Koninklijke Ahold Del Ord

Ladies and gentlemen, good morning and welcome to the analyst conference call on the second quarter and half-year 2020 results of AHEL Delhaize. Please note that this call is being webcast and recorded. Please note that in today's call forward-looking statements may be made. All statements other than statements of historical facts may be forward-looking statements. Such statements may involve known and unknown risks and uncertainties that could cause actual results performance or events to differ materially from those included in the statement. Such risks and uncertainties are discussed in the interim report, second quarter and half year 2020, and also in Aalto Deelhanze public findings and other disclosures. Aalto Deelhanze disclosures are available on aalto.deelhanze.com. Forward-looking statements reflect the current views of Aalto Deelhanze management and assumptions based on information currently available to Aalto Deelhanze management. Forward-looking statements speak only as of the date they are made, and Aarhus Delhaize does not assume any obligation to update such statements, except as required by law. The introduction will be followed by a Q&A session, and the views expressed by those asking questions are not necessarily the views of Aarhus Delhaize. At this time, I would like to hand over the call to Alvin Conception, Vice President, Investing Relations. Please go ahead.

Thank you, Operator, and good morning, everyone. Welcome to our second 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, aholdelhaize.com. I ask again 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, everyone. First, I would like to thank associates across all our local brands and support offices for their outstanding service during this COVID-19 crisis. Their agility and dedication have ensured the safety of our stores and distribution centers, sustained the strength of our supply chains, and helped nourish families and local communities. The engagement and strong execution of our teams helped us translate the stronger than expected demand in both the US and Europe due to COVID-19 into outstanding results in the second quarter. We are proud of our second quarter performance and proud of the associates who helped deliver it. The strong performance has enabled us to further increase important investments in additional safety measures, enhance associate pay and benefits, and fund significant charitable donations to local communities, including to several local food banks. Our brands have also hired more than 45,000 associates globally in the second quarter. Natalie will go into more detail on the financial performance in the second quarter, but before she does, I would like to take the moment to share a few key highlights. We accelerated both comp sales growth and net consumer online sales growth. Both were even better than the high levels of growth we saw in our first quarter results. This sales development, along with the benefit of comparing against the same quarter last year, when we saw a negative impact from the strike at Stop and Show Brand in the US, led to strong group underlying operating margin performance in the quarter and 88% diluted underlying EPS growth. We are also accelerating investments to support customer demand and our increasing digital and omnichannel ambitions. And while COVID-19 continues, To create a high level of market uncertainty, we are nonetheless raising our full year outlook for underlying operating margin, underlying EPS growth, and free cash flow due to our strong performance in the first half of the year. We continue to adapt to the changes we are seeing in consumer shopping behavior. And one of the changes we see is the increased demand for our online offerings, which combined with investments to increase capacity, has resulted in group net consumer online sales growth of nearly 78% at constant rates. Our increased investments in digital and omnichannel capabilities, as well as a continued focus on maintaining our leadership positions in the markets we operate in, should lead to continued wallet share gains. As a result, we now expect greater than 55% growth in global net consumer online sales in 2020. This puts us on track to reach our goal of doubling global net consumer online sales from 3.5 billion euros in 2018 to 7 billion euros in 2020, which is one year earlier than we outlined at our November 2018 Capital Markets Day. I'm on slide five, and there you will see the three areas with examples of how we are navigating through the COVID-19 crisis. Our first priority, of course, is to continue to run operations safely and smoothly and offer our customers even more convenience so we can serve them better in this time of need. Our continued emphasis on safety and convenience requires a high level of investment. We invested approximately 260 million euros in COVID-19 related mitigation efforts in the second quarter, which was a significant step up from the amount we invested in Q1. The total we have spent on COVID-19 related items in the first half year is approximately 330 million euros. These items include additional safety and protective measures for our associates and customers, enhanced associate pay and benefits, and significant charitable donations to support local communities. And as you heard me mention earlier, our brands have also hired more than 45,000 associates in this quarter and nearly 69,000 in the first half of the year. These associates have played an essential role in helping feed our local communities. Second, we continue to enhance our omnichannel and digital capabilities to adapt to rapidly changing changes in customer behavior. For example, we will increase our US online grocery capacity by 70% in 2020, and we are growing it by 40% at Albert Heijn in the Netherlands. At Stop & Shop later this year, we will open four new wear rooms, which are our online fulfillment centers. Bol.com will open fulfillment center this year as well. And we have accelerated our same day online offerings in the US with additional click and collect locations. Offering of same-day delivery at more than 600 additional Food Lion and Stop-and-Shop stores will be also a part of our offering. And third, further improving in-stock levels to better serve our communities is of the key importance. By working proactively with our suppliers, we are now back to normal in-stock levels in Europe and are improving our in-stock levels in the US, where there continues to be industry constraints in certain categories. where we use the strength of our relationship, scale, supply chain, and leading local market positions to ensure we are getting ample allocation so we can continue to serve our communities in the best way possible. On slide six, you'll see some of the business highlights from the US. Our strong comparable sales performance was aided by 127% online sales growth as we were able to convert higher demand for both new and existing customers. We expect the strength in online sales to continue, and we are now forecasting more than 75% US online sales growth in 2020, which is higher than our previous expectation of more than 50% and the initial expectation of more than 30% growth. While we are benefiting from increased customer demand, We are also helping to drive this growth with investments to increase online capacity, which I mentioned earlier. And in addition to adding same day delivery at an additional 600 stores, we've also continued to focus on click and collect, which remains an important same day channel for customers as well. We ended the second quarter with 765 locations and expect to have for the full year, 1100 click and collect points. Food Lion was our fastest growing brand and achieved its 31st quarter of consecutive growth with positive comp sales and is proving that a high density store network with its clear focus on fresh and affordable is hitting the sweet spot for what customers are looking for today. We also agreed to acquire 62 stores from Southeastern Grocers, which will be converted to the Food Lion brand. And that should further help improve an already very strong market position at the brand in 2021 and beyond. Finally, Stop & Shop was one of our fastest growing brands in this quarter as well. In particular, the reimagined Stop & Shop stores continue to outperform. We expect to open 20 more of these remodeled stores in the second half of the year. Slide 7 shows some highlights from Europe. We also had strong performance here and gained market share in our largest European brands in the Netherlands and Belgium. Overall, the brands in Central and Southeastern Europe maintained share. One particular standout was the high level of net consumer online sales growth, which was nearly 64% in Europe. Online grocery growth was strong and bulk.com also performed extremely well. with 65% net consumer sales online, but Bol.com also delivered 107% growth in third-party sales on their platform in the quarter, and added more than 4,400 merchant partners to the platform in the second quarter, which now brings the total number of merchants on Bol's platform to 34,000 in total. We previously discussed accelerating the timing of two new home delivery fulfillment centers in the Netherlands in order to serve the higher levels of demand we expect to continue there. The first of these centers opened this week and has already increased capacity by 20%. The other will open in the third quarter and combined these two fulfillment centers will increase capacity by 40% in the Dutch market. Albert Heijn also launched home delivery service in Belgium and will open our first home delivery fulfillment centers in Greece and Romania in the second half of the year in order to better accommodate the high levels of online sales growth in those markets. In addition to our strong omnichannel performance, I also think it's important to spend a moment on health and sustainability, another key growth driver in our strategy. And on slide eight, you'll see that we have made some important strides on this topic. During the second quarter, we published our first ever Human Rights Report, outlining the steps we are taking to safeguard human rights. The report is based on the UN Guiding Principles Reporting Framework and is the result of a global human rights due diligence process that began in 2018. This due diligence process was designed to increase engagement on human rights, both internally and externally, and to assess current human rights management policies, processes and governance. The Human Rights Report outlines the outcome of this due diligence and provides a roadmap for our future actions. We also issued our first Sustainability Bond Report in June 2020, documenting how we used the 600 million bond financing from 2019 to support sustainable products, reduce climate impacts, and promote healthier eating. We have just recently announced our commitment to achieve long-term science-based targets on climate, including our goal to reduce our own carbon emissions by 50% in 2030, and to reduce those same emissions from our overall value chain by 15%. We also officially became a supporter of the Task Force on Climate-Related Financial Disclosures, TCFD, and we're now in the process of developing voluntary and consistent climate-related risk disclosures. Food Lion was awarded its 19th consecutive Energy Star Partner of the Year Award for its leadership in energy efficiency. They became the only U.S. company to receive Energy Star award of the year award 19 years consecutively. And all of our U.S. brands adopted new sustainability policies to bolster GMO product labeling and animal welfare. Now, let me hand over to Natalie.