Interim / Quarterly Report • Aug 23, 2012
Interim / Quarterly Report
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August 23, 2012
Amsterdam, the Netherlands – Ahold today published its interim report for the second quarter and half year 2012.
CEO Dick Boer said: "By investing in value for our customers, we were able to grow sales by 3.9% at constant exchange rates and we gained market share in all our major markets in a challenging economic environment. Despite a weak performance at Albert Heijn, underlying operating margin for the Group was in line with last year.
"We saw ongoing high levels of promotional activity in both the United States and the Netherlands with retail price inflation coming down, particularly in the United States. Our businesses in the United States achieved strong margins through stringent cost control. Margins in the Netherlands were negatively impacted by increased price investments and an unsuccessful promotional campaign. Our business in the Netherlands now includes bol.com, following the successful completion of the acquisition on May 9.
"We expect market conditions to remain difficult and are cautious about the potential impact of rising food commodity costs, particularly in the United States for the balance of the year. We are confident that we are well on track to deliver on our strategy and we will continue to invest in growth. We are pleased with the conversion of 15 Genuardi's stores to Giant Food Stores in the United States. We also completed the transaction with Jumbo concerning 82 stores in the Netherlands and we will start to convert the first 14 to Albert Heijn."
| Q2 | Q2 | % | HY | HY | % | |
|---|---|---|---|---|---|---|
| (€ million) | 2012 | 2011 | change | 2012 | 2011 | change |
| Net sales | 7,692 | 6,874 | 11.9% * | 17,408 | 16,125 | 8.0%* |
| Operating income | 326 | 275 | 18.5% | 742 | 719 | 3.2% |
| Income from continuing operations | 244 | 206 | 18.4% | 528 | 504 | 4.8% |
| Net income | 248 | 199 | 24.6% | 530 | 490 | 8.2% |
* At constant exchange rates, net sales increased by 3.9% in Q2 2012 (HY 2012: 2.8%).
We are making progress on our Reshaping Retail strategy at Ahold and continue to focus on improving our competitive position through cost reductions and the overall simplification of our processes. We are on target to deliver our €350 million cost savings program for the years 2012- 2014.
Ahold continues to invest in profitable growth and act when opportunities arise.
Net sales were €7.7 billion, up 11.9%. At constant exchange rates, net sales increased by 3.9%. The market environment remains challenging, competition continues to be intense and customers remain value driven. During the quarter, Ahold USA achieved 3.4% sales growth, measured in US dollars, and the Netherlands achieved 5.3% growth. Sales in Other Europe (Czech Republic and Slovakia combined) increased 1.4% at constant exchange rates, negatively impacted by a VAT increase in the Czech Republic.
Overall, sales growth was positively impacted by a shift in holidays, mainly as a result of the timing of Easter where in 2011 the low-sales, post-Easter week fell in the second quarter.
Operating income was €326 million, up 18.5% (up 11.2% at constant exchange rates). Operating income last year included €22 million of US reorganization and restructuring costs. Underlying operating margin was 4.3%, broadly in line with last year.
Income from continuing operations was €244 million, €38 million higher than last year. This was driven by an increase of €51 million in operating income offset by an increase of €7 million in net financial expense and a decrease of €6 million of share in income of joint ventures. The effective tax rate of 18.4% in the second quarter benefited from one-time events recognized in the quarter.
Net income was €248 million, up €49 million. The result from discontinued operations related to past divestments was an income of €4 million, primarily due to a €4 million release of a provision in 2012 for lease guarantees related to Ahold's former subsidiary BI-LO, compared to a loss of €7 million last year, for claims and legal disputes related to past divestments. Income per share from continuing operations was €0.24, an increase of €0.06 compared to last year.
Free cash flow was €388 million, €351 million higher than last year. Operating cash flows from continuing operations were up €216 million, due mainly to the effect of timing in short-term payables.
Included in this quarter's free cash flow was a dividend of €135 million from our joint venture ICA. The equivalent dividend from ICA in 2011 was €128 million and was received in the first quarter of 2011.
Cash and cash equivalents decreased during the quarter by €452 million to €1,751 million, primarily as a result of the bol.com and Genuardi's acquisitions and Ahold's dividend payment.
Net debt increased by €725 million during the quarter to €1,695 million, primarily due to the decrease in cash and cash equivalents, an increase in gross debt from foreign exchange, as well as long-term debt that was assumed as part of the business acquisitions. Net debt does not include our commitments under operating lease contracts, which on an undiscounted basis at year-end 2011 amounted to €5.9 billion. These off-balance sheet commitments impact our capital structure. The present value of these commitments is added to net debt to measure our leverage against EBITDAR. The ratio of net lease-adjusted debt to EBITDAR stood at 2.1 times, compared with 1.8 at year-end 2011. In general, we are comfortable operating at around 2 times.
Net sales were €17.4 billion, up 8.0%. At constant exchange rates, net sales increased by 2.8%.
Operating income was €742 million, up 3.2% (down 1.1% at constant exchange rates). Underlying operating margin was 4.3% (HY 2011: 4.5%).
Income from continuing operations increased €24 million (4.8%) to €528 million, which primarily flows from the increase in operating income.
Net income was €530 million, up €40 million. The result from discontinued operations was an income of €2 million in the first half of 2012 compared to a loss of €14 million last year for claims and legal disputes related to past divestments.
Free cash flow was €679 million, €235 million higher than last year. The increase was mainly due to higher operating cash flows from continuing operations of €245 million, and increased dividends from joint ventures of €15 million, partly offset by higher capital expenditures of €36 million. Higher operating cash flows from continuing operations were predominantly due to changes in working capital of €91 million, largely impacted by timing differences related to settlement of payables, lower tax payments of €52 million, and higher operating income and depreciation adjustments.
Net debt increased by €607 million during the first half of 2012. The free cash flows of €679 million were more than offset by dividends paid on common shares of €415 million, the share buyback of €277 million, the repayment of a €407 million note, the €434 million of net purchase consideration that was paid primarily for the bol.com and Genuardi's acquisitions, foreign exchange, and the longterm debt assumed as part of these business acquisitions.
For the second quarter, net sales were \$6.0 billion, up 3.4%. In light of the challenging market conditions this was a solid performance and we achieved market share gains across all divisions. Identical sales were up 2.2% compared to last year (2.2% excluding gasoline) benefiting from the timing of Easter and a result of promotional activities across the banners. Underlying operating margin was 4.3% compared to 4.1% last year. The strong margin performance was a consequence of cost improvements, ongoing operational efficiencies and lower health and welfare costs this quarter.
For the first half, net sales were \$13.8 billion, up 3.1%. Identical sales were up 1.7% (1.0% excluding gasoline). Underlying operating margin was 4.2% compared to 4.4% last year.
For the second quarter, net sales increased 5.3% versus last year to €2.6 billion with identical sales up 1.5%. Bol.com was included for eight weeks of the quarter and contributed 2.4% to the sales growth in the Netherlands. Market share at Albert Heijn was slightly ahead of last year.
Underlying operating margin was 5.4% compared to 6.2%. Excluding bol.com the underlying operating margin was 5.6%. Margins at Albert Heijn were impacted by price investments, increased promotional activity and an unsuccessful European football championship campaign. Included in the Netherlands are the results of our stores in Belgium, where during the quarter we opened our fifth and sixth stores. We remain encouraged with the performance of our Belgian stores. Bol.com has significantly invested in growth during the quarter by adding new categories, reducing its delivery fee and strengthening the organization.
For the first half, net sales increased 3.0% to €5.8 billion. Identical sales were up 0.8%. Underlying operating margin was 5.7% compared to 6.1% last year.
For the second quarter, net sales decreased 2.8% to €385 million. At constant exchange rates net sales increased 1.4%. Identical sales increased 0.7% (1.0% excluding gasoline). After two previous quarters during which sales declined, sales growth has been restored through good promotional offers and successful customer loyalty campaigns. Underlying operating margin was 1.0% compared to 0.8% reflecting continued focus on cost efficiencies.
For the first half, net sales decreased 4.4% to €893 million. At constant exchange rates net sales decreased 1.4%. Identical sales decreased 2.0% (2.3% excluding gasoline). Underlying operating margin was 0.9% compared to 1.0% last year.
For the second quarter, Ahold's share in income of unconsolidated joint ventures was €22 million, €6 million lower than last year. The decrease in income came from our Portuguese joint venture JMR, which ran major promotions during the second quarter. For the first half of the year, Ahold's share in income of joint ventures increased by €7 million to €54 million.
For the second quarter, underlying Corporate Center costs were €19 million, down €6 million (unchanged from last year at €16 million when excluding the impact of the Company's insurance activities). For the first half of the year, underlying Corporate Center costs were €43 million, up €3 million (up €4 million from last year at €39 million, excluding insurance activities).
| Q2 2012 Identical |
Q2 2012 Identical excluding gasoline |
Q2 2012 Comparable |
HY 2012 Identical |
HY 2012 Identical excluding gasoline |
HY 2012 Comparable |
|
|---|---|---|---|---|---|---|
| Ahold USA | 2.2% | 2.2% | 2.8% | 1.7% | 1.0% | 2.2% |
| The Netherlands | 1.5% | 1.5% | 0.8% | 0.8% | ||
| Other Europe | 0.7% | 1.0% | (2.0)% | (2.3)% |
1. For the definition of identical and comparable sales see section "Other information" – "Use of non-GAAP financial measures."
| Q2 | Q2 | % | HY | HY | % | |
|---|---|---|---|---|---|---|
| 2012 | 2011 | change | 2012 | 2011 | change | |
| \$ million | ||||||
| Ahold USA | 261 | 236 | 10.6% | 581 | 587 | (1.0)% |
| Average U.S. dollar exchange rate (euro per U.S. dollar) |
0.7893 | 0.6958 | 13.4% | 0.7738 | 0.7116 | 8.7% |
| € million | ||||||
| Ahold USA | 205 | 164 | 25.0% | 449 | 418 | 7.4% |
| The Netherlands | 137 | 150 | (8.7)% | 332 | 344 | (3.5)% |
| Other Europe | 4 | 3 | 33.3% | 8 | 9 | (11.1)% |
| Total retail | 346 | 317 | 9.1% | 789 | 771 | 2.3% |
| Corporate Center | (19) | (25) | 24.0% | (43) | (40) | (7.5)% |
| Ahold Group | 327 | 292 | 12.0% | 746 | 731 | 2.1% |
1. For the definition of underlying operating income see section "Other information" – "Use of non-GAAP financial measures."
Underlying operating margin is defined as underlying operating income as a percentage of net sales.
| Q2 | Q2 | HY | HY | |
|---|---|---|---|---|
| 2012 | 2011 | 2012 | 2011 | |
| Ahold USA | 4.3% | 4.1% | 4.2% | 4.4% |
| The Netherlands | 5.4% | 6.2% | 5.7% | 6.1% |
| Other Europe | 1.0% | 0.8% | 0.9% | 1.0% |
| Total retail | 4.5% | 4.6% | 4.5% | 4.8% |
| Ahold Group | 4.3% | 4.2% | 4.3% | 4.5% |
| End of 2011 |
Opened/ acquired |
Closed/ sold |
End of Q2 2012 |
End of Q2 2011 |
|
|---|---|---|---|---|---|
| Ahold USA | 756 | 11 | (2) | 765 | 756 |
| The Netherlands1 | 1,946 | 15 | (10) | 1,951 | 1,932 |
| Other Europe | 306 | 2 | (1) | 307 | 306 |
| Ahold Group | 3,008 | 28 | (13) | 3,023 | 2,994 |
1. The number of stores at the end of Q2 2012 includes 1,089 specialty stores (Etos and Gall & Gall) (Q2 2011: 1,080).
| Q2 | Q2 | % | HY | HY | % | |
|---|---|---|---|---|---|---|
| (€ million) | 2012 | 2011 | change | 2012 | 2011 | change |
| Ahold USA | 328 | 258 | 27.1% | 730 | 667 | 9.4% |
| The Netherlands | 190 | 199 | (4.5)% | 452 | 464 | (2.6)% |
| Other Europe | 14 | 14 | - | 33 | 34 | (2.9)% |
| Corporate Center | (16) | (24) | 33.3% | (38) | (39) | 2.6% |
| EBITDA by segment | 516 | 447 | 15.4% | 1,177 | 1,126 | 4.5% |
| Share in income of joint ventures | 22 | 28 | (21.4)% | 54 | 47 | 14.9% |
| Income (loss) from discontinued operations |
4 | (7) | n/m | 2 | (14) | n/m |
| Total EBITDA | 542 | 468 | 15.8% | 1,233 | 1,159 | 6.4% |
1. For the definition of EBITDA see section "Other information" – "Use of non-GAAP financial measures."
| Q2 | Q2 | HY | HY | |
|---|---|---|---|---|
| (€ million) | 2012 | 2011 | 2012 | 2011 |
| Operating cash flows from continuing operations | 492 | 276 | 1,052 | 807 |
| Purchase of non-current assets | (184) | (161) | (411) | (375) |
| Divestments of assets/disposal groups held for sale | 24 | 4 | 34 | 15 |
| Dividends from joint ventures2 | 138 | (3) | 142 | 127 |
| Interest received | 2 | 13 | 6 | 17 |
| Interest paid | (84) | (92) | (144) | (147) |
| Free cash flow | 388 | 37 | 679 | 444 |
1. For the definition of free cash flow see section "Other information" – "Use of non-GAAP financial measures."
2. The Q2 2011 figure represents the settlement of a hedge on an ICA dividend received in Q1 2011.
| (€ million) | July 15, 2012 |
April 22, 2012 |
January 1, 2012 |
|---|---|---|---|
| Loans | 1,546 | 1,440 | 1,489 |
| Finance lease liabilities | 1,297 | 1,147 | 1,158 |
| Cumulative preferred financing shares | 497 | 497 | 497 |
| Non-current portion of long-term debt | 3,340 | 3,084 | 3,144 |
| Short-term borrowings and current portion of long-term debt | 146 | 165 | 536 |
| Gross debt | 3,486 | 3,249 | 3,680 |
| Less: Cash, cash equivalents and short-term deposits1 | 1,791 | 2,279 | 2,592 |
| Net debt | 1,695 | 970 | 1,088 |
1. Book overdrafts, representing the excess of total issued checks over available cash balances within the Group cash concentration structure, are classified in accounts payable and do not form part of net debt. These balances amounted to €144 million, €136 million, and €181 million as of July 15, 2012, April 22, 2012, and January 1, 2012, respectively.
Ahold has entered into arrangements with a number of its subsidiaries and affiliated companies in the course of its business. These arrangements relate to service transactions and financing agreements. There have been no significant changes in the related party transactions from those described in the last annual report.
Ahold's enterprise risk management program provides executive management with a periodic and holistic understanding of Ahold's key business risks and the management practices in place to mitigate these risks. Ahold recognizes strategic, operational, financial and compliance and regulatory risk categories. The principal risks faced by the Company during the first half of the financial year were the same as those identified at year-end 2011 and management does not presently anticipate any material changes to the nature of the risks affecting Ahold's business over the second half of the financial year. A description of Ahold's risk management practices, principal risks and how they impact Ahold's business is provided in our 2011 Annual Report.
The content of this interim report has not been audited or reviewed by an external auditor.
The members of Ahold's Corporate Executive Board hereby declare that, to the best of their knowledge, the half-year financial statements included in this interim report, which have been prepared in accordance with IAS 34 "Interim Financial Reporting," give a true and fair view of Ahold's assets, liabilities, financial position and profit or loss, and the undertakings included in the consolidation taken as a whole, and the half-year management report included in this interim report includes a fair review of the information required pursuant to section 5:25d, subsections 8 and 9 of the Dutch Financial Markets Supervision Act (Wet op het financieel toezicht).
Amsterdam, the Netherlands
August 22, 2012
Corporate Executive Board Dick Boer (CEO) Jeff Carr (CFO) Lodewijk Hijmans van den Bergh James McCann
| Q2 | Q2 | HY | HY | ||
|---|---|---|---|---|---|
| (€ million, except per share data) | Note | 2012 | 2011 | 2012 | 2011 |
| Net sales | 4 | 7,692 | 6,874 | 17,408 | 16,125 |
| Cost of sales | 5 | (5,704) | (5,090) | (12,889) | (11,916) |
| Gross profit | 1,988 | 1,784 | 4,519 | 4,209 | |
| Selling expenses | (1,433) | (1,284) | (3,272) | (3,010) | |
| General and administrative expenses | (229) | (225) | (505) | (480) | |
| Total operating expenses | 5 | (1,662) | (1,509) | (3,777) | (3,490) |
| Operating income | 4 | 326 | 275 | 742 | 719 |
| Interest income | 5 | 4 | 8 | 10 | |
| Interest expense | (54) | (55) | (128) | (132) | |
| Other financial income (expense) | (5) | 4 | (5) | 5 | |
| Net financial expense | (54) | (47) | (125) | (117) | |
| Income before income taxes | 272 | 228 | 617 | 602 | |
| Income taxes | 6 | (50) | (50) | (143) | (145) |
| Share in income of joint ventures | 7 | 22 | 28 | 54 | 47 |
| Income from continuing operations | 244 | 206 | 528 | 504 | |
| Income (loss) from discontinued operations | 8 | 4 | (7) | 2 | (14) |
| Net income attributable to common shareholders | 248 | 199 | 530 | 490 | |
| Net income per share attributable to common | |||||
| shareholders | |||||
| basic | 0.24 | 0.18 | 0.51 | 0.43 | |
| diluted | 0.23 | 0.17 | 0.49 | 0.42 | |
| Income from continuing operations per share | |||||
| attributable to common shareholders | |||||
| basic | 0.24 | 0.18 | 0.51 | 0.45 | |
| diluted | 0.23 | 0.18 | 0.49 | 0.43 | |
| Weighted average number of common shares | |||||
| outstanding (in millions) | |||||
| basic | 1,038 | 1,125 | 1,042 | 1,132 | |
| diluted | 1,099 | 1,188 | 1,105 | 1,196 | |
| Average U.S. dollar exchange rate (euro per U.S. dollar) | 0.7893 | 0.6958 | 0.7738 | 0.7116 |
| Q2 | Q2 | HY | HY | |
|---|---|---|---|---|
| (€ million) | 2012 | 2011 | 2012 | 2011 |
| Net income | 248 | 199 | 530 | 490 |
| Currency translation differences in foreign interests: | ||||
| Currency translation differences before taxes | 266 | 62 | 209 | (168) |
| Income taxes | - | 1 | - | - |
| Cash flow hedges: | ||||
| Fair value gains (losses) in the year | 18 | (6) | (19) | 1 |
| Transfers to net income | (33) | (7) | (7) | (13) |
| Income taxes | 4 | 3 | 7 | 3 |
| Share of other comprehensive income (loss) of joint ventures - | ||||
| net of income taxes | (1) | 15 | - | 12 |
| Other comprehensive income (loss) | 254 | 68 | 190 | (165) |
| Total comprehensive income attributable to | ||||
| common shareholders | 502 | 267 | 720 | 325 |
| July 15, | January 1, | ||
|---|---|---|---|
| (€ million) | Note | 2012 | 2012 |
| Assets | |||
| Property, plant and equipment | 6,351 | 5,984 | |
| Investment property | 600 | 593 | |
| Intangible assets | 1,428 | 836 | |
| Investments in joint ventures | 1,010 | 1,087 | |
| Other non-current financial assets | 934 | 859 | |
| Deferred tax assets | 349 | 394 | |
| Other non-current assets | 36 | 34 | |
| Total non-current assets | 10,708 | 9,787 | |
| Assets held for sale | 5 | - | |
| Inventories | 1,499 | 1,466 | |
| Receivables | 724 | 751 | |
| Other current financial assets | 89 | 336 | |
| Income taxes receivable | 50 | 27 | |
| Other current assets | 174 | 175 | |
| Cash and cash equivalents | 10 | 1,751 | 2,438 |
| Total current assets | 4,292 | 5,193 | |
| Total assets | 15,000 | 14,980 | |
| Equity and liabilities | |||
| Equity attributable to common shareholders | 9 | 5,930 | 5,877 |
| Loans | 1,546 | 1,489 | |
| Other non-current financial liabilities | 1,986 | 1,813 | |
| Pensions and other post-employment benefits | 97 | 94 | |
| Deferred tax liabilities | 276 | 199 | |
| Provisions | 675 | 664 | |
| Other non-current liabilities | 247 | 230 | |
| Total non-current liabilities | 4,827 | 4,489 | |
| Liabilities related to assets held for sale | 4 | - | |
| Accounts payable | 2,512 | 2,436 | |
| Other current financial liabilities | 230 | 648 | |
| Income taxes payable | 117 | 136 | |
| Provisions | 265 | 253 | |
| Other current liabilities | 1,115 | 1,141 | |
| Total current liabilities | 4,243 | 4,614 | |
| Total equity and liabilities | 15,000 | 14,980 | |
| Quarter-end U.S. dollar exchange rate (euro per U.S. dollar) | 0.8162 | 0.7724 |
| Other | ||||||
|---|---|---|---|---|---|---|
| reserves | Equity | |||||
| Additional | Currency | Cash flow | including | attributable to | ||
| Share | paid-in | translation | hedging | accumulated | common | |
| (€ million) | capital | capital | reserve* | reserve* | deficit* | shareholders |
| Balance as of January 2, 2011 | 358 | 9,916 | (385) | (63) | (3,916) | 5,910 |
| Dividends | - | - | - | - | (328) | (328) |
| Total comprehensive income | - | - | (168) | (9) | 502 | 325 |
| Share buyback | - | - | - | - | (355) | (355) |
| Retirement of treasury shares | (9) | (289) | - | - | 298 | - |
| Share-based payments | - | - | - | - | 12 | 12 |
| Balance as of July 17, 2011 | 349 | 9,627 | (553) | (72) | (3,787) | 5,564 |
| Balance as of January 1, 2012 | 330 | 9,094 | (265) | (93) | (3,189) | 5,877 |
| Dividends | - | - | - | - | (415) | (415) |
| Total comprehensive income | - | - | 209 | (19) | 530 | 720 |
| Share buyback | - | - | - | - | (277) | (277) |
| Retirement of treasury shares | (12) | (381) | - | - | 393 | - |
| Share-based payments | - | - | - | - | 25 | 25 |
| Balance as of July 15, 2012 | 318 | 8,713 | (56) | (112) | (2,933) | 5,930 |
* The comparative information was changed to conform to the current year presentation, as disclosed in Note 2.
| Q2 | Q2 | HY | HY | ||
|---|---|---|---|---|---|
| (€ million) | Note | 2012 | 2011* | 2012 | 2011* |
| Operating income | 326 | 275 | 742 | 719 | |
| Adjustments for: | |||||
| Depreciation, amortization and impairments | 194 | 175 | 446 | 412 | |
| Gains on the sale of assets/disposal groups held for sale | (12) | (3) | (16) | (10) | |
| Share-based compensation expenses | 9 | 7 | 21 | 15 | |
| Operating cash flows before changes in operating assets and | 517 | 454 | 1,193 | 1,136 | |
| liabilities | |||||
| Changes in working capital: | |||||
| Changes in inventories | 31 | 10 | 38 | (21) | |
| Changes in receivables and other current assets | 16 | 38 | 60 | 62 | |
| Changes in payables and other current liabilities | (8) | (162) | (129) | (163) | |
| Changes in non-current assets and liabilities | (17) | (25) | (18) | (63) | |
| Cash generated from operations | 539 | 315 | 1,144 | 951 | |
| Income taxes paid - net | (47) | (39) | (92) | (144) | |
| Operating cash flows from continuing operations | 492 | 276 | 1,052 | 807 | |
| Operating cash flows from discontinued operations | (1) | (1) | (3) | (5) | |
| Net cash from operating activities | 491 | 275 | 1,049 | 802 | |
| Purchase of non-current assets | (184) | (161) | (411) | (375) | |
| Divestments of assets/disposal groups held for sale | 24 | 4 | 34 | 15 | |
| Acquisition of businesses, net of cash acquired | (419) | (19) | (434) | (21) | |
| Divestment of businesses, net of cash divested | (41) | (2) | (44) | (9) | |
| Changes in short-term deposits | 38 | - | 116 | - | |
| Dividends from joint ventures | 138 | (3) | 142 | 127 | |
| Interest received | 2 | 13 | 6 | 17 | |
| Other | (2) | 47 | - | 45 | |
| Investing cash flows from continuing operations | (444) | (121) | (591) | (201) | |
| Net cash from investing activities | (444) | (121) | (591) | (201) | |
| Interest paid | (84) | (92) | (144) | (147) | |
| Repayments of loans | (36) | (3) | (452) | (11) | |
| Repayments of finance lease liabilities | (15) | (18) | (35) | (36) | |
| Changes in short-term loans | (30) | 5 | 4 | 7 | |
| Dividends paid on common shares | 9 | (415) | (328) | (415) | (328) |
| Share buyback | 9 | - | (164) | (277) | (355) |
| Change in derivatives | - | - | 122 | (10) | |
| Other | - | (2) | 3 | 3 | |
| Financing cash flows from continuing operations | (580) | (602) | (1,194) | (877) | |
| Financing cash flows from discontinued operations | (1) | (1) | (2) | (2) | |
| Net cash from financing activities | (581) | (603) | (1,196) | (879) | |
| Net cash from operating, investing and financing activities | 10 | (534) | (449) | (738) | (278) |
| Average U.S. dollar exchange rate (euro per U.S. dollar) | 0.7893 | 0.6958 | 0.7738 | 0.7116 |
* The comparative information was changed to conform to the current year presentation.
For the reconciliation between net cash from operating, investing and financing activities and cash and cash equivalents as presented in the balance sheet, see Note 10.
The principal activity of Koninklijke Ahold N.V. ("Ahold" or the "Company"), a public limited liability company with its registered seat in Zaandam, the Netherlands and its head office in Amsterdam, the Netherlands, is the operation of retail food stores in the United States and Europe through subsidiaries and joint ventures.
The information in these condensed consolidated interim financial statements ("financial statements") is unaudited.
These financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting." The accounting policies applied in these financial statements are consistent with those applied in Ahold's 2011 consolidated financial statements.
Ahold's reporting calendar is based on 13 periods of four weeks, with 2012 and 2011 each comprising 52 weeks. The second quarter and first half of 2012 and 2011 each comprise 12 weeks and 28 weeks, respectively. The financial year of Ahold's unconsolidated joint ventures, ICA AB ("ICA") and JMR - Gestão de Empresas de Retalho, SGPS. S.A. ("JMR"), corresponds to the calendar year. Any significant transactions and/or events between ICA's and JMR's quarter-end and Ahold's quarter-end are taken into account in the preparation of Ahold's financial statements.
IAS 19 "Employee Benefits" was amended in June 2011 and endorsed by the EU in June 2012. The amendment will be effective for Ahold as from January 1, 2013. The main changes in the revised IAS 19 are to eliminate the corridor approach and recognize all actuarial gains and losses in other comprehensive income as they occur; to immediately recognize all past service costs; and to replace interest cost and expected return on plan assets with a net interest amount that is calculated by applying the discount rate to the net defined benefit liability (asset).
As of January 1, 2012 the combined unrecognized actuarial losses and the unrecognized past service costs amounted to €149 million. Had these actuarial losses and past service costs been recognized immediately, this would have negatively impacted equity in the amount of €59 million (net of tax) and decreased the net pension asset in the amount of €149 million. The 2012 net income may be significantly influenced by the timing of the settlement of the US Frozen Pension Plan due to discount rate changes. Therefore, the impact on the 2012 income statement cannot be reasonably estimated as of the balance sheet date.
In Q4 2011, Ahold adjusted the presentation of the components of equity in the consolidated statement of changes in equity, which resulted in a retrospective impact on the first three quarters of 2011. The 2011 comparative figures have been changed to conform to the current year presentation resulting in a net reclassification of €12 million between other reserves including accumulated deficit and the currency translation reserve and cash flow hedging reserve. The total equity attributable to common shareholders has not been impacted.
On May 9, 2012, Ahold announced that it had successfully completed the acquisition of bol.com. The purchase consideration was €353 million in cash for 100% of the voting equity interest. The acquisition was made to further expand Ahold's online presence and broaden its range of offered products into new non-food categories. Goodwill recognized in the amount of €248 million, which will
not be deductible for tax purposes, represents expected synergies from the combination of operations, as well as the ability to broaden Ahold's offering and expand its geographic reach. In addition to goodwill other intangible assets have been acquired, such as information technology, customer lists and a trade name.
Bol.com contributed €60 million to net sales and had an insignificant impact on net income in the period from May 9 to July 15, 2012. The impact excludes €6 million in transaction costs related to the acquisition, included in general and administrative expenses. Had the acquisition occurred on January 2, 2012, Ahold's pro-forma revenue through July 15, 2012 would have increased by €182 million to €17,590 million. The pro-forma effect on Ahold's overall net income of €530 million for the half year would have been insignificant.
On July 13, 2012, Ahold announced that its Giant Carlisle division had acquired 15 Genuardi's Family Markets stores from Safeway. The stores acquired are located in the greater Philadelphia area. The total purchase consideration was €90 million (\$113 million) in cash for 15 store locations, equipment, and lease agreements. Tax deductible goodwill recognized amounted to €64 million (\$80 million) and represents synergies from the combination of operations, as well as the ability to service customers in a new geographic area.
Due to the purchase occurring late in the quarter, the contribution to net sales and net income is insignificant. €2 million in transaction costs related to the acquisition have been included within the second quarter's general and administrative expenses. Had the acquisition occurred on January 2, 2012, the pro-forma effect on Ahold's revenue and net income through July 15, 2012 would have been insignificant.
In February, the Giant Landover division acquired two Fresh & Green's stores. The stores acquired are located in Maryland. The total purchase consideration was €12 million (\$15 million). Goodwill recognized amounted to €8 million (\$10 million). In addition, Albert Heijn acquired a store from a franchisee for €3 million, which was fully recognized as additional goodwill.
The allocation of the fair value of the net assets acquired and the goodwill arising at the acquisition date for each acquisition during the first half year of 2012 is as follows:
| (€ million) | bol.com | Genuardi's | Other | Total |
|---|---|---|---|---|
| Property plant & equipment | 2 | 90 | 11 | 103 |
| Goodwill | 248 | 64 | 11 | 323 |
| Other intangible assets | 196 | 7 | 1 | 204 |
| Current assets | 52 | 8 | - | 60 |
| Non-current liabilities | (81) | (76) | (8) | (165) |
| Current liabilities | (64) | (3) | - | (67) |
| Total purchase consideration | 353 | 90 | 15 | 458 |
| Cash acquired | (24) | - | - | (24) |
| Acquisition of business, net of cash | 329 | 90 | 15 | 434 |
A reconciliation of Ahold's goodwill balance, which is included in intangible assets, is as follows:
| € million | Goodwill |
|---|---|
| As of January 1, 2012 | |
| At cost | 407 |
| Accumulated impairment losses | (3) |
| Opening carrying amount | 404 |
| Business acquisitions | 323 |
| Exchange rate differences | 15 |
| Closing carrying amount | 742 |
| As of July 15, 2012 | |
| At cost | 745 |
| Accumulated impairment losses | (3) |
| Carrying amount | 742 |
The amounts recognized in the financial statements for these business combinations have been determined on a provisional basis.
On April 26, 2012, Ahold announced that it had reached an agreement with Jumbo regarding the transfer of 78 C1000 and 4 Jumbo stores for €290 million in cash. Approval for the transfer was granted by competition authorities on July 26, 2012 and the transaction was completed on August 14, 2012. Fourteen of the stores are to be converted to the Albert Heijn banner and are to reopen as soon as possible. The remaining 68 franchisee-owned stores will be converted to the Albert Heijn banner over a period of time, in close cooperation with the entrepreneurs.
The transaction occurred after the close of the quarter, but before issuance of this report. The four company-owned stores and the franchisee-owned stores that have agreed to be re-bannered as Albert Heijn stores will be considered a business combination at the acquisition date. The remaining franchisee-owned locations will follow business acquisition accounting as agreements are reached to re-banner those stores. The initial accounting for the business combination of the stores re-bannered as Albert Heijn stores on the acquisition date is incomplete and therefore the assessments of the assets and liabilities acquired, as well as the impacts on revenue and profits, have not yet been finalized.
Ahold's retail operations are presented in three reportable segments. In addition, Other retail, consisting of Ahold's unconsolidated joint ventures ICA and JMR, and Ahold's Corporate Center are presented separately.
| Reportable segment | Included in the Reportable segment |
|---|---|
| Ahold USA | Stop & Shop New England, Stop & Shop New York Metro, Giant Landover, Giant |
| Carlisle, and Peapod | |
| The Netherlands | Albert Heijn, Albert Heijn Belgium, Etos, Gall & Gall, bol.com and albert.nl |
| Other Europe | Albert (Czech Republic and Slovakia) and Hypernova (Slovakia) |
| Other | Included in Other |
| Other retail | Unconsolidated joint ventures ICA (60%) and JMR (49%) |
Corporate Center Corporate staff (the Netherlands, Switzerland, and the United States)
Net sales per segment are as follows:
| Q2 | Q2 | % | HY | HY | % | |
|---|---|---|---|---|---|---|
| 2012 | 2011 | change | 2012 | 2011 | change | |
| \$ million | ||||||
| Ahold USA | 6,012 | 5,813 | 3.4% | 13,815 | 13,405 | 3.1% |
| Average U.S. dollar exchange rate | 0.7893 | 0.6958 | 13.4% | 0.7738 | 0.7116 | 8.7% |
| (euro per U.S. dollar) | ||||||
| € million | ||||||
| Ahold USA | 4,747 | 4,046 | 17.3% | 10,693 | 9,536 | 12.1% |
| The Netherlands | 2,560 | 2,432 | 5.3% | 5,822 | 5,655 | 3.0% |
| Other Europe | 385 | 396 | (2.8)% | 893 | 934 | (4.4)% |
| Ahold Group | 7,692 | 6,874 | 11.9% | 17,408 | 16,125 | 8.0% |
The combined net sales of Ahold's unconsolidated joint ventures ICA and JMR amounted to €3,608 million and €3,482 million for Q2 2012 and Q2 2011, respectively (HY 2012: €6,981 million and HY 2011: €6,670 million).
Operating income (loss) per segment is as follows:
| Q2 | Q2 | % | HY | HY | % | |
|---|---|---|---|---|---|---|
| 2012 | 2011 | change | 2012 | 2011 | change | |
| \$ million | ||||||
| Ahold USA | 257 | 209 | 23.0% | 568 | 559 | 1.6% |
| Average U.S. dollar exchange rate | ||||||
| (euro per U.S. dollar) | 0.7893 | 0.6958 | 13.4% | 0.7738 | 0.7116 | 8.7% |
| € million | ||||||
| Ahold USA | 202 | 145 | 39.3% | 439 | 399 | 10.0% |
| The Netherlands | 138 | 152 | (9.2)% | 335 | 352 | (4.8)% |
| Other Europe | 3 | 3 | - | 7 | 8 | (12.5)% |
| Corporate Center | (17) | (25) | 32.0% | (39) | (40) | 2.5% |
| Ahold Group | 326 | 275 | 18.5% | 742 | 719 | 3.2% |
Operating income in Q2 2012 included \$4 million (€3 million) of impairments (HY 2012: \$14 million (€10 million)), \$2 million (€2 million) gain on sale of assets (HY 2012: \$3 million (€2 million)) and \$2 million (€2 million) of business acquisition costs related to the acquisition of the Genuardi's stores (HY 2012: \$2 million (€2 million)).
Operating income in Q2 2011 included \$24 million (€17 million) of restructuring charges, mainly related to the transition of certain logistics activities. Furthermore, operating income included \$4 million (€3 million) of impairments (HY 2011: \$6 million (€4 million)) and \$7 million (€5 million) of reorganization and IT integration costs (HY 2011: \$15 million (€11 million)).
Q2 2012 operating income included a €2 million (HY 2012: €4 million) gain on the sale of assets, and €1 million (HY 2012: €1 million) of business acquisition costs related to the transaction with Jumbo.
Q2 2011 operating income included a €2 million (HY 2011: €8 million) gain on the sale of assets.
Included in the Q2 2012 operating income were impairments of €1 million (HY 2012 and HY 2011: €1 million).
Excluding the impact of the Company's insurance activities, Q2 2012 Corporate Center costs were €16 million, unchanged from last year (HY 2012: €39 million, €4 million higher than last year). Corporate Center costs in 2012 were impacted by €10 million of gains on sale of investments in associates offset by €6 million of acquisition costs related to the acquisition of bol.com.
The aggregate of cost of sales and operating expenses is specified by nature as follows:
| Q2 | Q2 | HY | HY | |
|---|---|---|---|---|
| € million | 2012 | 2011 | 2012 | 2011 |
| Cost of product | 5,444 | 4,845 | 12,302 | 11,342 |
| Employee benefit expenses | 1,020 | 917 | 2,325 | 2,144 |
| Other operational expenses | 599 | 554 | 1,330 | 1,259 |
| Depreciation and amortization | 190 | 172 | 435 | 407 |
| Rent expenses and income - net | 121 | 111 | 279 | 259 |
| Impairment losses and reversals - net | 4 | 3 | 11 | 5 |
| Gains on the sale of assets - net | (12) | (3) | (16) | (10) |
| Total | 7,366 | 6,599 | 16,666 | 15,406 |
In Q2 2012, income taxes included €18 million in benefits for one-time events, which include benefits arising from financial transactions.
The Company's share in income of joint ventures is net of income taxes and is specified as follows:
| € million | Q2 2012 |
Q2 2011 |
HY 2012 |
HY 2011 |
|---|---|---|---|---|
| ICA | 28 | 28 | 57 | 45 |
| JMR | (8) | 1 | (6) | 2 |
| Other | 2 | (1) | 3 | - |
| Total | 22 | 28 | 54 | 47 |
Income from discontinued operations, consisting of results on divestments, is specified as follows:
| Q2 | Q2 | HY | HY | |
|---|---|---|---|---|
| € million | 2012 | 2011 | 2012 | 2011 |
| BI-LO and Bruno's | 3 | - | 3 | (1) |
| Other* | 1 | (7) | (1) | (13) |
| Results on divestments | 4 | (7) | 2 | (14) |
| Income (loss) from discontinued operations, | ||||
| net of income taxes | 4 | (7) | 2 | (14) |
* Includes adjustments to the result on various past divestments.
On April 17, 2012, the General Meeting of Shareholders approved the dividend over 2011 of €0.40 per common share (€415 million in the aggregate). This dividend was included as a liability on the balance sheet as of April 22, 2012. The dividend was paid on May 2, 2012.
On March 19, 2012, Ahold completed its €1 billion share buyback program. Under this program, 106,814,343 of the Company's own shares were repurchased and delivered in 2011 and 2012 (2011: 79,982,258 and 2012: 26,832,085) for a total consideration of €1 billion (2011: €723 million and 2012: €277 million), at an average price of €9.36 (2011: €9.04 and 2012: €10.33).
Of the total shares repurchased, 39,900,000 were cancelled on July 9, 2012.
The number of outstanding common shares as of July 15, 2012 was 1,037,926,540 (January 1, 2012: 1,059,805,233).
The following table presents the changes in cash and cash equivalent balances for the first half of 2012 and 2011, respectively:
| HY | HY | |
|---|---|---|
| € million | 2012 | 2011 |
| Cash and cash equivalents at the beginning of the year | 2,438 | 2,600 |
| Restricted cash | (31) | (21) |
| Cash and cash equivalents beginning of the year, excluding restricted cash | 2,407 | 2,579 |
| Net cash from operating, investing and financing activities | (738) | (278) |
| Effect of exchange rate differences on cash and cash equivalents | 51 | (45) |
| Restricted cash | 31 | 19 |
| Cash and cash equivalents at the end of the quarter | 1,751 | 2,275 |
A comprehensive overview of commitments and contingencies as of January 2, 2011 was included in Note 34 to Ahold's 2011 consolidated financial statements, which were published as part of Ahold's Annual Report on March 6, 2012.
Ahold has reached an agreement with the International Brotherhood of Teamsters Local 400 Food Terminal Employee's Pension Plan regarding its obligation for a mass withdrawal liability for workers of a warehouse in northeast Ohio. During the second quarter of 2012, Ahold paid \$21 million
(€17 million) in full and final settlement of its obligation. Ahold had previously provided \$27 million (€20 million) for its obligation and the remaining balance has been reversed to income (loss) from discontinued operations.
On August 14, 2012, Ahold announced that it had successfully completed the transaction with Jumbo concerning 78 C1000 and 4 Jumbo stores, as announced on April 26, 2012. Albert Heijn will start to convert 14 of the stores to its banner and reopen them for customers as soon as possible. The remaining 68 stores will be converted to the Albert Heijn banner over a period of time, in close cooperation with the entrepreneurs.
This interim report includes the following non-GAAP financial measures:
As we pursue our growth strategy launched in November 2011, management has determined that it is more appropriate to manage Ahold's business according to a broader set of ambitions than net sales growth and underlying retail margin. In that context, in 2012 we began reporting underlying operating margin for the total Group, which includes Corporate Center costs. Underlying operating margin for the Group is a more relevant measure of profitability for food retail companies.
The reconciliation from the underlying operating income per segment to the operating income per segment is as follows for Q2 2012 and Q2 2011 and for the first half of 2012 and 2011, respectively:
| Underlying operating |
Impairments | Gains on the sale of |
Restructuring and related |
Operating income |
|
|---|---|---|---|---|---|
| income | assets | charges | |||
| (€ million) | Q2 2012 | Q2 2012 | |||
| Ahold USA | 205 | (3) | 2 | (2) | 202 |
| The Netherlands | 137 | - | 2 | (1) | 138 |
| Other Europe | 4 | (1) | - | - | 3 |
| Total retail | 346 | (4) | 4 | (3) | 343 |
| Corporate Center | (19) | - | 8 | (6) | (17) |
| Ahold Group | 327 | (4) | 12 | (9) | 326 |
| Underlying operating |
Impairments | Gains on the sale of |
Restructuring and related |
Operating income |
|
|---|---|---|---|---|---|
| income | assets | charges | |||
| (€ million) | Q2 2011 | Q2 2011 | |||
| Ahold USA | 164 | (3) | 1 | (17) | 145 |
| The Netherlands | 150 | - | 2 | - | 152 |
| Other Europe | 3 | - | - | - | 3 |
| Total retail | 317 | (3) | 3 | (17) | 300 |
| Corporate Center | (25) | - | - | - | (25) |
| Ahold Group | 292 | (3) | 3 | (17) | 275 |
| Underlying operating income |
Impairments | Gains on the sale of assets |
Restructuring and related charges |
Operating income |
|
|---|---|---|---|---|---|
| (€ million) | HY 2012 | HY 2012 | |||
| Ahold USA | 449 | (10) | 2 | (2) | 439 |
| The Netherlands | 332 | - | 4 | (1) | 335 |
| Other Europe | 8 | (1) | - | - | 7 |
| Total retail | 789 | (11) | 6 | (3) | 781 |
| Corporate Center | (43) | - | 10 | (6) | (39) |
| Ahold Group | 746 | (11) | 16 | (9) | 742 |
| Underlying operating income |
Impairments | Gains on the sale of assets |
Restructuring and related charges |
Operating income |
|
|---|---|---|---|---|---|
| (€ million) | HY 2011 | HY 2011 | |||
| Ahold USA | 418 | (4) | 2 | (17) | 399 |
| The Netherlands | 344 | - | 8 | - | 352 |
| Other Europe | 9 | (1) | - | - | 8 |
| Total retail | 771 | (5) | 10 | (17) | 759 |
| Corporate Center | (40) | - | - | - | (40) |
| Ahold Group | 731 | (5) | 10 | (17) | 719 |
The reconciliation from EBITDA per segment to operating income per segment is as follows for Q2 2012 and Q2 2011 and for the first half of 2012 and 2011, respectively:
| EBITDA | Depreciation | Operating | EBITDA | Depreciation | Operating | |
|---|---|---|---|---|---|---|
| and | income | and | income | |||
| (€ million) | Q2 2012 | amortization | Q2 2012 | Q2 2011 | amortization | Q2 2011 |
| Ahold USA | 328 | (126) | 202 | 258 | (113) | 145 |
| The Netherlands | 190 | (52) | 138 | 199 | (47) | 152 |
| Other Europe | 14 | (11) | 3 | 14 | (11) | 3 |
| (25) | ||||||
| 275 | ||||||
| Corporate Center Total |
(16) 516 |
(1) (190) |
(17) 326 |
(24) 447 |
(1) (172) |
| EBITDA | Depreciation | Operating | EBITDA | Depreciation | Operating | |
|---|---|---|---|---|---|---|
| and | income | and | income | |||
| (€ million) | HY 2012 | amortization | HY 2012 | HY 2011 | amortization | HY 2011 |
| Ahold USA | 730 | (291) | 439 | 667 | (268) | 399 |
| The Netherlands | 452 | (117) | 335 | 464 | (112) | 352 |
| Other Europe | 33 | (26) | 7 | 34 | (26) | 8 |
| Corporate Center | (38) | (1) | (39) | (39) | (1) | (40) |
| Total | 1,177 | (435) | 742 | 1,126 | (407) | 719 |
Management believes that these non-GAAP financial measures allow for a better understanding of Ahold's operating and financial performance. These non-GAAP financial measures should be considered in addition to, but not as substitutes for, the most directly comparable IFRS measures.
Ahold's financial year consists of 52 or 53 weeks and ends on the Sunday nearest to December 31.
Ahold's 2012 financial year consists of 52 weeks and ends on December 30, 2012. The quarters in 2012 are:
First quarter (16 weeks) January 2, 2012 through April 22, 2012 Second quarter (12 weeks) April 23 through July 15, 2012 Third quarter (12 weeks) July 16 through October 7, 2012 Fourth quarter (12 weeks) October 8, 2012 through December 30, 2012
The interim report half year 2012 of Ahold's wholly owned subsidiary Ahold Finance U.S.A., LLC is available at www.ahold.com.
This Ahold Interim Report is a half-year report as referred to in section 5:25d sub section 1 of the Dutch Financial Markets Supervision Act and comprises regulated information within the meaning of section 1:1 of this act.
This interim report includes forward-looking statements, which do not refer to historical facts but refer to expectations based on management's current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those included in such statements. These forward-looking statements include, but are not limited to, statements as to Ahold's investments in profitable growth; expectations on market conditions and competitor and consumer behavior; the progress and deliverance of Ahold's strategies and cost savings program; the impact of rising food commodity costs; Ahold's response to market opportunities; the synergy of business combinations; the performance of Ahold's stores; the expansion of Ahold's online presence, product offering and geographical reach; Ahold's focus on cost reductions and process simplification and improving its competitive position; the causes of margin performance; completion of the transaction with Jumbo; and the conversion and reopening of the C1000/Jumbo stores to the Albert Heijn banner and the timeframe thereof. These forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by the forward-looking statements. Many of these risks and uncertainties relate to factors that are beyond Ahold's ability to control or estimate precisely, such as the effect of general economic or political conditions, fluctuations in exchange rates or interest rates, increases or changes in competition, Ahold's ability to implement and complete successfully its plans and strategies, the benefits from and resources generated by Ahold's plans and strategies being less than or different from those anticipated, changes in Ahold's liquidity needs, the actions of competitors and third parties and other factors discussed in Ahold's public filings and other disclosures. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this interim report. Ahold does not assume any obligation to update any public information or forward-looking statements in this interim report to reflect subsequent events or circumstances, except as may be required by applicable laws. Outside the Netherlands, Koninklijke Ahold N.V., being its registered name, presents itself under the name of "Royal Ahold" or simply "Ahold."
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