaluation of goodwill and intangibles with indefinite useful lives for impairment requires management to use significant judgments and estimates including, but not limited to, projected future revenue, cash flows and discount rates. We believe that, based on current conditions, materially different reported results are not likely to result from goodwill and intangible impairments. However, a change in assumptions or market conditions could result in a change in estimated future cash flows and the likelihood of materially different reported results.

Self insurance

     Delhaize America is self-insured for workers’ compensation, general liability, vehicle accident and druggist claims. The self-insurance liability is determined actuarially, based on claims filed and an estimate of claims incurred but not yet reported. Maximum self-insured retention, including defense costs per occurrence, ranges from USD 0.5 million to USD 1.0 million per individual claim for workers’ compensation and USD 3.0 million for automobile liability and general liability, including druggist liability, with a USD 2.0 million and a USD 5.0 million deductible in addition to the retention on the excess policy for automobile liability and druggists, respectively. Delhaize America is insured for covered costs, including defense costs, in excess of these retentions and deductibles. The significant assumptions used in the development of the actuarial estimates are grounded upon our historical claims data, including the average monthly claims and the average lag time between incurrence and payment.

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     The actuarial estimates are subject to a high degree of uncertainty from various sources, including changes in claim reporting patterns, claim settlement patterns, judicial decisions, legislation, and economic conditions. Although the Company believes that the actuarial estimates are reasonable, significant differences related to the items noted above could materially affect the Company’s self-insurance obligations and future expense.

Store closing reserves

     Delhaize Group provides for closed store liabilities relating to the estimated post-closing lease liabilities and other related exit costs associated with store closing commitments. The closed store liabilities are usually paid over the lease terms associated with closed stores having remaining terms ranging from one to 20 years. The lease liabilities are estimated net of sublease income, using a discount rate based on the current U.S. Treasury note rates adjusted for our current credit spread to calculate the present value of the remaining rent payments on closed stores. Other exit costs include estimated real estate taxes, common area maintenance and insurance costs to be incurred after the store closes, all of which are contractually required payments under the lease agreements, over the remaining lease term. Store closings are generally completed within one year after the decision to close. Adjustments to closed store liabilities and other exit costs primarily relate to changes in subtenants and actual exit costs differing from original estimates. Adjustments are made for changes in estimates in the period in which the change becomes known. Any excess store liability remaining upon settlement of the obligation is reversed in the period that such settlement is determined.

     Inventory write-downs, if any, in connection with store closings, are classified in “cost of goods sold” for store closings in the ordinary course of business and in “other exceptional expenses” for store closings outside the ordinary course of business. Costs to transfer inventory and equipment from closed stores are expensed as incurred. When severance costs are incurred in connection with store closings, a liability for the termination benefits is recognized and measured at its fair value when the termination notice is communicated to the associates. Store closing liabilities are reviewed quarterly to ensure that any accrued amounts appropriately reflect the outstanding commitments and that any additional costs are accrued or amounts that are no longer needed for their originally intended purpose are reversed.

     Under Belgian GAAP store closing reserves are recognized when the decision is taken by the appropriate management. Under US GAAP, in accordance with the provisions of SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (SFAS 146), store closing reserves are recognized when the liability is incurred, i.e. when the store is closed.

     Calculating the estimated losses requires significant judgments and estimates that could be impacted by factors such as the extent of interested buyers, the ability to obtain subleases, the creditworthiness of sublessees, and our success at negotiating early termination agreements with lessors. These factors are significantly dependent on general economic conditions and resultant demand for commercial property.

Supplier allowances

     Delhaize Group receives allowances and credits from suppliers primarily for volume incentives, new product introductions and in-store promotion income and co-operative advertising income. Volume incentives are based on contractual arrangements generally covering a period of one year or less and have been historically included in the cost of inventory and recognized as earned in “cost of goods sold” when the product is sold. New product introduction allowances compensate Delhaize Group for costs incurred associated with product handling and have been historically deferred and recognized as a reduction in “cost of goods sold” over the product introductory period. Non-refundable credits from suppliers for in-store promotions such as product displays require related activities by Delhaize Group. Similarly, co-operative advertising requires Delhaize Group to conduct the related advertising. In-store promotions income and co-operative advertising income have historically been included in “other operating income” and recognized when the related activities are performed by Delhaize Group.

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     Under US GAAP, in 2003, upon the adoption of Emerging Issues Task Force (EITF) Issue No. 02-16, “Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor”, in-store promotion and co-operative advertising allowances are now included in cost of inventory and recognized when the product is sold unless they represent reimbursement of a specific, identifiable cost incurred by Delhaize Group to sell the vendor’s product. Delhaize Group has reviewed the promotional funding received from vendors and concluded that these agreements are primarily for general advertising purposes and not the reimbursement of a specific, identifiable cost incurred by Delhaize Group. Upon adoption of EITF 02-16 in 2003, Delhaize Group recorded the cumulative effect of a change in accounting principle of EUR 16.1 million, net of tax. This charge was recorded in Delhaize Group’s consolidated statement of income and reflects an adjustment on Delhaize Group’s inventory balance.

     Estimating some rebates received from third party vendors require Delhaize Group to make assumptions and judgments regarding specific purchase or sales levels and estimate related inventory turns. Delhaize Group constantly reviews the relevant significant assumptions and estimates and makes adjustments as necessary. Although Delhaize Group believes the assumptions and estimates used are reasonable, significant changes in these arrangements or purchase volumes could have a material effect on future cost of sales.

A. Overview

     The core activity of Delhaize Group is the sale of food through supermarkets in North America, Europe and Southeast Asia. In addition, Delhaize Group engages in food wholesaling and in non-food retailing such as pet products and health and beauty products. At December 31, 2003, Delhaize Group had a sales network of 2,559 stores in 10 countries.

     During the year ended December 31, 2003, Delhaize Group’s sales decreased 9.0% as compared with sales for the year ended December 31, 2002. During the year ended December 31, 2002, Delhaize Group’s sales decreased 3.3% as compared with sales for the year ended December 31, 2001. In 2003 and 2002, there was a negative translation effect in Delhaize Group’s sales as a result of the depreciation of the average rate of the U.S. dollar by 16.4% and 5.3% against the euro, respectively. The translation effect is defined as the effect of fluctuations in the exchange rates in the functional currencies of Delhaize Group’s subsidiaries to the euro, the reporting currency of Delhaize Group.

     During the year ended December 31, 2003, Delhaize Group increased the number of stores in its sales network by 32 stores to a total of 2,559 stores. At December 31, 2002, Delhaize Group had a sales network of 2,527 stores, or 83 more than the 2,444 stores within the network at December 31, 2001.

     Net income for the year ended December 31, 2003, decreased 4.0% compared with net income for the year ended December 31, 2002. Net income was negatively affected by significant exceptional expenses and the negative translation effect due to the depreciation of the U.S. dollar by 16.4% against the euro. Net exceptional expenses amounted to EUR 144.9 million and EUR 12.7 million for the year ended December 31, 2003 and 2002 respectively.

     Net income for the year ended December 31, 2002, increased 19.3% compared with net income for the year ended December 31, 2001. Although there was a negative translation effect in 2002 due to the depreciation of the U.S. dollar by 5.3% against the euro, net income was positively affected by significantly lower exceptional expenses than in 2001 and significantly lower minority interests as a result of the share exchange with Delhaize America in April 2001. Net exceptional expenses decreased by 86.8% to EUR 12.7 million in 2002 from EUR 96.4 million in 2001. Minority interests decreased by 91.8% to EUR 1.6 million in 2002 from EUR 19.3 million in 2001.

     As stated previously, on April 25, 2001, Delhaize Group and Delhaize America consummated a share exchange whereby Delhaize Group exchanged each outstanding share of the Delhaize America Class A and Class B common stock not already directly or indirectly held by Delhaize Group for 0.4 Delhaize Group ADSs listed on the NYSE, or at the option of each shareholder, 0.4 Delhaize Group ordinary shares listed on the Euronext Brussels. Delhaize America became a wholly-owned subsidiary of Delhaize Group as a result of the share exchange. Prior to that time, Delhaize Group owned 44.9% of Delhaize America’s stock.

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     Net income, as determined in accordance with US GAAP was EUR 242.9 million, EUR 287.4 million and EUR 148.0 million, for the years ended December 31, 2003, 2002 and 2001, respectively. The principal differences between Belgian GAAP and US GAAP, as they relate to Delhaize Group’s net income, include the accounting treatment of goodwill, pensions, fixed assets, stock based compensation, foreign currency transactions, treasury shares, derivative instruments, inventories and leases. See Note 22 to the consolidated financial statements.

B. Selected Results of Operations

     Sales decreased 3.3% during the year ended December 31, 2002, over the corresponding period in 2001. This decrease in sales was primarily due to the negative translation effect resulting from the depreciation of the U.S. dollar by 5.3% against the euro, weak sales at Food Lion and Kash n’ Karry as a result of the heightened competitive activity and the deconsolidation of SDM from November 2001. SDM sales were EUR 278.8 million in 2001. Excluding the effects on sales from the closure of SDM, sales growth was 2.1% at constant exchange rates. This growth of 2.1% was the result of a net increase of the sales network of 83 stores and a comparable store sales growth of 3.7% at Delhaize Belgium partially offset by a comparable store sales decrease of 1.0% at Delhaize America.

United States

     Sales decreased 13.5% during the year ended December 31, 2003, over the corresponding period in 2002. This decrease was primarily a result of the negative translation effect resulting from the depreciation of the U.S. dollar by 16.4% against the euro, and the closing of 46 stores, partly offset by the extra week of sales and the acquisition of 43 Harveys stores. Excluding the effects on sales of the acquisition of 43 Harveys stores and the 53rd week, sales growth was 1.1% at identical exchange rates. During 2003, Delhaize America had a net increase of 30 new store openings, and remodeled 94 stores. Comparable store sales at Delhaize America increased 0.6% during 2003 over the comparable period in 2002. Sales in 2003 were primarily positively impacted by a continued focus on executional excellence at Food Lion and the continued strength of Hannaford’s Festival Strategy. The sales improvement during 2003 was achieved partially as a result of improving economic conditions in the southeast region of the United States; however, the soft job market and competitive activity in Delhaize America’s major operating areas continued to provide a challenging business environment. During 2003, Delhaize America experienced 104 net competitive openings in its operating area – increasing the amount of grocery store square footage available to consumers.

     Sales decreased 6.0% during the year ended December 31, 2002, over the corresponding period in 2001. This decrease was primarily a result of the negative translation effect resulting from the depreciation of the U.S. dollar by 5.3% against the euro and the closure of SDM. Excluding the effect on sales from the closure of SDM, sales growth of 0.9% at identical exchange rates. During 2002, Delhaize America had a net increase of its sales network of 26 new stores and remodeled 127 stores. Comparable store sales at Delhaize America decreased by 1.0% during the year ended December 31, 2002. While sales at Hannaford evolved positively during 2002, Food Lion and Kash n’ Karry posted weaker sales than prior year. Sales performance during 2002 at these two banners was negatively affected by soft economic conditions and heightened competitive activity in these banners’ major operating areas. During 2002, Delhaize America experienced 67 net competitive openings in its operating area – increasing the amount of grocery square footage available to consumers.

Belgium

     Sales increased 7.4% during the year ended December 31, 2003, over the corresponding period in 2002. This increase was primarily due to the expansion of the sales network by 21 stores and a comparable store sales increase of 5.6% due to successful commercial initiatives and the continued renewal of its store concepts. . Sales growth was strong throughout the year due to a significant increase in the number of customers and in the average sales basket. Delhaize Belgium continued to lower prices to reinforce its competitive position.

     Sales increased 6.5% during the year ended December 31, 2002, over the corresponding period in 2001. This increase was primarily due to the expansion of the sales network by 62 stores and a comparable store sales increase of 3.7%. Sales growth accelerated throughout the year after a weak beginning due to the introduction of the euro and a new commercial policy. At the beginning of 2002, Delhaize Belgium introduced a new commercial policy leading to a more limited number of promotions and consistently lower everyday prices. The strongest sales growth was realized by the AD Delhaize, Shop’n Go and Proxy Delhaize banners.

Operations Outside the United States and Belgium

     Sales increased 1.3% during the year ended December 31, 2003, over the corresponding period in 2002. This sales increase was primarily due to new store openings in all countries other than Slovakia and strong sales growth in the remodeled Trofo stores, partly offset by the deconsolidation of Shop N Save from October 1, 2003 and by the negative translation effect resulting from the depreciation of the Asian currencies against the euro. In 2003, Delhaize Group added eight stores in Greece, one store in Czech Republic, three stores in Romania, two stores in Thailand and four stores in Indonesia. Excluding the effects on sales of the disposal of Shop N Save sales growth was 5.8% at identical exchange rates.

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     Sales increased 8.3% during the year ended December 31, 2002, over the corresponding period in 2001. This sales increase was primarily due to new store openings in all countries other than the Czech Republic and Slovakia and strong sales growth in the remodeled Trofo stores. In 2002, Delhaize Group added seven stores in Greece, two stores in Romania, eight stores in Thailand and five stores in Indonesia. The decrease in sales at Delvita was primarily due to the closure of eight stores in 2001 and the highly competitive environment, the deflation of food prices and flooding in Prague.

Gross Profit

     Gross profit decreased 10.2% for the year ended December 31, 2003, over the corresponding period in 2002. This decrease was primarily the result of a negative translation effect resulting from the depreciation of the U.S. dollar by 16.4% against the euro and the reduction of gross margin from 25.9% in 2002 to 25.6% in 2003. The decrease in gross margin was primarily due a decreased gross margin of the U.S operations, offset by an increased gross margin of the Belgian operations. The gross margin of the U.S operations decreased from 27.6% to 27.3% as a result of investments in price competitiveness by Food Lion and Kash n’ Karry, more active promotions and increased inventory shrink at Food Lion. The gross margin of the Belgian operations increased from 21.9% to 22.4% due to improved purchasing and better sales mix, despite the lowering of prices over the past two years.

     Gross profit decreased 1.1% for the year ended December 31, 2002, over the corresponding period in 2001. This decrease was primarily the result of a negative translation effect resulting from the depreciation of the U.S. dollar by 5.3% against the euro, partly offset by an increase primarily due to the sales increases that resulted from acquiring and opening new stores, renovating existing stores and increasing gross margins. Gross margin at Delhaize Group increased from 25.4% in the year ended December 31, 2001 to 25.9% in the comparable period in 2002 primarily due to a shift at Delhaize America from certain Supplier allowance money (accounted for in the line “other operating income”, which is not included in the gross profit calculation) to a discount taken from the list price of the invoice (accounted for in the line “cost of goods sold”), as part of the introduction in 2002 of the Every Day Low Cost program. Additionally, gross margin increased as the result of continued implementation of zone-pricing at Food Lion, more favorable buying conditions due to synergies between the different banners, and a better sales mix including improved private label product penetration and a focus on fresh products.

Supplier allowances

     During the year ended December 31, 2003, Delhaize Group received EUR 670.6 million allowances and credits from suppliers, an increase of 0.5% compared to the corresponding period in 2002. Volume incentives and new product introduction allowances are recognized as earned in “cost of goods sold” and were EUR 432.9 million in 2003, an increase of 1.2% compared to EUR 427.8 million received in 2002. Credits received from suppliers for in-store promotions and co-operative advertising are recognized in “other operating income” when the related activities are performed by Delhaize Group and were EUR 237.7 million, a decrease of 0.7% compared to EUR 239.4 million received in 2002.

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     During the year ended December 31, 2002, Delhaize Group received EUR 667.2 million allowances and credits from suppliers, a decrease of 10.8% compared to the corresponding period in 2001. Volume incentives and new product introduction allowances were EUR 427.8 million in 2002, a decrease of 5.3% compared to EUR 451.6 million received in 2001. Credits received from suppliers for in-store promotions and co-operative advertising were EUR 239.4 million, a decrease of 19.3% compared to EUR 296.6 million received in 2001. The decrease was primarily due to the shift at Delhaize America from certain vendor allowance money (accounted for in the line “other operating income”, which is not included in the gross profit calculation) to a discount taken from the list price of the invoice (accounted for in the line “cost of goods sold”), as part of the introduction in 2002 of the Every Day Low Cost program as amounts formerly included in allowances are shifted to the invoice as direct cost reductions.

Other Operating Costs

     Other operating costs as a percentage of sales decreased from 23.9% during the year ended December 31, 2002, to 23.3% in the corresponding period in 2003, due to decreased selling, administrative and other operating expenses, lower salaries, social security and pension costs and decreased depreciation and amortization. Selling, administrative and other operating expenses, as a percentage of sales, declined from 7.3% in 2002 to 7.2% in 2003. Salaries, social security and pension costs decreased, as a percentage of sales, from 13.1% in 2002 to 12.8% in 2003. These reductions are primarily the results of the ongoing cost and expense savings at Food Lion and other operating companies within the Group. In January 2003, Food Lion launched a major initiative to identify and implement cost and expense savings of approximately USD 100 million (approximately EUR 88.4 million) through the closing of 41 underperforming stores, improved purchasing of supplies, the streamlining of its support structure and other initiatives. Store labor costs decreased as a result of productivity and operational improvements. Retirement plan expenses were reduced as a result of changes in the retirement plans of Food Lion and Kash n’ Karry.

     Depreciation and amortization decreased from 3.5% of sales in the year ended December 31, 2002 to 3.3% of sales in the year ended December 31, 2003. Depreciation and amortization expense decreased due to the closing of 46 stores in the U.S. in 2003 and a reduction in capital expenditures from EUR 634.9 million in 2002 to EUR 448.3 million in 2002.

     Other operating costs as a percentage of sales increased from 23.5% during the year ended December 31, 2001 to 23.9% in the corresponding period in 2002, due to increased selling, administrative and other operating expenses, increased salaries, social security and pension costs and increased depreciation and amortization. Selling, administrative and other operating expenses, as a percentage of sales, increased from 7.1% in 2001 to 7.3% in 2002. Salaries, social security and pension costs increased, as a percentage of sales, from 13.0% in 2001 to 13.1% in 2002. At Delhaize America, increased store labor costs to support improved customer service and charges related to the reorganization of the senior management team of EUR 7.1 million were offset by rigor in cost control and increased productivity. In Belgium, labor costs increased due to the staffing required during the introduction of the euro at the beginning of the year and the year-on-year salary increases related to the adjustment of salaries to inflation during 2001.

     Depreciation and amortization increased from 3.4% of sales in the year ended December 31, 2001 to 3.5% of sales in the year ended December 31, 2002. Depreciation and amortization expense increased due to the full year effect of the purchase price allocation related to the share exchange with Delhaize America.

     During the year ended December 31, 2002, Delhaize Group recognized store closing costs of EUR 3.0 million primarily related to 10 planned store closings in the ordinary course of business at Delhaize America and the reversal of the store closing reserve related to the re-opening under the Food Lion banner of one former Hannaford store previously closed. These store closing costs primarily consisted of estimated post-closing lease liabilities, other exit costs associated with the store closing commitments and related asset impairment charges.

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Store Closing Costs in the Ordinary Course of Business

     Delhaize Group generally intends to complete store closings within a one-year period following the business decision to close. As most of the Delhaize Group’s stores are located in leased facilities, a lease liability is recorded for the present value of the estimated remaining non-cancelable lease payments after the closing date, net of estimated subtenant income. In addition, Delhaize Group records a liability for expenditures to be incurred after the store closing which is required under leases or local ordinances for site preservation during the period before lease termination or sale of the property. These other exit costs include estimated real estate taxes, common area maintenance and insurance costs to be incurred after the store closes (all of which are contractually required payments under the lease agreements) over the remaining lease term. The value of owned property and equipment related to a closed store is reduced to reflect recoverable values based on Delhaize Group’s previous experience in disposing of similar assets and current economic conditions. Any reduction in the recorded value of owned property and equipment for closed stores is reflected as an asset impairment charge. Disposition efforts related to store leases and owned property begin immediately following the store closing.

     Inventory write-downs, if any, in connection with store closings, are classified in “cost of goods sold.” Costs to transfer inventory and equipment from closed stores are expensed as incurred. When severance costs are incurred in connection with store closings, a liability for the termination benefits is recognized and measured at its fair value when the termination notice is communicated to the associates. Store closing liabilities are reviewed quarterly to ensure that any accrued amounts appropriately reflect the outstanding commitments and that any additional costs are accrued or amounts that are no longer needed for their originally intended purpose are reversed.

     Significant cash outflows associated with closed stores relate to ongoing lease payments. Because the liability associated with ongoing operating leases for closed stores is recorded at the present value of the estimated remaining non-cancelable lease payments net of estimated subtenant income, the principal portion of lease payments reduces the lease liability, while the interest portion of the lease payment is recorded as interest expense in the current period. Store closing costs relating to store closings in the ordinary course of business are charged to operating income as “selling, administrative and other operating expenses” and “depreciation and amortization.” See the section below entitled “Store Closing Costs” for further information.

Operating income

     The following table sets forth, for the periods indicated, Delhaize Group’s operating income contribution by geographic region:

* Belgium includes Delhaize Group operations in Belgium, the Grand-Duchy of Luxembourg and Germany and includes corporate expenses incurred by the parent company.

     The operating income as a percentage of sales (the “operating margin”) of Delhaize Group rose from 3.9% in 2002 to 4.3% in 2003. The increase is a result of the lower operating costs as a percentage of sales, which declined from 23.9% during the year 2002 to 23.3% in 2003, partially offset by a decrease of the gross margin from 25.9% in 2002 to 25.6% in 2003. As a result of the expense and costs savings primarily at Food Lion, the operating margin of the United States operations of Delhaize Group improved from 4.4% in 2002 to 4.7% in 2003. The operating margin of the Belgian operations grew to 4.2% in 2003 from 3.0% in 2002 due to continued cost discipline and the increase of its gross margin as a consequence of better buying conditions and an improved sales mix. The operating margin of the operations of Delhaize Group outside the United States and Belgium declined from 0.7% to 0.6%.

     Operating income was EUR 809.2 million for the year ended December 31, 2003, an increase of 0.3% compared to the corresponding period in 2002. At identical exchange rates, this increase was 16.9% in 2003. The increase at identical exchange rates was due to the improving sales trend at Food Lion and Kash n’Karry, the continued good sales performance at Hannaford and Delhaize Belgium, the increased gross margin at Delhaize Belgium and the cost and expense savings at Food Lion and other operating companies within the Group.

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     The operating margin of Delhaize Group decreased from 4.3% in 2001 to 3.9% in 2002. The reduction was due to an increase from operating costs as a percentage of sales, from 23.5% in 2001 to 23.9% in the year 2002, partially offset by an increase of the gross margin from 25.4% in 2001 to 25.9% in 2002. The operating margin of the U.S. operations of Delhaize Group declined from 4.8% in 2001 to 4.4% in 2002, as a result of weak sales particularly at Food Lion and Kash n’ Karry, inventory shrink and investments in price competitiveness. The operating margin of the Belgian operations declined to 3.0% in 2002 from 3.2% in 2001 due to increased operating costs as percentage of sales, partially offset by an increased gross margin . The operating margin of the operations of Delhaize Group outside the United States and Belgium declined from 0.8% in 2001 to 0.7% in 2002.

     Operating income declined 12.4% from EUR 921.3 million for the year ended December 31, 2002 to EUR 807.2 million for the corresponding period in 2002. At identical exchange rates, this decrease was 7.9%. The decrease at identical exchange rates was due to weak sales, particularly at the U.S. banners Food Lion and Kash ‘n Karry in the second half of the year due to the slowdown of the U.S. economy and the increased competitive environment. The decrease of the operating profit was also the result of the decline of the operating margin due to the negative margin impact of fixed costs in a weak sales environment, unplanned inventory shrink and investments in price competitiveness in the U.S.

Net Financial Expenses

     Net financial expenses during the year ended December 31, 2003 decreased 21.2% compared to the year ended December 31, 2002 and represent, as a percentage of sales, 1.9% in 2003 and 2.2% in 2002. Net financial expenses decreased primarily due to the depreciation of the U.S. dollar by 16.4% against the euro and to the interest reduction from the interest rate swap agreements (discussed in greater detail below under the heading “Interest Rate Risk”) and the repurchase of USD 69 million in debentures and other borrowings by Delhaize America in the second half of 2002. Net financial expenses decreased also with the mark to lower of cost or market of treasury shares which resulted in financial income of EUR 7.2 million.

     Net financial expenses during the year ended December 31, 2002 decreased 2.0% compared to the year ended December 31, 2001 and represent, as a percentage of sales, 2.2% in 2002 and 2001. Net financial expenses decreased primarily due to the depreciation of the U.S. dollar by 5.3% against the euro and to the interest reduction from the interest rate swap agreements (discussed in greater detail below under the heading “Interest Rate Risk”) and the repurchase of USD 69 million in debentures and other borrowings by Delhaize America in the second half of 2002. The interest reduction was offset by the mark to market of treasury shares (EUR 12.6 million), the foreign exchange losses primarily related to the dividend paid by Delhaize America to the parent company (EUR 7.7 million), and the loss related to the exercise of stock options (EUR 7.6 million).

Net Exceptional Expenses

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     In the first quarter of 2003, 41 Food Lion and 1 Kash n’ Karry stores were closed and a streamlining of the support structure of Food Lion was started. An exceptional pre-tax charge of EUR 30.7 million (USD 34.8 million) was recorded in connection with this restructuring. In the third quarter of 2003, Food Lion began rolling out a new inventory and margin management system, which was supported by a change from the Retail Inventory Accounting Method to the Average Item Cost Inventory Accounting Method at Food Lion and Kash n’ Karry. The difference between the two methods of accounting for inventory resulted in an initial adjustment to inventory values, recorded as an exceptional non-cash charge of EUR 81.3 million (USD 91.9 million) pre-tax in the second quarter of 2003. Adjustments of an additional EUR 3.4 million (USD 3.9 million) to this initial exceptional charge were recorded during the second half of 2003. At the end of September 2003, Hurricane Isabel affected more than 200 Food Lion stores and one distribution center through early closings, evacuation or property damage. Delhaize Group recorded an exceptional charge of EUR 15.0 million (USD 16.9 million) pre-tax in the third quarter of 2003, primarily due to perishable product losses following power failures, mandatory evacuations and store closings. In November 2003, Delhaize Group sold its 49% interest in the Singaporean food retailer Shop N Save recording a capital gain of EUR 9.8 million. In the same quarter, Delhaize Group recorded impairment charges on certain fixed assets of Kash n’ Karry, Delhaize Belgium and Delvita (EUR 10.4 million), on its investment in the Worldwide Retail Exchange, a business-to-business platform (EUR 7.1 million), on the goodwill and other intangible assets on Food Lion Thailand (EUR 3.2 million) and on the goodwill at Mega Image (EUR 5.5 million). Additionally, a reversal of previous impairment charges of EUR 4.9 million was recorded on certain fixed assets of Delvita.

     Net exceptional expenses during the year ended December 31, 2002 were EUR 12.7 million compared to net exceptional expenses of EUR 96.4 million during the year ended December 31, 2001. The 2002 net exceptional expenses were primarily the result of store closing provisions and asset impairments at Delvita and Food Lion Thailand.

     Under Belgian GAAP, store closing costs related to store closings outside of the ordinary course of business are charged to “exceptional expenses.” See the section entitled “Store Closing Costs” below for further information on store closings outside the ordinary course of business. Exceptional items under Belgian GAAP, as presented herein, do not qualify as extraordinary items under US GAAP.

Income Taxes

     Delhaize Group’s effective tax rate (total taxation divided by income before taxation) was 42.9%, 47.0% and 53.2% for the years ended December 31, 2003, 2002 and 2001, respectively. The effective tax rate decreased in 2003 primarily due to the higher weight of the lower-taxed Belgian operations in the total profit, non-taxable gains on the adjustment to the lower of cost or market of treasury shares (effect of 0.8%) and the sale of Shop N Save in 2003 (effect of 1.1%) and non-deductible charges on the adjustment to the lower of cost or market of treasury shares in 2002 (effect of 1.5%). Effective January 1, 2003, the Belgian statutory tax rate was reduced from 40.2% to 34.0%. The effective tax rate decreased in 2002 primarily due to Delhaize Group not incurring certain non-deductible exceptional expenses that were incurred in 2001 (effect of 4.5%). Exceptional charges were EUR 34.5 million for the closing of SDM and EUR 19.0 million for store closings and asset impairment charges at Delvita.

Net Income

     The following table sets forth, for the periods indicated, Delhaize Group’s net income contribution by geographic region:

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     In the year ended December 31, 2003, the contribution of the United States operations as a percentage of Delhaize Group net income decreased to 47.0% compared to 85.3% in the year ended December 31, 2002. The decrease was primarily a result of the significant exceptional expenses recorded in 2003 related to the store closings outside the ordinary course of business and streamlining of the support structure at Food Lion, the change in inventory accounting method, the effects of Hurricane Isabel, impairment charges on certain fixed assets of Kash n’ Karry and on its investment in the Worldwide Retail Exchange and the negative translation effect due to the depreciation of the U.S. dollar by 16.4% against the euro.

     In the year ended December 31, 2002, the contribution of the United States operations as a percentage of Delhaize Group net income decreased to 85.3% as compared to 89.1% in the year ended December 31, 2001. The decrease was primarily a result of the decrease of the net loss at the “Other” operating locations (see explanation below) and a negative translation effect due to the depreciation of the U.S. dollar by 5.3% against the euro, partially offset by the costs related to the closing of SDM in 2001.

     In the year ended December 31, 2003, the contribution of Belgian operations as a percentage of Delhaize Group net income increased to 60.6% as compared to 26.8% in the year ended December 31, 2002. This increase was primarily a result of strong sales growth, improved sales mix, disciplined cost management, and the reduced statutory tax rate. The statutory tax rate was reduced from 40.2% in 2002 to 34.0% in 2003.

     In the year ended December 31, 2002, the contribution of Belgian operations as a percentage of Delhaize Group net income decreased to 26.8% as compared to 33.2% in the year ended December 31, 2001. This decrease was primarily a result of the decrease of the net loss at the “Other” operating locations (see explanation below).

     In the year ended December 31, 2003, the contribution of the operations of Delhaize Group outside the United States and Belgium as a percentage of Delhaize Group net income was a negative 7.6% as compared to a negative 12.1% in the year ended December 31, 2002. This improvement was primarily a result of the EUR 9.8 million capital gain recorded on the sale of Shop N Save.

     In the year ended December 31, 2002, the contribution of the operations of Delhaize Group outside the United States and Belgium as a percentage of Delhaize Group net income was a negative 12.1% as compared to a negative 22.3% in the year ended December 31, 2001. This improvement was primarily a result of the non-recurring exceptional expenses for the store closings and the impairment charge recorded at Delvita in 2001 and the increase in 2002 of the net income at Alfa-Beta as a result of the integration of Trofo.

Store Closing Costs

     Under Belgian GAAP, store closing costs related to store closings in the ordinary course of business (i.e., on a store-by-store basis) are charged to operating income as “selling, administrative and other operating expenses” and “depreciation and amortization” and store closing costs related to store closings outside of the ordinary course of business (e.g., a specific market area or a Delhaize Group store banner) are charged to “exceptional expenses.”

     In 2001, Delhaize Group made the strategic decision to exit the Atlanta, Georgia market in the United States by selling nine Save-a-Lot discount stores and closing 19 Cub Foods supermarkets that were operated by its joint venture, SDM. As a consequence of this decision, SDM filed for protection under Chapter 11 of the United States bankruptcy code on November 12, 2001 and is still in liquidation. In connection with these closings, Delhaize Group recorded losses of EUR 17.0 million and closed stores liabilities of EUR 17.5 million. During 2002, Delhaize Group recorded adjustments of EUR 1.7 million and cash payments of approximately EUR 4.4 million against these reserves. At December 31, 2002, Delhaize Group had a EUR 12.5 million closed stores liability related to the liquidation of SDM. During 2003, Delhaize Group recorded cash payments against these reserves of approximately EUR 2.5 million. At December 31, 2003, Delhaize Group had EUR 8.1 million closed store liabilities related to the liquidation of SDM.

     In 2001, a subsidiary of Delhaize Group, Delvita, recorded closed store liabilities of EUR 2.6 million related to eight store closings. These liabilities primarily related to lease obligations. During 2002, Delvita recorded additions to closed stores liabilities of EUR 1.8 million related to four additional stores and adjustments to prior year estimates for stores previously closed. During the same period, Delvita recorded cash payments against these reserves of approximately EUR 1.7 million. At December 31, 2002, Delvita had EUR 2.9 million closed stores liabilities for eleven closed stores. During 2003, Delvita recorded reductions to closed stores liabilities of EUR 0.4 million related to adjustments to prior year estimates for stores previously closed. During the same period, Delvita recorded cash payments against these reserves of approximately EUR 0.5 million. At December 31, 2003, Delvita had EUR 2.0 million closed store liabilities for ten stores.

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     Other than those store closings in 2002 and 2001 relating to Delvita and the store closings in 2001 relating to SDM, the majority of Delhaize Group’s store closings in 2003, 2002 and 2001 relate to Delhaize America. Delhaize America had 204, 172 and 179 closed stores and planned to close an additional 2, 5 and 10 stores at December 31, 2003, 2002 and 2001, respectively. Thirty-nine of the 204 closed stores at December 31, 2003 were accounted for as discontinued operations under US GAAP. The following information represents Delhaize America’s store closings in the ordinary course of business and those outside of the ordinary course of business.

     Delhaize America had store closing liabilities of EUR 110.8 million, EUR 139.8 million and EUR 187.0 million at December 31, 2003, 2002 and 2001. The balance at December 31, 2003 of EUR 110.8 million consisted of lease liabilities and other exit cost liabilities of EUR 90.3 and EUR 20.5 million, respectively. The balance at December 31, 2002 of EUR 139.8 million consisted of lease obligations and other exit costs of EUR 110.1 million and EUR 29.7 million, respectively.

     Delhaize America provided for closed store liabilities relating to the estimated post-closing lease obligations and other exit costs (which include estimated real estate taxes, common area maintenance and other costs contractually required to be paid in connection with the lease obligations) associated with the store closing commitments. Adjustments to closed store liabilities and other exit costs primarily relate to changes in subtenants, changes in actual store closing dates that differ from planned store closing dates and actual exit costs differing from original estimates. Adjustments are made for changes in estimates in the period in which the change becomes known. Store closing liabilities are reviewed quarterly to ensure that current estimates are consistent with amounts recorded in the financial statements. During 2000, Delhaize America closed a store previously operated by the Hannaford banner as part of the merger related divestitures. At that time, Delhaize America established the required store closing reserves. In 2002, Delhaize America made the decision to re-open the store under the Food Lion banner, and reversed the store closing reserve of EUR 6.9 million.

     Delhaize America uses a discount rate based on the current U.S. Treasury note rates to calculate the present value of the remaining rent payments on closed stores.

     During 2003, Delhaize America recorded net additions to closed store liabilities of EUR 13.3 million related to 18 store closings made in the ordinary course of business and the closure of 42 under-performing Food Lion and Kash n’ Karry stores outside the ordinary course of business and also adjustments to estimates for stores previously closed. During the same period, Delhaize America recorded cash reductions to its reserves for closed stores of approximately EUR 19.3 million. These reductions include cash payments of approximately EUR 15.6 million for ongoing rent payments on closed stores’ remaining lease obligations, net of sublease income, and EUR 3.7 million paid for other exit costs.

     During 2002, Delhaize America recorded net additions to closed store liabilities of EUR 1.4 million related to 15 store closings made in the ordinary course of business and adjustments to estimates for stores previously closed. During the same period, Delhaize America recorded cash reductions to its reserves for closed stores of approximately EUR 20.6 million. These reductions include cash payments of approximately EUR 16.7 million for ongoing rent payments on closed stores’ remaining lease obligations, net of sublease income, and EUR 3.9 million paid for other exit costs.

     During 2001, Delhaize America recorded net additions to closed store liabilities of EUR 8.5 million related to 12 store closings made in the ordinary course of business and adjustments to estimates for stores previously closed. During the same period, Delhaize America recorded cash reductions to its reserves for closed stores of approximately EUR 23.4 million. These reductions included cash payments of approximately EUR 17.1 million for ongoing rent payments on closed stores’ remaining lease obligations, net of sublease income and EUR 6.3 million paid for other exit costs, as discussed above. The non-cash adjustments of EUR 7.8 million related primarily to two events: 1) the revaluation of closed store liabilities of approximately EUR 6.7 million as a result of the share exchange by Delhaize Group; and 2) a reduction for closed stores acquired in the Hannaford acquisition, based on final purchase accounting allocation of EUR 14.5 million.

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     See Notes 1 and 22 to the consolidated financial statements under Item 18 “Financial Statements” below for further information on store closing costs.

C. Liquidity and Capital Resources

     At December 31, 2003, Delhaize Group had EUR 459.1 million of cash and short-term investments compared to EUR 417.7 million at December 31, 2002. Delhaize Group’s principal source of liquidity is cash generated from operations. Debt is also an important tool in the funding policy of Delhaize Group because of recent acquisitions. Cash flow from operations is reinvested each year in new stores, store remodeling and store expansions, as well as in store efficiency-improving measures and retailing innovations. Cash flow from operations has also been used to service outstanding debt and for the payment of dividends. Delhaize Group believes that its working capital and existing credit lines are sufficient for its present requirements.

Operating Activities

     Cash provided by operating activities was EUR 848.5 million, EUR 1,036.8 million and EUR 1,208.5 million during the years ended December 31, 2003, 2002 and 2001, respectively. The net decrease in 2003 over 2002 was primarily due to a negative translation effect as a result of the depreciation of the U.S. dollar by 16.4% against the euro and increased tax payments. Tax payments increased to EUR 221.0 million in 2003 from EUR 121.7 million in 2002, due primarily to the nondeductible expense in 2003 at Food Lion and Kash N’ Karry for the change in inventory accounting method, increased profitability in the Belgian geographic region in 2003, and non-recurring tax deductions associated with depreciation and inventory valuation which occurred in 2002.

Investing Activities

     Cash used in investing activities decreased to EUR 482.4 million during the year ended December 31, 2003 compared with EUR 600.8 million for the year ended December 31, 2002 and EUR 608.3 million for the year ended December 31, 2001. In 2003, the decrease in capital expenditures and the sale of the interest in Shop N Save (Singapore) was partially offset by the acquisition of 43 Harveys stores in the U.S. and by investments of EUR 74.2 million in debt securities with maturities over three months. Increased purchases of tangible fixed assets in 2002 were almost totally offset by decreased acquisition activity in 2002 compared to 2001. In 2001, Delhaize Group used approximately EUR 45.4 million, net of cash acquired, for the Trofo acquisition and EUR 19.3 million in connection with the share exchange with Delhaize America.

     Capital expenditures were EUR 448.3 million for the year ended December 31, 2003 compared with EUR 634.9 million for the year ended December 31, 2002 and EUR 553.6 million for the year ended December 31, 2001. The decrease in 2003 was primarily due to the U.S. dollar weakening and lower capital expenditures in the U.S., partially as a result of construction delays related to prolonged rain and related weather conditions during the Spring of 2003 and as a result of disciplined reduction in capital spending to support the generation of cash flow and debt reduction. In 2003, Delhaize Group expanded its store network by 32 stores. Additionally, in 2003 Delhaize America renovated 94 existing stores. The increase in 2002 was primarily due to major information technology investments, especially at Food Lion. During 2002 Delhaize Group added 83 new stores to its sales network through store openings. Additionally, Delhaize America renovated 127 existing stores. During 2001 Delhaize Group added 83 new stores to its sales network through store openings and added 51 stores through its acquisitions. Additionally, Delhaize America renovated 145 existing stores. The following shows the breakdown of capital expenditures by geographic area in 2003, 2002 and 2001.

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     In 2002, Delhaize Group reduced its long-term debt by EUR 120.2 million including a Delhaize America repurchase of USD 69.0 million (approximately EUR 73.0 million) of its outstanding debt in open market transactions and the payment of capital lease obligations of EUR 32.2 million.

     On April 19, 2001, Delhaize America refinanced its USD 2.5 billion (approximately EUR 2.8 billion) short-term loan facility used to fund the acquisition of Hannaford by completing a private offering of USD 600 million (approximately EUR 681 million) of 7.375% notes due in 2006, USD 1,100 million (approximately EUR 1,248 million) of 8.125% notes due in 2011 and USD 900 million (approximately EUR 1,021 million) of 9.000% debentures due in 2031. On November 16, 2001, Delhaize America offered to exchange the original debt securities for exchange securities that were identical in all material respects to the original debt securities except that such debt securities are registered under the Securities Act, are not subject to the transfer restrictions applicable to the original debt securities and are not subject to any covenants regarding exchange or registration rights. The exchange offer expired on December 17, 2001. USD 2,542,142,000 (approximately EUR 2,884,569,000) of original debt securities were tendered for exchange securities. USD 57,858,000 (approximately EUR 65,651,000) in original debt securities were not tendered.

     In February 2001, Delhaize The Lion Nederland issued EUR 150 million, 5.5% Eurobonds due in 2006.

     Delhaize Group used the proceeds from these 2001 issuances to repay EUR 2.9 billion in short-term loans.

     At December 31, 2003, Delhaize Group had long-term borrowings as follows:

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     The table set forth below provides the expected principal payments and related interest rates of our long-term borrowings by year of maturity as of December 31, 2003. For the definition of “fair value,” see Note 22 to the consolidated financial statements.

Short-term Borrowings

     Delhaize America maintains a revolving credit facility with a syndicate of commercial banks which expires in July 2005. In December 2002, the credit facility was amended and the line of credit was reduced from USD 500 million (approximately EUR 395.9 million) to USD 350 million (approximately EUR 277.1 million). The credit facility is collateralized by certain inventory of Delhaize America’s operating companies. The credit facility contains affirmative and negative covenants, including a minimum fixed charge coverage ratio, a maximum leverage ratio and an asset coverage ratio. At December 31, 2003, Delhaize America was in compliance with all covenants contained in the credit facility. Delhaize America had no outstanding borrowings under this facility at December 31, 2003 and had no borrowings during 2003. During 2002, Delhaize America had under this facility average borrowings of USD 4.7 million (approximately EUR 5.0 million) at a daily weighted average interest rate of 3.19%.

     At December 31, 2003 and 2002, the European and Asian companies of Delhaize Group together had credit facilities (committed and uncommitted) of EUR 655.3 million and EUR 686.2 million, respectively under which Delhaize Group can borrow amounts for less than one year (Short-term Credit Institution Borrowings) or more than one year (Medium-term Credit Institution Borrowings). The Short-term Credit Institution Borrowings and the Medium-term Credit Institution Borrowings (collectively the “Credit Institution Borrowings”) generally bear interest at the inter-bank offering rate at the borrowing date plus a pre-set margin or that is based on market quotes from banks.

     Delhaize Group had in Europe and Asia EUR 86.0 million and EUR 337.3 million outstanding at December 31, 2003 and 2002, respectively in Short-term Credit Institution Borrowings, with an average interest rate of 3.17 and 3.79% respectively. During 2003, Delhaize Group had average borrowings of EUR 251.0 million at daily average interest rate of 3.31%.

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     The Credit Institution Borrowings require maintenance of various financial and non-financial covenants. At December 31, 2003, Delhaize Group was in compliance with all such covenants. At December 31, 2002, Delhaize Group was in compliance with all such covenants, except a financial covenant under two short-term credit facilities at its wholly-owned subsidiary, Delvita. Delvita obtained waivers for such non compliance at December 31, 2002.

     In Belgium, Delhaize Group had approximately EUR 153.0 million and EUR 128.1 million in short-term notes outstanding under the EUR 500 million Treasury Program (see Note 12 to the consolidated financial statements) at December 31, 2003 and 2002, respectively.

Contractual Obligations and Commitments

     The following table summarizes Delhaize Group’s contractual obligations and commitments as of December 31, 2003.

Off-balance sheet arrangements

      In addition to the obligations recorded on Delhaize Group’s balance sheet, Delhaize Group has certain commitments and contingencies that may result in future cash requirements. In addition to the capital commitments, operating lease commitments, purchase obligations and the other contractual obligations discussed above, these off-balance sheet arrangements consist of liabilities under interest rate swap and foreign currency swap agreements and liabilities under put and call options. For additional information about Delhaize Group’s commitments and contingent liabilities, please see Note 18 and 19 to Delhaize Group’s consolidated financial statements included in this annual report.

D. Factors Affecting Financial Condition and Results of Operations

     In addition to the factors discussed below, please see the information under the heading entitled “Risk Factors” under Item 3 “Key Information” above.

      Financial Risk Management. Delhaize Group has, as a global market participant, exposure to different kinds of market risk. The major exposures are foreign currency exchange rate, interest rate risks and self-insurance risks.

     The Group’s treasury function provides a centralized service for the management and monitoring of foreign currency exchange and interest rate risks for all the Group’s operations. The risk policy of the Group is to hedge only interest rate or foreign exchange transaction exposure that is clearly identifiable. The Group does not hedge foreign exchange translation exposure. The Group does not utilize derivatives for speculative purposes.

      Foreign Exchange Risk. Because a substantial portion of Delhaize Group’s assets, liabilities and operating results are denominated in U.S. dollars, it is exposed to fluctuations in the value of the U.S. dollar against the euro. Delhaize Group does not hedge this U.S. dollar net investment. In 2003, a variation of 1 cent in the exchange rate of the euro would have caused sales to vary by 0.8% or EUR 155.5 million. Net income in 2003 would have increased over that of 2002 by 9.2%, at constant exchange rates, rather than the decrease by 4.0%.

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     Delhaize Group finances the operations of its subsidiaries primarily through borrowings in its subsidiaries’ local currencies. Substantially all of Delhaize Group’s borrowings are denominated in U.S. dollar or euro.

     Delhaize Group’s financial risk management policy for non-U.S. dollar denominated assets is to match the currency distribution of its borrowings to the denomination of its assets and of its receivables to the denomination of its equity funding and/or its debt funding. As a result, fluctuations in its balance sheet ratios resulting from changes in exchange rates are generally limited. Dividends and borrowings are the most significant components of cash flow in Delhaize Group that are influenced by variations in exchange rates.

     The policy of Delhaize Group is to hedge only foreign exchange transaction exposure that is clearly identifiable and, in principle, not to hedge foreign exchange translation exposure. Any sizeable intra-Group currency lending is generally fully hedged through the use of foreign exchange forward contracts or currency swaps.

      Interest Rate Risk. Delhaize Group manages its debt and overall financing strategies using a combination of short, medium and long-term debt and interest rate swaps. Delhaize Group finances its daily working capital requirements, when necessary, through the use of its various committed and uncommitted lines of credit, the use of its commercial paper programs and cash on hand. These short and medium-term borrowing arrangements generally bear interest at the inter-bank offering rate at the borrowing date plus a pre-set margin or that is based on market quotes from banks. Delhaize Group also uses a treasury notes program. At December 31, 2003, 80.4% of Delhaize Group’s total debt was at fixed rate for a period of at least one year; therefore, a one-point variation in interest rates would not materially affect interest expense of Delhaize Group in 2003.

     During 2002 and 2001, Delhaize America, a subsidiary of Delhaize Group, entered into interest rate swap agreements, effectively converting a portion of its debt from fixed to variable rates. Maturity dates of interest rate swap arrangements match those of the underlying debt. These agreements involve the exchange of fixed rate payments for variable rate payments without the exchange of the underlying principal amounts. Variable rates for these agreements are based on six-month or three-month USD LIBOR and are reset on a semiannual basis or a quarterly basis. The differential between fixed and variable rates to be paid or received is accrued as interest rates change in accordance with the agreements and recognized over the life of the agreements as an adjustment to interest expense. On December 30, 2003, Delhaize America cancelled USD 100 million of the 2011 interest rate swap arrangements, at a loss of USD 2.7 million. The notional principal amounts of the interest rate swap arrangements at December 31, 2003 were USD 300 million (approximately EUR 237.5 million) maturing in 2006 and USD 100 million (approximately EUR 79.2 million) maturing in 2011.

     During the second quarter of 2003, Delhaize Group entered into interest rate swap agreements converting a portion of its debt from fixed to variable rates. Variable rates for these agreements are based on the three-month Euribor and are reset on a quarterly basis. The notional principal amount of these interest rate swap arrangements as of December 31, 2003 was EUR 100 million maturing in 2008.

      Self-Insurance Risk. Delhaize Group actively manages its insurance risk through a combination of external insurance coverage and self-insurance.

     Delhaize America is self-insured for workers’ compensation, general liability, automobile accident claims and druggist claims. Maximum self-insured retention, including defense costs per occurrence, ranges from USD 0.5 million to USD 1.0 million per individual claim for workers’ compensation and USD 3.0 million for automobile liability and general liability, including druggist liability, with a USD 2.0 million and a USD 5.0 million deductible in addition to the retention on the excess policy for automobile liability and druggists, respectively. The self-insurance liability is determined actuarially, based on claims filed and an estimate of claims incurred but not yet reported. Delhaize America is insured for costs related to covered claims, including defense costs, in excess of the retained limits.

     In the fourth quarter of 2003, Delhaize America renegotiated its property insurance lowering its self-insured retention per occurrence to USD 5.0 million for named storms and USD 2.5 million for all other losses. Prior to the renewal, the amount of the deductible for each named storm occurrence as insured was calculated as five percent of the total insured value at all locations where physical loss or damage occurred. In 2003, Delhaize America incurred property loss of USD 16.9 million (which includes USD 14.3 million loss of inventory) related to Hurricane Isabel).

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     Delhaize America implemented a captive insurance program in 2001; whereby, the self-insured reserves related to workers’ compensation, general liability and auto coverage were reinsured by The Pride Reinsurance Company (“Pride”), an Irish reinsurance captive wholly-owned by a subsidiary of Delhaize Group. The purpose for implementing the captive insurance program was to provide Delhaize America continuing flexibility in its risk program, while providing certain excess loss protection through anticipated reinsurance contracts with Pride. Premiums are transferred annually to Pride through Delhaize Insurance Co., a subsidiary of Delhaize America.

     Delhaize Belgium is partially self-insured through Redelcover S.A., a wholly-owned captive reinsurance company based in the Grand-Duchy of Luxembourg, for doubtful debtors, loss of products due to contamination, loss of revenue due to work stoppages, and similar insurable risks.

      Foreign Investment Risks. In addition to its significant operations in the United States and Belgium, Delhaize Group operates in a number of other countries. Foreign operations and investments are subject to the risks normally associated with conducting business in foreign countries such as:

     There can be no assurance that these problems or other problems relating to foreign operations will not be encountered by Delhaize Group in the future. Foreign operations and investments may also be adversely affected by laws and policies of the United States, Belgium and the other countries in which Delhaize Group operates governing foreign trade, investment and taxation.

      Inflation and Changing Prices. Labor and cost of merchandise sold, the primary operating costs of Delhaize Group, increase with inflation and, where possible, are recovered through operating efficiencies and retail price adjustments.

     During 2003, some inflation was noted at all U.S. operating companies, composed most significantly of inflation in the cost of meat. Delhaize America’s ability to increase prices in reaction to the increase in beef costs has varied across geographical operating territories due to competition. Also, during fiscal 2003, Delhaize America experienced slight inflation primarily due to the pharmacy operations. During the fiscal year ended December 28, 2002, Delhaize America experienced actual deflation in its cost of merchandise as a result of transitioning to an Every Day Low Cost (EDLC) program. During the fiscal year ended December 29, 2001, Delhaize America experienced slight inflation on merchandise purchases of 1.1%.

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     Delhaize Belgium, despite increases in product cost and labor rates, was able to improve its competitive price position and to expand its operating margin last year due to increasing sales volumes, improved product mix and an Everyday Fair Price strategy to consumers.

     Although there is the risk that inflation in Southeast Asia and in certain European countries in which Delhaize Group operates could have an effect on Delhaize Group’s results, such inflation has not had a material effect on sales or results of operations in these regions to date.

E. Recent Events and Outlook

Recent Events

     During the first quarter of 2004, one of Delhaize Group’s subsidiaries, Delhaize America announced a new strategic plan for Kash n’ Karry, its Florida-based business, that will focus resources on Kash n’ Karry’s core markets on the west coast of Florida, where it plans to open or remodel 20 Kash n’ Karry stores in 2004. To redirect resources where they will benefit Kash n’ Karry most, 34 underperforming Kash n’ Karry stores were closed in the first quarter of 2004. Management expects the 34 store closings will have a positive impact on the ongoing operational results of the Group. As part of the new strategy, Kash n’ Karry will be rebranded over the coming three years to the new banner name “Sweetbay Supermarket.” Delhaize Group recorded one-time pre-tax charges of USD 132.5 million (EUR 106.0 million) in the first quarter of 2004 related to the 34 store closings and the write-off of the Kash n’ Karry trade name.

     In April 2004, Delhaize Group issued convertible bonds having an aggregate principal amount of EUR 300 million for net proceeds of approximately EUR 295.2 million (the “Convertible bonds”). The Convertible bonds mature in 2009 and bear interest at 2.75%, payable in arrears on April 30 of each year. The Convertible bonds are convertible by holders into ordinary shares of the Company at any time on or after June 10, 2004 and up to and including the date falling seven business days prior to April 30, 2009, unless previously redeemed, converted or purchased and cancelled. The conversion price will initially be EUR 57.00 per share subject to adjustment on the occurrence of certain events as set out in the Trust Deed, which is filed herewith as Exhibit 2.7. Conversion in full of the aggregate principal amount of the Convertible bonds at the initial conversion price would result in the issuance of 5,263,158 ordinary shares.

     At the Ordinary General Meeting held on May 27, 2004, the Board of Directors proposed the payment of a gross dividend of EUR 1.00 per share. The aggregate amount of the gross dividend related to all the shares outstanding at the date of the adoption of the annual accounts by the Board of Directors, March 10, 2004, therefore amounted to EUR 92.7 million. As a result of the exercise of warrants issued under the Delhaize Group 2002 Stock Incentive Plan, Delhaize Group had to issue new shares between the date of adoption of the annual accounts by the Board of Directors, March 10, 2004, and the date of their approval by the Ordinary General Meeting of May 27, 2004 (the “General Meeting”). The Board of Directors communicated at the General Meeting, the aggregate number of shares entitled to the 2003 dividend, which was 92,845,517, and submitted to this meeting the aggregate final amount of the dividend for approval, which was EUR 92.8 million. The annual accounts of 2003 as presented in this annual report reflect the dividend as approved by the General Meeting.

     On March 15, 2004, Delhaize America reached an agreement with The United Food & Commercial Workers International Union (the “UFCW”) providing that the UFCW will end its “corporate campaign” against Delhaize America. The agreement additionally resolves all outstanding disputes between the UFCW and Delhaize America, including all litigation.

Outlook

     In 2004, the sales network of Delhaize Group is expected to grow by approximately 61 stores to a total of 2,620 stores (including the impact of the 34 Kash n’ Karry store closings). For 2004, Delhaize Group plans capital expenditures (excluding capital leases) of approximately EUR 530 million.

     In 2004, Delhaize Group expects to open 58 new supermarkets in the U.S., including seven relocated stores. Delhaize Group plans to close 45 stores in the U.S. resulting in a net increase of six stores to a total number at the end of 2004 of 1,521 stores. The numbers of store openings and closings include 13 Food Lion stores which will be temporarily closed to be converted and reopened under the Harveys brand. Additionally, Delhaize Group plans to remodel and/or expand 111 existing stores.

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     In 2004, Delhaize Belgium plans to enlarge its sales network by 25 stores (including three company-operated Delhaize “Le Lion” supermarkets) and to remodel 21 company-operated supermarkets. In addition, Delhaize Belgium plans to launch the construction of a new distribution center for fresh produce.

     In 2004, Delhaize Group plans to extend the sales network of the Southern and Central European operations by 25 stores to a total of 267 stores. The sales network in Asia is expected to increase by five supermarkets to a total of 79 stores.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Board of Directors

     In accordance with Belgian law, Delhaize Group’s affairs are managed by its Board of Directors. Under the Articles of Association of Delhaize Group, the Board of Directors must consist of at least three directors. As of June 15, 2004, the Delhaize Group Board of Directors consists of 11 directors. Ten of the directors are non-executive directors and one member, Pierre-Olivier Beckers, the Chief Executive Officer of Delhaize Group, is an executive director. Each of the ten non-executive directors qualifies as an independent director under the rules of the New York Stock Exchange. Four non-executive directors and the executive director are members of different family branches descended from the founders of the Company. At the May 27, 2004 ordinary general meeting, Delhaize Group’s shareholders acknowledged that all non-executive members of the Board of Directors satisfy the requirements of independence set forth by the Belgian Company Code and appointed them as independent directors. The Board of Directors met seven times in 2003.

     On the recommendation of the Governance Committee, the Board proposes the appointment of directors to the shareholders for approval at the Ordinary General Meeting. Beginning on January 1, 1999, the term of all directors’ appointments, new or renewed, was set at three years. The age limit of directors set by the Board is 70 years for the Chairman and the directors. The age limit is 75 years for those directors who were initially appointed before 1999 and for Mr. William G. Ferguson, who was appointed a director as part of the share exchange with Delhaize America in 2001. In addition, the Board of Directors may appoint a director to fill a vacancy on the Board of Directors. A director so appointed may serve until the next general meeting of shareholders. Directors may be removed from office at any time by a majority vote at any meeting of shareholders.

     On May 27, 2004, the shareholders at the Ordinary General Meeting appointed Dr. William Roper as a director for three years and renewed the terms of Count Goblet d’Alviella and Mr. Robert J. Murray as directors for three years. The Board of Directors has decided that Baron Georges Jacobs shall succeed Baron Gui de Vaucleroy as Chairman of the Board beginning January 1, 2005, and also proposed to the shareholders at the Ordinary General Meeting on May 27, 2004 the renewal of the mandate of Baron Gui de Vaucleroy for one year (which proposal was approved), thereby waiving the age limit set by the Board for the Chairman in order to facilitate the transition. The shareholders at the Ordinary General Meeting recognized the departure of Mr. William G. Ferguson, who reached the age limit to serve as a Board member and granted him the title of Honorary Director in gratitude for his contribution to Delhaize Group.

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