Q3 2023

Ahold Delhaize published its third quarter 2023 results on November 8, 2023

Summary of key financial data

Comments from Frans Muller, President and CEO of Ahold Delhaize

“During these times of heightened human suffering around the world, I am proud of our associates for their hard work and unwavering commitment to supporting their local communities. Inflation, increasing interest rates and changes in U.S. government support remain tangible headwinds and are creating anxiety for many customers. Our great local brands have been agile in expanding their assortments with high-quality own-brand products at great prices and swift to pass on price reductions where possible. They continue to invest in and leverage the power of our digital capabilities to provide customers with meaningful, highly personalized discounts tailored to their needs and wallets.

"As a result, customers continue to place their trust in our brands, which is clearly reflected in positive market share growth. With our strong portfolio of international brands, we grew comparable store sales by 3.1% in the third quarter. At a Group level, we delivered an underlying operating margin of 3.8% and diluted underlying EPS of €0.58. While both these metrics are lower year-over-year, around two thirds of the EPS decline is linked to insurance-related adjustments and an unfavorable foreign exchange rate.

“In the U.S., excluding the impact of weather and calendar shifts, comparable sales grew by 1.0%. The reduction in emergency federal Supplemental Nutrition Assistance Program (SNAP) benefits, higher interest rates and the resumption of student loan repayments in October continue to weigh on customer sentiment. On its own, the reduction in SNAP benefits resulted in approximately a four percentage-point headwind to sales growth in the third quarter. While we were able to offset a large portion of this headwind through our strong value propositions and ongoing momentum in online sales, the dilutive impact of a changing sales mix and increasing shrink contributed to slightly lower-than-expected U.S. margins. With the help of measures we are putting in place through our Accelerate initiatives, in-store actions to reduce shrink and further volume support incentives from vendors, we expect this modest margin pressure to be transitory and pass in a couple of quarters.

“When looking at Europe, which has endured more pressure in the last two years than the U.S., I am confident we are on the path to recovery. While inflation is also moderating in Europe, our major efforts to elevate and harmonize our customer value proposition accelerated comparable sales growth to 7% in the quarter. Delhaize Belgium announced that 51 stores have now signed agreements with independent buyers and started transitioning the first stores to the new operators in October. Excluding the effects of this transformation, comparable sales in Europe were up 7.2% and underlying operating margin exceeded prior year levels. In the Netherlands, Albert Heijn and bol had outstanding market share gains. And we are delighted to have completed the conversion of the first 15 Jan Linders stores to Albert Heijn in Q3.

"At the start of 2023, we set a clear agenda for our company: ensuring the right balance between navigating the complexities of the immediate environment, while, at the same time, positioning the company for longterm success. Regarding the latter, we have made three important moves that highlight our strong, disciplined focus on value creation. The first is the announcement of the planned addition of local Romanian supermarket chain Profi to our family. This will strengthen our existing footprint in this market and underscores our confidence in the central Southern European region. And, importantly, it will be accretive to our business in the first year post closing. The implied fully synergized acquisition multiple is approximately 7x on a June 2023 LTM EBITDA basis (post IFRS 16). Second, in light of the current challenges customers face, a deeper collaboration across the value chain and with peers is imperative.

To that end, and in addition to our existing AMS and Coopernic buying alliances, Ahold Delhaize has recently joined the European retail alliance joint venture EURELEC, to help address persistent price differences between European markets. And third, we carried out an extensive review of our U.S. online operations as part of our Accelerate initiative. Our biggest strength as a grocery retailer is the true omnichannel – combination of online and in-store – experience. With this in mind, and the economics to deliver a sustainable long-term return on investment, we have decided to divest FreshDirect to Getir.

"Health and Sustainability remains a top priority for all of our brands. In both the U.S. and Europe, we saw a strong performance on further reducing food waste, mainly driven by increased food bank donations and a continuation of local initiatives. Albert Heijn and bol were recently featured in a mini-documentary powered by Kickstart AI, in which the Albert Heijn team explained how they are using artificial intelligence to reduce food waste through demand forecasting. This is a great proof point for how they use innovation and technology to combine reducing food waste with providing customers access to affordable and healthy products while, at the same time, reducing costs. Bol demonstrated how automatic packaging machines controlled by smart algorithms help them use less cardboard and create smaller parcels. The bol team also uses AI to determine if additional packaging is actually needed. Less packaging results in reduced transport movement and the ability to use smaller, more sustainable vehicles, such as Cycloon's bike couriers. Ahold Delhaize has an industry leading science-based net-zero climate plan for our own operations and our supply chain, in line with a 1.5 degree scenario. We will share some updates on this plan later this year.

“A lot has changed since we embarked on our Leading Together journey. I am proud of how we have adapted to the evolving market conditions and taken well-thought-through strategic decisions to steer our company towards its long-term potential. We have done all of this while, at the same time, delivering superior free cash flow, as can be seen in our increased guidance for 2023. With new players on our leadership team, we have the energy and determination to keep this trajectory going. Taking stock of what we have learned so far, we are currently refreshing our priorities to calibrate to the macro and competitive environment. This will require some shifts in focus. Therefore, I am pleased to announce that we will hold a Strategy Day in May 2024, at which time we will present some of the exciting things we have in store to build the next phase of growth and value creation for our company."

Q3 Financial highlights

Group highlights

Group net sales were €21.9 billion, an increase of 2.9% at constant exchange rates, and down 2.1% at actual exchange rates. Group net sales were driven by comparable sales growth excluding gasoline of 3.1%, partially offset by lower gasoline sales. The impact of the transformation in Belgium had a negative net impact on Q3 Group comparable sales of approximately 0.2 percentage points.

In Q3, Group net consumer online sales increased by 6.4% at constant exchange rates, mainly due to growth at bol (formerly referred to as bol.com). Group online sales in grocery increased 5.3% at constant exchange rates.

Group underlying operating margin was 3.8%, a decrease of 0.6 percentage points at constant exchange rates, mainly reflecting a decline in the U.S. margin due to higher operating costs and the cycling of a 0.2 percentage-point favorable insurance reserve release as well as a 0.1 percentage-point decline in favorable results from insurance.

In Q3, Group IFRS-reported operating income was €625 million, representing an IFRS-reported operating margin of 2.9%, mainly impacted by a €153 million impairment charge for FreshDirect and €61 million in restructuring and related costs pertaining to Belgium and other Accelerate initiatives.

Underlying income from continuing operations was €557 million, a decrease of 19.9% in the quarter at actual rates. Ahold Delhaize's IFRS-reported net income in the quarter was €394 million. Diluted EPS was €0.41 and diluted underlying EPS was €0.58, down 17.1% at actual currency rates compared to last year's results.

In the quarter, Ahold Delhaize purchased 7.1 million own shares for €213 million, bringing the total amount to €774 million in the first three quarters of the year.

U.S. highlights

U.S. net sales were €13.6 billion, an increase of 0.5% at constant exchange rates and down 7.1% at actual exchange rates. U.S. net sales were driven by comparable sales growth excluding gasoline of 0.9%, with strong growth in pharmacy, partially offset by lower gasoline sales. Excluding the impact of weather and calendar shifts, U.S. comparable sales growth was 1.0%, partially offset by the end of emergency SNAP benefits and the moderation of inflation rates. Hannaford and Food Lion continue to lead the U.S. brands' performance. Food Lion has now delivered consecutive positive sales growth for eleven years.

In Q3, online sales in the segment were up 4.4% in constant currency, driven primarily by double-digit growth at Food Lion and Hannaford as the brands continue to invest in their omnichannel proposition.

Underlying operating margin in the U.S. was 4.2%, down 0.8 percentage points at constant exchange rates from the prior year period due to the cycling of an insurance reserve release in 2022 that was favorable by 0.3 percentage points, higher operating costs, higher shrink and the unfavorable effect of a change in sales mix. In Q3, U.S. IFRS-reported operating margin was 2.9%, mainly impacted by an impairment charge in the amount of €153 million for FreshDirect.

Europe highlights

European net sales were €8.3 billion, an increase of 7.1% at constant exchange rates and 7.3% at actual exchange rates. Europe's comparable sales increased by 7.0%.

On March 7, 2023, Ahold Delhaize's Belgian brand, Delhaize, announced its intention to transform all of its integrated supermarkets in Belgium into independently operated Delhaize stores to strengthen its position in the country's competitive retail market. During Q3 2023, Delhaize Belgium announced that a buyer was found and asset purchase agreements signed for 32 stores, and on October 2, 2023, announced the same for 19 additional stores. It is Delhaize's intention to transform these 51 stores during the coming months. Excluding the impact of the transformation in Belgium, Europe's comparable sales increased by 7.2%.

In Q3, net consumer online sales increased by 7.6%. Online sales in grocery increased by 7.4%. At bol, Gross Merchandise Value (GMV) was €1.3 billion, an increase of 6.5% compared to the prior year. Bol's GMV sales from third-party sellers increased by 6.2% in Q3, and represented 62% of sales.

Underlying operating margin in Europe was 3.5%, consistent with the prior year. A decrease in the non-cash service charge for the Netherlands' employee pension plan offset the costs of the transformation in Belgium and higher energy costs. Europe's Q3 IFRS-reported operating margin was 2.9%, mainly impacted by €55 million for restructuring-related costs pertaining to Belgium and other Accelerate initiatives.

Outlook

This has been a year of continuous change as our brands adapt to the evolving market conditions and make strategic decisions to fuel long-term growth. With the changing dynamics, we are updating our guidance for the year as follows. We now expect free cash flow for 2023 in a range from €2.2 billion to €2.4 billion, reflecting the significant improvements made by our brands in working capital management. Net capital expenditures are now expected to be around €2.4 billion. Underlying EPS is now expected to be slightly below 2022 levels, as we see the reduction in federal government support having a slightly greater impact on our brands' operations than originally expected.

In addition, Ahold Delhaize remains committed to its dividend policy and share buyback program, as previously stated. We are on track to increase our full-year dividend within our 40-50% payout range, and we are completing our €1 billion share repurchase program in 2023, as planned. Ahold Delhaize also announces a €1 billion share buyback program to start at the beginning of 2024.³

Excludes M&A.
Calculated as a percentage of underlying income from continuing operations.
Management remains committed to our share buyback and dividend programs, but, given the uncertainty caused by the wider macro-economic consequences due to increased geopolitical unrest, will continue to monitor macro-economic developments. The program is also subject to changes resulting from corporate activities, such as material M&A activity.

Cautionary notice

This communication contains information that qualifies as inside information within the meaning of Article 7(1) of the EU Market Abuse Regulation. This communication includes forward-looking statements. All statements other than statements of historical facts may be forward-looking statements. Words and expressions such as growth, propositions, expect(ed)/(s)/(ation), planned, implied, commit(ted)/(ment), where possible, continu(e)/(ed)/(ing), accelerate initiatives, further, confiden(t)/(ce), long-term, focus, will, strengthen, priorit(y)/(ies), further, plan, journey, strateg(ic)/(y), potential, guidance, focus, intention, outlook, on track, risks, uncertaint(y)/(ies), consistent, ambitions, aim, leading, better, estimated or other similar words or expressions are typically used to identify forward-looking statements.

Forward-looking statements are subject to risks, uncertainties and other factors that are difficult to predict and that may cause the actual results of Koninklijke Ahold Delhaize N.V. (the “Company”) to differ materially from future results expressed or implied by such forward-looking statements. Such factors include, but are not limited to, risks relating to the Company’s inability to successfully implement its strategy, manage the growth of its business or realize the anticipated benefits of acquisitions; risks relating to competition and pressure on profit margins in the food retail industry; the impact of economic conditions, including high levels of inflation, on consumer spending; changes in consumer expectations and preferences; turbulence in the global capital markets; political developments, natural disasters and pandemics; wars and geopolitical conflicts; climate change; energy supply issues; raw material scarcity and human rights developments in the supply chain; disruption of operations and other factors negatively affecting the Company’s suppliers; the unsuccessful operation of the Company’s franchised and affiliated stores; changes in supplier terms and the inability to pass on cost increases to prices; risks related to environmental, social and governance matters (including performance) and sustainable retailing; food safety issues resulting in product liability claims and adverse publicity; environmental liabilities associated with the properties that the Company owns or leases; competitive labor markets, changes in labor conditions and labor disruptions; increases in costs associated with the Company’s defined benefit pension plans; ransomware and other cybersecurity issues relating to the failure or breach of security of IT systems; the Company’s inability to successfully complete divestitures and the effect of contingent liabilities arising from completed divestitures; antitrust and similar legislation; unexpected outcomes in the Company’s legal proceedings; additional expenses or capital expenditures associated with compliance with federal, regional, state and local laws and regulations; unexpected outcomes with respect to tax audits; the impact of the Company’s outstanding financial debt; the Company’s ability to generate positive cash flows; fluctuation in interest rates; the change in reference interest rate; the impact of downgrades of the Company’s credit ratings and the associated increase in the Company’s cost of borrowing; exchange rate fluctuations; inherent limitations in the Company’s control systems; changes in accounting standards; inability to obtain effective levels of insurance coverage; adverse results arising from the Company’s claims against its self-insurance program; the Company’s inability to locate appropriate real estate or enter into real estate leases on commercially acceptable terms; and other factors discussed in the Company’s public filings and other disclosures.

Forward-looking statements reflect the current views of the Company’s management and assumptions based on information currently available to the Company’s management. Forward-looking statements speak only as of the date they are made, and the Company does not assume any obligation to update such statements, except as required by law.

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