Koninklijke Ahold Del Ord

Such risks and uncertainties are discussed in the interim report, first quarter 2020, and also in the Ajo Delhaize public filings and other disclosures. Ajo Delhaize disclosures are available on ahodelhaize.com. Forward-looking statements reflect the current views of Ajo Delhaize management and assumptions based on information currently available to Ajo Delhaize management. Forward-looking statements speak only as of the date they are made. and Ajo del Jez does not assume any obligation to update such statements, except as required by law. The introduction will be followed by a Q&A session. Any views expressed by those asking questions are not necessarily the views of Ajo del Jez. At this time, I would like to hand over the call over to Alvin Concepcion, Vice President, Head of Investor Relations. Please go ahead, Alvin.

Thank you, and good morning, everyone. Welcome to our first quarter 2020 results conference call. On today's call are Franz 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 investor section of our website, outholddelhaze.com. I ask that you please limit yourself to two questions. And if you have further questions, then please re-enter the queue. I'll now turn the call over to Franz.

Thank you very much, Alvin, and good morning to everyone. Before I go into the first quarter presentation, I'd like to mention a couple of things first. The first quarter of 2020 was unlike any we have ever seen before. The COVID-19 crisis has affected all of us, and I truly hope that all of our stakeholders, and in particular the people who are out on the frontline, are managing through the crisis as well as they can. I'm honored to represent the leadership and brands of Ajo de Les who are doing their utmost best to provide the essential service of helping to feed our local communities. I recognize and I'm very impressed by the hardworking and dedicated associates across our brands and geographies, including the people in the stores, distribution centers, and supporting functions who have stepped up to serve their local communities in the face of immense challenges. We have been and will continue to be committed to protecting the health and safety of associates and customers as our first and foremost priority. We must continue to operate well and ensure that we are leading together with our business partners, vendors, and service providers in order to provide customers better availability of food and supplies during this time. We must be able to adapt to a new paradigm shift in consumer behavior that emerge. and invest as necessary, particularly in digital and omnichannel capabilities, and in ways that allow us to serve our communities well during this crisis, and ultimately serve them even better after this crisis subsides. On a separate note, I'd like to welcome, of course, Natalie Knight, who was appointed as our CFO on April 8th. And this is her first earnings call with us, and I'm delighted to have her here. and I'm also excited about what she can bring to the table. Now, let's move on to slide number four on the Q1 results. Clearly, our Q1 performance across all our geographies were impacted by the unprecedented demand created by the COVID-19 outbreak. Naturally, we go into more details on the performance, but keep in mind that the margin reported in Q1 is mainly a function of timing and is not a fair representation of the cost pressures we will experience related to COVID-19. Instead, it largely reflects the timing of unexpected higher sales, which preceded the timing of significant investments related to COVID-19 at the end of the quarter. The margin rate you see in Q1 is not sustainable and not likely to be in subsequent quarters. Nevertheless, we will maintain our full year outlook that our group underlying operating margin in 2020 will be broadly in line with 2019. On slide five, you will see some examples how we are deploying over 170 million euros to prioritize safety, relief and support efforts during the COVID-19 crisis. This 170 million figure is by no means the full amount. And in fact, it will ultimately cost more than this. This is just what we are currently deploying. For our associates, we've implemented additional safety and protective measures, which also benefits our customers, of course. This includes plexiglass shields at registers and new flow patterns in the stores to maintain social distancing. We have announced associate pay and benefits and are hiring more than 40,000 associates who can play a huge role in providing the essential service of helping to feed our local communities. We also provided contactless delivery options to the benefit of both associates and customers. For our customers, we are working with local governments and agencies to provide a safe shopping environment which also helps our associates. We have announced already stringent cleaning and hygiene measures like shopping cart cleaning before and after use. We have invested in security personnel and optimize customer traffic flows at our stores. We have provided special grocery delivery service for healthcare workers and were the first in our markets to offer special opening hours for the elderly. And for our communities, we are collaborating with our business partners, vendors, and service providers to ensure food and supplies are available. We have also more charitable donations to local food banks, national and private health systems, the Red Cross and various medical facilities. While we are doing our part to prioritize safety, relief and support during the COVID-19 crisis, we also know it's not enough. In the nearer term, our priority is to continue to run operations safely and smoothly and offer our customers more convenience so we can serve them better in their time of need. This means there are a higher level of investments needed in the upcoming quarters to make this happen. I would categorize these nearer-term priorities into three buckets. Improving in-stock levels, adapting store operations, and accelerating digital and omnichannel capabilities. Let me start with improving in-stock levels. It would be no surprise for you to hear that we, along with the broader food retail industry, have had challenges with in-stock levels in categories such as paper, sanitation, frozen, proteins and in some cooking supplies such as flour. We are therefore proactively working with suppliers to provide better availability of products to our customers, including prioritizing SKU offerings to meet current levels of demand. We are using our scale to ensure that we have provided our fair share of allocation for these products. We are also leaning upon idle capacity in the labor force and food service distribution providers in order to overcome capacity bottlenecks. We are also adapting our store operations to changes in customer behavior, preferences, and safety needs. We are working with local governments and agencies on health and safety measures for stores and distribution centers. And our leaders know it's more important than ever to push for a higher level of customer service through exemplary associate efforts. And we are adjusting our systems and processes, such as inventory ordering and labor scheduling, to better match the new demand patterns caused by community lockdowns and health and safety concerns. For example, weekends have historically been some of our highest traffic days. and customers have shifted towards more weekday and shopping during off-peak hours. We also know that for many reasons, including more recently, safety concerns and always for convenience that customers, both new and existing, younger and older, are preferring to engage us more online. Our near-term and long-term plans always involved investing more in digital and omnichannel capabilities, even prior, as you know, to COVID-19. But we know we need to invest in accelerating these capabilities even further this year. This is in significant focus in both the US and Europe, and we are accelerating our online sales. In the US, we initially target over 30% growth for this year, but we now expect it to be even higher at over 50%. In Europe, we expect to accelerate net online consumer sales growth this year too. And in the US, we will be able to generate this higher level of online sales by investing in incremental associates and supplemental infrastructure, such as through more storage units, picking devices, and stepping up the pace on the number of click and collect locations we plan to open this year in the US. We are upping our target to over a thousand locations in 2020, versus our initial target of roughly 1,000. In Europe, higher level of net consumers' online sales will be achieved by accelerating the timing of two home delivery fulfillment centers in the Netherlands, with one opening this summer in August and the other in fall around October. Albert Heijn will also begin to offer Sunday home deliveries this month, which is new. At bull.com, we will continue to press hard to increase the number of marketplace partners, where we added another 1,700 merchants in the first quarter, bringing the total to nearly 21,000 now. And this is key because these partners can help us flex capacity faster. These are just some of the ways we will expand our same-day and next-day offerings and capabilities. in order to drive the higher levels of growth I just mentioned. I'm now on slide 7, and while we are highly focused on our nearer-term performance, we will not lose sight of the long-term priorities and investments needed to drive our growth after the initial COVID-19 crisis. It's currently unclear what the long-term paradigm shifts in consumer behavior occur due to COVID-19, But we will monitor these, learn from them, and quickly adapt to them. Regardless of what these shifts ultimately are, they are things we already can do now to accelerate growth over the longer term and retain a number one and number two market position across our brands. There are three areas of focus I'd like to highlight that will be relevant in the post-COVID-19 world, which we think will increase our share of wallet. and our share of stomach. These are, first of all, enhancing associate and customer well-being by continuing to take appropriate health and safety measures and offering competitive associate pay and benefits and progressing on our health and sustainable retailing targets through 2025, which we already unveiled on February the 25th. These 2025 targets revolve around ensuring customers have healthier choices and see more product transparency. And also that we are doing our part to eliminate food and plastic waste. We will have more news to announce in this area later this year, as we are in the process of setting long-term science-based targets to reduce our impact on climate change. On offering competitive associate pay and benefits, we continue to focus on offering attractive and competitive packages with employee opportunities for advancement. On March 5th, we signed a four-year collective bargaining agreement for Giant Food and will continuously work with our union partners and on solutions to improve the position of our employee pension plans. The second item, we need to continue operating brands and supply chains smoothly in order to continue servicing local communities well, and we need to do it more efficiently. There are many ways we are focused on improving efficiency, which can help us to keep pace with evolving customer needs, while also improving our bottom line. A very good example of this is a three-year strategy we embarked on this year to move the US supply chain to a self-distributing model. This is not only reducing costs, which can be passed on to our customers, but it will also improve speed to shelf and improve product availability and freshness for our customers. We also continue to explore technology to improve the efficiency of our operations, whether that is online with our micro-fulfillment center pilot and innovation centers, such as Peapod digital labs in the US or artificial intelligence labs in the Netherlands. which aim to enhance the digital and omnichannel journey for our customers and improve our operations. Our stores are increasingly implementing electronic shelf labeling and various frictionless checkout options, which provide savings and a better customer experience. Item number three. You first heard us talking about this at our November 2018 Capital Markets Day. But we remain committed to investing CapEx at around 3% of sales on a year-by-year basis in order to accelerate our digital and omnichannel capabilities, some of which I described a moment ago. And it will also be used to improve our store fleet through remote programs such as reimagining stop-and-shop. And we will improve mule solutions capacity and private label offerings to further differentiate our offerings and help us gain more share of stomach. This is especially important if the consumer decides to eat more at home than in the past. Although our CAPEX investments excludes M&A by definition, we will continue to explore partnerships and M&A opportunities. Slide 8 and 9 highlight some of our advancements and progress in the US and in Europe. I've touched upon some of these highlights already. And for the interest of time, I won't go over them in detail, but I strongly encourage you to take a look. Now, let me hand over to Natalie.