Ahold Delhaize N : Q3 2021 Management Prepared Remarks

Management's Prepared Remarks

Q3 2021 Earnings Call

November 10, 2021

JP O'Meara

Senior Vice President, Head of Investor Relations

Thank you operator, and good morning everyone.

I'm J.P. O'Meara, Head of Investor Relations and I am delighted to welcome you to our Q3 2021 results conference call.

On today's call are Frans Muller, our CEO and Natalie Knight, our CFO. After a brief presentation we will open the call for questions.

In case you haven't seen it, the earnings release and the accompanying presentation slides can be accessed through the Investors section of our website aholddelhaize.com.

To ensure everyone has the opportunity to get their questions answered today, I ask that you initially limit yourself to 2 questions. If you have further questions then please re-enter the queue.

Before I turn over to Frans, I would like to remind you of our upcoming Investor Day, which will be a virtual event held on November 15th. We are excited to share our vision for the future, and look forward to you joining us.

I'll now turn the call over to Frans.

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Frans Muller

President, Chief Executive Officer

Thank you JP.

Good morning everyone.

Our Q3 results once again showcased the strength of our omni-channel business model, as our local and trusted brands showed resilience, building further on 2020's COVID-19 related sales gains.

The pandemic continues to underpin the importance of maintaining food and product supplies to local communities - a vital role that we remain focused on fulfilling. And we remain thankful for the efforts of associates, who have put a consistent emphasis on safety, while at the same time providing great customer service and community support.

The quarter also did not come without some other unexpected external challenges. Our businesses - and especially the communities we serve -- faced disruptions from the Belgian floods, tornadoes in the Czech Republic, fires in Greece, and Hurricane Ida in the U.S. But as always, our associates acted swiftly and their dedication to their communities during these difficult times truly lived up to our core values. For that, I am truly grateful.

In these times, we will continue to focus on making additional investments to meet associate, customer and community needs.

We are aware of the recent increases in infection rates in many of our markets and will continue to provide assistance in all our communities, including COVID-19 vaccination efforts in the U.S. We remain on track to deliver on our pledge to contribute €20 million in Covid-earmarked charitable donations, spread evenly between the U.S. and Europe, during 2021. A top priority is also our continued support of COVID-19-related health and safety measures, where we invested €66 million in Q3.

Now let me highlight our key financial results:

Overall, we are very pleased with the underlying Q3 performance in both the U.S. and Europe, as we were able to grow sales and profits on top of a very strong quarter in the year ago period. We have been able to retain a strong level of underlying consumer demand by continuing to adapt to the enduring consumer behavior changes.

This strong result comes against a backdrop in which several communities across our markets reopened, suggesting that many consumer habits formed during the COVID-19 pandemic favoring food-at-home consumption and a focus on healthier eating are proving resilient. We have and will continue to make significant investments to address these trends.

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Central to this and all of our strategies, is our omnichannel platform, which continued to drive strong market shares during the quarter. Our online business posted strong double-digit growth in the third quarter, with these trends expected to continue.

Due to the strong growth and continued Save for our Customer initiatives, our underlying operating margins were again very strong in the context of historical levels prior to COVID-19. As a result, I am pleased that we can once again raise our 2021 underlying operating margin, underlying EPS and free cash flow guidance, reflecting the strength of our year-to-date results

Natalie will go into more detail on the third quarter financial performance as well as our detailed outlook for 2021.

But first, let me move onto slide 5, and spend a few moments on our omnichannel proposition where we continue to go from strength to strength. Whether it is bringing new unique customer-facing experiences, or evolving the speed and efficiency of our operations, each quarter, we are driving noticeable change. For example:

Our US supply chain transformation continues as planned, with 65% of our center store volume now self- distributed, up from 50% last year. And we are well on our way to being 100% self-distributed in 2023.

We recently opened our new automated eCommerce-fulfillment center in Philadelphia for the Giant Company, featuring two large, automated systems, one for ambient products and another for chilled items, which will allow us to drive increasing efficiency and productivity gains. Moreover, this facility is able to fulfill up to 15,000 orders per week that also allows us to extend our foothold in this important growth area for us.

Our Giant Company, Hannaford, and Stop & Shop brands in the U.S. have introduced new 30 minute delivery services, including fresh, prepared foods, and essential household products.

Albert Heijn has launched a new subscription service--"Albert Heijn Premium"-becoming the first food retailer in the Netherlands with a subscription plan. To encourage healthier eating, this service offers extra savings on organic products, as well as discounts on our bol.com and Gall & Gall subscription programs.

Our brands in CSE have also expanded their online grocery deliver services in the third quarter, For example, Greece has expanded to another 3 cities and the Czech Republic has significantly expanded their eCommerce coverage by 25%, helping them to maintain their highest NPS levels on record.

This all serves to underpin our relentless focus to be the industry-leading local omni-channel retailer in all of our markets. Through our unique fresh, healthy and private brand assortments and through our great- value, convenient and personalized shopping experiences, we have the ultimate winning formula to drive retention, acquisition and an increasing share of the wallet over time.

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Now moving on to the specifics of our regional performance, Slide 6 highlights some of our key achievements in the U.S.

Q3 US online sales grew by +53%, bolstered by the continued expansion of our Click and Collect capacity as well as our FreshDirect acquisition.

Speaking of Click and Collect, we opened 102 additional Click & Collect locations during the quarter and remain on pace to end 2021 with approximately 1,400 Click & Collect locations, up from around 1,100 at the beginning of the year.

We also remodeled 11 additional Stop & Shop stores in the third quarter, bringing the total number of stores remodeled since the inception of the program to more than 110. And we continue to see solid sales uplifts from our remodeled stores.

Finally, from a brand perspective, I'd again like to call out Food Lion our fastest growing brand in the US, which achieved its 36th consecutive quarter of positive comparable sales growth. In addition, the 71 recently added stores in early 2021 have now been fully integrated are exceeding sales expectations.

Slide 7 highlights some of our key achievements in Europe.

Our Benelux ecosystem continued to perform well and we gained market share in the region during the quarter. This was driven by strong marketing campaigns and continued solid execution of our health and sustainability activities.

We are proud of the 19.2% growth in net consumer online sales at bol.com during the third quarter, which came on top of 45.6% growth in the year ago period. This is a strong, dynamic brand within our group and is a key platform for our future growth in Europe. The number of third party sellers on the platform also continues to grow, and now stands at 48,000.

Albert Heijn completed the acquisition of 38 DEEN stores in Q3. We expect all of these stores to be remodeled to the new AH fresh and technology focused format by mid-November.

In Belgium, the Delhaize SuperPlus loyalty plan which provides extra rewards and discounts to consumers of healthy and sustainable products, continues to gain traction providing a nice sales uplift. The program ended Q3 with more than 2 million members in just one year since it's inception.

Moving on to slide 8. We continue to make progress in elevating our Healthy & Sustainability strategy and I'll now discuss a few of these items.

bol.com, our online retail platform in the Benelux, has taken a new step towards its sustainable ambition by implementing new automated multi-packing technology. This makes bol.com the first in the world to pack with multiple custom items in one box; which means we have a faster and more sustainable process

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and fewer delivery trips - thereby reducing bol.com's overall CO2 emissions and making us more cost efficient at the same time.

Following the success of its SuperPlus program, Delhaize has added a healthy membership program for companies, which provides discounts on healthy products with NutriScore A or B at Delhaize Belgium. This allows us to introduce more healthier eating to these employees by providing a special discount but also extend the Delhaize reach to new consumers who hadn't previously shopped our brand.

And in September, our Albert brand was recognized as the leader in organic own-brand products by customers in the Czech Republic. This is in turn strengthening Albert's proposition with consumers, and it is driving market share gains at the brand.

All in all, our continued efforts have been recognized by MSCI, which upgraded our 2021 ESG ranking to 'AA' from our previous 'A' ranking. We are proud of this achievement as MSCI is the most widely used ESG benchmark by our investors. Our progress here reflects our ambition to be an ESG leader, and we will continue to work hard towards this goal.

Finishing on that positive note, let me now hand over to Natalie.

Natalie Knight

Chief Financial Officer

Good morning and thank you Frans.

I am also very proud to share another quarter of exceptional results. Ahold Delhaize teams around the world remain focused and disciplined. And our strong local brands, our scale and our robust business model are providing plenty of resilience as we face heightened pressures from the macro environment -- be it from rising Covid infections, inflation or continued global logistics and supply chain disruptions.

Our the third quarter was strong across the board, in particular with our brands sustaining their positive sales momentum. Net sales grew 4.6% at constant exchange rates to €18.5 billion. Group comparable sales ex-gas increased 1.7%, building on the healthy group comp sales growth of 10.5% in the year ago quarter.

Importantly within that figure, Q3 Group net consumer online sales grew 29.2% at constant exchange rates, including over proportionate growth in the U.S as well as in Europe for both the food and bol.com business.

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