Increased cost savings from Ahold Delhaize enhance its outstanding Q4 financial results, and the company’s projection for 2023 confirms its commitment to its Leading Together aspirations.
One of the biggest food retail firms in the world and a pioneer in both supermarkets and e-commerce, Ahold Delhaize, releases fourth quarter financial results today.
You can view and download the fourth quarter 2022 summary report at www.aholddelhaize.com.
Observations from Frans Muller, CEO of Ahold Delhaize
“I’m happy to announce that Ahold Delhaize had a strong year’s finish. Because of our size and stable financial position, our strong international portfolio of domestic brands has continued to offer clear competitive and societal advantages. In this difficult year, we have experienced double-digit inflation rates unseen in forty years, a war-induced energy crisis, and the pandemic’s persistent effects on people’s lives. Our responsibility at this time has been quite clear: lowering shelf prices as much as we can to help our consumers and making nutritious food selections available to everyone.
“Throughout 2022, our family of outstanding regional businesses also donated €218 million in food, goods, and cash to non-profit organisations and local and regional food banks. With the donation of its one billionth meal, the Food Lion Feeds initiative marked a significant milestone and is on track to meet its target of 1.5 billion meals by 2025. Delhaize Belgium provided 95,000 Ukrainians with access to warmth and clean water by donating emergency generators to the Ukrainian Red Cross. Hannaford introduced its “Eat Well, Be Well – A Path to Better Health” initiative, which will give non-profit groups $1.5 million in financing for holding programmes that improve access to wholesome, fresh food suited to each person’s individual dietary requirements and offer nutrition education.
“We once more centred our company’s efforts in Q4 around three key areas: operational excellence, strict cost control, and methodical capital allocation. This was crucial because it gave us the motivation to improve our client value proposition and, where we could, lessen the effects of inflation. In order to achieve this, we dramatically outperformed our initial Save for Our Customers targets in 2022, realising €979 million in cost savings—over €100 million more than we had anticipated. I’m proud of our employees at Ahold Delhaize in general and the hard work they put in for our regional businesses. This formula will continue to be crucial as we search for additional chances to enhance the operations of our brands because many of the same problems will likely worsen in 2023.
“Our focus on offering great value without sacrificing quality certainly had a positive influence on our Q4 sales numbers as our brands adjusted their assortments and omnichannel customer journeys to increased consumer price sensitivity. In Q4, comparable store sales excluding petrol increased by 7.9%. Our online grocery sales climbed by 14.4%, and net consumer sales increased by 5.0%. We achieved an underlying operating margin of 4.4% and diluted underlying EPS increase of 22.6% in Q4 by leveraging these robust sales. Strong operating results in the United States, along with adjustments to foreign exchange and interest rates, helped to overcome increased margin pressures in Europe.
“Comparable sales in the U.S. increased across all brands compared to Q3, yielding a growth rate of 9.3%.
Strong Christmas season activations were what drove this. For instance, sales through loyalty programmes and online orders for U.S. businesses surpassed all previous records. This has been a pattern that we have watched develop over the course of the year as a result of our ongoing investment in expanding these capabilities. Campaigns for our brands’ customer relationship management deliver approximately 10 billion individualised offers annually and currently reach about 30 million households. The development at Stop & Shop, where the chain’s renovated New York City locations are outperforming expectations and achieving double-digit sales growth, is another development that gives us hope. In Q1 2023, we intend to renovate eight more locations in NYC and implement critical lessons learned across 40 other locations in the fleet.
“Comparable store sales in Europe rose 5.7% in the fourth quarter. Comparable store sales climbed 6.9% when bol.com was excluded from the calculation because it carried on operating in the face of a difficult e-commerce environment in the Benelux. We have already standardised over 700 own-brand items throughout the Central and Southeastern Europe (CSE) region, and we continue to gain from growing collaboration, process standardisation, and sharing of best practises. Dynamic digital discounting, which allows customers to purchase products that are almost at the end of their shelf life at discounts ranging from 25% to 70%, was implemented by Albert Heijn in all of its stores in the Netherlands. Additionally, Albert Heijn and Jan Linders Supermarkets formed a relationship, with the vast majority of the stores set to become Albert Heijn franchisees after acquiring the necessary approvals. Through the arrangement, Albert Heijn will be able to increase its regional reach in the southern Netherlands. In Europe, underlying operating margins fell to 4.0% in the fourth quarter as a result of strong rises in energy prices, which also reduced our profitability by 0.5 percentage points. While I am particularly happy of the cost savings and mitigation measures the area delivered in Q4 and throughout the year, it will be even more crucial to strike the proper balance between savings and investments in 2023.
“Gross Merchandise Value (GMV) at bol.com for the entire year was €5.5 billion, down 1.9% from the market’s decline of over 6%. As you recall, we significantly modified bol.com’s medium-term strategies over the year to reflect the new situation. As a result, bol.com maintained its profitability and generated €125 million in underlying EBITDA despite increased company investments, cost hikes, and revenue deleverage.
At Ahold Delhaize, we think it’s critical to keep investing in our vision for a Healthy and Sustainable World. In our own operations, we achieved reductions in 2022 of 32% in CO2 emissions compared to our baseline of 2018 (30% in 2021), and of 33% in tonnes of food waste per food sales compared to our baseline of 2016 (20% in 2021). Our brands also maintained their growth in own-brand sales of healthy foods, which increased one percentage point from 2021 to 2022 to reach 54.4%. We updated our interim CO2 emissions-reduction targets in November, setting a minimum 37% reduction goal for the full value chain (scope 3) by 2030.
“Additionally, we reaffirmed our intention to achieve net zero operations within our own business by 2040 and throughout the full value chain by 2050. The revised aims, the outcome of a thorough study, are consistent with the UN’s target of limiting global warming to 1.5°C. Suppliers and farmers, low-carbon products, and customer interaction are Ahold Delhaize’s three key areas of focus for scope 3 emissions reduction. One of the important components of our decarbonization activities is encouraging and assisting our suppliers to set their own emissions-reduction goals in accordance with the most recent scientific research and joining the Science Based Targets project. Ahold Delhaize wants to take the lead in this. With the goal of reducing greenhouse gas emissions, we are actively interacting with our supplier base and taking advantage of our position in the food retail industry.
“Despite growing macroeconomic and geopolitical difficulties, we anticipate delivering reliable performance in 2023, with a particular emphasis on cash flow creation. I am very thrilled about our initiatives for monetization, mechanisation, and our digital ecosystem since I am confident that they will result in a sustainable competitive edge and advantages for our clients. We will also continue to lean in and look for new ways to cut costs in the short term as long as inflation is high. To that aim, we are launching a brand-new “Accelerate” Group-wide project.
“This programme expands on our ongoing Leading Together efforts to develop more adaptable organisations, gain greater scale, and enable our people to take initiative to boost productivity. With a clear priority to free up resources to speed up our Save for Our Customers programme and concentrate investments on high return projects, we will specifically continue to evaluate additional savings and efficiency levers to streamline organisational structures and processes, optimise go-to-market propositions, increase joint sourcing, and consolidate IT. I have no doubt that taking this proactive strategy will strengthen our company and enable us to maintain our track record of promoting steady long-term wealth generation for all stakeholders.
Financial headlines from Q4
highlights of a group
Group net sales increased by 8.1% at constant exchange rates and by 15.9% at actual exchange rates to €23.4 billion. 7.9% comparable sales growth without gasoline and, to a lesser extent, favourable foreign currency translation effects and greater fuel sales, were the main drivers of group net sales. Approximately 0.4 percentage points were added to Q4 Group comparative sales as a result of the net effect of calendar changes and weather.
In Q4, Group net consumer online sales rose by 5.0% at constant exchange rates, driven primarily by strong results in the United States, which rose 17.3% from the previous year. Net consumer internet sales fell by 0.6% in Europe as the COVID-19 lockout in the Netherlands helped the previous year. While maintaining the same exchange rates, online food sales grew 14.4%.
Strong cost savings were largely offset by higher labour, distribution, and energy costs in Q4, resulting in an increase in the group’s underlying operating margin of 4.4%, or 0.2 percentage points at constant currency rates. The profits on sale of investment properties in the United States, totaling €158 million, had a significant influence on the group’s Q4 IFRS-reported operating income, which came in at €1,167 million, or an IFRS-reported operating margin of 5.0%.
At real rates, underlying income from continuing operations increased by 18.2% in the quarter to €707 million. The IFRS-reported net income for the quarter at Ahold Delhaize was €809 million. Diluted EPS was €0.82 and diluted underlying EPS was €0.72, both of which were higher than last year’s performance by 22.6% at actual exchange rates and 14.2% at constant exchange rates. 10.5 million own shares were purchased for €286 million during the quarter, increasing the year-to-date total to €1 billion.
According to actual rates, 2022 diluted underlying EPS of €2.55 climbed 16.5% over 2021, beating the company’s initial guidance of a low- to mid-single-digit drop. Strong comparable sales increase excluding gasoline, as well as advantageous foreign exchange and interest rates, were the main drivers of the higher-than-expected earnings. Strong cash generation as a result resulted in free cash flow of €2,188 million, up €570 million from the previous year. The difference is principally due to the Company’s choices to pay roughly €380 million in relation to a disputed tax claim in Belgium and to pay a $190 million (or €170 million) pension liability in the U.S. after 2020 U.S. MEP withdrawals early in 2021.
With constant exchange rates, U.S. net sales increased by 9.2%, while at actual exchange rates, they increased by 22.2%. They totaled €14.8 billion. The net effect of the weather and calendar disruptions raised U.S. comparable sales excluding gasoline by around 0.5 percentage points, resulting in an increase of 9.3%. Hannaford and Food Lion had the best brand performance throughout the quarter, with both brands experiencing double-digit comparative sales increase.
Online sales in the segment increased 17.3% in constant currency in the fourth quarter. On top of the 30.5% constant currency growth in the same quarter last year, this growth is now higher.
At constant exchange rates, the underlying operating margin in the United States increased from the same period last year by 0.4 percentage points to 4.7%. The operating margin reported under U.S. IFRS for the fourth quarter was 5.8%, mostly as a result of €158 million in gains on the sale of investment properties.
With constant exchange rates, the rise in European net sales was 6.2%, while with actual exchange rates, it was 6.6%. Comparable sales in Europe excluding gasoline rose by 5.7%. Calendar adjustments had a beneficial impact on comparable sales in Europe during the fourth quarter of about 0.1 percentage points.
Net consumer internet sales in the segment fell by 0.6% in Q4 after increasing by 7.4% during the same time in 2013. Online sales of groceries rose by 8.0%. Bol.com was able to keep the fall in net consumer online sales to 2.9% after increasing by 7.8% in the same quarter last year, despite difficult non-food e-commerce market circumstances in the Benelux and the revolving door of lockdown limitations. Net consumer online sales from Bol.com’s more than 51,000 third-party sellers decreased 1.6% in the fourth quarter and accounted for 57% of total sales.
In Europe, the underlying operating margin was 4.0% in the fourth quarter, a decrease of 0.2 percentage points from the previous quarter as a result of rising energy and volume deleveraging compensated by strict cost-control measures. Operating margin according to IFRS for Europe in Q4 was 3.8%.
The macro climate has gotten worse for consumers, who had to deal with inflation levels in 2022 that had not been seen in forty years. It is anticipated that inflation will continue to be high, especially in the first half of 2023. For our customers’ benefit, our brands are making a lot of effort to cut expenses and find new ways to save money. In this regard, the Company’s brands remain well-positioned to retain profitability in the present inflationary climate and to give consumers a compelling shopping option. According to the company’s historical profile, the group-wide underlying operating margin for Ahold Delhaize is anticipated to be around 4.0%. The Save for Our Customers programmes, which will save customers €1 billion in 2023, will help margins. This should lessen the impact that rising online sales penetration has on margins, along with cost pressures brought on by inflation, supply chain difficulties, and other factors.
At the current exchange rates, underlying EPS is anticipated to be around 2022 levels. Our earnings forecast assumes continued expansion and excellent operating fundamentals, which will more than make up for the non-recurrence of one-time benefits related to interest rates in 2022.
A free cash flow of almost €2.0 billion is anticipated. With expanded investments in our digital and online capabilities, as well as our healthy and sustainable efforts, net capital expenditures are anticipated to reach about €2.5 billion. Additionally, as previously mentioned, Ahold Delhaize will continue to adhere to its share buyback programme and dividend policy in 2023. In addition to our previously announced €1 billion share purchase programme for 2023, we are recommending a full-year dividend of €1.05 per share for 2022.
The Annual Report 2022, which is scheduled to be released on March 1, 2023, will include a comprehensive Outlook.