AHOG Koninklijke Ahold Delhaize NV

Ahold Delhaize delivers increased cost savings, supporting strong Q4 financial results; 2023 outlook reinforces commitment to Leading Together ambitions

• With double-digit food inflation levels in Q4, our brands intensified efforts to deliver customers great value and access to affordable and healthy food options. A key component of our efforts has been our Save for Our Customers cost savings program, which yielded 15% more savings than originally expected in 2022.
• Group net sales were €23.4 billion, up 8.1% in Q4 and 6.9% in 2022 at constant exchange rates and up 15.9% in Q4 and 15.1% in 2022 at actual exchange rates.
• Q4 comparable sales excluding gas increased by 9.3% in the U.S. and 5.7% in Europe. This sales growth was underpinned by the introduction of more entry-priced products, expanded high-quality own-brand assortments and further rollout of personalized value through our digital omnichannel loyalty programs.
• Net consumer online sales increased by 5.0% in Q4 and 4.9% in 2022 at constant exchange rates. Excluding bol.com, grocery online sales increased 14.4% in Q4 and 11.8% in 2022 at constant rates.
• Q4 underlying operating margin was 4.4%, an increase of 0.2 percentage points at constant and actual exchange rates. Underlying operating margin for 2022 was 4.3%, a decrease of 0.1 percentage points. Positive benefits in our Global Support Office partly offset margin declines in Europe. The latter was mainly due to intense cost inflation, particularly in energy, as well as investments in our European customer value proposition to support customers in the challenging macro environment.
• IFRS-reported operating income was €1,167 million in Q4 and €3,768 million in 2022. IFRS-reported diluted EPS was €0.82 in Q4 and €2.54 in 2022.
• Q4 diluted underlying EPS was €0.72, an increase of 22.6% over the prior year at actual rates. Our 2022 diluted underlying EPS was €2.55, up 16.5% at actual rates compared to the prior year.
• 2022 free cash flow was €2.2 billion compared to the most recent guidance of approximately €2 billion.
• We propose a cash dividend of €1.05 for fiscal year 2022, which is a 10.5% increase compared to 2021.
• Ahold Delhaize introduces “Accelerate” initiative to bolster Save For Our Customer cost savings program and provide additional stimulus to key Leading Together strategic priorities.
• 2023 outlook: underlying operating margin of ≥4.0%; underlying EPS to be around 2022 levels; free cash flow of approximately €2.0 billion; net capital expenditures of approximately €2.5 billion.

Zaandam, the Netherlands, February 15, 2023 – Ahold Delhaize, one of the world’s largest food retail groups and a leader in both supermarkets and e-commerce, reports fourth quarter results today.

The summary report for the fourth quarter 2022 can be viewed and downloaded at www.aholddelhaize.com.

Summary of key financial data

	Ahold Delhaize Group			The United States		Europe
€ million, except per share data	Q4 2022	% change	% changeconstantrates	Q4 2022	% changeconstantrates	Q4 2022	% changeconstantrates
	13 weeks 2022 vs. 13 weeks 2021
Net sales	23,359	15.9  %	8.1  %	14,782	9.2  %	8,576	6.2  %
Comparable sales growth excluding gasoline	7.9 %			9.3 %		5.7 %
Online sales	2,446	12.4  %	7.4  %	1,132	17.3  %	1,314	—  %
Net consumer online sales	3,237	8.6  %	5.0  %	1,132	17.3  %	2,105	(0.6) %
Operating income	1,167	30.5  %	20.6  %	857	16.0  %	326	29.5  %
Operating margin	5.0 %	0.6 pp	0.5 pp	5.8 %	0.3 pp	3.8 %	0.7 pp
Underlying operating income	1,026	22.4  %	13.8  %	701	18.9  %	340	1.4  %
Underlying operating margin	4.4 %	0.2 pp	0.2 pp	4.7 %	0.4 pp	4.0 %	(0.2) pp
Diluted EPS	0.82	32.4  %	22.5  %
Diluted underlying EPS	0.72	22.6  %	14.2  %
Free cash flow	1,481	290.4  %	277.3  %

	Ahold Delhaize Group			The United States		Europe
€ million, except per share data	2022	% change	% changeconstantrates	2022	% changeconstantrates	2022	% changeconstantrates
	52 weeks 2022 vs. 52 weeks 2021
Net sales	86,984	15.1  %	6.9  %	55,218	7.9  %	31,767	5.0  %
Comparable sales growth excluding gasoline	5.4 %			6.8 %		2.9 %
Online sales	8,618	11.9  %	6.4  %	4,157	14.5  %	4,461	(0.3) %
Net consumer online sales	11,323	8.9  %	4.9  %	4,157	14.5  %	7,166	(0.1) %
Operating income	3,768	13.5  %	4.9  %	2,605	3.9  %	1,173	(3.3) %
Operating margin	4.3 %	(0.1) pp	(0.1) pp	4.7 %	(0.2) pp	3.7 %	(0.3) pp
Underlying operating income	3,728	11.9  %	3.5  %	2,603	7.2  %	1,131	(13.7) %
Underlying operating margin	4.3 %	(0.1) pp	(0.1) pp	4.7 %	— pp	3.6 %	(0.8) pp
Diluted EPS	2.54	17.2  %	8.4  %
Diluted underlying EPS	2.55	16.5  %	7.9  %
Free cash flow	2,188	35.2  %	22.5  %

 Comments from Frans Muller, President and CEO of Ahold Delhaize

“I am pleased to report a solid end to the year for Ahold Delhaize. Our strong international portfolio of local brands has continued to provide distinct competitive and societal advantages, particularly from our scale and solid financial position. In this challenging year, we have seen double-digit inflation levels not witnessed in 40 years, an energy crisis created by war and the ongoing effects of the global pandemic on people's lives. Our role during this time has been clear: keeping shelf prices as low as possible to support our customers and make healthy food options accessible to all.

“During 2022, our family of great local brands also contributed €218 million of charitable cash, products and food donations to local and regional food banks and non-profit organizations. The Food Lion Feeds program achieved an important milestone with its one billionth meal donated, and is well on the way to reaching its goal of 1.5 billion meals donated by 2025. Delhaize Belgium donated emergency generators to the Ukrainian Red Cross, ensuring 95,000 Ukrainians continue to have access to clean water and heating. Hannaford launched its "Eat Well, Be Well – A Path to Better Health" initiative, which will provide $1.5 million in funding to non-profit organizations for hosting programs that increase access to healthy, fresh food tailored to the specific needs of an individual's health conditions, and provide nutrition education.

"In Q4, we again rallied our organization around our core strengths – operational excellence, tight cost control and disciplined capital allocation. This was critical to provide fuel for reinvesting in our customer value proposition to offset the impact of inflation wherever possible. To that end, we significantly exceeded our original Save for Our Customers goals in 2022, generating €979 million in cost savings, which is over €100 million more than we had originally planned. I am proud of our associates across Ahold Delhaize and our local brands who left no stone unturned. As many of the sames challenges persist and may even intensify in 2023, this formula will continue to play an important role as we look for further opportunities to improve our brands' operations.

"As our brands adapted their assortments and omnichannel customer journeys to rising consumer price sensitivity, the positive impact from our focus on providing great value without compromising on quality was clearly reflected in our Q4 sales figures. Comparable store sales ex gas grew 7.9% in Q4. Net consumer online sales increased by 5.0%, and our online grocery sales were up 14.4%. Leveraging these strong sales, we delivered an underlying operating margin of 4.4% and diluted underlying EPS growth of 22.6% in Q4. Our earnings were positively influenced by a strong operating performance in the U.S., as well as foreign exchange and interest rate changes, which offset higher margin pressures in Europe.

"In the U.S., comparable sales accelerated at all the brands versus Q3, resulting in a growth rate of 9.3%.This was driven by strong holiday season activations. For example, the U.S. brands' sales from loyalty programs and online orders reached all-time highs. This has been a trend we have seen building throughout the year, as our consistent investment in growing these capabilities continues to pay off. Our brands' customer relationship management campaigns are a good example, now reaching around 30 million households and delivering over 10 billion personalized offers annually. We are also increasingly encouraged by the progress we see at Stop & Shop, where the brand's remodeled New York City stores are delivering double-digit sales growth and exceeding expectations. We plan to remodel a further eight stores in NYC in Q1 2023, and roll out key learnings to 40 other stores in the fleet throughout the year.

"In Europe, comparable store sales were up 5.7% in Q4. Excluding bol.com, which continued to trade against the backdrop of a challenging e-commerce market in the Benelux, comparable store sales increased 6.9%. In the Central and Southeastern Europe (CSE) region, we have now harmonized over 700 own brand products, and continue to benefit from increased collaboration, harmonization of processes and best-practice sharing. In the Netherlands, Albert Heijn introduced dynamic digital discounting in all its stores, enabling customers to purchase products nearing the end of their shelf life with discounts ranging from 25% to 70%. In addition, Albert Heijn entered into a partnership with Jan Linders Supermarkets, with the vast majority of stores to be converted into Albert Heijn franchisees on receiving the requisite approvals. The agreement allows Albert Heijn to expand its regional coverage in the south of the Netherlands. Underlying operating margins in Europe decreased to 4.0% in Q4, as sharp increases in energy costs, in particular, impacted our profitability by 0.5 percentage points. While I am particularly proud of the mitigating actions and cost savings delivered by the region in Q4 and throughout the year, striking the right balance between savings and investments in 2023 will be even more important.

"At bol.com, for the full year, Gross Merchandise Value (GMV) excluding VAT was €5.5 billion, down 1.9%, against a market which declined around 6%. As you will remember, during the year, we made some significant adjustments to bol.com’s medium term plans to adapt to the current environment. As a result, despite higher investments in the business, cost increases and sales deleverage, bol.com remained profitable and delivered €125 million in underlying EBITDA.

“At Ahold Delhaize, we believe that it is important that we continue to make investments in our Healthy and Sustainable strategy. In our own operations, in 2022 we achieved reductions in CO2 emissions of 32% compared to our 2018 baseline (30% in 2021) and tonnes of food waste per food sales of 33% against our 2016 baseline (20% in 2021). Our brands also continued to increase the percentage of own brand healthy food sales to 54.4% in 2022, up one percentage point compared to 2021. In November, we announced updated interim CO2 emissions-reduction targets for the entire value chain (scope 3) to at least 37% by 2030.

"We also reconfirmed our commitment to become net zero in our own operations by 2040 and across the entire value chain by 2050. The updated targets were the result of extensive review and are in line with the UN's goal of keeping global warming below 1.5°C. For Ahold Delhaize, the main drivers of emissions reduction in scope 3 fall under three categories: suppliers and farmers; low-carbon products; and customer engagement. Encouraging and supporting our suppliers to set their own emissions-reduction targets in line with the latest scientific evidence, and signing up to the Science Based Targets initiative is a key element of our decarbonization efforts. Ahold Delhaize aims to play a leading role in this. We are proactively engaging with our supplier base and are leveraging our position in the world of food retail to create a positive movement towards the reduction of greenhouse gas emissions.

"Despite increasing macro-economic and geopolitical challenges, we expect to deliver consistent results in 2023, with a strong focus on cash-flow generation. I am particularly excited about our plans around monetization, mechanization and our digital ecosystem, which I am convinced will drive long-term competitive advantage and benefits for our customers. In the short term, with inflation remaining high, we will also continue to lean in and explore new opportunities to lower our costs. To that end, we are introducing a new Group-wide initiative called "Accelerate".

"This initiative builds on our existing Leading Together efforts to create more agile organizations, to capture more scale and empower our people to take action to drive efficiency. In particular, we will continue to evaluate additional savings and efficiency levers to streamline organizational structures and processes, optimize go-to-market propositions, increase joint sourcing and consolidate IT -  with a clear priority to unlock resources to accelerate our Save for Our Customers program and focus investments on high return projects. I am confident this proactive approach will make our organization stronger and ensure we can continue to deliver on our track record of driving consistent long-term value creation for all stakeholders.

Q4 Financial highlights

Group highlights

Group net sales were €23.4 billion, an increase of 8.1% at constant exchange rates, and up 15.9% at actual exchange rates. Group net sales were driven by comparable sales growth excluding gasoline of 7.9%, and, to a lesser extent, by foreign currency translation benefits and higher gasoline sales. Q4 Group comparable sales benefited by approximately 0.4 percentage points from the net impact of calendar shifts and weather.

In Q4, Group net consumer online sales increased by 5.0% at constant exchange rates, led by robust performance in the U.S., which increased 17.3% compared to the prior year. Net consumer online sales decreased 0.6% in Europe as the prior year benefited from a COVID-19 lockdown in the Netherlands. Online sales in grocery increased 14.4% at constant exchange rates.

In Q4, Group underlying operating margin was 4.4%, an increase of 0.2 percentage points at constant exchange rates, as strong cost savings were partially offset by higher labor, distribution and energy costs. In Q4, Group IFRS-reported operating income was €1,167 million, representing an IFRS-reported operating margin of 5.0%, mainly impacted by the gains on sale of investment properties in the U.S. in the amount of €158 million.

Underlying income from continuing operations was €707 million, an increase of 18.2% in the quarter at actual rates. Ahold Delhaize's IFRS-reported net income in the quarter was €809 million. Diluted EPS was €0.82 and diluted underlying EPS was €0.72, up 22.6% at actual currency rates compared to last year's results and up 14.2% at constant currency rates. In the quarter, 10.5 million own shares were purchased for €286 million, bringing the total year-to-date amount to €1 billion.

2022 diluted underlying EPS of €2.55 increased 16.5% at actual rates compared to 2021, exceeding the Company's original guidance of low- to mid-single-digit decline versus 2021. The higher-than-expected earnings were driven by strong comparable sales growth excluding gasoline as well as favorable foreign currency and interest rates. This drove strong cash generation with free cash flow of €2,188 million, up €570 million compared to the prior year. The difference is primarily related to decisions in 2021 to pay a $190 million (~€170 million) pension liability in the U.S. following 2020 U.S. MEP withdrawals, ahead of schedule, and fund the Company's decision to pay approximately €380 million related to a disputed tax claim in Belgium.

U.S. highlights

U.S. net sales were €14.8 billion, an increase of 9.2% at constant exchange rates and up 22.2% at actual exchange rates. U.S. comparable sales excluding gasoline increased by 9.3%, benefiting by approximately 0.5 percentage points from the net impact of weather and calendar shifts. Food Lion and Hannaford led brand performance with double-digit comparable sales growth at both brands during the quarter.

In Q4, online sales in the segment were up 17.3% in constant currency. This builds on top of 30.5% constant currency growth in the same quarter last year.

Underlying operating margin in the U.S. was 4.7%, up 0.4 percentage points at constant exchange rates from the prior year period. In Q4, U.S. IFRS-reported operating margin was 5.8%, mainly impacted by the gains on sale of investment properties in the amount of €158 million.

Europe highlights

European net sales were €8.6 billion, an increase of 6.2% at constant exchange rates and 6.6% at actual exchange rates. Europe's comparable sales excluding gasoline increased by 5.7%. Q4 Europe comparable sales were positively impacted by approximately 0.1 percentage points from calendar shifts.

In Q4, net consumer online sales in the segment decreased by 0.6%, following 7.4% growth in the same period last year. Grocery online sales increased by 8.0%. Despite challenging non-food e-commerce market conditions in the Benelux and the cycling of lockdown restrictions, bol.com was able to limit net consumer online sales decline to 2.9% after growing 7.8% in the same quarter last year. Bol.com's net consumer online sales from its more than 51,000 third-party sellers declined 1.6% in Q4 and represented 57% of sales.

Underlying operating margin in Europe was 4.0% in Q4, down 0.2 percentage points from the prior year due to escalating energy and volume deleveraging offset by disciplined cost-management measures. Europe's Q4 IFRS-reported operating margin was 3.8%.

Outlook 2023

The macro environment has become increasingly difficult for consumers, who contended with inflation levels during 2022 not seen in four decades. Inflation levels are expected to remain elevated particularly through the first half of 2023. Our brands are working hard to reduce costs and create additional efficiencies in order to keep prices as low as possible for our customers. In this context, the Company's brands continue to offer consumers a strong shopping proposition and are well-positioned to maintain profitability in the current inflationary environment. Ahold Delhaize's Group underlying operating margin is expected to be ≥4.0%, in line with the Company's historical profile. Margins will be supported by Save for Our Customers programs of ≥€1 billion in savings in 2023. This should help to offset cost pressures related to inflation and supply chain issues, along with the negative impact to margins from increased online sales penetration.

Underlying EPS is expected to be around 2022 levels at current exchange rates. Our earnings guidance implies further growth and a strong underlying operating performance, which will offset the non-recurrence of one-off gains in 2022 related to interest rates.

Free cash flow is expected to be approximately €2.0 billion. Net capital expenditures are expected to total around €2.5 billion, with increased investments in our digital and online capabilities as well as our healthy and sustainable initiatives. In addition, Ahold Delhaize remains committed to its dividend policy and share buyback program in 2023, as previously stated. We are proposing a full-year dividend for 2022 of €1.05 per share, and have previously announced a €1 billion share purchase program for 2023.

A detailed Outlook will be provided in the Annual Report 2022, which will be published on March 1, 2023.

	Full-year outlook		Underlying operating margin	Underlying EPS	Save for Our Customers		Net capital expenditures	Free cash flow1		Dividend payout ratio2.3	Share buyback3
Outlook	2023		≥ 4.0%	Around 2022 levels	≥ €1 billion		~ €2.5 billion	~ €2.0 billion		40-50% payout;YOY growth in dividend per share	€1 billion

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

Attachments

• Ahold Delhaize Q4 2022 Press Release
• Ahold Delhaize Q4 2022 Interim Report