Koninklijke Ahold Del Ord

Good morning and welcome to the Analyst Conference call on the fourth quarter and full year 2020 results of AHL Dorheze. 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 statements. Such risks and uncertainties are discussed in the Summary Report, Fourth Quarter and Full Year 2020. and also in AHODO HESA public findings and other disclosures. AHODO HESA disclosures are available on ahodohesa.com. Forward-looking statements reflect the current views of AHODO HESA management and assumptions based on information currently available to AHODO HESA management. Forward-looking statements speak only as of the date they are made, and AHODO HESA 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 Harold O'Hazard. At this time, I would like to hand over the call to Alvin Concepcion, Senior Vice President, Investor Relations. Please go ahead.

Thank you and good morning, everyone. Welcome to our fourth 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, aho.haze.com. I ask that you please limit yourself to two questions. If you have further questions, then please re-enter the queue. I'll now turn the call over to Franz. Thank you very much, Elvin, and good morning, everyone.

In 2020, the effects of COVID-19 and the social unrest deeply impacted the communities we serve and created unprecedented challenges for our brands. I'm pleased with how the hundreds of thousands of associates across all our brands, distribution centers, and support offices demonstrated courage and care in protecting the safety of our stores and distribution centers while providing at the same time great customer service and community support. I would like to once again thank each and every one of them for their tremendous efforts. In support of these efforts, we made significant investments in additional safety measures, enhanced associate pay and benefits, and substantial charitable donations, which resulted in approximately 680 million euros in COVID-19-related costs in 2020. We also committed to contribute over 1.4 billion euros to improve the security of pension benefits for associates and reduce at the same time the financial risk for giant food and stop-and-shop. When we started to see consumers shift their purchases more online at the onset of COVID-19, we acted quickly to shift capital expenditure spending in 2020 to accelerate investments in digital and omnichannel capabilities. As a result of these combined efforts, we ended 2020 in a strategically stronger position than before the COVID-19 pandemic began. Now I'll focus a little bit on the financial results. And of course, Natalie will go into more detail on the financial performance in Q4, as well as our outlook for 2021. For now, you can see in our press release and on slide four, some of the highlights. We are pleased with the underlying Q4 performance in both the US and Europe. Comp sales grew significantly Excluding gas was strong in both the U.S. and Europe, and our leading local omnichannel platform generated nearly 130% net consumer online sales growth in the U.S., and nearly 75% growth in Europe in the quarter at constant exchange rates. The strong Q4 performance allowed us to exceed our full-year outlook. Underlying EPS growth was 33% in the full year 2020, versus our guidance of a high 20% growth. We were able to produce 2.2 billion in free cash flow in 2020, which compares to our guidance of above 1.7 billion euros. We were proud of this high level of cash flow, given the significant payments we made to withdraw, settle, and improve the security of pension plans in the US and the Netherlands, as well as our accelerated investments in digital and omni-channel capabilities. We strive to benefit all of our shareholders and aim to strike the appropriate balance between investing in the health and safety of associates and customers, supporting our local communities, prioritizing environmental, social, and governance initiatives. Therefore, we are also proposing a 90 euro cents dividend for 2020, which represents 18% growth from the prior year. Moving to slide five. You heard me mention that we were entering 2021 in a statistically stronger position versus the pre-COVID-19. And I will elaborate a little bit more on that now. In 2020, we were able to significantly improve our strategic position. We are exceeding the multi-year capital market state 2018 financial results and targets. We grew overall market share in both the U.S. and Europe. which has further strengthened our number one and two market share positions. We exceeded our three-year group net consumer online goal of €7 billion a year early by achieving €7.6 billion in 2020. And online now represents about 10% of our sales, and we are positioned for additional growth, giving our significant capacity increases in 2020 and 2021. And we significantly de-risk our US multi-employer pension plan liabilities by withdrawing from and securing plans that comprise about 90% of the year-end 2019 net deficit. Exiting 2020 in this position makes us feel even more confident about our prospects in 2021 and beyond. While no doubt that COVID-19 helped our results last year, We also know that the future for our hotel is very promising. Many consumers have found a new love for eating at home and found new ways to engage with our brands, both online and in-store, which are behaviors which we think will have a lot of stickiness. As a result, we are now setting more ambitious targets in several areas of our business, which you can see on the right side of slide number five. With increased capacity and continued momentum, We expect group net consumer online sales to continue to grow strongly in 2021, particularly in the U.S., both organically and aided by the recent acquisition of Fresh Direct. We are raising our cumulative cost savings target for 2019 to 2021. These cost-saving efforts will enable our brands to invest in providing more value and convenience to customers and help us mitigate cost pressures in the business. This will lead to a solid group underlying operating margin in 2021, which is expected to be at least 4% and will drive EPS growth versus 2019. It will be another strong year for free cash flow, and we are now on track to reach €5.6 billion in cumulative free cash flow from 2019 to 2021, which exceeds the Capital Markets Day 2018 target of €5.4 billion. Deadly will provide more color on this outlook in a few moments, but underpinning this financial guidance is our ability to further capitalize on our strong relationship with our customers and communities, who will continue to reward us for our efforts to innovate, provide convenience, and offer a healthy and fresh assortment at a good value. This guidance also reflects the consistent financial discipline and operational excellence which we have to come to expect from Al DeLess. This is particularly important as we lap a year where COVID-19 has created a lot of distortion in the financial result, as well as new challenges in 2021. Slides 6 and 7 summarize how we exceeded our key targets in 2020, as well as our new targets in 2021, beyond the financial targets I just discussed. We hold ourselves accountable when we set targets and believe in being transparent about them. In the spirit of transparency, slides 8 and 9 show our progress versus the initial 2018 Capital Markets Day promises. And I won't go through them all, but clearly we have exceeded or are on track of exceeding all of our financial goals through 2021. We are happy with our track record here, which I recall was also a very good pre-COVID-19. I am confident in our ability to achieve our more ambitious targets in the year to come. The last quarter, on slide 10, we spent a bit of time discussing some of our early initiatives to solidify our position as an industry-leading local omnichannel retailer and increase our share of the customer wallet in 2021 and beyond. Even more confident about our efforts to make that happen. On slide 10, you can see that we increased share in 2020 in our key markets in the US and the Benelux and maintained share in the Central and South Eastern European markets. It's widened in a positive sense our already leading one and two position market share. And our aim is to retain this leading position in 2021 and beyond. So I think it's worth giving you an idea how we plan to do that. On slide 11, we described some of the reasons we think additional wallet share opportunities remain. While no doubt COVID-19 creates challenging sales comparisons in 2021, we are confident that our two-year stacked comp sales growth rates will be better than they were pre-COVID-19. One of the reasons we believe this is because of our ability to capitalize on changes in customer behavior. We have shown in 2020 our ability to adjust our operations and shift investments in a short amount of time. And we will continue to remain nimble. Even as COVID-19 subsides, we think customers will work more from home than they did before COVID-19 and therefore eat more at home than before. We think the preference for healthy and fresh products will step up even further. And we think online demand will continue to grow strongly. These behaviors portend well for our future as a company because they are the areas we have been highly focused on and already play well into our strengths. In fact, with our investments in increased capacity and continued innovations, we expect over 30% growth in net consumer online sales for the group in 2021. And we expect the US to outperform that rate with over 60% growth. In Europe, Bold.com has exceeded their net consumer online sales target a year earlier. reaching €4.3 billion in 2020 versus our target of €8.5 billion in 2021. We expect growth to continue and are upping our forecast for Bold.com to €5 billion in net consumer sales by 2021. There are a few other reasons we think incremental sales opportunities exist. Our recent acquisitions of FreshDirect, and stores from Taos Ethan Grocers, as well as yesterday's announcements regarding game supermarkets in the Netherlands, will drive incremental sales. We think there's organic growth opportunities here as well. The store remodels we are doing across the US and Europe should also continue to drive sales uplifts, and many of these are focused on some of our largest brands in Stop & Shop and Albert Heijn, which you have heard us talk about before. There are also new opportunities for increased sales in general merchandise and on-brand products in the U.S., as well as improved meal solutions offerings in both the U.S. and Europe. On slide 12, you can see some highlights of ways we are bringing to life our goal of being a leading local omnichannel retailer, building upon key initiatives which we announced last quarter, our activities centered around several areas. First of all, significantly stepping up our online capacity, supply chain, and technological capabilities. In 2021, we have plans for increased online capacity in both the U.S. and Europe, on top of a significant increase in 2020. We will also continue to make progress in our U.S. supply chain transformation efforts, which are absolutely on schedule. Two. Advancing our omnichannel offerings to consumers, we will roll out AHA Albert Heijn Compact, which is a no-fee home delivery service targeting smaller households to more markets in 2021. Giant company launched a choice pass in January, which offers unlimited free grocery delivery and pickup with an annual membership fee of $98 as a sort of subscription system. And last quarter under three, We mentioned that improving online productivity across all our brands is one of our highest priorities for 2021 and beyond. It remains a key focus for us, and we have some new things to share with you on this front. We plan to accelerate U.S. online grocery fulfillment productivity growth through an end-to-end improvement of processes, systems, operating practices, and innovation beginning in 2021 and continuing through the end of 2022, which will lower the cost to serve. To improve efficiency even further, we will open an additional micro-fulfillment center with other store and Swiss lock inside of a new omnichannel fulfillment center in Philadelphia in the fourth quarter of 2021. In both the US and Europe, we will utilize technology to improve route optimization in order to reduce last mile costs. We are also working on ways to optimize the numbers of orders per trip and leveraging new fulfillment centers to reduce distance traveled. And at Bold.com, we are pleased with the team's ability to drive positive operating profits and double-digit return on capital in 2020, and we expect this to continue in 2021. We also remember that we want to continue to address the call to action in ESG. Slide 13 shows our recent actions. It's great to see that our substantial efforts in the past have been recognized as well. We were the top-ranked food retailer in the U.S. and Europe, and number two globally in the 2020 S&P Global Corporate Sustainability Index, and therefore recognized as a member of the Dow Jones Sustainability World Index and the GGSI in Europe. Going forward, we continue to push our efforts on the ESG and announce that, In January, Albert Hang halved their CO2 emissions per soar and switched to 100% wind energy. The U.S. partnered with HowGood on an easy-to-use environmental and social impact rating system. The U.S. brands pledged support to the CEO Action for Diversity and Inclusion program, which is the largest CEO-driven business commitment to advance D&I within the workplace. And our U.S. brands were recognized as best places to work for LGBTQ and equality, receiving a perfect score on the Human Rights Campaign Foundation's 2021 Corporate Equality Index. We also announced a $1 billion sustainability-linked revolving credit facility. All elements to underline the importance of ESG and our efforts to make it even more important for ourselves, our associates, and our customers. On slide 14 and 15, we highlight some of the key achievements in Q4 for the US and Europe. In the interest of time, I won't cover all of these, but in the US, we saw high levels of online growth continue. Also, the shop and remodel stores continue to perform in line, and we will accelerate the number of removals in 2021. In Europe, We were also pleased with the high level of net consumer online sales growth, particularly at Bull.com, which started the year with 26,000 sellers on the platform, the year of 2020, and ended the year with over 41,000 of sellers on the platform. And it continues to grow in 2021. I will now hand over to Natalie.