Interim / Quarterly Report • Aug 22, 2013
Interim / Quarterly Report
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August 22, 2013
Zaandam, the Netherlands – Ahold today published its interim report for the second quarter and half year of 2013.
CEO Dick Boer said: "Our business continued to perform well, both in Europe and the United States. We were able to grow sales by 3.0% at constant exchange rates with ongoing high levels of promotional activity. Underlying operating income increased by 5.4% at constant exchange rates, reflecting a strong underlying operating margin of 4.4%. Net income was impacted by the sale of our stake in ICA earlier this year. Our free cash flow continues to be strong at €254 million during the quarter.
"In the United States we saw modest sales growth of 2.0% with an ongoing low level of inflation and volumes remaining under pressure in the food retail sector. We are pleased that we continue to gain market share. Underlying operating margin was 4.2%, supported by improved sourcing and operating efficiencies.
"In the Netherlands sales grew by 5.6%, mainly driven by new stores and ongoing strong sales growth in our online business. Albert Heijn successfully converted another four former C1000/Jumbo stores, bringing the total to 22 and continued to gain market share. Our growth initiatives remain on track with 16 well-performing stores now open in Belgium and with the completion of the nationwide rollout of bol.com pick-up points in our Albert Heijn stores. Underlying operating margin improved to 5.5%, as Albert Heijn's strong performance more than offset additional pension charges related to decreased discount rates.
"In the current economic environment we remain cautious in our outlook for the balance of the year, as we expect customers to be focused on value and volumes to remain under pressure. We are well on track with our cost saving program and are committed to our Reshaping Retail strategy.
"We remain committed to an efficient capital structure, having already increased our share buyback program to two billion by the end of 2014. We expect to make further announcements in this regard before the end of this year.
"The new leadership structure we announced this quarter, with an Executive Committee that represents Ahold's business and functional leaders at the highest level, will simplify the company's governance structure and decision-making process and will enable us to accelerate our Reshaping Retail strategy."
| % change | % change | |||||||
|---|---|---|---|---|---|---|---|---|
| (€ million, except per share data) | Q2 | Q2 | % | constant | HY | HY | % | constant |
| 2013 | 20121 | change | rates | 2013 | 20121 | change | rates | |
| Net sales | 7,769 | 7,692 | 1.0% | 3.0% | 17,886 | 17,408 | 2.7% | 3.8% |
| Underlying operating income | 338 | 325 | 4.0% | 5.4% | 754 | 741 | 1.8% | 2.6% |
| Operating income | 325 | 324 | 0.3% | 1.8% | 670 | 737 | (9.1)% | (8.4)% |
| Income from continuing operations | 199 | 218 | (8.7)% | (6.9)% | 407 | 475 | (14.3)% | (13.4)% |
| Net income | 206 | 249 | (17.3)% | (16.0)% | 2,157 | 534 | 303.9% | 306.3% |
| Basic earnings per share | 0.20 | 0.24 | (16.7)% | (15.5)% | 2.08 | 0.51 | 307.8% | 308.6% |
1 As explained further under Note 2 to the enclosed summary financial statements, the prior year's results have been restated to reflect certain changes in presentation, the classification of the Company's investment in ICA as a discontinued operation, and the amendments resulting from the retrospective application of IAS 19 revised "Employee Benefits."
We continue to make progress on our Reshaping Retail strategy at Ahold, which involves taking advantage of rapid changes in consumer behavior, shopping trends and the retail landscape. We remain focused on improving our competitive position through cost reductions and the overall simplification of our processes.
In the second quarter of 2013:
Net sales were €7.8 billion, up 1.0%. At constant exchange rates, net sales increased by 3.0%. During the quarter, Ahold USA achieved 2.0% sales growth, measured in US dollars, and the Netherlands achieved 5.6% growth. Sales in Other Europe (Czech Republic and Slovakia combined) decreased 3.4% at constant exchange rates.
Underlying operating income was €338 million, up 4.0% and 5.4% at actual and constant exchange rates, respectively. Underlying operating margin was 4.4% compared to 4.2% last year.
Operating income was €325 million, up 0.3% and 1.8% at actual and constant exchange rates, respectively. This included €34 million of impairment charges offset by €20 million of gains on the sale of assets.
Income from continuing operations was €199 million; €19 million lower than last year. The increase in financial expenses includes €9 million of increased interest charges from our defined benefit pension plans and €8 million of valuation adjustments related to notes and derivatives. Income per share from continuing operations was €0.19 versus €0.21 last year.
Net income was €206 million, down €43 million. This decrease reflects our sale of ICA, which contributed €27 million to last year's net result.
Our free cash flow of €254 million continues to be strong. Operating cash flows from continuing operations were even with last year when excluding the €38 million we paid in the quarter related to the partial settlement of the liability to the New England Teamsters and Trucking Industry Pension Fund.
Cash and cash equivalents decreased by €347 million to €3,823 million, due to dividend payments of €457 million and €186 million of share buyback expenditures during the quarter.
Net debt increased by €394 million during the quarter to a negative net debt of €813 million.
Net sales were €17.9 billion, up 2.7%. At constant exchange rates, net sales increased by 3.8%.
Underlying operating income was €754 million, up 1.8% and 2.6% at actual and constant exchange rates, respectively. Underlying operating margin was 4.2%, compared to 4.3% last year.
Operating income was €670 million, down €67 million or 9.1% and 8.4% at actual and constant exchange rates. This included a €63 million (\$82 million) pre-tax charge taken in Q1 at Ahold USA related to a multi-employer pension plan settlement with the New England Teamsters and Trucking Industry Pension Fund, as well as €52 million of impairment charges offset by €21 million of gains on the sale of assets.
Income before income taxes was down €116 million to €506 million, caused by the items mentioned above and an increase in net financial expense of €49 million. This increase reflects €23 million of higher charges for our defined benefit pension plans, an €11 million one-time adjustment to a financial liability and €13 million of valuation adjustments related to notes and derivatives.
Income from continuing operations decreased €68 million (14.3%) to €407 million, for the reasons indicated above, offset by a €41 million reduction in income taxes.
Net income was €2,157 million, up €1,623 million. Contributing to this increase was a result from discontinued operations of €1,751 million related to ICA.
Free cash flow was €436 million, €107 million lower than last year. The decrease was primarily due to the timing of rent payments, €31 million payment for the final settlement of the U.S. Frozen Pension Plan, and a €38 million payment to the New England Teamsters and Trucking Industry Pension Fund.
Net debt decreased by €2,173 million during the first half of 2013. Free cash flow of €436 million and the proceeds from the sale of ICA of €2,507 million were partially offset by dividends paid on common shares of €457 million and the share buyback of €247 million.
For the second quarter, net sales were \$6.1 billion, up 2.0% with low levels of inflation. Identical sales growth was 0.5% (0.3% excluding gasoline) gained from improved promotional effectiveness partially offset by the negative impact of the federal sequester in the Washington D.C. area. Our US operations gained market share in each quarter of 2013. Underlying operating margin was 4.2%, compared to 4.4% last year. Improved operational store efficiencies and better sourcing were offset by higher health and welfare costs and investments in the further simplification of our operations.
For the first half, net sales were \$14.2 billion, up 2.8%. Identical sales were up 1.2% (1.2% excluding gasoline). Underlying operating margin was 4.1% compared to 4.3% last year.
For the second quarter, net sales increased 5.6% to €2.7 billion. Identical sales growth was 1.6%. Overall sales growth was supported by the inclusion of 22 former C1000/Jumbo stores (of which four were converted this quarter) and further expansion into Belgium (we opened another four Belgian Albert Heijn supermarkets this quarter bringing the total to 16, an increase of 10 over the prior year). Identical sales growth was driven by Albert Heijn, which achieved a higher average basket value, and double-digit growth of albert.nl and bol.com. Albert Heijn continued to grow market share, successfully converting former C1000/Jumbo stores. Despite increased pension costs as a result of lower discount rates, underlying operating margin was 5.5%, compared to 5.1% last year, due to continued progress from our cost savings initiatives.
For the first half, net sales increased 6.6% to €6.2 billion. Identical sales were up 1.7%. Underlying operating margin was 5.4%, unchanged from last year.
For the second quarter, net sales decreased 4.7% to €367 million. At constant exchange rates, net sales decreased 3.4%. Identical sales decreased 3.0% (3.3% excluding gasoline). Underlying operating margin in Other Europe was 0.8%, compared to 1.0% last year. In the Czech Republic, in a challenging retail market in part due to VAT increases, we were able to maintain market share and improve operating margins.
For the first half, net sales decreased 4.9% to €849 million. At constant exchange rates net sales decreased 3.1%. Identical sales decreased 2.9% (2.1% excluding gasoline). Underlying operating margin was 0.9%, unchanged from last year.
In the second quarter, Corporate Center costs were €10 million, down €8 million; underlying Corporate Center costs were €12 million. Excluding the effect of the Company's insurance activities, underlying Corporate Center costs were €21 million, an increase of €3 million over last year.
For the first half, Corporate Center costs were €30 million, down €10 million; underlying Corporate Center costs were €34 million. Excluding the effect of the Company's insurance activities, underlying Corporate Center costs were €44 million, an increase of €1 million over last year.
| Q2 2013 Identical |
Q2 2013 Identical excluding gasoline |
Q2 2013 Comparable |
HY 2013 Identical |
HY 2013 Identical excluding gasoline |
HY 2013 Comparable |
|
|---|---|---|---|---|---|---|
| Ahold USA | 0.5% | 0.3% | 0.6% | 1.2% | 1.2% | 1.4% |
| The Netherlands | 1.6% | 1.6% | 1.7% | 1.7% | ||
| Other Europe | (3.0)% | (3.3)% | (2.9)% | (2.1)% |
1. For the definition of identical and comparable sales see section "Other information" – "Use of non-GAAP financial measures."
| Q2 2013 | Q2 2012 (restated)2 |
% change |
HY 2013 | HY 2012 (restated)2 |
% change |
|
|---|---|---|---|---|---|---|
| \$ million | ||||||
| Ahold USA | 256 | 267 | (4.1)% | 584 | 595 | (1.8)% |
| Average U.S. dollar exchange rate (euro per U.S. dollar) |
0.7659 | 0.7893 | (3.0)% | 0.7624 | 0.7738 | (1.5)% |
| € million | ||||||
| Ahold USA | 199 | 210 | (5.2)% | 446 | 460 | (3.0)% |
| The Netherlands | 148 | 131 | 13.0% | 334 | 317 | 5.4% |
| Other Europe | 3 | 4 | (25.0)% | 8 | 8 | - |
| Corporate Center | (12) | (20) | 40.0% | (34) | (44) | 22.7% |
| Ahold Group | 338 | 325 | 4.0% | 754 | 741 | 1.8% |
1. For the definition of underlying operating income see section "Other information" – "Use of non-GAAP financial measures."
2. See Note 2 for a further explanation of the restatements.
Underlying operating margin is defined as underlying operating income as a percentage of net sales.
| Q2 2013 | Q2 2012 (restated)1 |
HY 2013 | HY 2012 (restated)1 |
|
|---|---|---|---|---|
| Ahold USA | 4.2% | 4.4% | 4.1% | 4.3% |
| The Netherlands | 5.5% | 5.1% | 5.4% | 5.4% |
| Other Europe | 0.8% | 1.0% | 0.9% | 0.9% |
| Ahold Group | 4.4% | 4.2% | 4.2% | 4.3% |
| End of 2012 |
Opened / acquired |
Closed / sold |
End of Q2 2013 |
End of Q2 2012 |
|
|---|---|---|---|---|---|
| Ahold USA | 772 | 6 | (3) | 775 | 765 |
| The Netherlands1 | 1,996 | 30 | (4) | 2,022 | 1,951 |
| Other Europe | 306 | - | - | 306 | 307 |
| Ahold Group | 3,074 | 36 | (7) | 3,103 | 3,023 |
1. The number of stores at the end of Q2 2013 includes 1,115 specialty stores (Etos and Gall & Gall) (Q2 2012: 1,089).
| (€ million) | Q2 2013 | Q2 2012 (restated)2 |
% change |
HY 2013 | HY 2012 (restated)2 |
% change |
|---|---|---|---|---|---|---|
| Ahold USA | 319 | 333 | (4.2)% | 662 | 741 | (10.7)% |
| The Netherlands | 202 | 184 | 9.8% | 462 | 437 | 5.7% |
| Other Europe | 9 | 14 | (35.7)% | 26 | 33 | (21.2)% |
| Corporate Center | (10) | (17) | 41.2% | (29) | (39) | 25.6% |
| EBITDA by segment | 520 | 514 | 1.2% | 1,121 | 1,172 | (4.4)% |
| Share in income (loss) of joint ventures |
2 | (6) | 133.3% | 4 | (3) | 233.3% |
| Income from discontinued | ||||||
| operations | 7 | 31 | (77.4)% | 1,750 | 59 | n/m |
| Total EBITDA | 529 | 539 | (1.9)% | 2,875 | 1,228 | 134.1% |
1. For the definition of EBITDA see section "Other information" – "Use of non-GAAP financial measures."
2. See Note 2 for a further explanation of the restatements.
| (€ million) | Q2 2013 | Q2 2012 (restated)2 |
HY 2013 | HY 2012 (restated)2 |
|---|---|---|---|---|
| Operating cash flows from continuing operations | 455 | 492 | 943 | 1,052 |
| Purchase of non-current assets | (156) | (184) | (419) | (411) |
| Divestments of assets/disposal groups held for sale | 34 | 24 | 38 | 34 |
| Dividends from joint ventures2 | 2 | 2 | 3 | 6 |
| Interest received | 1 | 2 | 3 | 6 |
| Interest paid | (82) | (84) | (132) | (144) |
| Free cash flow | 254 | 252 | 436 | 543 |
1. For the definition of free cash flow see section "Other information" – "Use of non-GAAP financial measures."
| July 14, | April 21, | December 30, | |
|---|---|---|---|
| (€ million) | 2013 | 2013 | 2012 |
| Loans | 1,371 | 1,377 | 1,431 |
| Finance lease liabilities | 1,141 | 1,179 | 1,179 |
| Cumulative preferred financing shares | 497 | 497 | 497 |
| Non-current portion of long-term debt | 3,009 | 3,053 | 3,107 |
| Short-term borrowings and current portion of long-term debt | 146 | 147 | 139 |
| Gross debt | 3,155 | 3,200 | 3,246 |
| Less: Cash, cash equivalents, and short-term deposits and similar instruments1 |
3,968 | 4,407 | 1,886 |
| Net debt | (813) | (1,207) | 1,360 |
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 €122 million, €117 million and €170 million as of July 14, 2013, April 21, 2013, and December 30, 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. As a result of the sale of ICA, sale and purchase transactions with ICA are no longer treated as related party transactions. There have been no other significant changes in the related party transactions from those described in our 2012 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 2012 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 2012 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 21, 2013
Dick Boer (CEO) Jeff Carr (CFO) Lodewijk Hijmans van den Bergh James McCann
| Q2 2013 | Q2 2012 | HY 2013 | HY 2012 | ||
|---|---|---|---|---|---|
| (€ million, except per share data) | Note | (restated)1 | (restated)1 | ||
| Net sales | 4 | 7,769 | 7,692 | 17,886 | 17,408 |
| Cost of sales | 5 | (5,697) | (5,673) | (13,115) | (12,817) |
| Gross profit | 2,072 | 2,019 | 4,771 | 4,591 | |
| Selling expenses | (1,490) | (1,455) | (3,449) | (3,326) | |
| General and administrative expenses | (257) | (240) | (652) | (528) | |
| Total operating expenses | 5 | (1,747) | (1,695) | (4,101) | (3,854) |
| Operating income | 4 | 325 | 324 | 670 | 737 |
| Interest income | 2 | 5 | 4 | 8 | |
| Interest expense | (54) | (54) | (124) | (128) | |
| Interest income (expense) on defined benefit pension plans | (5) | 4 | (13) | 10 | |
| Other financial expense | (12) | (5) | (31) | (5) | |
| Net financial expense | (69) | (50) | (164) | (115) | |
| Income before income taxes | 256 | 274 | 506 | 622 | |
| Income taxes | 6 | (59) | (50) | (103) | (144) |
| Share in income (loss) of joint ventures | 7 | 2 | (6) | 4 | (3) |
| Income from continuing operations | 199 | 218 | 407 | 475 | |
| Income from discontinued operations | 7 | 31 | 1,750 | 59 | |
| 8 | |||||
| Net income attributable to common shareholders | 206 | 249 | 2,157 | 534 | |
| Net income per share attributable to common shareholders | |||||
| Basic | 0.20 | 0.24 | 2.08 | 0.51 | |
| Diluted | 0.19 | 0.23 | 1.99 | 0.50 | |
| Income from continuing operations per share attributable to | |||||
| common shareholders | |||||
| Basic | 0.19 | 0.21 | 0.39 | 0.46 | |
| Diluted | 0.19 | 0.20 | 0.39 | 0.44 | |
| Weighted average number of common shares outstanding | |||||
| (in millions) | |||||
| Basic | 1,031 | 1,038 | 1,036 | 1,042 | |
| Diluted | 1,083 | 1,099 | 1,088 | 1,105 | |
| Average U.S. dollar exchange rate (euro per U.S. dollar) | 0.7659 | 0.7893 | 0.7624 | 0.7738 |
| Q2 2013 | Q2 2012 | HY 2013 | HY 2012 | ||
|---|---|---|---|---|---|
| (€ million) | Note | (restated)1 | (restated)1 | ||
| Net income | 206 | 249 | 2,157 | 534 | |
| Remeasurements of defined benefit pension plans | |||||
| Remeasurements before taxes | 10 | (125) | (609) | 195 | (682) |
| Income taxes | 20 | 166 | (68) | 191 | |
| Other comprehensive income (loss) that will not be | |||||
| reclassified to profit or loss | (105) | (443) | 127 | (491) | |
| Currency translation differences in foreign interests: | |||||
| Currency translation differences before taxes | (3) | 247 | 59 | 195 | |
| Cumulative translation differences from divestments | |||||
| transferred to net income | 8 | (2) | - | (82) | - |
| Income taxes | - | - | - | - | |
| Cash flow hedges: | |||||
| Fair value gains (losses) in the year | 16 | 18 | (29) | (19) | |
| Transfers to net income | - | (33) | 41 | (7) | |
| Income taxes | (4) | 4 | (3) | 7 | |
| Other comprehensive income (loss) of joint ventures - net of | |||||
| income taxes | |||||
| Share of other comprehensive income (loss) | 1 | (2) | - | (1) | |
| Other comprehensive loss transferred to net income | 8 | - | - | 9 | - |
| Other comprehensive income (loss) that may be reclassified | |||||
| to profit or loss | 8 | 234 | (5) | 175 | |
| Total other comprehensive income (loss) | (97) | (209) | 122 | (316) | |
| Total comprehensive income attributable to common | |||||
| shareholders | 109 | 40 | 2,279 | 218 |
| July 14, | December 30, | ||
|---|---|---|---|
| 2013 | 2012 | ||
| (€ million) | Note | (restated)1 | |
| Assets | |||
| Property, plant and equipment | 5,985 | 6,038 | |
| Investment property | 548 | 565 | |
| Intangible assets | 1,578 | 1,569 | |
| Investments in joint ventures | 216 | 1,017 | |
| Other non-current financial assets | 402 | 420 | |
| Deferred tax assets | 461 | 512 | |
| Other non-current assets | 36 | 35 | |
| Total non-current assets | 9,226 | 10,156 | |
| Assets held for sale | 4 | - | |
| Inventories | 1,466 | 1,492 | |
| Receivables | 720 | 793 | |
| Other current financial assets | 195 | 43 | |
| Income taxes receivable | 50 | 47 | |
| Other current assets | 177 | 155 | |
| Cash and cash equivalents | 11 | 3,823 | 1,886 |
| Total current assets | 6,435 | 4,416 | |
| Total assets | 15,661 | 14,572 | |
| Equity and liabilities | |||
| Equity attributable to common shareholders | 9 | 6,753 | 5,146 |
| Loans | 1,371 | 1,431 | |
| Other non-current financial liabilities | 1,992 | 1,930 | |
| Pensions and other post-employment benefits | 409 | 643 | |
| Deferred tax liabilities | 108 | 98 | |
| Provisions | 633 | 646 | |
| Other non-current liabilities | 247 | 251 | |
| Total non-current liabilities | 4,760 | 4,999 | |
| Accounts payable | 2,476 | 2,667 | |
| Other current financial liabilities | 229 | 236 | |
| Income taxes payable | 140 | 134 | |
| Provisions | 159 | 256 | |
| Other current liabilities | 1,144 | 1,134 | |
| Total current liabilities | 4,148 | 4,427 | |
| Total equity and liabilities | 15,661 | 14,572 | |
| Quarter-end U.S. dollar exchange rate (euro per U.S. dollar) | 0.7652 | 0.7566 |
| Other | ||||||
|---|---|---|---|---|---|---|
| Cash | reserves | Equity | ||||
| Additional | Currency | flow | including | attributable | ||
| Share | paid-in | translation | hedging | accumulated | to common | |
| (€ million) | capital | capital | reserve | reserve | deficit1 | shareholders |
| Balance as of January 1, 2012 | 330 | 9,094 | (265) | (93) | (3,189) | 5,877 |
| Adjustments2 | - | - | - | - | (67) | (67) |
| As restated | 330 | 9,094 | (265) | (93) | (3,256) | 5,810 |
| Dividends | - | - | - | - | (415) | (415) |
| Net income (restated)2 | - | - | - | - | 534 | 534 |
| Other comprehensive income (restated)2 | - | - | 195 | (19) | (492) | (316) |
| Share buyback | - | - | - | - | (277) | (277) |
| Retirement of treasury shares | (12) | (381) | - | - | 393 | - |
| Share-based payments | - | - | - | - | 25 | 25 |
| Balance as of July 15, 20122 | 318 | 8,713 | (70) | (112) | (3,488) | 5,361 |
| Balance as of December 30, 2012 | ||||||
| (restated)2 | 318 | 8,713 | (292) | (126) | (3,467) | 5,146 |
| Dividends | - | - | - | - | (457) | (457) |
| Net income | - | - | - | - | 2,157 | 2,157 |
| Other comprehensive income | - | - | (23) | 9 | 136 | 122 |
| Share buyback | - | - | - | - | (247) | (247) |
| Share-based payments | - | - | - | - | 32 | 32 |
| Balance as of July 14, 2013 | 318 | 8,713 | (315) | (117) | (1,846) | 6,753 |
1. Other reserves include the remeasurements of defined benefit pension plans.
| Q2 2013 | Q2 2012 | HY 2013 | HY 2012 | ||
|---|---|---|---|---|---|
| (€ million) | Note | (restated)1 | (restated)1 | ||
| Operating income | 325 | 324 | 670 | 737 | |
| Adjustments for: | |||||
| Depreciation, amortization and impairments | 5 | 229 | 194 | 503 | 446 |
| Gains on the sale of assets / disposal groups held for sale | 5 | (20) | (12) | (21) | (16) |
| Share-based compensation expenses | 10 | 9 | 21 | 21 | |
| Operating cash flows before changes in operating assets and | |||||
| liabilities | 544 | 515 | 1,173 | 1,188 | |
| Changes in working capital: | |||||
| Changes in inventories | 11 | 31 | 33 | 38 | |
| Changes in receivables and other current assets | 3 | 16 | 59 | 60 | |
| Changes in payables and other current liabilities | 22 | (8) | (164) | (129) | |
| Changes in other non-current assets, other non-current | |||||
| liabilities and provisions | (60) | (15) | (53) | (13) | |
| Cash generated from operations | 520 | 539 | 1,048 | 1,144 | |
| Income taxes paid - net | (65) | (47) | (105) | (92) | |
| Operating cash flows from continuing operations | 455 | 492 | 943 | 1,052 | |
| Operating cash flows from discontinued operations | (2) | (1) | (5) | (3) | |
| Net cash from operating activities | 453 | 491 | 938 | 1,049 | |
| Purchase of non-current assets | (156) | (184) | (419) | (411) | |
| Divestments of assets / disposal groups held for sale | 34 | 24 | 38 | 34 | |
| Acquisition of businesses, net of cash acquired | 3 | (6) | (419) | (3) | (434) |
| Divestment of businesses, net of cash divested | 8 | (11) | (41) | 2,361 | (44) |
| Changes in short-term deposits and similar instruments | 92 | 38 | (145) | 116 | |
| Dividends from joint ventures | 2 | 2 | 3 | 6 | |
| Interest received | 1 | 2 | 3 | 6 | |
| Other | (1) | (2) | (1) | - | |
| Investing cash flows from continuing operations | (45) | (580) | 1,837 | (727) | |
| Investing cash flows from discontinued operations | 8 | (6) | 136 | 136 | 136 |
| Net cash from investing activities | (51) | (444) | 1,973 | (591) | |
| Interest paid | (82) | (84) | (132) | (144) | |
| Repayments of loans | (3) | (36) | (14) | (452) | |
| Repayments of finance lease liabilities | (17) | (15) | (39) | (35) | |
| Change in short-term loans | - | (30) | 3 | 4 | |
| Dividends paid on common shares | 9 | (457) | (415) | (457) | (415) |
| Share buyback | 9 | (186) | - | (247) | (277) |
| Change in derivatives | (1) | - | (9) | 122 | |
| Other | 11 | (1) | - | (87) | 3 |
| Financing cash flows from continuing operations | (747) | (580) | (982) | (1,194) | |
| Financing cash flows from discontinued operations | (1) | (1) | (2) | (2) | |
| Net cash from financing activities | (748) | (581) | (984) | (1,196) | |
| Net cash from operating, investing and financing activities | 11 | (346) | (534) | 1,927 | (738) |
| Average U.S. dollar exchange rate (euro per U.S. dollar) | 0.7659 | 0.7893 | 0.7624 | 0.7738 |
1. See Note 2 for a further explanation of the restatements.
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 11.
The principal activity of Koninklijke Ahold N.V. ("Ahold" or the "Company"), a public limited liability company with its registered seat and head office in Zaandam, 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 2012 consolidated financial statements, except for the new standards and amendments to existing standards effective for 2013, as described below.
Ahold's reporting calendar is based on 13 periods of four weeks, with 2013 and 2012 each comprising 52 weeks. The second quarters of 2013 and 2012 are each comprised of 12 weeks. The financial year of Ahold's unconsolidated joint venture JMR - Gestão de Empresas de Retalho, SGPS. S.A. ("JMR") corresponds to the calendar year. Any significant transactions and / or events between JMR's quarter-end and Ahold's quarter-end are taken into account in the preparation of Ahold's financial statements.
In Q1 2013, Ahold changed the presentation of the income statement to a framework that provides a better alignment between expense categories and functions. The change resulted in certain reclassifications within the 2012 income statement. In the Q2 2012 income statement, this change decreased cost of sales by €31 million (HY 2012: €72 million) and increased selling expenses and general and administrative expenses by €18 million (HY 2012: €45 million) and €13 million (HY 2012: €27 million), respectively. Furthermore, the comparative 2012 expenses by nature figures have been changed to conform to the current year presentation.
In Q1 2013, Ahold's investment in ICA met the criteria to be classified as a discontinued operation and, accordingly, in Q2 €28 million (HY 2012: €57 million) that was previously reported in Q2 2012 as share of income from joint ventures has been reclassified to income from discontinued operations.
The tables at the end of this note outline the effects on Ahold's comparative 2012 amounts.
The amendment to IAS 1, "Presentation of Financial Statements," as part of the "Annual Improvements to IFRSs 2009-2011 Cycle," became effective in 2013. These amendments require Ahold to group items of other comprehensive income on the basis of whether or not they are potentially able to be subsequently reclassified to profit or loss (reclassification adjustments). The presentation of Ahold's consolidated statement of comprehensive income has been adjusted to comply with these amendments; however the amendments have no effect on Ahold's financial position or performance.
IAS 19, "Employee Benefits," (as revised June 2011) became effective for the Company as of January 1, 2013. Ahold has applied the revised standard retrospectively and in accordance with the transitional provisions as set out in IAS 19.173 (as revised). These transitional provisions do not have an effect on future periods.
The amendments to IAS 19 change the accounting for defined benefit plans and termination benefits.
The most significant changes relate to the accounting for changes in defined benefit obligations and plan assets. The amendments require the recognition of changes in defined benefit obligations and in fair value of plan assets as they occur, hence eliminating the "corridor approach" permitted under the previous version of IAS 19, and accelerate the recognition of past service costs. All actuarial gains and losses are recognized immediately through other comprehensive income in order for the net pension asset or liability recognized in the consolidated balance sheet to reflect the full value of the plan deficit or surplus. Furthermore, the interest cost and expected return on plan assets used in the previous version of IAS 19 have been replaced with a "net-interest" amount, which is calculated by applying the discount rate to the net defined liability or asset. IAS 19 (as revised) introduces certain changes in the presentation of the defined benefit cost including more extensive disclosures. In addition to the IAS 19 amendments, Ahold has changed its presentation of the net-interest amount to be within net financial expenses, instead of the previous presentation within operating expenses. The effect of these changes is presented below.
IFRS 13, "Fair value measurement," became effective for the Company as of January 1, 2013. It is applied prospectively. IFRS 13 aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across all IFRSs. The requirements do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within the IFRSs. Upon the adoption of the standard, there has been no change in how the Company measures fair value. As a result, the adoption of IFRS 13 does not have a significant effect on Ahold's financial position or performance. For more information about financial instruments and fair value measurements, see Note 12.
In addition, the following new and amended IASB pronouncements have been adopted by Ahold. The initial application of these pronouncements has been assessed and they do not have any significant effect on Ahold's financial position or performance.
| Q2 2012 | Changes in | IAS 19 | Q2 2012 | |
|---|---|---|---|---|
| (€ million, except per share data) | as reported | presentation | restatement | as restated |
| Consolidated income statement line items | ||||
| Net sales | 7,692 | - | - | 7,692 |
| Cost of sales | (5,704) | 31 | - | (5,673) |
| Gross profit | 1,988 | 31 | - | 2,019 |
| Selling expenses | (1,433) | (18) | (4) | (1,455) |
| General and administrative expenses | (229) | (13) | 2 | (240) |
| Operating Income | 326 | - | (2) | 324 |
| Interest income | 5 | - | - | 5 |
| Interest expense | (54) | - | - | (54) |
| Interest income (expense) on defined benefit pension | ||||
| plans - net | - | - | 4 | 4 |
| Other financial income (expense) | (5) | - | - | (5) |
| Income before income taxes | 272 | - | 2 | 274 |
| Income taxes | (50) | - | - | (50) |
| Share in income (loss) of joint ventures | 22 | (28) | - | (6) |
| Income from continuing operations | 244 | (28) | 2 | 218 |
| Income from discontinued operations | 4 | 28 | (1) | 31 |
| Net income attributable to common shareholders | 248 | - | 1 | 249 |
| Net income per share attributable to common shareholders | ||||
| Basic | 0.24 | - | - | 0.24 |
| Diluted | 0.23 | - | - | 0.23 |
| Income from continuing operations per share attributable | ||||
| to common shareholders | ||||
| Basic | 0.24 | (0.03) | - | 0.21 |
| Diluted | 0.23 | (0.03) | - | 0.20 |
Summary financial statements
| HY 2012 | Changes in | IAS 19 | HY 2012 | |
|---|---|---|---|---|
| (€ million, except per share data) | as reported | presentation | restatement | as restated |
| Consolidated income statement line items | ||||
| Net sales | 17,408 | - | - | 17,408 |
| Cost of sales | (12,889) | 72 | - | (12,817) |
| Gross profit | 4,519 | 72 | - | 4,591 |
| Selling expenses | (3,272) | (45) | (9) | (3,326) |
| General and administrative expenses | (505) | (27) | 4 | (528) |
| Operating Income | 742 | - | (5) | 737 |
| Interest income | 8 | - | - | 8 |
| Interest expense | (128) | - | - | (128) |
| Interest income (expense) on defined benefit pension | ||||
| plans - net | - | - | 10 | 10 |
| Other financial income (expense) | (5) | - | - | (5) |
| Income before income taxes | 617 | - | 5 | 622 |
| Income taxes | (143) | - | (1) | (144) |
| Share in income (loss) of joint ventures | 54 | (57) | - | (3) |
| Income from continuing operations | 528 | (57) | 4 | 475 |
| Income from discontinued operations | 2 | 57 | - | 59 |
| Net income attributable to common shareholders | 530 | - | 4 | 534 |
| Net income per share attributable to common shareholders | ||||
| Basic | 0.51 | - | - | 0.51 |
| Diluted | 0.49 | - | 0.01 | 0.50 |
| Income from continuing operations per share attributable | ||||
| to common shareholders | ||||
| Basic | 0.51 | (0.05) | - | 0.46 |
| Diluted | 0.49 | (0.05) | - | 0.44 |
| Q2 2012 | Changes in | IAS 19 | Q2 2012 | |
|---|---|---|---|---|
| (€ million) | as reported | presentation | restatement | as restated |
| Consolidated statement of comprehensive income line items | ||||
| Net income | 248 | - | 1 | 249 |
| Remeasurement defined benefit pension plans before tax | - | - | (609) | (609) |
| Income taxes | - | - | 166 | 166 |
| Other comprehensive income (loss) that will not be | ||||
| reclassified to profit or loss | - | - | (443) | (443) |
| Other comprehensive income that may be reclassified to | ||||
| profit or loss | 254 | - | (20) | 234 |
| Total other comprehensive income (loss) | 254 | - | (463) | (209) |
| Total comprehensive income attributable to common | ||||
| shareholders | 502 | - | (462) | 40 |
Summary financial statements
| HY 2012 | Changes in | IAS 19 | HY 2012 | |
|---|---|---|---|---|
| (€ million) | as reported | presentation | Restatement | as restated |
| Consolidated statement of comprehensive income line items | ||||
| Net income | 530 | - | 4 | 534 |
| Remeasurement defined benefit pension plans before tax | - | - | (682) | (682) |
| Income taxes | - | - | 191 | 191 |
| Other comprehensive income (loss) that will not be | ||||
| reclassified to profit or loss | - | - | (491) | (491) |
| Other comprehensive income that may be reclassified to | ||||
| profit or loss | 190 | - | (15) | 175 |
| Total other comprehensive income (loss) | 190 | - | (506) | (316) |
| Total comprehensive income attributable to common | ||||
| shareholders | 720 | - | (502) | 218 |
| (€ million) | December 30, 2012 as reported |
Changes in presentation |
IAS 19 restatement |
December 30, 2012 as restated |
|---|---|---|---|---|
| Consolidated balance sheet line items | ||||
| Investments in joint ventures | 1,047 | - | (30) | 1,017 |
| Other non-current financial assets | 1,059 | - | (639) | 420 |
| Deferred tax assets | 353 | - | 159 | 512 |
| Pensions and other post-employment benefits | (110) | - | (533) | (643) |
| Deferred tax liabilities | (292) | - | 194 | (98) |
| Equity attributable to common shareholders | (5,995) | - | 849 | (5,146) |
| (€ million) | July 15, 2012 as reported |
Changes in presentation |
IAS 19 restatement |
July 15, 2012 as restated |
|---|---|---|---|---|
| Consolidated statement of changes in equity | ||||
| Share capital | 318 | - | - | 318 |
| Additional paid-in capital | 8,713 | - | - | 8,713 |
| Currency translation reserve | (56) | - | (14) | (70) |
| Cash flow hedging reserve | (112) | - | - | (112) |
| Other reserves including accumulated deficit | (2,933) | - | (555) | (3,488) |
| Equity attributable to common shareholders | 5,930 | - | (569) | 5,361 |
| (€ million) | December 30, 2012 as reported |
Changes in presentation |
IAS 19 Restatement |
December 30, 2012 as restated |
|---|---|---|---|---|
| Consolidated statement of changes in equity | ||||
| Share capital | 318 | - | - | 318 |
| Additional paid-in capital | 8,713 | - | - | 8,713 |
| Currency translation reserve1 | (298) | - | 6 | (292) |
| Cash flow hedging reserve | (126) | - | - | (126) |
| Other reserves including accumulated deficit1 | (2,612) | - | (855) | (3,467) |
| Equity attributable to common shareholders | 5,995 | - | (849) | 5,146 |
1. The IAS 19 restatement amounts include a further offsetting €3 million refinement from the amounts presented in Q1 2013.
| Q2 2012 | Changes in | IAS 19 | Q2 2012 | |
|---|---|---|---|---|
| (€ million) | as reported | presentation | restatement | as restated |
| Consolidated statement of cash flows line items | ||||
| Operating income | 326 | - | (2) | 324 |
| Changes in non-current assets, other non-current liabilities | ||||
| and provisions | (17) | - | 2 | (15) |
| Dividends from joint ventures | 138 | (136) | - | 2 |
| Investing cash flows from discontinued operations | - | 136 | - | 136 |
| (€ million) | HY 2012 as reported |
Changes in presentation |
IAS 19 restatement |
HY 2012 as restated |
|---|---|---|---|---|
| Consolidated statement of cash flows line items | ||||
| Operating income | 742 | - | (5) | 737 |
| Changes in non-current assets, other non-current liabilities | ||||
| and provisions | (18) | - | 5 | (13) |
| Dividends from joint ventures | 142 | (136) | - | 6 |
| Investing cash flows from discontinued operations | - | 136 | - | 136 |
On August 14, 2012, Ahold announced that its Albert Heijn division had completed the acquisition of 78 C1000 and 4 Jumbo stores from Jumbo for €290 million in cash, with €260 million paid to date (HY 2013: credit €5 million and 2012: €265 million) and the remaining to be settled as agreements are reached with the franchisees. During the second quarter of this year, four of the stores were converted to the Albert Heijn banner (22 stores converted in total). The remaining 60 franchiseeowned stores will be converted to the Albert Heijn banner over a period of time, in close cooperation with the entrepreneurs. Goodwill recognized in the amount of €78 million to date (HY 2013: €25 million and 2012: €53 million), which will not be deductible for tax purposes, represents expected synergies from the combination of operations, as well as the ability to expand Ahold's geographic reach.
The 22 individual stores that were converted to the Albert Heijn banner have contributed €33 million to Q2 2013 net sales (HY 2013: €64 million) and an insignificant amount to net income.
Albert Heijn acquired two stores from franchisees for €8 million, of which €4 million was recognized as additional goodwill and €4 million as property, plant and equipment.
The allocation of the fair value of the net assets acquired and the goodwill arising from the acquisitions during 2013 is as follows:
| (€ million) | Jumbo | Other | Total |
|---|---|---|---|
| Property plant & equipment | - | 4 | 4 |
| Goodwill | 25 | 4 | 29 |
| Reversal of other intangible assets | (30) | - | (30) |
| Acquisition of business, net of cash | (5) | 8 | 3 |
A reconciliation of Ahold's goodwill balance, which is presented within intangible assets, is as follows:
| € million | |
|---|---|
| As of December 30, 2012 | |
| At cost | 772 |
| Accumulated impairment losses | (3) |
| Opening carrying amount | 769 |
| Business acquisitions | 29 |
| Exchange rate differences | 3 |
| Closing carrying amount | 801 |
| As of July 14, 2013 | |
| At cost | 804 |
| Accumulated impairment losses | (3) |
| Carrying amount | 801 |
Ahold's retail operations are presented in three reportable segments. In addition, Other retail, consisting of Ahold's unconsolidated joint venture 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, Albert Heijn Germany, 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 venture JMR (49%) |
| Corporate Center | Corporate Center staff (the Netherlands, Switzerland and the United States) |
Net sales per segment are as follows:
| % | % | |||||
|---|---|---|---|---|---|---|
| Q2 2013 | Q2 2012 | change | HY 2013 | HY 2012 | change | |
| \$ million | ||||||
| Ahold USA | 6,135 | 6,012 | 2.0% | 14,203 | 13,815 | 2.8% |
| Average U.S. dollar exchange rate | 0.7659 | 0.7893 | (3.0)% | 0.7624 | 0.7738 | (1.5)% |
| (euro per U.S. dollar) | ||||||
| € million | ||||||
| Ahold USA | 4,699 | 4,747 | (1.0)% | 10,828 | 10,693 | 1.3% |
| The Netherlands | 2,703 | 2,560 | 5.6% | 6,209 | 5,822 | 6.6% |
| Other Europe | 367 | 385 | (4.7)% | 849 | 893 | (4.9)% |
| Ahold Group | 7,769 | 7,692 | 1.0% | 17,886 | 17,408 | 2.7% |
The net sales of Ahold's unconsolidated joint venture JMR amounted to €853 million and €830 million for Q2 2013 and Q2 2012, respectively (HY 2013: €1,631 million and HY 2012: €1,570 million).
Operating income (loss) per segment is as follows:
| Q2 2013 | Q2 2012 (restated)1 |
% change |
HY 2013 | HY 2012 (restated)1 |
% change |
|
|---|---|---|---|---|---|---|
| \$ million | ||||||
| Ahold USA | 246 | 263 | (6.5)% | 477 | 582 | (18.0)% |
| Average U.S. dollar exchange rate (euro per U.S. dollar) |
0.7659 | 0.7893 | (3.0)% | 0.7624 | 0.7738 | (1.5)% |
| € million | ||||||
| Ahold USA | 190 | 207 | (8.2)% | 363 | 450 | (19.3)% |
| The Netherlands | 144 | 132 | 9.1% | 331 | 320 | 3.4% |
| Other Europe | 1 | 3 | (66.7)% | 6 | 7 | (14.3)% |
| Corporate Center | (10) | (18) | 44.4% | (30) | (40) | 25.0% |
| Ahold Group | 325 | 324 | 0.3% | 670 | 737 | (9.1)% |
1. See Note 2 for a further explanation of the restatements.
Q2 2013 operating income included \$37 million (€29 million) of impairment charges (HY 2013: \$61 million (€47 million)) and \$27 million (€20 million) of gain on sale of asset (HY 2013: \$27 million (€20 million)). Further, HY 2013 included \$9 million (€7 million) gains on the final settlement of the Frozen Plan and a multi-employer pension withdrawal liability in the amount of \$82 million (€63 million) (see Note 10).
Operating income in Q2 2012 included \$4 million (€3 million) of impairments (HY 2012: \$14 million (€10 million)), \$2 million (€2 million) of 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)).
Q2 2013 operating income included €3 million of impairment charges (HY 2013: €3 million) and €1 million of losses on the sale of assets (HY 2013: nil).
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 2013 operating income included €2 million of impairment charges (HY 2013: €2 million).
Included in the Q2 2012 operating income were impairments of €1 million (HY 2012: €1 million).
Corporate Center costs for Q2 2013 were down €8 million compared to the same period last year (HY 2013: down €10 million). Excluding the effect of the Company's insurance activities, Corporate Center costs were €19 million, €3 million higher than last year (HY 2013: €40 million, €1 million higher than last year). Q2 2013 Corporate Center costs included €1 million of gains on the sale of assets (HY 2013: €1 million) and a €1 million gain from the release of a restructuring-related
provision (HY 2013: €1 million). Further, the HY 2013 Corporate Center costs included \$3 million (€2 million) of gains on the final settlement of the Frozen Plan (see Note 10).
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:
| € million | Q2 2013 | Q2 2012 (restated)1 |
HY 2013 | HY 2012 (restated)1 |
|---|---|---|---|---|
| Cost of product | 5,459 | 5,445 | 12,562 | 12,301 |
| Labor costs | 1,112 | 1,071 | 2,623 | 2,438 |
| Other operational expenses | 545 | 550 | 1,268 | 1,225 |
| Depreciation and amortization | 195 | 190 | 451 | 435 |
| Rent expenses and income - net | 119 | 120 | 281 | 277 |
| Impairment losses and reversals - net | 34 | 4 | 52 | 11 |
| Gains on the sale of assets - net | (20) | (12) | (21) | (16) |
| Total | 7,444 | 7,368 | 17,216 | 16,671 |
1. The comparative 2012 expenses by nature figures have been changed to conform to the current year presentation. See Note 2 for a further explanation of the restatements.
Income taxes for 2013 include €12 million of one-time tax benefits recognized in Q1, mainly arising from a ruling on an uncertain tax position. 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 2013 | Q2 2012 (restated)1 |
HY 2013 | HY 2012 (restated)1 |
|---|---|---|---|---|
| JMR | 1 | (8) | 3 | (6) |
| Other | 1 | 2 | 1 | 3 |
| Total | 2 | (6) | 4 | (3) |
1. See Note 2 for a further explanation of the restatements.
Income from discontinued operations is specified as follows:
| Q2 2013 | Q2 2012 | HY 2013 | HY 2012 | |
|---|---|---|---|---|
| € million | (restated)1 | (restated)1 | ||
| ICA | - | 27 | 137 | 57 |
| Operating results from discontinued operations | - | 27 | 137 | 57 |
| ICA | 3 | - | 1,614 | - |
| BI-LO and Bruno's | 4 | 3 | 3 | 3 |
| Other2 | - | 1 | (4) | (1) |
| Results on divestments of discontinued operations | 7 | 4 | 1,613 | 2 |
| Income from discontinued operations, net of income taxes | 7 | 31 | 1,750 | 59 |
1. See Note 2 for a further explanation of the restatements.
2. Includes adjustments to the result on various past divestments.
HY 2013 operating results from discontinued operations includes Ahold's proportionate share in the operating results of ICA for the month of January 2013 of a €2 million loss, as well as a dividend received from ICA of SEK 1.2 billion (€142 million). The expected cash flows from the receipt of the dividend were subject to a cash flow hedge and, consequently, Ahold recognized €139 million of dividend income (€142 million dividend receivable at the date of recognition less the effect of the cash flow hedge of €3 million).
On February 10, 2013, Ahold reached a sale agreement with Hakon Invest regarding its 60% holding in ICA for SEK 20 billion. The transaction was completed on March 27, 2013, and as a result Ahold recorded a gain of €1,614 million as a result on divestment of ICA as presented below:
| € million | |
|---|---|
| Proceeds net of cost to sell | 2,368 |
| Net assets divested | (828) |
| Results on divestment before recycling of currency exchange differences and other items | 1,540 |
| Currency exchange differences transferred from equity | 82 |
| Other items previously recognized in other comprehensive income | (9) |
| Results on divestments before income taxes | 1,613 |
| Income taxes | 1 |
| Result on divestment of ICA | 1,614 |
The cash flows from divestment of businesses as presented in the cash flow statement are as follows:
| € million | Q2 2013 | Q2 2012 | HY 2013 | HY 2012 |
|---|---|---|---|---|
| Proceeds from ICA | (9) | - | 2,368 | - |
| Net cash flows related to other past divestments | (2) | (41) | (7) | (44) |
| Divestment of businesses, net of cash divested | (11) | (41) | 2,361 | (44) |
On April 17, 2013, the General Meeting of Shareholders approved the dividend over 2012 of €0.44 per common share (€457 million in the aggregate). This dividend was included as a liability on the balance sheet as of April 21, 2013, and was paid on May 2, 2013.
On February 28, 2013, Ahold announced its decision to return €500 million to its shareholders by way of a share buyback program, to be completed over a 12-month period. Subsequently, on June 4, 2013, Ahold announced an extension to this program of an additional €1.5 billion, for a total share buyback of €2 billion, expected to be completed by the end of 2014. The total number of shares repurchased under this program over the period from March 11, 2013, through July 14, 2013, was 20,756,429 common shares (Q2 2013: 15,632,983). Shares were repurchased for a total amount of €247 million (Q2 2013: €186 million), at an average price of €11.88 per share.
The number of outstanding common shares as of July 14, 2013, was 1,022,341,045 (December 30, 2012: 1,038,507,411).
On September 14, 2012, Ahold received approval from the U.S. Internal Revenue Service to terminate the U.S. Frozen Plan. Plan participants had the opportunity to elect a lump sum or annuity
payment option if the present value of their benefit was in excess of \$5,000; all other participants were paid in lump sums. Lump sum settlements were made in mid-December, 2012, while the purchase of annuity contracts occurred in Q1 2013. The final settlement expense of the lump sum payments and an estimate of the settlement expense of the annuity contracts amounted to €121 million and were recognized in 2012. Upon the purchase of the annuity contracts in Q1 2013 a gain of €9 million (\$12 million) was recognized, representing an adjustment to the 2012 annuity estimate. Of this gain, €7 million (\$9 million) was recognized in Ahold USA and €2 million (\$3 million) in the Corporate Center.
During Q1 2013, Stop & Shop reached an agreement with the New England Teamsters and Trucking Industry Pension Fund (NETTI) to settle Stop & Shop's pension liabilities in the fund, an estimate of which was disclosed in Note 23 to Ahold's 2012 financial statements. This agreement follows NETTI's restructuring to create a new future benefit service "pool." Employers who participate in the new pool will be responsible only for the pension benefits of their own employees, without regard to any previous fund liabilities in the original pension pool. Under the settlement agreement, Stop & Shop will move its employees into the new pool going forward without any loss of benefits for its employees and will settle its liability and payment obligations in the original pension pool through the payment of \$100 million (€76 million), payable in two equal installments of \$50 million, one paid on June 22, 2013, and the second due by April 30, 2025. Accordingly, Stop & Shop has recorded a pretax liability in Q2 2013 for the discounted amount of the remaining settlement liability of \$33 million (€25 million). Stop & Shop's withdrawal from the original pension plan pool was effective as of March 31, 2013.
During the quarter, the Company's defined benefit plans were remeasured to their funded status with the effect being recognized in other comprehensive income. The remeasurement of the defined benefit obligation was based on the discount rate as of the end of the quarter; while the plan asset fair values were remeasured to the most recent valuations available at the end of the quarter.
The changes in cash and cash equivalent balances are as follows:
| HY | HY | |
|---|---|---|
| € million | 2013 | 2012 |
| Cash and cash equivalents at the beginning of the year | 1,886 | 2,438 |
| Restricted cash | (22) | (31) |
| Cash and cash equivalents beginning of the year, excluding restricted cash | 1,864 | 2,407 |
| Net cash from operating, investing and financing activities | 1,927 | (738) |
| Effect of exchange rate differences on cash and cash equivalents | 10 | 51 |
| Restricted cash | 22 | 31 |
| Cash and cash equivalents at the end of the quarter | 3,823 | 1,751 |
Included in Other financing cash flows is the €92 million (\$124 million) Q1 2013 settlement paid to Vornado. Refer to Note 34 of Ahold's 2012 Annual Report for more information on the litigation.
Fair values of financial instruments
The following table presents the fair values of financial instruments, based on Ahold's categories of financial instruments, including current portions, compared to the carrying amounts at which these instruments are included on the balance sheet:
Summary financial statements
| July 14, 2013 | December 30, 2012 | ||||
|---|---|---|---|---|---|
| Carrying | Fair | Carrying | Fair | ||
| € million | amount | value | amount | value | |
| Loan receivable | 38 | 49 | 38 | 54 | |
| Accounts receivable | 724 | 724 | 800 | 800 | |
| Reinsurance assets | 128 | 128 | 109 | 109 | |
| Total loans and receivables | 890 | 901 | 947 | 963 | |
| Cash and cash equivalents | 3,823 | 3,823 | 1,886 | 1,886 | |
| Short-term deposits and similar instruments | 145 | 145 | - | - | |
| Derivatives | 256 | 256 | 282 | 282 | |
| Available for sale | 4 | 4 | 4 | 4 | |
| Total financial assets | 5,118 | 5,129 | 3,119 | 3,135 | |
| Notes | (1,005) | (1,231) | (1,056) | (1,348) | |
| Other loans | (4) | (3) | (5) | (4) | |
| Financing obligations | (375) | (538) | (381) | (573) | |
| Mortgages payable | (10) | (12) | (11) | (12) | |
| Finance lease liabilities | (1,218) | (1,614) | (1,254) | (1,731) | |
| Cumulative preferred financing shares | (497) | (536) | (497) | (535) | |
| Dividend cumulative preferred financing shares | (13) | (13) | (24) | (24) | |
| Accounts payable | (2,476) | (2,476) | (2,667) | (2,667) | |
| Short-term borrowings | (46) | (46) | (42) | (42) | |
| Interest payable | (13) | (13) | (25) | (25) | |
| Reinsurance liabilities | (145) | (145) | (121) | (121) | |
| Other | (65) | (76) | (2) | (2) | |
| Total financial liabilities at amortized cost | (5,867) | (6,703) | (6,085) | (7,084) | |
| Derivatives | (201) | (201) | (177) | (177) | |
| Total financial liabilities | (6,068) | (6,904) | (6,262) | (7,261) |
Of Ahold's categories of financial instruments, only derivatives and assets available for sale are measured and recognized on the balance sheet at fair value. These fair value measurements are categorized within Level 2 of the fair value hierarchy. The Company uses inputs other than quoted prices that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices). The fair value of derivative instruments is measured by using either a market or income approach (mainly present value techniques). Foreign currency forward contracts are measured using quoted forward exchange rates and yield curves derived from quoted interest rates that match the maturity of the contracts. Interest rate swaps are measured at the present value of expected future cash flows. Expected future cash flows are discounted by using the applicable yield curves derived from quoted interest rates.
The carrying amount of receivables, cash and cash equivalents, accounts payable, short-term deposits held to maturity, and other current financial assets and liabilities approximate their fair values because of the short-term nature of these instruments and, for receivables, because of the fact that any recoverability loss is reflected in an impairment loss. The fair values of quoted borrowings are based on year-end ask-market quoted prices. The fair value of other non-derivative financial assets and liabilities that are not traded in an active market are estimated using discounted cash flow analyses based on market rates prevailing at quarter end. The fair value calculation method and the conditions for redemption and conversion of the cumulative preferred financing shares are disclosed in Note 22 of Ahold's 2012 Annual Report. The accrued interest is included in other current financial liabilities and not in the carrying amounts of non-derivative financial assets and liabilities.
An overview of commitments and contingencies as of December 30, 2012, is included in Note 34 of Ahold's 2012 consolidated financial statements, which were published as part of Ahold's 2012 Annual Report on March 6, 2013. There have been no significant changes to this overview through Q2 of 2013.
On August 6, 2013, Stop & Shop announced plans to close six stores and three gas stations in New Hampshire on or before September 21, 2013. During Q2, Ahold recognized \$26 million (€20 million) of impairments related to these stores. Expected closing costs to be recognized in Q3 2013 are not anticipated to exceed \$50 million (€38 million) and consist mainly of onerous contract provisions related to our lease obligations.
This summary report includes the following non-GAAP financial measures:
The reconciliation from the underlying operating income per segment to the operating income per segment is as follows for Q2 2013 and Q2 2012 and for the first half of 2013 and 2012, respectively:
| Underlying operating income |
Impairments | Gains (losses) on the sale of |
Restructuring and related charges |
Other | Operating income |
|
|---|---|---|---|---|---|---|
| (€ million) | Q2 2013 | assets | Q2 2013 | |||
| Ahold USA | 199 | (29) | 20 | - | - | 190 |
| The Netherlands | 148 | (3) | (1) | - | - | 144 |
| Other Europe | 3 | (2) | - | - | - | 1 |
| Corporate Center | (12) | - | 1 | 1 | - | (10) |
| Ahold Group | 338 | (34) | 20 | 1 | - | 325 |
| Underlying | Impairments | Gains on the | Restructuring | Other | Operating | |
|---|---|---|---|---|---|---|
| operating | sale of | and related | income | |||
| income | assets | charges | Q2 2012 | |||
| Q2 2012 | ||||||
| (€ million) | (restated)1 | (restated)1 | ||||
| Ahold USA | 210 | (3) | 2 | (2) | - | 207 |
| The Netherlands | 131 | - | 2 | (1) | - | 132 |
| Other Europe | 4 | (1) | - | - | - | 3 |
| Corporate Center | (20) | - | 8 | (6) | - | (18) |
| Ahold Group | 325 | (4) | 12 | (9) | - | 324 |
1. See Note 2 for a further explanation of the restatements.
| Underlying operating income |
Impairments | Gains on the sale of assets |
Restructuring and related charges |
Other | Operating income |
|
|---|---|---|---|---|---|---|
| (€ million) | HY 2013 | HY 2013 | ||||
| Ahold USA | 446 | (47) | 20 | - | (56) | 363 |
| The Netherlands | 334 | (3) | - | - | - | 331 |
| Other Europe | 8 | (2) | - | - | - | 6 |
| Corporate Center | (34) | - | 1 | 1 | 2 | (30) |
| Ahold Group | 754 | (52) | 21 | 1 | (54) | 670 |
The Other balance for Ahold USA of €56 million is the total of a multi-employer plan settlement charge in the amount of €63 million offset by gains on the settlement of annuity charges for the Frozen Plan of €7 million. These are further explained in Note 10.
| Underlying operating income HY 2012 |
Impairments | Gains on the sale of assets |
Restructuring and related charges |
Other | Operating income HY 2012 |
|
|---|---|---|---|---|---|---|
| (€ million) | (restated)1 | (restated)1 | ||||
| Ahold USA | 460 | (10) | 2 | (2) | - | 450 |
| The Netherlands | 317 | - | 4 | (1) | - | 320 |
| Other Europe | 8 | (1) | - | - | - | 7 |
| Corporate Center | (44) | - | 10 | (6) | - | (40) |
| Ahold Group | 741 | (11) | 16 | (9) | - | 737 |
The reconciliation from EBITDA per segment to operating income per segment is as follows for Q2 2013 and Q2 2012 and for the first half of 2013 and 2012, respectively:
| EBITDA | Depreciation and |
Operating income |
EBITDA | Depreciation and |
Operating income |
|
|---|---|---|---|---|---|---|
| (€ million) | Q2 2013 | amortization | Q2 2013 | Q2 2012 (restated)1 |
amortization | Q2 2012 (restated)1 |
| Ahold USA | 319 | (129) | 190 | 333 | (126) | 207 |
| The Netherlands | 202 | (58) | 144 | 184 | (52) | 132 |
| Other Europe | 9 | (8) | 1 | 14 | (11) | 3 |
| Corporate Center | (10) | - | (10) | (17) | (1) | (18) |
| Total | 520 | (195) | 325 | 514 | (190) | 324 |
1. See Note 2 for a further explanation of the restatements.
| EBITDA | Depreciation | Operating | EBITDA | Depreciation | Operating | |
|---|---|---|---|---|---|---|
| and | income | and | income | |||
| HY 2013 | amortization | HY 2013 | HY 2012 | amortization | HY 2012 | |
| (€ million) | (restated)1 | (restated)1 | ||||
| Ahold USA | 662 | (299) | 363 | 741 | (291) | 450 |
| The Netherlands | 462 | (131) | 331 | 437 | (117) | 320 |
| Other Europe | 26 | (20) | 6 | 33 | (26) | 7 |
| Corporate Center | (29) | (1) | (30) | (39) | (1) | (40) |
| Total | 1,121 | (451) | 670 | 1,172 | (435) | 737 |
1. See Note 2 for a further explanation of the restatements.
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 2013 financial year consists of 52 weeks and ends on December 29, 2013. The quarters in 2013 are:
First quarter (16 weeks) December 31, 2012 through April 21, 2013 Second quarter (12 weeks) April 22 through July 14, 2013 Third quarter (12 weeks) July 15 through October 6, 2013 Fourth quarter (12 weeks) October 7 through December 29, 2013
The interim report half year 2013 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 growth initiatives, focus of customers on value, volumes, Ahold's cost saving program, Reshaping Retail Strategy, new leadership structure, governance structure and decision-making process, Ahold's overall simplification of processes, its enterprise risk management program, expected costs in connection with the closing of Stop & Shop stores and gas stations in New Hampshire, United States, multi-employer pension plan settlement, conversion of C1000 and Jumbo stores and Stop & Shop's agreement with NETTI. 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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