Interim / Quarterly Report • Aug 22, 2014
Interim / Quarterly Report
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Zaandam, the Netherlands – Ahold today published its interim report for the second quarter and first half of 2014.
CEO Dick Boer said: "In a challenging competitive environment, we remain focused on executing our Reshaping Retail strategy and continue to make investments in our customer and value offering, making our stores a better place to shop.
"In the United States, the roll-out of our program to improve our customer proposition is progressing well, bringing better quality, service and value to our customers. By the end of this quarter, the program was active in 320 stores and will be rolled out to more than half of our stores by the end of this year. The accelerated roll out of the program together with our decision to absorb commodity price increases resulted in an investment in margin that was partly offset by cost savings from our Simplicity program.
"In Europe, as part of our Simplicity program, we implemented a reorganization of our head office support roles to improve efficiency. In addition, we streamlined Albert Heijn's commercial organization to enable a greater focus on improving quality and value for our customers and successfully introduced new products, especially in fresh.
"We expect that ongoing investments in our customer proposition and further development of our product range across multiple categories will result in improving sales trends."
| € million, except per share data | Q2 2014 | Q2 2013¹ | % change |
% change constant rates |
HY 2014 | HY 2013¹ | % change |
% change constant rates |
|---|---|---|---|---|---|---|---|---|
| Net sales | 7,420 | 7,738 | (4.1)% | (1.1)% | 17,241 | 17,812 | (3.2)% | (0.3)% |
| Underlying operating income | 288 | 341 | (15.5)% | (12.7)% | 680 | 759 | (10.4)% | (8.0)% |
| Underlying operating margin | 3.9% | 4.4% | 3.9% | 4.3% | ||||
| Operating income | 260 | 330 | (21.2)% | (18.8)% | 640 | 677 | (5.5)% | (3.3)% |
| Income from continuing operations | 158 | 204 | (22.5)% | (20.2)% | 393 | 415 | (5.3)% | (2.8)% |
| Net income2 | 147 | 206 | (28.6)% | (26.7)% | 197 | 2,157 | (90.9)% | (90.8)% |
| Basic earnings per share | 0.17 | 0.20 | (15.0)% | (13.0)% | 0.22 | 2.08 | (89.4)% | (89.6)% |
1 As explained further under Note 2 to the enclosed summary financial statements, the prior year's results have been restated to reflect the changes in presentation of the operations in Slovakia as discontinued operations.
2 The decline in net income for HY 2014 was primarily due to the results from discontinued operations. HY 2014 results include a charge representing the net of tax settlement amount and associated legal fees for the Waterbury litigation of €192 million, while HY 2013 results included income of €1,751 million following the sale of our former joint venture ICA.
Management report
| € million | Q2 2014 | Q2 2013 | % change |
% change constant rates |
HY 2014 | HY 2013 | % change |
% change constant rates |
|---|---|---|---|---|---|---|---|---|
| Net sales | 4,408 | 4,699 | (6.2)% | (1.7)% 10,267 | 10,828 | (5.2)% | (0.9)% | |
| Underlying operating income | 162 | 199 | (18.6)% | (14.0)% | 389 | 446 | (12.8)% | (8.9)% |
| Underlying operating margin | 3.7 % | 4.2% | 3.8 % | 4.1% | ||||
| Identical sales growth | (1.3)% | 0.5% | (0.7)% | 1.2% | ||||
| Identical sales growth excluding gasoline |
(1.8)% | 0.3% | (0.7)% | 1.2% | ||||
| Comparable sales growth excluding gasoline |
(1.7)% | 0.4% | (0.6)% | 1.3% |
Second quarter net sales of €4,408 million were 1.7% lower than last year at constant exchange rates. Identical sales growth excluding gas was (1.8)%, which included the negative impact of the post-Easter week falling into our second quarter this year. Our overall market share was slightly down, particularly in New England and at Giant Landover.
Peapod, our online grocery operation, again achieved double-digit sales growth. The recent opening of our warehouse in New Jersey will almost double Peapod's capacity and will consolidate its position as the leading online grocer in the United States.
We remain encouraged by the results of our program to improve our customer proposition. As part of this program, we improved our Fresh offering across our four U.S. divisions, enhanced the customer experience through more engaged store associates and introduced targeted price reductions. We are on track with the accelerated rollout of the program, expanding to an additional 130 stores this quarter, with 320 stores participating by the end of the quarter. We still expect to have the program implemented in over 50% of our stores by the end of 2014, largely funded by Simplicity cost savings in the U.S.
Our underlying operating margin of 3.7% was 0.5% lower than last year as the consequence of the accelerated rollout of the program, together with commodity price increases in meat and dairy that we chose to partly absorb, to the benefit of our customers.
| € million | Q2 2014 | Q2 2013 | % change | HY 2014 | HY 2013 | % change |
|---|---|---|---|---|---|---|
| Net sales | 2,706 | 2,703 | 0.1 % | 6,253 | 6,209 | 0.7 % |
| Underlying operating income | 134 | 148 | (9.5)% | 312 | 334 | (6.6)% |
| Underlying operating margin | 5.0 % | 5.5% | 5.0 % | 5.4% | ||
| Identical sales growth (excluding VAT on tobacco sales) |
(1.7)% | 1.7% | (1.5)% | 1.8% | ||
| Comparable sales growth (excluding VAT on tobacco sales) |
(1.5)% | 2.1% | (1.4)% | 2.1% |
Second quarter net sales of €2,706 million were 0.1% higher than last year, despite the negative effect of a change in legislation related to VAT on tobacco (that took effect in the middle of last year) and the post-Easter week falling in our second quarter this year. We saw no improvement in the Dutch supermarket channel, despite the benefit from sales related to the World Cup football championship. Albert Heijn's market share was in line with the previous quarter and stable versus last year.
Our identical sales (excluding VAT on tobacco sales) declined by 1.7%, mainly as a result of a lower average basket of our Albert Heijn customers in the Dutch supermarkets. During the quarter we completed the roll out of our improved bakery department with new products and an improved in-
store presentation. We continued to develop our 'healthy food' proposition introducing new natural and organic products supported by a successful marketing campaign.
Strong sales growth was achieved by our Albert Heijn supermarkets in Belgium, through both identical sales and new stores. Albert Heijn Online and bol.com continued to report double digit sales growth.
In addition to bol.com's strong net sales growth, it achieved strong growth through its bol.com Plaza, where retail partners can place their offering in the bol.com store. Bol.com was voted Best Web Shop 2014-2015 in the Belgian Web Shop Awards, while in March of this year bol.com was chosen Best Web Shop in the Netherlands.
The underlying operating margin of 5.0% was unchanged from the previous quarter and was 0.5% lower than in Q2 2013. Year-over-year margins were impacted by stable but continued inflation of operating costs and lower identical sales.
After a detailed review, we implemented a reorganization to make the head office support roles more efficient and to streamline the commercial organization at Albert Heijn, to enable a greater focus on improving quality and value for its customers.
| € million | Q2 2014 | Q2 2013 | % change |
% change constant rates |
HY 2014 | HY 2013 | % change |
% change constant rates |
|---|---|---|---|---|---|---|---|---|
| Net sales | 306 | 336 | (8.9)% | (3.3)% | 721 | 775 | (7.0)% | (0.8)% |
| Underlying operating income | 6 | 6 | 0.0 % | 14.5 % | 15 | 13 | 15.4 % | 27.0 % |
| Underlying operating margin | 2.0 % | 1.8 % | 2.1 % | 1.7 % | ||||
| Identical sales growth | (3.9)% | (2.2)% | (1.4)% | (2.0)% | ||||
| Identical sales growth excluding gasoline |
(2.9)% | (2.5)% | (1.0)% | (1.4)% | ||||
| Comparable sales growth excluding gasoline |
(2.8)% | (2.6)% | (0.8)% | (1.4)% |
At constant exchange rates, second quarter sales of €306 million were 3.3% lower than last year. This was mainly due to a 2.9% decline in identical sales excluding gas, and lower gas sales.
Identical sales were impacted by the post-Easter week falling in the second quarter this year, and a competitive retail environment with lower prices and increased promotional activity.
Underlying operating margin at 2.0% was 0.2% better than last year. We continued to improve our profitability on a year-over-year basis, through Simplicity-related initiatives in the areas of cost of goods and operating expenses.
On August 1, we successfully completed the acquisition of SPAR in the Czech Republic. The acquisition is part of our strategy to expand our geographic reach in both current and adjacent markets and focus on leading market positions. With this acquisition, Albert will operate around 330 stores across the Czech Republic. The acquisition will make Albert the leading brand in the Czech food retail market, serving around 640,000 customers every day.
In the second quarter, Corporate Center costs of €25 million included restructuring charges of €11 million. Excluding the effect of both this restructuring and the effect of the Company's insurance activities, underlying Corporate Center costs were €19 million, a decrease of €2 million compared to Q2 2013.
We expect that ongoing investments in our customer proposition and further development of our product range across multiple categories will result in improving sales trends. For the year we still expect to deliver close to €300 million in cost savings from our Simplicity program, in line with last year, which will be reinvested to improve our competitiveness. We remain focused on executing our Reshaping Retail strategy, to take advantage of our strong brands, leading market positions, solid balance sheet, and fast-growing online business.
Underlying operating income was €288 million, down €53 million, and included a negative exchange rate impact of €9 million due to the weaker U.S. dollar. Underlying operating margin was 3.9%, compared to 4.4% last year.
Operating income was €260 million, down 21.2% and 18.8% at actual and constant exchange rates respectively. This included €29 million of restructuring and related charges (Q2 2013: €1 million benefit) and €5 million of impairment charges (Q2 2013: €32 million), offset by €6 million of gains on the sale of assets (Q2 2013: €20 million). The restructuring and related charges follow from a reorganization of the support roles at Albert Heijn and the Corporate Center.
Income from continuing operations was €158 million; €46 million lower than last year. This included a decrease in net financial expenses of €16 million and a decrease in income taxes of €7 million.
Net income was €147 million, down €59 million. This included additional discontinued operation costs of €12 million related to the Waterbury litigation.
Our free cash flow was €70 million, a decrease of €185 million compared to Q2 2013. Half of the decline was due to the reversal of the prior quarter's benefit of holiday timing, as mentioned in Q1 2014. Additionally, changes in payables were worse year-over-year, mainly attributable to timing, but also by current negative identical sales growth, and income taxes paid were €28 million higher than last year.
Net debt increased by €775 million during the quarter, to €1,055 million. Free cash flow of €70 million was offset by dividends paid of €414 million and the share buyback of €373 million.
Underlying operating income was €680 million, down 10.4% and 8.0% at actual and constant exchange rates, respectively. Underlying operating margin was 3.9%, compared to 4.3% last year.
Operating income was €640 million, down €37 million or 5.5% and 3.3% at actual and constant exchange rates, respectively. This included €38 million of restructuring and related charges (HY 2013: €1 million benefit) and €9 million of impairment charges (HY 2013: €50 million), offset by €7 million of gains on sale of assets (HY 2013: €21 million). 2013 included the effects of a €63 million charge related to the settlement of a multi-employer pension withdrawal liability and a €9 million gain on the final settlement of a U.S. defined benefit pension plan.
Income from continuing operations decreased €22 million (5.3%) to €393 million. This decrease is a result of a €27 million increase in income taxes, offset by a decrease in net financial expense of €40 million, as well as the items mentioned above. The net financial expense decrease reflects an €11 million one-time adjustment to a financial liability in 2013, lower interest expense in 2014 and changes in the value of notes and derivatives. The increase in income tax in 2014 includes the results of one-time tax benefits in 2013 of €19 million.
Net income was €197 million, down €1,960 million. The decline was primarily due to increased income in 2013 of €1,751 million following the sale of our former joint-venture ICA, as well as a 2014 charge of €192 million to recognize an agreement in principle to settle the Waterbury litigation, associated tax impact and legal fees.
Free cash flow was €372 million; €71 million lower than last year. The decrease was due to lower operating cash flows from continuing operations of €195 million (mainly from higher income taxes Management report
paid of €111 million, primarily related to payments for prior tax years), offset by lower capital expenditures of €100 million, higher dividends from joint venture of €11 million and lower interest paid of €9 million.
Net debt increased by €1,997 million during the year, to €1,055 million. Free cash flow of €372 million was offset by the capital repayment of €1,008 million, the share buyback of €812 million and dividends paid of €414 million. Under the €2 billion share buyback program shares have been repurchased for an amount of €812 million in 2014 (full year 2013: €768 million).
The capital repayment and reverse stock split was performed in Q1 2014. Every 13 existing shares with a nominal value of €0.30 each were consolidated into 12 new shares with a nominal value of €0.01 each. For every remaining share €1.14 of capital has been repaid.
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 our Annual Report 2013.
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 2013 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 Annual Report 2013.
The content of this interim report has not been audited or reviewed by an external auditor.
The members of Ahold's Management 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").
Zaandam, the Netherlands
August 21, 2014
Dick Boer (CEO) Jeff Carr (CFO) Lodewijk Hijmans van den Bergh James McCann
| € million, except per share data | Note | Q2 2014 | Q2 2013 (restated)¹ |
HY 2014 | HY 2013 (restated)¹ |
|---|---|---|---|---|---|
| Net sales | 4 | 7,420 | 7,738 | 17,241 | 17,812 |
| Cost of sales | 5 | (5,453) | (5,674) | (12,651) | (13,059) |
| Gross profit | 1,967 | 2,064 | 4,590 | 4,753 | |
| Selling expenses | (1,448) | (1,483) | (3,366) | (3,431) | |
| General and administrative expenses | (259) | (251) | (584) | (645) | |
| Total operating expenses | 5 | (1,707) | (1,734) | (3,950) | (4,076) |
| Operating income | 4 | 260 | 330 | 640 | 677 |
| Interest income | 2 | 1 | 4 | 3 | |
| Interest expense | (48) | (53) | (112) | (122) | |
| Interest expense on defined benefit pension plans | (3) | (5) | (8) | (13) | |
| Other financial expenses | (4) | (12) | (7) | (31) | |
| Net financial expenses | (53) | (69) | (123) | (163) | |
| Income before income taxes | 207 | 261 | 517 | 514 | |
| Income taxes | 6 | (52) | (59) | (130) | (103) |
| Share in income of joint ventures | 3 | 2 | 6 | 4 | |
| Income from continuing operations | 158 | 204 | 393 | 415 | |
| Income (loss) from discontinued operations | 7 | (11) | 2 | (196) | 1,742 |
| Net income attributable to common shareholders | 147 | 206 | 197 | 2,157 | |
| Net income per share attributable to common shareholders | |||||
| Basic | 0.17 | 0.20 | 0.22 | 2.08 | |
| Diluted | 0.17 | 0.19 | 0.21 | 1.99 | |
| Income from continuing operations per share attributable to common shareholders |
|||||
| Basic | 0.18 | 0.20 | 0.43 | 0.40 | |
| Diluted | 0.18 | 0.19 | 0.42 | 0.39 | |
| Weighted average number of common shares outstanding (in millions) |
|||||
| Basic | 868 | 1,031 | 914 | 1,036 | |
| Diluted | 915 | 1,083 | 926 | 1,088 | |
| Average U.S. dollar exchange rate (euro per U.S. dollar) | 0.7309 | 0.7659 | 0.7297 | 0.7624 |
| € million | Q2 2014 | Q2 2013 (restated)¹ |
HY 2014 | HY 2013 (restated)¹ |
|---|---|---|---|---|
| Net income attributable to common shareholders | 147 | 206 | 197 | 2,157 |
| Remeasurements of defined benefit pension plans | ||||
| Remeasurements before taxes | (80) | (125) | (98) | 195 |
| Income taxes | 21 | 20 | 28 | (68) |
| Other comprehensive income (loss) that will not be reclassified to profit or loss |
(59) | (105) | (70) | 127 |
| Currency translation differences in foreign interests: | ||||
| Currency translation differences before taxes from: | ||||
| Continuing operations | 44 | (6) | 26 | 29 |
| Discontinued operations | — | 3 | — | 30 |
| Cumulative translation differences from divestments transferred to net income |
— | (2) | — | (82) |
| Cash flow hedges: | ||||
| Fair value result in the year | (13) | 16 | (28) | (29) |
| Transfers to net income | (4) | — | (6) | 41 |
| Income taxes | 4 | (4) | 8 | (3) |
| Other comprehensive income of joint ventures - net of income taxes: |
||||
| Share of other comprehensive income from: | ||||
| Continuing operations | — | 1 | — | — |
| Other comprehensive loss transferred to net income | — | — | — | 9 |
| Other comprehensive income (loss) reclassifiable to profit or loss | 31 | 8 | — | (5) |
| Total other comprehensive income (loss) | (28) | (97) | (70) | 122 |
| Total comprehensive income attributable to common shareholders |
119 | 109 | 127 | 2,279 |
| Attributable to: | ||||
| Continuing operations | 130 | 106 | 323 | 580 |
| Discontinued operations | (11) | 3 | (196) | 1,699 |
| Total comprehensive income attributable to common shareholders |
119 | 109 | 127 | 2,279 |
| € million | Note | July 13, 2014 |
December 29, 2013 |
|---|---|---|---|
| Assets | |||
| Property, plant and equipment | 5,644 | 5,712 | |
| Investment property | 525 | 543 | |
| Intangible assets | 1,606 | 1,563 | |
| Investments in joint ventures and associates | 190 | 197 | |
| Other non-current financial assets | 436 | 415 | |
| Deferred tax assets | 408 | 411 | |
| Other non-current assets | 32 | 33 | |
| Total non-current assets | 8,841 | 8,874 | |
| Assets held for sale | 5 | 28 | |
| Inventories | 1,392 | 1,450 | |
| Receivables | 587 | 665 | |
| Other current financial assets | 506 | 1,520 | |
| Income taxes receivable | 81 | 11 | |
| Other current assets | 179 | 98 | |
| Cash and cash equivalents | 10 | 1,519 | 2,496 |
| Total current assets | 4,269 | 6,268 | |
| Total assets | 13,110 | 15,142 | |
| Equity and liabilities | |||
| Equity attributable to common shareholders | 8 | 4,440 | 6,520 |
| Loans | 1,327 | 1,307 | |
| Other non-current financial liabilities | 9 | 1,898 | 1,882 |
| Pensions and other post-employment benefits | 441 | 348 | |
| Deferred tax liabilities | 114 | 123 | |
| Provisions | 570 | 585 | |
| Other non-current liabilities | 242 | 235 | |
| Total non-current liabilities | 4,592 | 4,480 | |
| Liabilities related to assets held for sale | — | 48 | |
| Accounts payable | 2,264 | 2,387 | |
| Other current financial liabilities | 232 | 262 | |
| Income taxes payable | 8 | 97 | |
| Provisions | 12 | 420 | 191 |
| Other current liabilities | 1,154 | 1,157 | |
| Total current liabilities | 4,078 | 4,142 | |
| Total equity and liabilities | 13,110 | 15,142 |
| € million | Share capital |
Additional paid-in capital |
Currency translation reserve |
Cash flow hedging reserve |
Other reserves including accumulated deficit |
Equity attributable to common shareholders |
|---|---|---|---|---|---|---|
| Balance as of December 30, 2012 | 318 | 8,713 | (292) | (126) | (3,467) | 5,146 |
| Net income | — | — | — | — | 2,157 | 2,157 |
| Other comprehensive income (loss) | — | — | (23) | 9 | 136 | 122 |
| Total comprehensive income (loss) | — | — | (23) | 9 | 2,293 | 2,279 |
| Dividends | — | — | — | — | (457) | (457) |
| Share buyback | — | — | — | — | (247) | (247) |
| Share-based payments | — | — | — | — | 32 | 32 |
| Balance as of July 14, 2013 | 318 | 8,713 | (315) | (117) | (1,846) | 6,753 |
| Balance as of December 29, 2013 | 318 | 8,713 | (492) | (81) | (1,938) | 6,520 |
| Net income | — | — | — | — | 197 | 197 |
| Other comprehensive income (loss) | — | — | 26 | (26) | (70) | (70) |
| Total comprehensive income (loss) | — | — | 26 | (26) | 127 | 127 |
| Dividends | — | — | — | — | (414) | (414) |
| Capital repayment | (308) | (809) | — | — | 109 | (1,008) |
| Share buyback | — | — | — | — | (812) | (812) |
| Cancellation of treasury shares | (1) | (1,060) | — | — | 1,061 | — |
| Share-based payments | — | — | — | — | 27 | 27 |
| Balance as of July 13, 2014 | 9 | 6,844 | (466) | (107) | (1,840) | 4,440 |
| € million | Note | Q2 2014 | Q2 2013 (restated)¹ |
HY 2014 | HY 2013 (restated)¹ |
|---|---|---|---|---|---|
| Operating income | 260 | 330 | 640 | 677 | |
| Adjustments for: | |||||
| Depreciation, amortization, write-downs and impairments | 5 | 197 | 227 | 451 | 500 |
| Gains on the sale of assets / disposal groups held for sale | 5 | (6) | (20) | (7) | (21) |
| Share-based compensation expenses | 9 | 10 | 22 | 21 | |
| Operating cash flows before changes in operating assets and liabilities |
460 | 547 | 1,106 | 1,177 | |
| Changes in working capital: | |||||
| Changes in inventories | 51 | 11 | 67 | 33 | |
| Changes in receivables and other current assets | 38 | 2 | 6 | 58 | |
| Changes in payables and other current liabilities | (231) | 21 | (175) | (161) | |
| Changes in other non-current assets, other non-current liabilities and provisions |
8 | (60) | (34) | (53) | |
| Cash generated from operations | 326 | 521 | 970 | 1,054 | |
| Income taxes paid - net | (93) | (65) | (216) | (105) | |
| Operating cash flows from continuing operations | 233 | 456 | 754 | 949 | |
| Operating cash flows from discontinued operations | (4) | (3) | (13) | (11) | |
| Net cash from operating activities | 229 | 453 | 741 | 938 | |
| Purchase of non-current assets | (131) | (156) | (319) | (419) | |
| Divestments of assets / disposal groups held for sale | 33 | 34 | 41 | 38 | |
| Acquisition of businesses, net of cash acquired | 3 | (1) | (6) | (13) | (3) |
| Divestment of businesses, net of cash divested | 7 | (4) | (11) | (48) | 2,361 |
| Changes in short-term deposits and similar instruments | 223 | 92 | 1,014 | (145) | |
| Dividends received from joint ventures | 13 | 2 | 14 | 3 | |
| Interest received | 1 | 1 | 4 | 3 | |
| Other | (2) | (1) | (2) | (1) | |
| Investing cash flows from continuing operations | 132 | (45) | 691 | 1,837 | |
| Investing cash flows from discontinued operations | — | (6) | — | 136 | |
| Net cash from investing activities | 132 | (51) | 691 | 1,973 | |
| Interest paid | (79) | (82) | (122) | (131) | |
| Repayments of loans | (4) | (3) | (15) | (14) | |
| Repayments of finance lease liabilities | (16) | (16) | (38) | (38) | |
| Dividends paid on common shares | 8 | (414) | (457) | (414) | (457) |
| Share buyback | 8 | (373) | (186) | (812) | (247) |
| Other cash flows from derivatives | — | (1) | (10) | (9) | |
| Capital repayment | 8 | — | — | (1,008) | — |
| Other | 2 | (1) | (2) | (84) | |
| Financing cash flows from continuing operations | (884) | (746) | (2,421) | (980) | |
| Financing cash flows from discontinued operations | — | (2) | (2) | (4) | |
| Net cash from financing activities | (884) | (748) | (2,423) | (984) | |
| Net cash from operating, investing and financing activities |
10 | (523) | (346) | (991) | 1,927 |
| Average U.S. dollar exchange rate (euro per U.S. dollar) | 0.7309 | 0.7659 | 0.7297 | 0.7624 |
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 10.
The principal activity of Koninklijke Ahold N.V. ("Ahold" or the "Company" or "Group" or "Ahold Group"), 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 2013 consolidated financial statements, except for the new standards and amendments to existing standards effective for 2014, as described further below.
Ahold's reporting calendar is based on 13 periods of four weeks, with 2014 and 2013 each comprising 52 weeks. The second quarters of 2014 and 2013 are each comprised of 12 weeks.
In Q4 2013, Ahold's investment in Slovakia met the criteria to be classified as a discontinued operation and, accordingly, €5 million that was previously reported in Q2 2013 (HY 2013: €8 million) as loss from continuing operations has been reclassified to loss from discontinued operations.
The restatements to Ahold's 2013 comparative amounts for the changes in presentation are as follows:
| € million | Q2 2013 as reported |
Changes in presentation |
Q2 2013 as restated |
HY 2013 as reported |
Changes in presentation |
HY 2013 as restated |
|---|---|---|---|---|---|---|
| Net sales | 7,769 | (31) | 7,738 | 17,886 | (74) | 17,812 |
| Cost of sales | (5,697) | 23 | (5,674) | (13,115) | 56 | (13,059) |
| Gross profit | 2,072 | (8) | 2,064 | 4,771 | (18) | 4,753 |
| Selling expenses | (1,490) | 7 | (1,483) | (3,449) | 18 | (3,431) |
| General and administrative expenses | (257) | 6 | (251) | (652) | 7 | (645) |
| Total operating expenses | (1,747) | 13 | (1,734) | (4,101) | 25 | (4,076) |
| Operating income | 325 | 5 | 330 | 670 | 7 | 677 |
| Interest income | 2 | (1) | 1 | 4 | (1) | 3 |
| Interest expense | (54) | 1 | (53) | (124) | 2 | (122) |
| Interest expense on defined benefit pension plans |
(5) | — | (5) | (13) | — | (13) |
| Other financial expenses | (12) | — | (12) | (31) | — | (31) |
| Net financial expenses | (69) | — | (69) | (164) | 1 | (163) |
| Income before income taxes | 256 | 5 | 261 | 506 | 8 | 514 |
| Income taxes | (59) | — | (59) | (103) | — | (103) |
| Share in income of joint ventures | 2 | — | 2 | 4 | — | 4 |
| Income from continuing operations | 199 | 5 | 204 | 407 | 8 | 415 |
| Income (loss) from discontinued operations | 7 | (5) | 2 | 1,750 | (8) | 1,742 |
| Net income attributable to common shareholders |
206 | — | 206 | 2,157 | — | 2,157 |
| Q2 2013 | Changes in | Q2 2013 | |
|---|---|---|---|
| € million | as reported | presentation | as restated |
| Consolidated statement of cash flow line items | |||
| Operating income | 325 | 5 | 330 |
| Depreciation, amortization, write-downs and impairments | 229 | (2) | 227 |
| Operating cash flows before changes in operating assets and liabilities | 544 | 3 | 547 |
| Changes in receivables and other current assets | 3 | (1) | 2 |
| Changes in payables and other current liabilities | 22 | (1) | 21 |
| Cash generated from operations | 520 | 1 | 521 |
| Operating cash flows from continuing operations | 455 | 1 | 456 |
| Operating cash flows from discontinued operations | (2) | (1) | (3) |
| Repayments of finance lease liabilities | (17) | 1 | (16) |
| Financing cash flows from continuing operations | (747) | 1 | (746) |
| Financing cash flows from discontinued operations | (1) | (1) | (2) |
| HY 2013 | Changes in | HY 2013 | |
|---|---|---|---|
| € million | as reported | presentation | as restated |
| Consolidated statement of cash flow line items | |||
| Operating income | 670 | 7 | 677 |
| Depreciation, amortization, write-downs and impairments | 503 | (3) | 500 |
| Operating cash flows before changes in operating assets and liabilities | 1,173 | 4 | 1,177 |
| Changes in receivables and other current assets | 59 | (1) | 58 |
| Changes in payables and other current liabilities | (164) | 3 | (161) |
| Cash generated from operations | 1,048 | 6 | 1,054 |
| Operating cash flows from continuing operations | 943 | 6 | 949 |
| Operating cash flows from discontinued operations | (5) | (6) | (11) |
| Interest paid | (132) | 1 | (131) |
| Repayments of finance lease liabilities | (39) | 1 | (38) |
| Financing cash flows from continuing operations | (982) | 2 | (980) |
| Financing cash flows from discontinued operations | (2) | (2) | (4) |
These amendments provide an exception to the consolidation requirement for entities that meet the definition of an investment entity under IFRS 10 Consolidated Financial Statements. The exception to consolidation requires investment entities to account for subsidiaries at fair value through profit or loss. These amendments have no impact on the Group, since none of the entities in the Group qualify to be an investment entity under IFRS 10.
Offsetting Financial Assets and Financial Liabilities - Amendments to IAS 32 These amendments clarify the meaning of "currently has a legally enforceable right to set-off" and the criteria for non-simultaneous settlement mechanisms of clearing houses to qualify for offsetting. These amendments have no impact on the Group.
Novation of Derivatives and Continuation of Hedge Accounting - Amendments to IAS 39 These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated as a hedging instrument meets certain criteria. These amendments have no impact on the Group as the Group has not novated its derivatives during the current or prior periods.
These amendments remove the unintended consequences of IFRS 13 Fair Value Measurement on the disclosures required under IAS 36 Impairment of Assets. In addition, these amendments require disclosure of the recoverable amounts for the assets or cash-generating units (CGUs) for which an
impairment loss has been recognized or reversed during the period. The Group early adopted these disclosure requirements in the annual consolidated financial statements for the year ended December 29, 2013.
IFRIC 21 is effective for annual periods beginning on or after January 1, 2014, was endorsed by the EU on June 13, 2014, and is applied retrospectively. The adoption of IFRIC 21 does not have any financial effect on the consolidated financial statements of the Group.
On August 14, 2012, Ahold announced that its Albert Heijn division had completed the acquisition of 78 C1000 and four Jumbo stores from Jumbo for €290 million in cash, with €266 million paid by July 13, 2014 (HY 2014: €2 million, 2013: credit €1 million and 2012: €265 million), and the remaining amount to be settled as agreements are reached with the franchisees. During the first half of this year, Ahold reached agreement with nine franchisees and nine stores were converted and opened under the Albert Heijn banner (48 stores converted in total). The remaining 34 franchisee-owned stores are to be converted to the Albert Heijn banner over a period of time, in close cooperation with the entrepreneurs. Goodwill recognized in the amount of €159 million on July 13, 2014 (2014: €30 million, 2013: €76 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 amounts recognized in the financial statements for the stores converted less than 12 months ago were determined on a provisional basis.
The 48 stores that were converted to the Albert Heijn banner have contributed €68 million to Q2 2014 net sales and €146 million to HY 2014 net sales (Q2 2013: €31 million, HY 2013: €62 million, 22 stores) as well as €2 million to net income in Q2 2014 and €3 million to net income in HY 2014 (insignificant amounts in Q2 2013 and HY 2013).
In Q1 2014, Ahold completed several other minor store acquisitions in the Netherlands for a total purchase consideration of €11 million.
The allocation of the fair value of the net assets acquired and the goodwill arising from the acquisitions during 2014 is as follows:
| € million | Jumbo | Other | Total |
|---|---|---|---|
| Goodwill | 30 | 11 | 41 |
| Reversal of other intangible assets | (28) | — | (28) |
| Acquisition of business, net of cash | 2 | 11 | 13 |
A reconciliation of Ahold's goodwill balance, which is presented within intangible assets, is as follows:
| € million | Goodwill |
|---|---|
| As of December 29, 2013 | |
| At cost | 841 |
| Accumulated impairment losses | (4) |
| Opening carrying amount | 837 |
| Acquisitions through business combinations | 41 |
| Impairment losses | (2) |
| Exchange rate differences | 2 |
| Closing carrying amount | 878 |
| As of July 13, 2014 | |
| At cost | 884 |
| Accumulated impairment losses | (6) |
| Carrying amount | 878 |
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 Heijn Online |
| Czech Republic | Albert |
| 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 2014 | Q2 2013 (restated)¹ |
HY 2014 | HY 2013 (restated)¹ |
|
|---|---|---|---|---|
| \$ million | ||||
| Ahold USA | 6,029 | 6,135 | 14,069 | 14,203 |
| Average U.S. dollar exchange rate (euro per U.S. dollar) |
0.7309 | 0.7659 | 0.7297 | 0.7624 |
| CZK million | ||||
| Czech Republic | 8,395 | 8,682 | 19,781 | 19,934 |
| Average Czech Crown exchange rate (euro per Czech Crown) |
0.0364 | 0.0387 | 0.0364 | 0.0389 |
| € million | ||||
| Ahold USA | 4,408 | 4,699 | 10,267 | 10,828 |
| The Netherlands | 2,706 | 2,703 | 6,253 | 6,209 |
| Czech Republic | 306 | 336 | 721 | 775 |
| Ahold Group | 7,420 | 7,738 | 17,241 | 17,812 |
Operating income (loss) per segment is as follows:
| Q2 2014 | Q2 2013 (restated)¹ |
HY 2014 | HY 2013 (restated)¹ |
|
|---|---|---|---|---|
| \$ million | ||||
| Ahold USA | 218 | 246 | 525 | 477 |
| CZK million | ||||
| Czech Republic | 170 | 153 | 408 | 328 |
| € million | ||||
| Ahold USA | 160 | 190 | 384 | 363 |
| The Netherlands | 119 | 144 | 294 | 331 |
| Czech Republic | 6 | 6 | 15 | 13 |
| Corporate Center | (25) | (10) | (53) | (30) |
| Ahold Group | 260 | 330 | 640 | 677 |
1 See Note 2 for a further explanation of the restatements.
The aggregate of cost of sales and operating expenses is specified by nature as follows:
| € million | Q2 2014 | Q2 2013 (restated)¹ |
HY 2014 | HY 2013 (restated)¹ |
|---|---|---|---|---|
| Cost of product | 5,206 | 5,436 | 12,083 | 12,507 |
| Labor costs | 1,092 | 1,109 | 2,505 | 2,616 |
| Other operational expenses | 562 | 538 | 1,305 | 1,255 |
| Depreciation and amortization | 192 | 195 | 442 | 450 |
| Rent expenses and income - net | 109 | 118 | 264 | 278 |
| Impairment losses and reversals - net | 5 | 32 | 9 | 50 |
| Gains on the sale of assets - net | (6) | (20) | (7) | (21) |
| Total | 7,160 | 7,408 | 16,601 | 17,135 |
1 See Note 2 for a further explanation of the restatements.
Income taxes for Q2 2013 included €7 million (HY 2013: €19 million) of one-time tax benefits.
Income from discontinued operations is specified as follows:
| € million | Q2 2014 | Q2 2013 (restated)¹ |
HY 2014 | HY 2013 (restated)¹ |
|---|---|---|---|---|
| Slovakia | — | (5) | (2) | (8) |
| ICA | — | — | — | 137 |
| Other2 | 1 | — | (1) | — |
| Operating results from discontinued operations3 | 1 | (5) | (3) | 129 |
| U.S. Foodservice5 | (12) | (1) | (192) | (4) |
| Slovakia | — | — | (1) | — |
| ICA | — | 3 | — | 1,614 |
| Other2 | — | 5 | — | 3 |
| Results on divestments of discontinued operations4 | (12) | 7 | (193) | 1,613 |
| Income (loss) from discontinued operations, net of income taxes |
(11) | 2 | (196) | 1,742 |
1 See Note 2 for a further explanation of the restatements.
2 Includes adjustments to the result on various discontinued operations and past divestments.
3 Operating results from discontinued operations are after net income tax benefits of nil for the second quarter of 2014 and 2013 (YTD 2014: €2 million, YTD 2013: nil).
4 Results on divestments are after net income tax expense of €8 million and €2 million for the second quarter of 2014 and 2013, respectively (YTD 2014: €31 million benefit, YTD 2013: nil).
5 Q2 2014 includes legal costs of €4 million (YTD 2014: €7 million) and an income tax adjustment on the net settlement provision of €8 million (YTD 2014: €185 million). See Note 12 for a further explanation.
On November 14, 2013, Ahold announced that it had reached an agreement with Condorum regarding the sale of Ahold's Slovakian business. On April 15, 2014, Ahold announced that the transaction was completed. Upon the divestment in the first quarter of 2014, Ahold recorded a loss of €2 million, offset by a net tax benefit of €1 million as presented below:
| € million | |
|---|---|
| Proceeds net of cost to sell | (34) |
| Net liabilities divested | 21 |
| Use of provision on loss on divestment | 12 |
| Recognition of financial guarantee | (1) |
| Result on divestment before income taxes | (2) |
| Income taxes | 1 |
| Result on divestment of Slovakia | (1) |
The cash flows from divestment of businesses as presented in the cash flow statement are as follows:
| Q2 2014 | Q2 2013 | HY 2014 | HY 2013 | |
|---|---|---|---|---|
| € million | ||||
| Proceeds from divestment of Slovakia | — | — | (34) | — |
| Proceeds from divestment of ICA | — | (9) | — | 2,368 |
| Net cash flows related to other past divestments | (4) | (2) | (9) | (7) |
| Divestment of business | (4) | (11) | (43) | 2,361 |
| Cash divested | — | — | (5) | — |
| Divestment of businesses, net of cash divested | (4) | (11) | (48) | 2,361 |
On April 16, 2014, the General Meeting of Shareholders approved the dividend over 2013 of €0.47 per common share (€414 million in the aggregate). This dividend was paid on May 2, 2014.
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. Under this program, 60,527,944 of the Company's own shares were repurchased and delivered in the first half of 2014. Shares were repurchased at an average price of €13.41 per share for a total amount of €812 million. For the full year 2013, 61,008,851 shares were repurchased at an average price of €12.58 for a total amount of €768 million. Through the end of Q2 2014, shares have been repurchased for a total amount of €1,580 million under the €2 billion program.
Of the total shares repurchased, 85,000,000 shares were canceled on June 20, 2014.
On January 21, 2014, a capital repayment and reverse stock split was approved at an Extraordinary General Meeting of Shareholders. On March 28, 2014, the reverse stock split became effective. Every 13 existing shares with a nominal value of €0.30 each were consolidated into 12 new shares with a nominal value of €0.01 each. The capital repayment of €1.14 per remaining share, €1,007 million in the aggregate (excluding transaction costs), took place on April 3, 2014. The capital reduction attributable to treasury shares, €109 million in the aggregate, is reported in Other reserves.
The number of outstanding common shares as of July 13, 2014, was 854,367,194 (December 29, 2013: 982,493,067).
On January 21, 2014, a reduction in the nominal value of the cumulative preferred financing shares (from €0.30 to €0.01) was approved at an Extraordinary General Meeting of Shareholders. The amount related to this reduction has not been paid back in cash to the holders of these shares, but has been added to the additional paid-in capital.
The reduction in nominal value per share resulted in a decrease in the total nominal value of the issued cumulative preferred financing shares of €78 million to €3 million and a decrease of the total nominal value of the authorized cumulative preferred financing shares of €138 million to €5 million.
The paid-in capital for the issued cumulative preferred financing shares decreased by €78 million from €81 million to €3 million and the additional paid-in capital related to the cumulative preferred financing shares increased by €78 million from €416 million to €494 million. The aggregate of the paid-in capital for issued cumulative preferred financing shares and the related additional paid-in capital remained unchanged at €497 million. This amount is presented under "other non-current financial liabilities" in the consolidated balance sheet as these cumulative preferred financing shares are considered debt under IFRS.
The following table presents the reconciliation between the statement of cash flows and the cash and cash equivalents as presented on the balance sheet:
| € million | HY 2014 | HY 2013 |
|---|---|---|
| Cash and cash equivalents at the beginning of the year | 2,496 | 1,886 |
| Restricted cash | (4) | (22) |
| Cash and cash equivalents related to discontinued operations | 5 | — |
| Cash and cash equivalents at the beginning of the year, excluding restricted cash and including cash and cash equivalents related to discontinued operations |
2,497 | 1,864 |
| Net cash from operating, investing and financing activities | (991) | 1,927 |
| Effect of exchange rate differences on cash and cash equivalents | 9 | 10 |
| Restricted cash | 4 | 22 |
| Cash and cash equivalents of continuing operations at the end of quarter | 1,519 | 3,823 |
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:
| July 13, 2014 | December 29, 2013 | |||
|---|---|---|---|---|
| € million | Carrying amount |
Fair value |
Carrying amount |
Fair value |
| Loans receivable | 39 | 47 | 37 | 44 |
| Accounts receivable | 588 | 588 | 666 | 666 |
| Reinsurance assets | 146 | 146 | 136 | 136 |
| Total loans and receivables | 773 | 781 | 839 | 846 |
| Cash and cash equivalents | 1,519 | 1,519 | 2,496 | 2,496 |
| Short-term deposits and similar instruments | 453 | 453 | 1,467 | 1,467 |
| Derivatives | 293 | 293 | 284 | 284 |
| Available for sale | 4 | 4 | 4 | 4 |
| Total financial assets | 3,042 | 3,050 | 5,090 | 5,097 |
| July 13, 2014 | December 29, 2013 | |||
|---|---|---|---|---|
| € million | Carrying amount |
Fair value |
Carrying amount |
Fair value |
| Notes | (995) | (1,223) | (970) | (1,169) |
| Other loans | (4) | (4) | (3) | (4) |
| Financing obligations | (341) | (349) | (346) | (356) |
| Mortgages payable | (10) | (11) | (10) | (12) |
| Finance lease liabilities | (1,133) | (1,470) | (1,143) | (1,468) |
| Cumulative preferred financing shares | (497) | (554) | (497) | (539) |
| Dividend cumulative preferred financing shares | (12) | (12) | (24) | (24) |
| Accounts payable | (2,264) | (2,264) | (2,387) | (2,387) |
| Short-term borrowings | (48) | (48) | (52) | (52) |
| Interest payable | (13) | (13) | (24) | (24) |
| Reinsurance liabilities | (163) | (163) | (152) | (152) |
| Other | (42) | (49) | (48) | (54) |
| Total financial liabilities at amortized cost | (5,522) | (6,160) | (5,656) | (6,241) |
| Derivatives | (203) | (203) | (182) | (182) |
| Total financial liabilities | (5,725) | (6,363) | (5,838) | (6,423) |
Of Ahold's categories of financial instruments, only derivatives, assets available for sale and reinsurance assets (liabilities) 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 valuation of Ahold's derivatives instruments is adjusted for the credit risk of the counterparty (counterparty credit risk) and of the reporting entity (own credit risk) in accordance with IFRS13. The valuation adjustment for counterparty credit risk requires a Credit Valuation Adjustment ("CVA") and a Debit Valuation Adjustment ("DVA") for an adjustment to own credit risk. The CVA / DVA calculations have been added to the risk-free fair value of Ahold's interest and cross-currency swaps. The valuation technique for the CVA / DVA calculation is based on relevant observable market inputs.
The carrying amount of receivables, cash and cash equivalents, accounts payable, short-term deposits and similar instruments, 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 prevailing market rates. 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 Annual Report 2013. The accrued interest is included in other current financial liabilities and not in the carrying amounts of non-derivative financial assets and liabilities.
A comprehensive overview of commitments and contingencies as of December 29, 2013, was included in Note 34 of Ahold's 2013 consolidated financial statements, which were published as part of Ahold's Annual Report 2013 on March 4, 2014. Except as disclosed below, there have been no significant changes to this overview through Q2 2014.
On May 21, 2014, Ahold announced that it had signed a term sheet agreeing in principle to settle a class action pending in the United States District Court for the District of Connecticut in respect of pricing practices of Ahold's former subsidiary U.S. Foodservice in the period 1998-2005. Subsequently, the parties entered into a long-form settlement agreement (the "Settlement Agreement") setting forth the entirety of the parties' agreement
Pursuant to the Settlement Agreement, Ahold has agreed to make a payment of \$297 million (equivalent to €215 million at the end of Q1 2014) into a settlement fund in return for a release from all claims from all participating class members in relation to the challenged pricing practices.
Ahold indemnified U.S. Foodservice against damages arising out of this class action, referred to in Ahold's annual reports as the "Waterbury litigation," as part of the terms of Ahold's sale of U.S. Foodservice in July 2007 to a consortium of Clayton, Dubilier & Rice and Kohlberg, Kravis Roberts & Co. for a purchase price of \$7.1 billion.
The settlement is subject to approval by the United States District Court for the District of Connecticut, which preliminarily approved the Settlement Agreement on July 16, 2014 and has scheduled a hearing for final approval of the Settlement Agreement on December 9, 2014. The settlement is subject to potential reduction and / or termination based on the compensable sales volume attributable to class members that elect to opt out of the settlement (i.e., do not wish to be bound by the settlement). Upon becoming unconditional the settlement will definitively resolve this potential liability for Ahold.
Ahold recorded a net provision in the amount of €185 million in 2014 (€215 million net of an estimated tax recovery of €30 million). Ahold will be funding its payment to the settlement fund out of its available cash balances and expects this payment to take place in late 2014 or the beginning of 2015.
On August 1, 2014, Ahold announced that it successfully completed its acquisition of SPAR's business in the Czech Republic. On March 11, 2014, Ahold announced that it had entered into an agreement to acquire SPAR's business in the Czech Republic for an enterprise value of CZK 5,245 million (€191 million based on the quarter-end CZK exchange rate). With this transaction, Ahold acquired 50 stores, of which 36 are compact hypers and 14 are supermarkets. The acquisition was funded from existing cash resources.
| € million | Q2 2014 | Q2 2013 (restated)¹ |
% change | % change constant rates |
|---|---|---|---|---|
| Online sales | 273 | 235 | 16.2 % | 18.2 % |
| Store sales and other sales | 7,147 | 7,503 | (4.7)% | (1.7)% |
| Total net sales | 7,420 | 7,738 | (4.1)% | (1.1)% |
1 See Note 2 for a further explanation of the restatements.
| € million | HY 2014 | HY 2013 (restated)¹ |
% change | % change constant rates |
|---|---|---|---|---|
| Online sales | 635 | 520 | 22.1 % | 24.3 % |
| Store sales and other sales | 16,606 | 17,292 | (4.0)% | (1.1)% |
| Total net sales | 17,241 | 17,812 | (3.2)% | (0.3)% |
1 See Note 2 for a further explanation of the restatements.
Underlying operating income per segment is as follows:
| € million | Underlying operating income Q2 2014 |
Impairments | Gains (losses) on the sale of assets |
Restructuring and related charges |
Other | Operating income Q2 2014 |
|---|---|---|---|---|---|---|
| Ahold USA | 162 | (2) | — | — | — | 160 |
| The Netherlands | 134 | (3) | 6 | (18) | — | 119 |
| Czech Republic | 6 | — | — | — | — | 6 |
| Corporate Center | (14) | — | — | (11) | — | (25) |
| Ahold Group | 288 | (5) | 6 | (29) | — | 260 |
1 Underlying operating income is a non-GAAPmeasure. See section "Use of non-GAAPfinancial measures" for more information on the use of non-GAAP measures.
Underlying operating income in local currency for Q2 2014 is \$221 million for Ahold USA and CZK 166 million for Czech Republic.
| € million | Underlying operating income Q2 2013 (restated)² |
Impairments (restated)2 |
Gains (losses) on the sale of assets |
Restructuring and related charges |
Other | Operating income Q2 2013 (restated)² |
|---|---|---|---|---|---|---|
| Ahold USA | 199 | (29) | 20 | — | — | 190 |
| The Netherlands | 148 | (3) | (1) | — | — | 144 |
| Czech Republic | 6 | — | — | — | — | 6 |
| Corporate Center | (12) | — | 1 | 1 | — | (10) |
| Ahold Group | 341 | (32) | 20 | 1 | — | 330 |
2 See Note 2 for a further explanation of the restatements.
Underlying operating income in local currency for Q2 2013 is \$257 million for Ahold USA and CZK 145 million for Czech Republic.
| (€ million) | Underlying operating income HY 2014 |
Impairments | Gains on the sale of assets |
Restructuring and related charges |
Other | Operating income HY 2014 |
|---|---|---|---|---|---|---|
| Ahold USA | 389 | (4) | 1 | (2) | — | 384 |
| The Netherlands | 312 | (5) | 6 | (19) | — | 294 |
| Czech Republic | 15 | — | — | — | — | 15 |
| Corporate Center | (36) | — | — | (17) | — | (53) |
| Ahold Group | 680 | (9) | 7 | (38) | — | 640 |
Underlying operating income in local currency for HY 2014 is \$533 million for Ahold USA and CZK 400 million for Czech Republic.
| (€ million) | Underlying operating income HY 2013 (restated)² |
Impairments (restated)2 |
Gains on the sale of assets |
Restructuring and related charges |
Other | Operating income HY 2013 (restated)² |
|---|---|---|---|---|---|---|
| Ahold USA | 446 | (47) | 20 | — | (56) | 363 |
| The Netherlands | 334 | (3) | — | — | — | 331 |
| Czech Republic | 13 | — | — | — | — | 13 |
| Corporate Center | (34) | — | 1 | 1 | 2 | (30) |
| Ahold Group | 759 | (50) | 21 | 1 | (54) | 677 |
2 See Note 2 for a further explanation of the restatements.
Underlying operating income in local currency for HY 2013 is \$585 million for Ahold USA and CZK 315 million for Czech Republic.
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 a defined benefit pension plan of €7 million.
| € million | EBITDA Q2 2014 |
Depreciation and amortization |
Operating income Q2 2014 |
EBITDA Q2 2013 (restated)² |
Depreciation and amortization |
Operating income Q2 2013 (restated)² |
|---|---|---|---|---|---|---|
| Ahold USA | 284 | (124) | 160 | 319 | (129) | 190 |
| The Netherlands | 179 | (60) | 119 | 202 | (58) | 144 |
| Czech Republic | 13 | (7) | 6 | 14 | (8) | 6 |
| Corporate Center | (24) | (1) | (25) | (10) | — | (10) |
| Total by segment | 452 | (192) | 260 | 525 | (195) | 330 |
| Share in income of joint ventures | 3 | 2 | ||||
| Income (loss) from discontinued operations |
(11) | 2 | ||||
| Total EBITDA | 444 | 529 |
1 EBITDA is a non-GAAP measure. See section "Use of non-GAAP financial measures" for more information on the use of non-GAAP measures.
| (€ million) | EBITDA HY 2014 |
Depreciation and amortization |
Operating income HY 2014 |
EBITDA HY 2013 (restated)² |
Depreciation and amortization |
Operating Income HY 2013 (restated)² |
|---|---|---|---|---|---|---|
| Ahold USA | 671 | (287) | 384 | 662 | (299) | 363 |
| The Netherlands | 430 | (136) | 294 | 462 | (131) | 331 |
| Czech Republic | 33 | (18) | 15 | 32 | (19) | 13 |
| Corporate Center | (52) | (1) | (53) | (29) | (1) | (30) |
| Total by segment | 1,082 | (442) | 640 | 1,127 | (450) | 677 |
| Share in income of joint ventures | 6 | 4 | ||||
| Income (loss) from discontinued operations |
(196) | 1,742 | ||||
| Total EBITDA | 892 | 2,873 |
2. See Note 2 for a further explanation of the restatements.
| € million | Q2 2014 | Q2 2013 (restated)² |
HY 2014 | HY 2013 (restated)² |
|---|---|---|---|---|
| Operating cash flows from continuing operations before changes in working capital and income taxes paid |
468 | 487 | 1,072 | 1,124 |
| Changes in working capital | (142) | 34 | (102) | (70) |
| Income taxes paid - net | (93) | (65) | (216) | (105) |
| Purchase of non-current assets | (131) | (156) | (319) | (419) |
| Divestments of assets / disposal groups held for sale | 33 | 34 | 41 | 38 |
| Dividends received from joint ventures | 13 | 2 | 14 | 3 |
| Interest received | 1 | 1 | 4 | 3 |
| Interest paid | (79) | (82) | (122) | (131) |
| Free cash flow | 70 | 255 | 372 | 443 |
1 Free cash flow is a non-GAAP measure. See section "Use of non-GAAP financial measures" for more information on the use of non-GAAP measures.
| € million | July 13, 2014 |
April 20, 2014 |
December 29, 2013 |
|---|---|---|---|
| Loans | 1,327 | 1,302 | 1,307 |
| Finance lease liabilities | 1,054 | 1,038 | 1,069 |
| Cumulative preferred financing shares | 497 | 497 | 497 |
| Non-current portion of long-term debt | 2,878 | 2,837 | 2,873 |
| Short-term borrowings and current portion of long-term debt | 149 | 145 | 148 |
| Gross debt | 3,027 | 2,982 | 3,021 |
| Less: Cash, cash equivalents, and short-term deposits and similar instruments 2, 3 | 1,972 | 2,702 | 3,963 |
| Net debt | 1,055 | 280 | (942) |
1 Net debt is a non-GAAP measure. See section "Use of non-GAAP financial measures" for more information on the use of non-GAAP measures.
2 Short-term deposits and similar instruments include investments with a maturity of between three and 12 months. The balance of these instruments at July 13, 2014, was €453 million (April 20, 2014: €674 million, December 29, 2013: €1,467 million) and is presented within Other current financial assets in the consolidated balance sheet.
3 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 €117 million, €117 million and €166 million as of July 13, 2014, April 20, 2014, and December 29, 2013, respectively.
| End of 2013 |
Opened / acquired |
Closed / sold |
End of Q2 2014 |
End of Q2 2013 |
|
|---|---|---|---|---|---|
| Ahold USA | 767 | 1 | (2) | 766 | 775 |
| The Netherlands1 | 2,056 | 27 | (11) | 2,072 | 2,022 |
| Czech Republic | 284 | — | (1) | 283 | 282 |
| Continuing operations of Ahold Group | 3,107 | 28 | (14) | 3,121 | 3,079 |
| Slovakia | 24 | — | (24) | — | 24 |
| Total | 3,131 | 28 | (38) | 3,121 | 3,103 |
1 The number of stores at the end of Q2 2014 includes 1,125 specialty stores (Etos and Gall & Gall) (Q2 2013: 1,115). During HY 2014, nine C1000 stores were converted to the Albert Heijn banner.
This interim report includes non-GAAP financial measures. The descriptions of these non-GAAP financial measures are included on page 46 of Ahold's Annual Report 2013. The description of a new non-GAAP measure is included below.
Identical sales plus net sales from replacement stores in local currency, excluding gasoline net sales. Because gasoline prices have experienced greater volatility than food prices, Ahold's management believes that by excluding gasoline net sales, this measure provides a better insight into the growth of its comparable store sales.
Ahold's 2014 financial year consists of 52 weeks and ends on December 28, 2014. The quarters in 2014 are:
First quarter (16 weeks) December 30, 2013, through April 20, 2014 Second quarter (12 weeks) April 21 through July 13, 2014 Third quarter (12 weeks) July 14 through October 5, 2014 Fourth quarter (12 weeks) October 6 through December 28, 2014
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 the progress of Ahold's Reshaping Retail strategy, customer proposition program, Simplicity program, share buyback program, Ahold's response to commodity price increases, Ahold's investments in customer proposition and value offering, the reorganization of Ahold's head office in the Netherlands and the streamlining of Albert Heijn's commercial organization, Ahold's growth strategies, sales performances, margins, Ahold's enterprise risk management program, the conversion of franchise stores to the Albert Heijn banner and the court approval, size, funding and timing of the Waterbury settlement. 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 successfully complete 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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