Koninklijke Ahold Del Ord

ladies and gentlemen good morning and welcome to the analyst conference call on the second quarter 2024 results of our hotel hazer 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 second quarter 2024 and also in Aarhus Delhaize's public filings and other disclosures. Aarhus Delhaize disclosures are available on aarhusdelhaize.com. Forward-looking statements reflect the current views of Ajo del Herza's management and assumptions based on information currently available to Ajo del Herza's management. Forward-looking statements speak only as of the date they are made and Ajo del Herza 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 Herza. 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, JP.

Thank you, Sharon, and good morning, everyone, from sunny Zandam. I'm delighted to welcome you to our Q2 2024 results conference call. On today's call are Franz Muller, our President and CEO, and Yolanda Putzbile, 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, ahosles.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 please 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. And with that, I hand over to Grant.

Thank you very much, JP, and good morning, everyone. I'm pleased to report a strong second quarter, placing us well on track to achieve our strategic objectives and financial goals for the year. 2024 is a very important year for us as we position ourselves for long-term profitable and sustained growth. To that end, we launched our refreshed company strategy, Growing Together, internally and externally in May, which many of you attended. At the same time, our current business is performing well. We saw solid and improving momentum at our brands in both regions. Our omnichannel capabilities, the strength of our own brand assortment, as well as our hard work on the cost side to fund investment in our customer value propositions are paying off. Stripping out the noise in our revenue numbers from calendar, exiting tobacco in the Netherlands, the Deleuze future plan, and the fresh direct divestment. Stripping off those, I'm very encouraged by the steady and sequential improvements in comparable sales growth numbers in both regions. And Jolanda will give you more details later. We have further strengthened our relative position in key markets. We have created some headroom in our profitability base in the U.S. to support growth investments. And our European margin recovery is well underway as we look ahead. I would like to thank our more than 400,000 associates for these solid results, supporting and serving our customers at every step, taking the initiative to simplify our business and for embracing our new strategy with enthusiasm and energy. As a reminder, the key elements of our growing together strategy are captured in our growth model. These are investing in our winning customer value proposition, CVB, densify and grow markets, innovate for growth and efficiency, and leverage and lower our cost base. This quarter, I would like to spend some time on densify and grow our markets. Important elements of this pillar over the coming years include a more pronounced organic store growth and remodeling program in the U.S., further leveraging our Benelux stronghold through Albert Heijn and Deleuze and capturing new growth opportunities in the CSE region with new store openings and with accretive bolt-ons such as Profi and therefore bringing scale and synergies. On the flip side, making the necessary interventions when brands are challenged to elevating the quality of our sales and operations such as the stop-and-shop measures I will talk about later. In terms of strong organic growth, with 47 consecutive quarters of comp store sales growth, Food Lion exemplifies how a clearly defined long-term plan, persistent and consistent execution can lead to great results. The recently remodeled Wilmington and Greenville markets are delivering in line with expectations. And with only seven stores under construction, and 158 stores completed. We plan to complete our total initiatives in the rally markets later this summer. In Europe, Albert Heijn's market share gains continue, with the brand also seeing impressive double-digit growth in online sales. We are capturing new growth opportunities in the CSE region, with 18 net store openings during the quarter, and continued growing our own brand assortments. We are also nearing the closure of the Profi acquisition, which we expect to happen during the fourth quarter. In Belgium, Deleuze is approaching the final phase of store transitions as part of its future plan. We anticipate the team will have converted all the stores in Q4. To date, 180 stores have transitioned to their new owners. We are very pleased with the results thus far, with store sales customer frequency, and basket size all trending upwards. And this is also confirmed by a strong market share recovery, with market shares now exceeding pre-announcement levels. On slide 11, finally, let me give you a brief update on stop-and-shop. We recently announced the first major step for the next phase of our stop-and-shop revitalization work, with a planned closing of 32 underperforming stores to be completed in Q4. The estimated net impact of these closures on our top line is expected to be between $100 and $125 million in the second half of 2024 and between $550 and $575 million in the total year of 2025. We also expect to recognize a non-recurring pre-tax charge between 160 and 210 million dollars in the third quarter of 2024. Closing stores in our industry is never an easy moment, and we have done our utmost to minimize disruption for our associates, for our customers, and for the local communities of these impacted stores. However, it is an important step that is needed to create a healthy store base for the long-term and to focus our investments to strengthen and grow the brand again. And as we said in May, we are committed to further investments in price and in the customer experience. A great example of this is the opening of the newest flagship Stop & Shop Alston store in Boston in June, featuring an extended produce department with more local fruits and vegetables, a carefully curated assortment of products for the wide range of cultures and communities in the area, and the newest price and promotion programs. Investments like these tie to one of the other key elements of our growth model, investing in our winning customer value proposition. We know strengthening our competitiveness in the existing network always brings the fastest and highest return on investment. And in May, we announced we would step up our price investments across all brands in the US by $1 billion for the period 2025 through 2028. It will build on price investments and interventions in the current year, which are predominantly focused on Stop and Shop and the giant food company in 2024. A great example of this is the Compare and Save campaign, where we are emphasizing the value of own brand products compared to national brands. Although we are in the first phase of the campaign, Initial feedback is positive with higher sales in both dollars and units. In Europe, we are also investing in our CVP by further increasing our range of price favorites. We now have roughly 700,000 EDLP SKUs, up almost 15% compared to last year. This is an important value driver as our data shows that the sales out of these SQs are a substantial contributor to our sales growth. And finally, let me spend a moment of innovate for growth and efficiency, which includes ramping up our capabilities to drive complementary income streams. This quarter, Al DeLess USA announced its retail media network is partnering with placements.io. a platform that will further streamline its sales, advertising, and finance operations for its consumer packaged goods partners. In Europe, the Gambit technology, which is our retail media platform through our investments in Adhese, is next to Albert Heijn, now also live at both Alva Vita and DLS Belgium. In addition, Albert Heijn has added new functionality, making it easier for advertisers to activate sales and strengthen their brands, thanks to Albert Heijn's wide reach. For example, video advertisements are now possible on aha.nl and in the Albert Heijn app. With that, let me summarize by repeating that 2024 is an important year in setting the scene as we pivot to our ambitious growing together strategy. Everything I see at the moment gives me confidence that our brands are taking the right steps, moving at the right pace, and leveraging the strong foundation of our business to accelerate growth. Now over to Yolanda to talk more about the financials and the outlook for the remainder of the year.

Thank you, Frans, and good morning to everyone. Our second quarter performance highlights the strength of our portfolio of great local brands. which, together with our strong market share positions, is a winning combination. As inflation rates stabilize in both the US and in Europe, we continue to see volume trends improving and, in many cases, moving to positive territory. At the same time, our teams keep a relentless focus on leveraging and lowering our cost base to further drive operational efficiency and cost discipline. Several mitigating actions have been launched, to compensate for the ongoing cost inflation in the center of our P&L. We do this in negotiations with our suppliers on cost of goods sold, by bringing AI and mechanization in our operations, and also by simplifying our processes wherever we can. Several organizational simplification initiatives in the U.S. and CSE, which we already announced in previous quarters, are now paying off. Other initiatives within our group organization, which we started earlier this summer, will provide fuel for future growth. While simplification is a strong anchor for our Save for Our Customer program, which is tracking very well yet to date, it also contributes to increasing collaboration, speed, and decision-making, which will add to our competitiveness going forward. Now to the key underlying results for the quarter, as shown on slide 16. Net sales grew 0.7% to €22.3 billion, benefiting from positive comparable sales ex-gas growth and net store openings. The negative impact of the divestment of Fresh Direct, the end of tobacco sales in the Netherlands, and the Belgium Future Plan impacted net sales by 1.3%. Group online sales increased 3.4%. Double-digit growth numbers at almost all our brands were negatively impacted by 8% from the divestment of Fresh Direct. Group underlying operating margin was 4.2%, a 10 basis point improvement compared to last year. Excuse me, 10 basis points improvement compared to last year. Continued improvement in our European businesses and strong execution in the US were only partially impacted by lower insurance results within the global support office. Diluted underlying earnings per share was 65 euro cents, up 4.5%. In the first half year, we bought back 18.3 million shares for a consideration of 501 million euro, also in line with our 1 billion euro annual plan. And finally, our 2024 interim dividend will be 50 cents, up 2% from 49 cents in 2023, in line with the group's interim dividend payout policy. Slide 17 shows our results on an IFRS reported basis for Q2. IFRS results were €143 million lower than underlying results, largely due to the costs associated with the transition of stores as part of the Belgium Future Plan. On slide 18, you see comparable sales growth by region including and excluding weather, calendar and other effects. This shows a negative impact from calendar shifts of 120 basepoints in the US, related to the timing of Easter and the 4th of July. In Europe, there was around a 70 basepoints negative impact from Easter, a negative impact from tobacco of 210 basepoints, and a positive impact from cycling strikes in Belgium of 50 base points. Before I jump into the regional performance, I'd like to spend an extra moment on our online sales growth, which is showing very solid momentum. We see that customers value our online general ecosystems, which offer them the flexibility and convenience of shopping whenever and wherever they want. In Q2, our online sales increased with 11.4%, excluding the divestment of fresh direct, driven by both new customer growth and strong customer retention. At the same time, we're also making positive strides in e-commerce profitability. A few examples. In the US, the shift in demand to more profitable channels and our initiatives to optimize the store-first fulfillment model are paying off. Our customers respond positively to our new partnership with DoorDash, with orders through DoorDash Marketplace more than doubling compared to the first quarter. In the Netherlands, Albert Heijn is on its fourth quarter of accelerating online sales growth. To support this strong growth, Albert Heijn has opened its second fully automated home shop center in Zwolle. Here, we are also building on our experience with the Baan en Rechts facility, which, while still in the ramp-up phase, is already performing above a manual facility in terms of operational efficiency. This gives us the confidence we have the right model and the right technological setup to deliver great customer service whilst continuing our journey to online profitability. Greece, our Alpha Vita brand, partnered with online delivery company eFood, the largest food delivery service in Greece, enabling eFood users access to their favorite products within 60 minutes. Looking at the regional performance, in the U.S., net sales were 13.6 billion euro, down 1.5%. In addition to the calendar impact, net sales were negatively impacted by around 110 base points, which is 154 million euro, from the divestment of FreshDirect. Our online sales in the segment declined 2.9%. Adjusted for the impact of Fresh Direct, which was 16.9%, we realized a strong growth of 14%, supported by Food Lion, Hannaford, and the Giant Company. Underlying operating margin in the U.S. was 4.7%, up 10 base points due to increased vendor allowances, cost control actions, and the margin mix benefit from the divestment of Fresh Direct. This was partially offset by higher store labor and higher service costs and lower sales leverage. We also see the stabilization of shrink levels following the implementation of several shrink mitigation methods, like the deployment of Avazine and PerCheck technology. Turning to Europe, sales were 8.8 billion euro, up 4.3%. This was due to the positive impact from comparable sales growth of 2.4% and net new stores. Net store openings include the... Robert Hein Belgium recently opened its 80th store in Labrador, underlying its growth ambition in this region as well. Europe's comparable sales growth figure includes a negative impact of 2.1% from the end of tobacco sales at our own operated supermarkets in the Netherlands as of January the 1st, a negative impact of 0.7% from calendar shifts, and a positive impact of 0.5% from the cycling of strikes in Belgium. In Q2, online sales increased by 9.3%, supported by strong execution at the majority of the brands, with particularly strong double-digit growth at Albert Heijn, as I already mentioned. At Ball, which has recently been voted the most favorite retail brand in the Netherlands for the 10th consecutive year, online sales were €0.7 billion, up 5.5%, due to solid first-party sales in a market that grew only low single-digit this quarter. We continue to see strong growth in value-added services at Ball, such as advertising and logistics, which grew over 25% and almost 10% for the quarter, respectively. Underlying operating margin in Europe was 3.7%, up 50 base points. We benefited from the performance recovery in Belgium, in part due to the cycling prior year strikes and the switch to just one operating model. as well as lower energy costs in the region as a whole. This was partially upset by higher labour costs, primarily at Albert Heijn, and an increase in the non-cash service charge for the Netherlands employee pension plan. Before moving on, let me provide some additional colour on the second half of 2024 in Europe for modelling purposes. The negative impact from the end of tobacco sales is expected to increase to approximately 3%, as Albert Heijn franchise stores stopped selling tobacco as of July 1st. Our net sales will be negatively impacted as our own Delhaize stores are converted to affiliates. In that case, we will no longer account for the sales to the end customer, but only to the sales of affiliates. I expect this impact to be around 100 base points for Europe in the second half of this year. On to slide 22. Q2 free cash flow was €378 million, which represents a decrease of €486 million compared to Q2 2023. This was mainly driven by cycling of the incidental tax refund of €377 million and negative changes in working capital due to timing differences. When looking at the half-year number, we're nicely trending towards a full-year guidance with a free cash flow of 754 million euro. Finally, let me spend a few moments on our non-financial KPIs, particularly those of relevance from a healthy communities and planet perspective. As you know, one of our key priorities is to increase the share of healthy sales. This is an area where we can make a difference for our customers. A great example here are our convenient meal solutions with fresh produce for consumers, so-called verspaketten across Albert Heijn and Delhaes. Last month, we also published our 2024 Human Rights Report. This is a foundational commitment towards our associates, our customers, our communities, and the people in the supply chains of our company. The report includes several major updates to our standards of engagement for suppliers and highlights of our brand initiatives to improve workers' conditions across the value chain. Outside of our value chain, we are very active in providing for and serving community needs. Food Lion, which has just celebrated 10 years of Food Lion fees, has donated 1.2 billion meals since 2014 via their hunger relief platform and is well on track to its pledge to donate 1.5 billion by the end of 2025. Let me wrap it up. Given the positive momentum of the second quarter, I am confident that although the environment remains dynamic, we are well on track to deliver on our commitments for 2024. And we reiterate our outlook for the remainder of the year. The stronger than planned performance in half year one 2024 provides opportunities to already take some further actions to support a growing together strategy and financial long-term ambitions. With that, I'd like to thank you for your continued interest in our company and operator. Please open the lines for questions.

Thank you. To ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Thank you. We will now take the first question. And your first question comes from the line of William Woods from Bernstein. Please go ahead.

Hi, good morning. Thank you for taking the questions. I've got three. The first one is, obviously, why hold EPS guidance flat when H1 grew at 4%? Would you expect a decline in the second half? The second question is, are you able to give any context on the margin impact of the stop and shop closures? And then the third one is, do you have any comments or details that you're able to provide about U.S. consumer health? Do you think the consumer is getting better or worse? Thanks.

Well, thank you for your questions indeed. The first question was around EPS being flat or sticking to our guidance, one could say. As we already indicated on strategy day but also in our recent communications, our current solid position gives us the opportunity to start investing in our growing together strategy also in the next few quarters. So we are confident that we can deliver on our guidance and we'll use any momentum to drive profitable growth going forward. Then your second question on the margin of stop-and-shop impact, as we've included in our interim report, we remain our guidance for 2024, including the stop-and-shop impact. Underlying, so below the line, as we said, we have a pre-tax impact of 160 to a range of 160 to 210, which will be included in our Q3 numbers.

Yeah, and thank you, William, for the last question on the consumer health in the U.S. I think we should, with all the noise we hear now and then, we should not forget that we are in food business. We're not in a discretionary business, and we have very, very small non-food shares in our total business. And that's why we In Food worked very hard the last year on a very good digital proposition, very strong loyalty programs, but also at the same time are ramping up our private label shares. We have above the 30% private label participation. And we also, where needed, make sure that we are priced right. And that gives us confidence with the number one and two market positions and the strong brands we have. and communities are very loyal to our brands, that we have a good position here to serve our customers with affordable, sustainable, and healthy products. And that's why we are confident also in the present situation in the market, because we also see volumes are trending in the positive directions. We get more support from our vendor community on promotions and trade funds. So at the moment, we see a rational pricing environment. And, yeah, it's hard work, but we have to make sure that we do the best thing for our customers. We are confident that we also can win further share in this type of market, which, as I said before, we are in the food business, and that spend for households comes earlier than discretionary and then on food. Excellent.

Thank you.

Thank you. We will now go to the next question. And the question comes from Isabel Debreva from Morgan Stanley. Please go ahead.

Hello, good morning. I have three questions. So the first one is on the U.S. margin performance. Could you go through the drivers of what drove such a material step change in the run rate year-on-year this quarter compared to last quarter? Was it mainly the vendor funding component? And if yes, Could you maybe give us a sense of where promotional funding sits as a percentage of your sales compared to the long-term average so we can have an idea of how long this might persist? Then my second question is, you talked about the improving volumes, and I guess you touched upon this in the outlook, but my question is, why did you allow the margin to expand year-on-year in Q2, and why not increase the price investments into the back half of the year, or maybe that's something already included in your guidance, in which case should we assume that the price investment budget is actually above one billion as you pass on future volume benefits? That's the second question. And then the third one. So on the lens, you said that the market share is now exceeding the prior market share. Is it fair to say that that's better than your initial expectations? And should we assume that the margin is back comfortably above 4% already next year.

Thank you, Isabelle. Yolanda will take your first question, and I will do my best for two and three.

We'll support each other. Thank you, Isabelle, indeed. Your first question on the margin in the U.S. The majority of support in that margin is based on a muscle that we've developed over decades, and that is a solid cost control As you know, we exceeded our targets last year on the Safe for Our Customer program. For this year, we again have a target of a billion. And that cost control and those early measures that we take all the time are really paying off. Of course, we are also looking at our vendor support, our vendor allowances. And I can say we were striving to get back to pre-COVID levels, and we're closing in there. So we are close to the levels that were normal pre-COVID. Another element that do support that margin is that shrink is stabilizing in the U.S. as well. So altogether, this is driving a solid margin, which is an excellent foundation for the steps going forward, including the price investments that we foresee.

And then on the improving volumes, Isabel, we're happy with the trends we see. which is not only important for us and for our customers, but also important for our vendors. We get more support from our vendors because they also strive for positive volume growth. And the other thing is, of course, that we have very strong positions on the East Coast with number one and two positions everywhere with our annualized $60 billion of dollar sales per year. I think we are in good address to work with, to drive volumes, and that's why we see a very positive response from our vendor community. Your other question is on price investments in itself. Can't it be more? Can't you drive even more volume? And, of course, that is, first of all, a very fine line of how to deal with this. But we are investing in... investing more than in the past in brands like Stop and Shop and Giant Food, a giant food company in Baltimore and Washington, to drive volumes and to make sure that they even get more competitive, which was already, for Stop and Shop, an initiative we mentioned earlier. Pricing and price perception and elasticity is a nice, fine game. But we are very happy what we see so far with the, we call them the green shoots of their price investments, which started with a promotional price and perception campaign at both Giant Food and Stop and Shop, both for national brands, but also a private label. And we are quite happy with the uptake we see there. And that gives us confidence that we can drive those volumes, especially also in those two brands with those increased price investments. Then on Belgium, 108 stores converted to the entrepreneurs. Jolanda mentioned a few things already. The difference in how to calculate the sales from a franchise to a company operated company. But we are indeed very happy with the development there. And we are growing our market share and we are now already at the level before the announcement of our exercise, our intervention here. But we are very positive that it will grow beyond the before levels and happy with the shares and let's say the market shares and the growth in those 108 stores is better than we expected, but it's also better than the entrepreneurs expected. So that's pretty cool. It's very nice to give both entrepreneurs and ourselves more confidence.

Thank you. Thank you. Thank you. As a reminder, please limit yourselves to two questions only and rejoin the queue if you have any follow-up questions. We will now take the next question. And your next question comes from the line of Robert Jan Vos from ABN AMRO OdoBHF. Please go ahead.

Yes. Hi. Good morning, all. My questions are as follows. you realized about one-third of your free cash flow target in the first six months. Can you remind us why you remain confident that the 2.3 billion target is definitely feasible for this year? And then my second question, for the Belgium future plan, there were quite a bit of one-offs in Q2, 122 million, if I'm not mistaken. Yeah, what can you say about additional one-off costs for Belgium in the second half. I assume it will be a lot less since you have done most of the conversions. And a related one, can you confirm that the 160 to 210 million pre-tax charges, that is all? In other words, no further charges beyond Q3 for stop-and-shop? Thank you.

The first two will be dealt with. Hello, Robert-Jan. Thank you for

For the three questions instead of the guidance for two, it's a little bit logical way of following the previous colleagues.

But yes, we can confirm that the one of charges for the stop and shop 32 closures is that is the amount we have seen that is a pre-tax amount. And that's what it will be. Jolanda, the first two on pre-cash flow and future plan.

Yeah, and maybe adding to the stop and shop question, we did indicate, of course, that closing stop and shop will have a sales impact on next year. But that's not a one-off. Your question on the free cash flow, it is indeed the normal seasonal pattern. So if you would analyze a few years back, it's a seasonal pattern where we always realize a strong free cash flow in the second half of the year. So nothing exceptional there. The second question was, which was the second question? Ah, the unusual for the Belgium future plan. Yes, we have one quarter to go on those unusual. So they will be in the Q3 results and then it will end. So that will be a stop to that transformation and then we go on. to operating those stores, all of those 128 stores as affiliated stores, and will no longer have the below-the-line impact.

I mentioned to Robert-Jan de Leeuwen, the content with our entrepreneurs and ourselves on sales and market share developments in Belgium. But what is also to see here is that that also our vendors are very positive reacting to that operation as well. So we get also there more support. And of course, you can imagine that for our total business, which will be by the Q4 completely affiliated, that it will also give more simplicity to our total operation and therefore also simplicity for management to run the business even better.

And Robert-John, on the affiliation, we only have 20 stores to go. So it's a small portion ahead of us.

Oh, that's very clear. Thanks for answering my three questions.

Thank you, Robert-John, for asking that.

Thank you. Once again, if you would like to ask a question, please press star 1 and 1 and limit yourselves to two questions only and rejoin the queue for any follow-ups. Your next question comes from the line of Frederick Wild from Jefferies. Please go ahead.

Good morning, Franz Jander and JP. Thank you for taking my questions. First, on working capital movements, could you help us understand a bit about the seasonality of those shifts and whether there's actually any extra vendor support going through the working cap line to help realise those vendor allowances? And secondly, when I think about the free cash flow guidance this year and the 160 into $210 million of stop-and-shop restructuring charges. Were those always around the levels you anticipate for these restructuring charges so that when it's included in free cash flow, it comes as you expected and so there's no change to guidance from that front?

Thank you.

Thank you very much. Super disciplined indeed with the tool. No, those charges for stop-and-shop were S. On the working capital, the seasonality, you know what I'm saying?

Yeah, and indeed included in our guidance, the stop-and-shop one, and have limited cash impact in the year. Working capital, it's the regular seasonality we see there. What you could bear in mind is that we are increasing our franchise sales, which has a positive impact because of somewhat lower inventories and a negative impact because we now have receivables. So there's nothing unusual going on in our working capital. If you look at the year-to-date position, so Q1, Q2 together, we are improving on our working capital. And we also foresee some elements, some opportunity there also going forward on the longer term.

Fantastic. Thank you.

Thank you.

Thank you. Your next question comes from the line of Fernand Boel from De Graaf Petercam. Please go ahead.

Yes, good morning. Thank you for taking my questions. I also had more than two, but I will keep it to two. On the stop-and-stop charts, could you explain a little bit more what it's exactly for? Is this for the leased leases and then the cash out will be much later? That's the second one, and maybe also related to that, could you tell us a little bit about the payback time of all your charts? Because last year you had quite a lot for Best Direct, you have now for Belgium, now for Stop and Shop. So could you tell me a little bit more about the payback or the return on invested capital of these charts? And then coming back on the allowances, is this a kind of reward for the volumes you had so far, or that you still have to take some cash outs for, let's say, doing the promotions in the coming quarters.

Good morning. On the allowances, the vendor allowances, we see a comparable picture in Europe and in the U.S. That means that the structure of vendor support, trade rates versus vendor allowances is a different structure in Europe and the U.S., as you know, but we see in both geographies strong support from our vendors. They are looking forward as well to have driving positive volumes, and that's what we see now. And where, let's say, during COVID, I would say, this sounds already ages back, where it was easier to generate sales. Without those vendor allowances, it's now we have to work harder for this volume growth. That's also what we see now with our vendor partners that this is happening. We also drive a lot of volume, by the way, with our private label, our private label growth. is delivering more volume growth than through our national brands so far. And that might be also one of the reasons that we see more support from our national brands too. So it's more than before. It's driving volume. It's through promotions. And the cool thing is that we invested a lot of time and money in data, loyalty systems, digitization of our apps. If you would shop at Albert Heijn, then you would see that it's super personalized. So also those promotional monies are having better conversion rates with us than with a lot of our competitors. And that's, of course, also super attractive for our vendor partners. Stop and shop, the paychecks.

Yeah. Thank you for that question, Fernand. The stop and shop incidental pretext of 160 to 210 is a combination of impairments, non-cash, And there's also indeed some lease-out contracts in there of which the cash-out will run through our books in the coming years. All those cash elements are in our guidance for this year and converted in our going-together plans. The payback period, that differs per element, but if you look at it from an incremental cash perspective, this payback period is very short. So within one to two years, we are cash positive on this

And you referred loosely, Fernand, to other cases like Fresh Direct and Deleuze's future plan in Belgium. I also can confirm that you expected that already. We are better than our business plan in Belgium on the future plan with the speed we see on conversion and the speed we see also in market share gains, volume, and trends in sales, with big compliments to our Deleuze team in Brussels. Okay, thank you very much.

Thank you. Thank you. Your next question comes from the line of Clément Genneleau from Brian, Garnier & Co. Please go ahead.

Yes, good morning. Thank you. I will stick to two questions. The first one is on start-up and shop. You have talked about relative to start-up and shop store closures, but do you also intend to convert all the shop-and-shop stores related to urban inside of the group. My second question is whether as you convince all the CLPG brands to finance IEA discounts in the U.S., or do we have to expect a further and higher contribution from the players throughout the H2? Thank you.

Could you please, because the line is not great, could you just please repeat your second question, please?

Sure. That was about the L.A. U.S. discount. Because if I'm right, the L.A. U.S. discount paid by the players was higher. So do you intend... to follow on board over a brand for H2 and do we actually expect a higher contribution relation from the suppliers back margins in H2?

Yeah, thank you. Thanks for helping us understanding the question. No, we don't see other store closures in other brands apart from Stop and Shop. because we have those brands are very healthy those are the four with great locations and doing fine so the intervention here isn't stop and shop specific intervention with the 32 stores and on support from CPG companies in vendor allowances trade funds or discounts or promotions we expect that that will still the support will still grow in the second half of this year And I think the last two quarters ago, I think JP gave a sort of dangerous forecast that I expect. Don't go there. I expect a positive volume in our U.S. brands by the end of this year. And I think we – I would still stick to that forecast. It's a dangerous one. I think we have overall positive volume growth in the U.S. by the end of the year, given the fact that we get a lot of support from the vendors.

Okay, thank you. Just maybe one clarification regarding up and shop. Do you expect to convert some of our underperforming let's say, towards unafford or on the giant food or just another food company going on top of the other store closures?

No, this is not what we will do and what we see. So the 32 closures are stop-and-shop closures. The people working there will get employment in other stop-and-shop stores. And there will be no planned conversions at this moment to other brands. And it has also to do with the unionized character of Stop and Shop as well, both for the associates and for the type of conversions which are possible. So that is not foreseen.

Understood. Thank you, Fred.

Thank you. Once again, if you would like to ask a question, please press star 1 1 on your telephone. As a reminder, please limit yourselves to two questions only. We will now go to the next question. And your next question comes from Francois Degas from Kepler. Please go ahead.

Good morning, Françoise and Yolanda. Thank you to take my question. I will stick to one on volumes, but in the two regions. So to start in the US market, you just nearly answered it, Is it fair to understand that the underlying volumes are still negative for yourself and for the markets where you are operating? It is at least stayed by the lower sales leverage you are referring to in the press release, but I would appreciate if you could elaborate on that. On the volume side as well in Europe, I've been quite impressed by the sales growth despite the minus 2.1% tobacco effect. Could you help us to understand what have been the magnitudes of volume growth in Europe? Thank you.

Thank you very much, Francois. We don't comment on brand by brand on volume growth and these kind of things, but I can give you some indications already because, of course, we know those numbers. One thing is in the U.S., overall U.S., we are still slightly negative on volume. But we have more than two brands now positive volumes on its own. And you heard my expectation for the second half, the end of the year. In Europe, we have overall positive volumes in Europe. And the brands also run against positive volumes too. So in Europe, we are a little bit ahead of the game in volume growth, which you also partly can see a little bit from the sales perspective. And the other thing is that on inflation, because it's always nice to model this as well, we said earlier that we expect roughly a 1% to 2% inflation by the end of the year, food inflation I talk about. That is at the moment for Europe and the U.S. the identical number.

Thank you. Thank you very much.

Thank you. We will now take our final question for today. And the final question comes from the line of Sridhar Mamakali from UBS. Please go ahead.

Hi, good morning. Thanks for taking my questions. I've got two, maybe if you don't mind, if I can squeeze in a follow-up first. I think it was William who was asking us earlier in terms of what we should be thinking about when we are deconsolidating $575 million of sales in stop-and-shop. How should we think about profits or losses that we should also be deconsolidating in the U.S. in stop-and-shop? That's the first one, which is a follow-up, sorry. Okay. A couple of questions I had was U.S. margins. I think we're discussing quite a lot. Vendor allowance is very unusual on your calls. I guess that in itself is quite telling, just our understanding maybe of the business. To what extent is this a sustainable driver of margin, or was there any kind of timing difference in recognizing the vendor allowances in Q2 as opposed to maybe second half or something. That's the first question. Secondly, I think, Frans, you talked about a strong performance in H1, allowing you to initiate further actions on the growing together strategy. And you've also referred to perhaps bringing forward stock and sharp and joint price investments to come in. 2024, if you could expand, is that you bringing forward what your plans were for 2025 into 2024? If you could just help us understand your plans for the second half. Thank you.

Thank you, Sridhar.

Thank you for your questions. You asked a question about the stop-and-shop profit and how to model it. In 2024, the guidance given is the guidance that we uphold for the remainder of the year. And of course, stop-and-shop, the closure, has a positive effect in margin, and that is included in our Growing Together guidance going forward. Your second question is on vendor allowances. It's, of course, a regular part of the business, and we were trending towards the pre-COVID levels, which will then be our structural levels again. So there's nothing unusual to note there.

Oh, it's quite a normal part of our business, as you know, vendor allowances, trade funds, and these kind of things we talk about daily because this is a part of our P&L funding to drive the best proposition for our customer base. Then growing together. We gave, I think, a pretty ambitious plan for the coming four years, as from 2025, with a 4% growth, an average 4% European margin, and these kind of things. And we would like to make sure that we are ready well before the 1st of January to deliver that. And that's why we have all the teams now working on this, if it's private label, if it's healthy sales, if it's sales numbers, if it's online, all these kind of things. people are not waking up the 31st of december we have planned 2025 they're preparing now already to ramp up so that's why we invest now already further in price in stop and shop in giant food as i mentioned we have our regular price investments to stay in line with our pricing strategy for the other friends in the us the same we can also have for the european brand so when when it would be uh much better than expected, then we will invest part of that money also in to make sure that we're ready for 2025 to deliver on our growing together plan. And growing together plan 2025 is, of course, also including our provi acquisition. Hopefully that we can consume that one in the fourth quarter of this year. And I think we talked about that earlier. What was the answer to your questions with your new definition of two and three and follow-up?

It genuinely was a follow-up.

The other questions were okay for you?

No, absolutely. Absolutely. I think you're totally right. Vendor allowances are a fairly meaningful part of the business, but it's just that we haven't seen you calling that out as a margin driver in the past.

We love to talk business with you, and I can tell you that vendor allowances are a pretty important part of our total P&L. No, no, of course. All right. Thank you. Thank you.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.