Koninklijke Ahold Del Ord

ladies and gentlemen good morning and welcome to the analyst conference call on the third quarter 2022 results of our hotel heather 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 Interim Report, Third Quarter 2022, and also in the Ahold Delhaize's public filings and other disclosures. Ahold Delhaize disclosures are available on aholddelhaize.com. Forward-looking statements reflect the current views of Aarhus Dalherza's management and assumptions based on information currently available to Aarhus Dalherza's management. Forward-looking statements speak only as of the date they are made and Aarhus Dalherza 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 Aarhus Dalherza. At this time, I would like to hand the call over to JP O'Meara, Senior Vice President, Head of Investor Relations. Please go ahead.

Thank you, Operator, and good morning, everyone. I'm delighted to welcome you to our Q3 2022 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, aholddelez.com, which also provides extra disclosures and details for your convenience. To ensure everyone has the opportunity to get their questions answered today, I ask that you initially limit yourself to two questions. If you have further questions, then feel free to re-enter the queue. To ensure ease of speaking, all growth rates mentioned in today's prepared remarks will be at constant exchange rates unless otherwise stated. I now turn the call over to Frans.

Thank you very much, JP, and good morning, everyone. Empowering customer choice by providing great value and easy access to affordable and healthy food options has always been at the center of the customer value proposition of our last 19 great local brands. And all year, and particularly now, as we head into the holiday season, we are leaving no stone unturned to support customers and associates in our own unique way. With a deep understanding of commodity prices built through our extensive experience with own brand products, our teams play an important role in the value chain and work hard on behalf of customers to ensure realistic pricing. In the face of increasing price pressures, it's everyone's job across the value chain to keep prices as low as possible for consumers. To this end, we continue to engage diligently and proactively with partners, making clear choices on assortment when necessary. Our resilient financial performance and positive market share development in the Q3 again highlights the loyalty and trust customers continue to place in our brands. And this is the biggest vote of confidence that we are doing the right things. With accelerating sales growth, rates in both the US and Europe driven by increasing inflation rates, comparable store sales X gas increased 7.9%. The group underlying margin of 4.4% was in line with the prior year as a strong US performance helped to compensate for a more challenging environment in Europe. And diluted underlying earnings per share were up with 31.6%. Succeeding as a retailer in this dynamic economic and geopolitical environment, as you very well know, is a delicate balancing act of managing the price and volume equation. Therefore, and as you can see with the many initiatives on slide number eight, I'm very proud of these results and of our associates who consistently rise to meet the demands of these challenging times. Despite all the important transformations going on throughout our organization, be it in digital and omnichannel, the pivot to self-distribution, modernizing our IT and technology infrastructure, the drive to a more sustainable and healthy food system, our teams never lose sight and stay true to execute the basics of good retail. This is only possible with a strong foundation and also in our case, our unique position gives the global diversity and scale of our business. Here, and as I evidenced on slide number nine, there are three elements in particular that I believe really set us apart competitively. Firstly, dense networks which provide a close proximity to the customer, which is also critical for enabling reliable omnichannel services. And this is increasingly important as customers shift from bigger baskets to more frequent shopping. Secondly, a high focus on great value products plus deep assortments that discounters can't match, with our high-quality own brands being a key differentiator. This helps us retain existing customers by easily helping them find opportunities between price levels. And it also helps us win new customers looking for better value destinations. And thirdly, a relentless focus on the hygiene factors, keeping stores vibrant and modern, adding new digital features and functions, and investing in our associates and culture. This tried and trusted model works and is evident in the numbers. In Q3, we see the number of transactions and that means number of shoppers and shopping clips rising across our brands. And within online, we have seen a marked uptick in the ratio of new customers to our platforms during the quarter. Our two biggest brands are great examples and case in point. First, I'd like to highlight a special achievement of the group's biggest brand, Food Lion. Q3 marks a remarkable milestone that any type of retailer or consumer company would be extremely proud of. A decade, a decade of continuous quarterly comparable store sales growth. And based on Q4 sales so far, it's also looking good for a strong start into the next decade in those beautiful Carolinas. With their easy, fresh and affordable positioning, Food Lion exemplifies what it means to be sharp around the edges. Driven by its count-on-me promise, Food Lion has clear value proposition to the customer, an excellent fresh offering, a dense and well-maintained store network, and a fierce commitment from the top down to its brand, strategy, and culture. Albert Heijn is another great example of how the formula works. With a particular strength in innovation, technology, and analytics, the brand continues to win market share with fast reaction times in an increasing challenging macro environment. This quarter included a new traffic generating 100 items under one euro campaign, as well as an expansion to 1,600 price favorites, which includes top quality own brand daily products at affordable prices. And in addition, Albert Heijn Premium passed its 600,000 member subscription mark this quarter, having just been launched this time last year. I'm pleased we're also making good progress with many of our more challenged brands. For example, at Stop & Shop, we continue to advance on our remodeling program, with around 40% of the store fleet now remodeled since 2018. An important focus area for Stop and Shop is New York City, where we announced a multi-year, $140 million investment earlier this year. With the first five stores remodels completed, we are encouraged to see all stores trending ahead of plan with a double-digit comp sales, and that lift is driven by increased units and new customer transactions. In addition, the introduction of Stop & Shop's new deal lock savings program, which helps customers capture value by locking in a specific sales price for multiple weeks on both national and private brands, is delivering strong early chain-wide results. The last Belgium also saw a material improvement in comparable store sales, supported by the first full quarter of its little lines everyday low price program and enhancements to its health-oriented SuperPlus loyalty program as well. In addition to these customer-facing initiatives, we are laser-focused on saving costs and operating smarter every day. This quarter, we have made good headway on combining purchasing. In fresh sourcing, we are moving more volumes to our strategic partners, able to service both Belgium and the Netherlands. We have implemented new processes which are helping reduce shrink And we're increasing digital communication to become more relevant with younger consumers and optimize marketing costs at the same time. At Bold.com, net consumer online sales were up 5.6% in the third quarter and market share gaining over one percentage point year to date. This was driven by double digit growth in third party partner network sales. And while the market is still challenging, the brand is well positioned to serve customers and maximize the holiday season opportunity. Supported, for example, by the big toy book and the logistical strength of the new distribution facility, which doubles our capacity as it ramps up following the official opening earlier this summer. Taking a step back and looking at the big picture, I'm equally encouraged about our progress on the four key priorities within our leading together strategy. Starting with our customer priority. Here we are focused on unlocking the creativity and innovation of our teams to cement deeper and more digital customer relationships. Our omni-channel transformation is central to this strategy, driven by consumers' desire to shop whenever and wherever they want. In the third quarter, net consumer online sales increased by 11.5%. Our online grocery sales were up even 16.9%, with strong growth in both regions. Here, our digital loyalty program continues to fuel growth and opportunities for our brands. For example, our 80 USA loyalty programs have generated over $1.5 billion in incremental sales year-to-date. And moreover, we are seeing all-time highs with increased engagement in our loyalty participation, with a double-digit increase in new loyalty customers year-over-year. Furthermore, in this quarter, our CRM campaigns reached over 28 million households, and delivered 8 billion personalized offers compared to 5.3 billion personalized offers last quarter. Moving on to our operational priority, which is the key enabler of our omnichannel transformation and is geared to drive long-term operational efficiency. And looking at slide 17, we again accomplished a lot in the quarter. Our Save for Our Customers cost-saving program remains on track to produce savings of more than 850 million euros in 2022. We are also making good progress on our plans to generate 1 billion in complementary revenues by 2025. And for example, Albert Heijn and Bol.com's digital media businesses grew roughly 60% in Q3 versus last year, thanks to the continuous investment in their digital advertising capabilities, for example, in sponsored products. In addition, we acquired a minority stake in Belgium's ad tech company called Adhese, which will provide an important part of the tech stack and third-party integration to help scale our capabilities and services for advertisers and publishers in Europe, and that work will start in the Netherlands. In the US, Peapod Digital Labs announced plans to build an end-to-end in-house retail media business, building on the existing AD Retail Media Network. And while we may not be the first retailer to make this important move, we will be the first one to go live with an end-to-end solution, making it much easier for suppliers and other content providers to find a one-stop way to work with us in-store, online, and across all our brands and channels. In times where speed and ease of doing business matters, this is an industry first. Moving on to our next priority, healthy and sustainable. We believe it is important to continue to make progress on elevating our healthy and sustainable strategy also during these challenging times. We believe that every step counts, and I'm proud of how our brands continue to show that it's not just about the numbers, but there is a real customer benefit in our efforts here as well. Let's take food waste, for example. Albert Heijn recently introduced its overblivers, or leftovers program, and the last, Belgium, introduced its Waste Less Pay Less initiative. Both aim to reduce food waste and provide value to customers by enabling them to buy products close to the expiry date at a lower price. The giant company now has 106 zero-waste stores, successfully diverting 90% or more of total waste from landfills into incinerations. And Albert became the first retailer in the Czech Republic to test a hydroponic system that grows herbs and leafy vegetables on the sales floor and introduced a zero-waste kitchen, turning remaining food from three stores into