Quarterly Report • Jun 4, 2013
Quarterly Report
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June 4, 2013
First quarter 2013
Amsterdam, the Netherlands – Ahold today published its interim report for the first quarter of 2013.
CEO Dick Boer said: "Overall sales grew by 4.4% at constant exchange rates in the first quarter. We continue to gain market share in our major markets as a result of identical sales growth, the expansion of our store network, and strong growth in our on-line business.
"In the United States, our sales, measured in US dollars, grew by 3.4% with ongoing high levels of promotional activity. We delivered a strong margin performance, thanks to strict cost control. We continue to actively manage our U.S. pension plans, and in this quarter we settled a multi-employer pension plan for €63 million that limits our liability while cost-effectively safeguarding the pensions earned by employees.
"In the Netherlands, our sales grew by 7.5% in a market where consumer confidence remains low. Our operating margin reflects additional non-cash pension charges that resulted from the revised pension accounting rules and decreased discount rates that we flagged earlier, as well as our continued investment in growth. We are pleased with the strong sales performance of our online businesses, partly driven by the success of our pick-up points, and with our expansion into Belgium.
"During the quarter our cash balances increased significantly with the dividend and proceeds from the sale of our 60% stake in ICA. We remain committed to improving the efficiency of our balance sheet and have increased our share buyback program from €500 million to €2 billion, to be completed by the end of 2014. Our focus remains on strong capital discipline combined with a balanced approach between investing in profitable growth and providing attractive returns to shareholders.
"We remain cautious in our outlook for 2013 but we are committed to deliver on our Reshaping Retail strategy."
| % change | ||||
|---|---|---|---|---|
| Q1 2013 | Q1 2012 | % | constant | |
| (€ million, except per share data) | (restated)1 | change | rates | |
| Net sales | 10,117 | 9,716 | 4.1% | 4.4% |
| Underlying operating income | 416 | 416 | - | 0.4% |
| Operating income | 345 | 413 | (16.5)% | (16.3)% |
| Income from continuing operations | 208 | 257 | (19.1)% | (18.9)% |
| Net income | 1,951 | 285 | 584.6% | 583.8% |
| Basic earnings per share | 1.88 | 0.27 | 596.3% | 587.2% |
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 first quarter of 2013:
Two significant initiatives that occurred in Q1 were:
Net sales were €10.1 billion, up 4.1%. At constant exchange rates, net sales increased by 4.4%. We achieved solid sales growth in the United States and the Netherlands. During the quarter, Ahold USA achieved 3.4% sales growth, measured in US dollars, and the Netherlands achieved 7.5% growth, of which 3.1% was from the inclusion of bol.com. Sales in Other Europe (Czech Republic and Slovakia combined) decreased 2.9% at constant exchange rates. We gained market share in the Czech Republic in a challenging environment.
Underlying operating income was €416 million, unchanged from 2012 and up 0.4% at constant exchange rates. Underlying operating margin was 4.1% compared to 4.3% last year.
Operating income was €345 million, down 16.5% and 16.3% at actual and constant exchange rates, respectively. This included a €63 million (\$82 million) pre-tax charge at Ahold USA related to a multiemployer pension plan settlement with the New England Teamsters and Trucking Industry Pension Fund. Under the settlement agreement Stop & Shop will withdraw and settle its liability under the original pension plan pool without reducing benefits and will re-enter the pension plan and will only be responsible for the pension benefits of their own employees in the new pool.
Income from continuing operations was €208 million; €49 million lower than last year. This was driven by the multi-employer plan settlement charge and higher net financial expenses of €30 million,
partially offset by lower income taxes of €50 million. The increase in financial expenses includes €14 million of increased interest charges from our defined benefit pension plans and a one-time €11 million adjustment to a financial liability. Income per share from continuing operations was €0.20 versus €0.25 last year.
Net income was €1,951 million, up €1,666 million. Contributing to this increase was a result from discontinued operations of €1,743 million, of which €1,748 million related to ICA.
Free cash flow was €182 million. This is a decrease of €109 million compared to last year primarily due to the timing of rent payments, an increase in investments in fixed assets of €36 million, and a €31 million payment for the final settlement of the U.S. Frozen Pension Plan.
Cash and cash equivalents increased by €2,284 million to €4,170 million, due to the receipt of proceeds related to both the sale of and a dividend received from ICA, totaling €2,519 million.
Net debt decreased by €2,567 million from Q4 2012 to become negative net debt of €1,207 million.
Net sales were \$8.1 billion, up 3.4% due to solid identical growth and benefiting from the inclusion of 15 former Genuardi stores acquired last year. Identical sales growth of 1.8% (1.9% excluding gasoline) was driven by more effective promotions and the strong performance in our Stop & Shop divisions during adverse weather events. The move to selling more generic drugs had a negative effect on sales growth, however this was offset by the positive effect from the timing of New Year's Eve sales. Ahold USA gained market share in all four divisions. Underlying operating margin was 4.1% compared to 4.2% last year.
Net sales increased 7.5% to €3.5 billion. Excluding the sales of bol.com, which was acquired in Q2 2012, sales growth remained strong at 4.4%. Identical sales growth was 1.8%. Contributing to the overall sales growth were the addition of 18 former C1000/Jumbo stores to Albert Heijn and further expansion into Belgium (where we operated 12 Albert Heijn supermarkets at quarter-end versus three at the end of Q1 last year). Identical sales were driven by inflation and promotions. The combination of new stores and identical sales growth led to a substantial increase of Albert Heijn's market share. During the quarter albert.nl increased sales through additional marketing, expansion into the southern part of the Netherlands (to now service 67% of the country) and the opening of new pick-up points. Underlying operating margin was 5.3% (5.5% excluding bol.com), compared to 5.7% in the same quarter last year. The decline reflects higher pension costs as a consequence of lower discount rates.
Net sales decreased 5.1% to €482 million. At constant exchange rates, net sales decreased 2.9%. Identical sales decreased 2.8% (1.2% excluding gasoline) primarily in Slovakia. In the Czech Republic economic conditions continued to be challenging due to an additional VAT increase, increased unemployment and strong competition. Despite these challenges, our Czech operations gained market share and improved operating profit compared to last year. Underlying operating margin in Other Europe was 1.0% compared to 0.8% last year.
Costs for the Corporate Center were €20 million for the quarter, down €2 million; underlying Corporate Center costs were €22 million. Excluding the effect of the Company's insurance activities, underlying Corporate Center costs were €23 million, a decrease of €2 million over last year.
| Q1 2013 Identical |
Q1 2013 Identical excluding gasoline |
Q1 2013 Comparable |
|
|---|---|---|---|
| Ahold USA | 1.8% | 1.9% | 2.0% |
| The Netherlands | 1.8% | 1.8% | |
| Other Europe | (2.8)% | (1.2)% |
1. For the definition of identical and comparable sales see section "Other information" – "Use of non-GAAP financial measures."
| Q1 2013 | Q1 2012 (restated) 2 |
% change |
|
|---|---|---|---|
| \$ million | |||
| Ahold USA | 328 | 328 | - |
| Average U.S. dollar exchange rate (euro per U.S. dollar) | 0.7598 | 0.7621 | (0.3)% |
| € million | |||
| Ahold USA | 247 | 250 | (1.2)% |
| The Netherlands | 186 | 186 | - |
| Other Europe | 5 | 4 | 25.0% |
| Corporate Center | (22) | (24) | 8.3% |
| Ahold Group | 416 | 416 | - |
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.
| Q1 2013 | Q1 2012 (restated)1 |
|
|---|---|---|
| Ahold USA | 4.1% | 4.2% |
| The Netherlands | 5.3% | 5.7% |
| Other Europe | 1.0% | 0.8% |
| Ahold Group | 4.1% | 4.3% |
1. See Note 2 for a further explanation of the restatements.
| End of 2012 |
Opened / acquired |
Closed / sold |
End of Q1 2013 |
End of Q1 2012 |
|
|---|---|---|---|---|---|
| Ahold USA | 772 | 3 | (1) | 774 | 759 |
| The Netherlands1 | 1,996 | 15 | (1) | 2,010 | 1,945 |
| Other Europe | 306 | - | - | 306 | 307 |
| Ahold Group | 3,074 | 18 | (2) | 3,090 | 3,011 |
1. The number of stores at the end of Q1 2013 includes 1,114 specialty stores (Etos and Gall & Gall) (Q1 2012: 1,087).
| Q1 2013 | Q1 2012 | % | |
|---|---|---|---|
| (€ million) | (restated)2 | change | |
| Ahold USA | 343 | 408 | (15.9)% |
| The Netherlands | 260 | 253 | 2.8% |
| Other Europe | 17 | 19 | (10.5)% |
| Corporate Center | (19) | (22) | 13.6% |
| EBITDA by segment | 601 | 658 | (8.7)% |
| Share in income of joint ventures | 2 | 3 | (33.3)% |
| Income from discontinued operations | 1,743 | 28 | n/m |
| Total EBITDA | 2,346 | 689 | 240.5% |
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.
| Q1 | Q1 | |
|---|---|---|
| (€ million) | 2013 | 2012 |
| Operating cash flows from continuing operations | 488 | 560 |
| Purchase of non-current assets | (263) | (227) |
| Divestments of assets / disposal groups held for sale | 4 | 10 |
| Dividends from joint ventures | 1 | 4 |
| Interest received | 2 | 4 |
| Interest paid | (50) | (60) |
| Free cash flow | 182 | 291 |
1. For the definition of free cash flow see section "Other information" – "Use of non-GAAP financial measures."
| April 21, | December 30, | |
|---|---|---|
| (€ million) | 2013 | 2012 |
| Loans | 1,377 | 1,431 |
| Finance lease liabilities | 1,179 | 1,179 |
| Cumulative preferred financing shares | 497 | 497 |
| Non-current portion of long-term debt | 3,053 | 3,107 |
| Short-term borrowings and current portion of long-term debt | 147 | 139 |
| Gross debt | 3,200 | 3,246 |
| Less: Cash, cash equivalents and short-term deposits and similar instruments1 | 4,407 | 1,886 |
| Net debt | (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 €117 million and €170 million as of April 21, 2013, and December 30, 2012, respectively.
| Q1 2013 | Q1 2012 | ||
|---|---|---|---|
| (€ million, except per share data) | Note | (restated)1 | |
| Net sales | 4 | 10,117 | 9,716 |
| Cost of sales | 5 | (7,418) | (7,144) |
| Gross profit | 2,699 | 2,572 | |
| Selling expenses | (1,959) | (1,871) | |
| General and administrative expenses | (395) | (288) | |
| Total operating expenses | 5 | (2,354) | (2,159) |
| Operating income | 4 | 345 | 413 |
| Interest income | 2 | 3 | |
| Interest expense | (70) | (74) | |
| Interest income (expense) on defined benefit pension plans - net | (8) | 6 | |
| Other financial expense | (19) | - | |
| Net financial expense | (95) | (65) | |
| Income before income taxes | 250 | 348 | |
| Income taxes | 6 | (44) | (94) |
| Share in income of joint ventures | 7 | 2 | 3 |
| Income from continuing operations | 208 | 257 | |
| Income from discontinued operations | 8 | 1,743 | 28 |
| Net income attributable to common shareholders | 1,951 | 285 | |
| Net income per share attributable to common shareholders | |||
| Basic | 1.88 | 0.27 | |
| Diluted | 1.79 | 0.26 | |
| Income from continuing operations per share attributable to common shareholders | |||
| Basic | 0.20 | 0.25 | |
| Diluted | 0.20 | 0.24 | |
| Weighted average number of common shares outstanding (in millions) | |||
| Basic | 1,040 | 1,045 | |
| Diluted | 1,093 | 1,107 | |
| Average U.S. dollar exchange rate (euro per U.S. dollar) | 0.7598 | 0.7621 |
| (€ million) | Note | Q1 2013 | Q1 2012 (restated)1 |
|---|---|---|---|
| Net income | 1,951 | 285 | |
| Remeasurements of defined benefit pension plans | |||
| Remeasurements of defined benefit pension plans before taxes | 10 | 320 | (73) |
| Income taxes | (88) | 25 | |
| Other comprehensive income that will not be reclassified to profit or loss | 232 | (48) | |
| Currency translation differences in foreign interests: | |||
| Currency translation differences before taxes | 62 | (52) | |
| Cumulative translation differences from divestments transferred to net income | 8 | (80) | - |
| Income taxes | - | - | |
| Cash flow hedges: | |||
| Fair value gains in the year | (45) | (37) | |
| Transfers to net income | 41 | 26 | |
| Income taxes | 1 | 3 | |
| Other comprehensive income (loss) of joint ventures - net of income taxes | |||
| Share of other comprehensive income (loss) | (1) | 1 | |
| Cumulative other comprehensive loss transferred to net income | 8 | 9 | - |
| Other comprehensive income that may be reclassified to profit or loss | (13) | (59) | |
| Total other comprehensive income | 219 | (107) | |
| Total comprehensive income attributable to common shareholders | 2,170 | 178 | |
| April 21, | December 30, | ||
|---|---|---|---|
| 2013 | 2012 | ||
| (€ million) | Note | (restated)1 | |
| Assets | |||
| Property, plant and equipment | 6,052 | 6,038 | |
| Investment property | 557 | 565 | |
| Intangible assets | 1,579 | 1,569 | |
| Investments in joint ventures | 215 | 1,017 | |
| Other non-current financial assets | 406 | 420 | |
| Deferred tax assets | 490 | 512 | |
| Other non-current assets | 35 | 35 | |
| Total non-current assets | 9,334 | 10,156 | |
| Assets held for sale | 6 | - | |
| Inventories | 1,479 | 1,492 | |
| Receivables | 728 | 793 | |
| Other current financial assets | 284 | 43 | |
| Income taxes receivable | 45 | 47 | |
| Other current assets | 173 | 155 | |
| Cash and cash equivalents | 11 | 4,170 | 1,886 |
| Total current assets | 6,885 | 4,416 | |
| Total assets | 16,219 | 14,572 | |
| Equity and liabilities | |||
| Equity attributable to common shareholders | 9 | 6,817 | 5,146 |
| Loans | 1,377 | 1,431 | |
| Other non-current financial liabilities | 2,047 | 1,930 | |
| Pensions and other post-employment benefits | 289 | 643 | |
| Deferred tax liabilities | 153 | 98 | |
| Provisions | 636 | 646 | |
| Other non-current liabilities | 244 | 251 | |
| Total non-current liabilities | 4,746 | 4,999 | |
| Accounts payable | 2,431 | 2,667 | |
| Other current financial liabilities | 747 | 236 | |
| Income taxes payable | 140 | 134 | |
| Provisions | 164 | 256 | |
| Other current liabilities | 1,174 | 1,134 | |
| Total current liabilities | 4,656 | 4,427 | |
| Total equity and liabilities | 16,219 | 14,572 | |
| Quarter-end U.S. dollar exchange rate (euro per U.S. dollar) | 0.7662 | 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) |
| Total comprehensive income (restated)2 | - | - | (52) | (8) | 238 | 178 |
| Share buyback | - | - | - | - | (277) | (277) |
| Share-based payments | - | - | - | - | 14 | 14 |
| Balance as of April 22, 20122 | 330 | 9,094 | (317) | (101) | (3,696) | 5,310 |
| Balance as of December 30, 2012 | ||||||
| (restated)2 | 318 | 8,713 | (295) | (126) | (3,464) | 5,146 |
| Dividends | - | - | - | - | (457) | (457) |
| Total comprehensive income | - | - | (18) | (3) | 2,191 | 2,170 |
| Share buyback | - | - | - | - | (61) | (61) |
| Share-based payments | - | - | - | - | 19 | 19 |
| Balance as of April 21, 2013 | 318 | 8,713 | (313) | (129) | (1,772) | 6,817 |
1. Other reserves include the remeasurements of defined benefit pension plans.
| (€ million) | Note | Q1 2013 | Q1 2012 (restated)1 |
|---|---|---|---|
| Operating income | 345 | 413 | |
| Adjustments for: | |||
| Depreciation, amortization and impairments | 5 | 274 | 252 |
| Gains on the sale of assets / disposal groups held for sale | 5 | (1) | (4) |
| Share-based compensation expenses | 11 | 12 | |
| Operating cash flows before changes in operating assets and liabilities | 629 | 673 | |
| Changes in working capital: | |||
| Changes in inventories | 22 | 7 | |
| Changes in receivables and other current assets | 56 | 44 | |
| Changes in payables and other current liabilities | (186) | (121) | |
| Changes in non-current assets, other non-current liabilities and provisions | 7 | 2 | |
| Cash generated from operations | 528 | 605 | |
| Income taxes paid - net | (40) | (45) | |
| Operating cash flows from continuing operations | 488 | 560 | |
| Operating cash flows from discontinued operations | (3) | (2) | |
| Net cash from operating activities | 485 | 558 | |
| Purchase of non-current assets | (263) | (227) | |
| Divestments of assets / disposal groups held for sale | 4 | 10 | |
| Acquisition of businesses, net of cash acquired | 3 | 3 | (15) |
| Divestment of businesses, net of cash divested | 8 | 2,372 | (3) |
| Changes in short-term deposits and similar instruments | (237) | 78 | |
| Dividends from joint ventures | 1 | 4 | |
| Interest received | 2 | 4 | |
| Other | - | 2 | |
| Investing cash flows from continuing operations | 1,882 | (147) | |
| Investing cash flows from discontinued operations | 8 | 142 | - |
| Net cash from investing activities | 2,024 | (147) | |
| Interest paid | (50) | (60) | |
| Repayments of loans | (11) | (416) | |
| Repayments of finance lease liabilities | (22) | (20) | |
| Change in short term loans | 3 | 34 | |
| Share buyback | 9 | (61) | (277) |
| Change in derivatives | (8) | 122 | |
| Other | 11 | (86) | 3 |
| Financing cash flows from continuing operations | (235) | (614) | |
| Financing cash flows from discontinued operations | (1) | (1) | |
| Net cash from financing activities | (236) | (615) | |
| Net cash from operating, investing and financing activities | 11 | 2,273 | (204) |
| Average U.S. dollar exchange rate (euro per U.S. dollar) | 0.7598 | 0.7621 |
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 in Zaandam, the Netherlands, and its head office in Amsterdam, the Netherlands, is the operation of retail food stores in the United States and Europe through subsidiaries and joint ventures.
The information in these condensed consolidated interim financial statements ("financial statements") is unaudited.
These financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting." The accounting policies applied in these financial statements are consistent with those applied in Ahold's 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 first quarters of 2013 and 2012 are each comprised of 16 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 internal 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 and in Q1 2012 decreased cost of sales by €41 million and increased selling expenses and general and administrative expenses by €27 million and €14 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, €29 million that was previously reported 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 the items in other comprehensive income on the basis of whether 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
Summary financial statements
plan assets. The amendments require the recognition of changes in defined benefit obligations and in fair value of plan assets when they occur, and hence eliminate 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 netinterest 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.
The restatements to Ahold's 2012 comparative amounts for the changes in presentation and adoption of IAS 19 (as revised) are as follows:
| Q1 2012 | Changes in | IAS 19 | Q1 2012 | |
|---|---|---|---|---|
| (€ million, except per share data) | as reported | presentation | restatement | as restated |
| Consolidated income statement line items | ||||
| Net income | 9,716 | - | - | 9,716 |
| Cost of sales | (7,185) | 41 | - | (7,144) |
| Gross profit | 2,531 | 41 | - | 2,572 |
| Selling expenses | (1,839) | (27) | (5) | (1,871) |
| General and administrative expenses | (276) | (14) | 2 | (288) |
| Operating Income | 416 | - | (3) | 413 |
| Interest income | 3 | - | - | 3 |
| Interest expense | (74) | - | - | (74) |
| Interest income on defined benefit pension plans | - | - | 6 | 6 |
| Income before income taxes | 345 | - | 3 | 348 |
| Income taxes | (93) | - | (1) | (94) |
| Share in income of joint ventures | 32 | (29) | - | 3 |
| Income from continuing operations | 284 | (29) | 2 | 257 |
| Income (loss) from discontinued operations | (2) | 29 | 1 | 28 |
| Net income attributable to common shareholders | 282 | - | 3 | 285 |
| Net income per share attributable to common shareholders | ||||
| Basic | 0.27 | - | - | 0.27 |
| Diluted | 0.26 | - | - | 0.26 |
| Income from continuing operations per share attributable | ||||
| to common shareholders | ||||
| Basic | 0.27 | (0.02) | - | 0.25 |
| Diluted | 0.26 | (0.02) | - | 0.24 |
| Q1 2012 | Changes in | IAS 19 | Q1 2012 | |
| (€ million) | as reported | presentation | restatement | as restated |
| Consolidated statement of comprehensive income line items | ||||
| Net income attributable to common shareholders | 282 | - | 3 | 285 |
| Remeasurement defined benefit pension plans before tax | - | - | (73) | (73) |
| Income taxes | - | - | 25 | 25 |
| Other comprehensive income that will not be reclassified | ||||
| to profit or loss | - | - | (48) | (48) |
| Other comprehensive income that may be reclassified to | ||||
| profit or loss | (64) | - | 5 | (59) |
| Total other comprehensive income | (64) | - | (43) | (107) |
| Total comprehensive income attributable to common |
shareholders 218 - (40) 178
| December | December | |||
|---|---|---|---|---|
| 30, 2012 | Changes in | IAS 19 | 30, 2012 | |
| (€ million) | as reported | presentation | restatement | 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) |
| April 22, | April 22, | |||
| 2012 | Changes in | IAS 19 | 2012 | |
| (€ million) | as reported | presentation | restatement | as restated |
| Consolidated statement of changes in equity | ||||
| Share capital | 330 | - | - | 330 |
| Additional paid-in capital | 9,094 | - | - | 9,094 |
| Currency translation reserve | (322) | - | 5 | (317) |
| Cash flow hedging reserve | (101) | - | - | (101) |
| Other reserves including accumulated deficit | (3,584) | - | (112) | (3,696) |
| Equity attributable to common shareholders | 5,417 | - | (107) | 5,310 |
|---|---|---|---|---|
| (€ 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 reserve | (298) | - | 3 | (295) |
| Cash flow hedging reserve | (126) | - | - | (126) |
| Other reserves including accumulated deficit | (2,612) | - | (852) | (3,464) |
| Equity attributable to common shareholders | 5,995 | - | (849) | 5,146 |
| Q1 2012 | Changes in | IAS 19 | Q1 2012 | |
|---|---|---|---|---|
| (€ million) | as reported | presentation | restatement | as restated |
| Consolidated statement of cash flows line items | ||||
| Operating income | 416 | - | (3) | 413 |
| Changes in non-current assets, other non-current liabilities | ||||
| and provisions | (1) | - | 3 | 2 |
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 €262 million paid to date (Q1 2013: credit €3 million and 2012: €265 million) and the remaining to be settled as agreements are reached with the franchisees. During the first quarter of this year, three of the stores were converted to the Albert Heijn banner (18 stores converted in total). The remaining 64 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 €63 million to date (Q1 2013: €10 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 18 individual stores that were converted to the Albert Heijn banner have contributed €31 million to Q1 2013 net sales and an insignificant amount to net income.
The allocation of the fair value of the net assets acquired and the goodwill arising from the acquisitions during 2013 is as follows:
| (€ million) | |
|---|---|
| Goodwill | 10 |
| Reversal of other intangible assets | (13) |
| Acquisition of business, net of cash | (3) |
A reconciliation of Ahold's goodwill balance, which is included in intangible assets, is as follows:
| € million | |
|---|---|
| As of December 30, 2012 | |
| At cost | 772 |
| Accumulated impairment losses | (3) |
| Opening carrying amount | 769 |
| Business acquisitions | 10 |
| Exchange rate differences | 3 |
| Closing carrying amount | 782 |
| As of April 21, 2013 | |
| At cost | 785 |
| Accumulated impairment losses | (3) |
| Carrying amount | 782 |
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:
| % | |||
|---|---|---|---|
| Q1 2013 | Q1 2012 | change | |
| \$ million | |||
| Ahold USA | 8,068 | 7,803 | 3.4% |
| Average U.S. dollar exchange rate (euro per U.S. dollar) | 0.7598 | 0.7621 | (0.3)% |
| € million | |||
| Ahold USA | 6,129 | 5,946 | 3.1% |
| The Netherlands | 3,506 | 3,262 | 7.5% |
| Other Europe | 482 | 508 | (5.1)% |
| Ahold Group | 10,117 | 9,716 | 4.1% |
The net sales of Ahold's unconsolidated joint venture JMR amounted to €778 million and €740 million for Q1 2013 and Q1 2012, respectively.
Operating income (loss) per segment is as follows:
| Q1 2013 | Q1 2012 | % | |
|---|---|---|---|
| (restated)1 | change | ||
| \$ million | |||
| Ahold USA | 231 | 319 | (27.6)% |
| Average U.S. dollar exchange rate (euro per U.S. dollar) | 0.7598 | 0.7621 | (0.3)% |
| € million | |||
| Ahold USA | 173 | 243 | (28.8)% |
| The Netherlands | 187 | 188 | (0.5)% |
| Other Europe | 5 | 4 | 25.0% |
| Corporate Center | (20) | (22) | 9.1% |
| Ahold Group | 345 | 413 | (16.5)% |
1. See Note 2 for a further explanation of the restatements.
Q1 2013 operating income included \$24 million (€18 million) of impairment charges and \$9 million (€7 million) gains on the final settlement of the Frozen Plan (see Note 10). In addition, a multiemployer pension withdrawal liability in the amount of \$82 million (€63 million) was recognized during the quarter (see Note 10).
Q1 2012 operating income included \$10 million (€7 million) of impairment charges and \$1 million (€ nil) of gains on the sale of assets. The effect of the adoption of IAS 19 (as revised) was an increase in operating income of \$8 million (€6 million).
Q1 2013 operating income included €1 million of gains on the sale of assets.
Q1 2012 operating income included €2 million of gains on the sale of assets. The effect of the adoption of IAS 19 (as revised) was a decrease in operating income of €9 million.
Corporate Center costs for Q1 2013 were down €2 million compared to same period last year. Excluding the effect of the Company's insurance activities, Corporate Center costs were €21 million, €2 million lower. Included in Q1 2013 operating income is \$3 million (€2 million) gains on the final settlement of the Frozen Plan (see Note 10). Q1 2012 operating income included €2 million of gains on the sale of assets.
The aggregate of cost of sales and operating expenses is specified by nature as follows:
| Total | 9,772 | 9,303 |
|---|---|---|
| Gains on the sale of assets - net | (1) | (4) |
| Impairment losses and reversals - net | 18 | 7 |
| Rent expenses and income - net | 162 | 157 |
| Depreciation and amortization | 256 | 245 |
| Other operational expenses | 723 | 675 |
| Labor costs | 1,511 | 1,367 |
| Cost of product | 7,103 | 6,856 |
| € million | (restated)1 | |
| Q1 2013 | Q1 2012 |
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.
In Q1 2013, income taxes included €12 million of one-time tax benefits, mainly arising from a ruling on an uncertain tax position. In Q1 2012, income taxes included €7 million of one-time tax charges related to previous years.
The Company's share in income of joint ventures is net of income taxes and is specified as follows:
| € million | Q1 2013 | Q1 2012 (restated)1 |
|---|---|---|
| JMR | 2 | 2 |
| Other | - | 1 |
| Total | 2 | 3 |
Income (loss) from discontinued operations is specified as follows:
| Q1 2013 | Q1 2012 | |
|---|---|---|
| € million | (restated)1 | |
| ICA | 137 | 30 |
| Operating results from discontinued operations | 137 | 30 |
| ICA | 1,611 | - |
| BI-LO and Bruno's | (1) | - |
| Other2 | (4) | (2) |
| Results on divestments of discontinued operations | 1,606 | (2) |
| Income from discontinued operations, net of income taxes | 1,743 | 28 |
1. See Note 2 for a further explanation of the restatements.
2. Includes adjustments to the result on various past divestments.
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 €1,611 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 | 80 |
| Other items previously recognized in other comprehensive income | (9) |
| Results on divestments before income taxes | 1,611 |
| Income taxes | - |
| Result on divestment of ICA | 1,611 |
The cash flows from divestment of businesses as presented in the cash flow statement are as follows:
| Divestment of businesses, net of cash divested | 2,372 | (3) |
|---|---|---|
| Net cash flows related to other past divestments | (5) | (3) |
| Proceeds from ICA* | 2,377 | - |
| € million | Q1 2013 | Q1 2012 |
* excludes €9 million of accrued transaction costs.
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. Under this program, 5,123,446 of the Company's own shares were repurchased and delivered in the first quarter of 2013. Shares were repurchased at an average price of €11.88 per share for a total amount of €61 million. 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 number of outstanding common shares as of April 21, 2013, was 1,037,915,300 (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 due by June 22, 2013, and the second due by April 30, 2025. Accordingly, Stop & Shop has recorded a pretax liability in Q1 2013 for the discounted amount of the settlement liability of \$82 million (€63 million). Stop & Shop's withdrawal from the original pension plan pool will be effective 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:
| Q1 | Q1 | |
|---|---|---|
| € 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 | 2,273 | (204) |
| Effect of exchange rate differences on cash and cash equivalents | 11 | (28) |
| Restricted cash | 22 | 28 |
| Cash and cash equivalents at the end of the quarter | 4,170 | 2,203 |
Included in Other financing cash flows is the €92 million (\$124 million) settlement paid to Vornado. Refer to Note 34 of Ahold's 2012 Annual Report for more information on the litigation.
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:
| April 21, 2013 | December 30, 2012 | |||
|---|---|---|---|---|
| Carrying | Fair | Carrying | Fair | |
| € million | amount | value | amount | value |
| Loan receivable | 38 | 51 | 38 | 54 |
| Accounts receivable | 731 | 731 | 800 | 800 |
| Reinsurance assets | 118 | 118 | 109 | 109 |
| Total loans and receivables | 887 | 900 | 947 | 963 |
| Cash and cash equivalents | 4,170 | 4,170 | 1,886 | 1,886 |
| Short-term deposits and similar instruments | 237 | 237 | - | - |
| Derivatives | 264 | 264 | 282 | 282 |
| Available for sale | 4 | 4 | 4 | 4 |
| Total financial assets | 5,562 | 5,575 | 3,119 | 3,135 |
| Notes | (1,007) | (1,293) | (1,056) | (1,348) |
| Other loans | (5) | (4) | (5) | (4) |
| Financing obligations | (379) | (564) | (381) | (573) |
| Mortgages payable | (10) | (12) | (11) | (12) |
| Finance lease liabilities | (1,257) | (1,712) | (1,254) | (1,731) |
| Cumulative preferred financing shares | (497) | (567) | (497) | (535) |
| Dividend cumulative preferred financing shares | (31) | (31) | (24) | (24) |
| Accounts payable | (2,431) | (2,431) | (2,667) | (2,667) |
| Short-term borrowings | (45) | (45) | (42) | (42) |
| Dividend common stock | (457) | (457) | - | - |
| Interest payable | (20) | (20) | (25) | (25) |
| Reinsurance liabilities | (135) | (135) | (121) | (121) |
| Other | (103) | (123) | (2) | (2) |
| Total financial liabilities at amortized cost | (6,377) | (7,394) | (6,085) | (7,084) |
| Derivatives | (226) | (226) | (177) | (177) |
| Total financial liabilities | (6,603) | (7,620) | (6,262) | (7,261) |
Summary financial statements
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 Annual Report on March 6, 2013.
Share buyback
On June 4, 2013, Ahold announced that it would increase its current €500 million share buyback program by an additional €1.5 billion (see Note 9).
This summary report includes the following non-GAAP financial measures:
| (€ million) | Underlying operating income Q1 2013 |
Impairments | Gains on the sale of assets |
Restructuring and related charges |
Other | Operating income Q1 2013 |
|---|---|---|---|---|---|---|
| Ahold USA | 247 | (18) | - | - | (56) | 173 |
| The Netherlands | 186 | - | 1 | - | - | 187 |
| Other Europe | 5 | - | - | - | - | 5 |
| Corporate Center | (22) | - | - | - | 2 | (20) |
| Ahold Group | 416 | (18) | 1 | - | (54) | 345 |
The reconciliation from the underlying operating income per segment to the operating income per segment is as follows for Q1 2013 and Q1 2012, respectively:
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.
Other information
| Underlying | Impairments | Gains on the | Restructuring | Other | Operating | |
|---|---|---|---|---|---|---|
| operating | sale of | and related | income | |||
| income | assets | charges | Q1 2012 | |||
| Q1 2012 | ||||||
| (€ million) | (restated) | (restated)1 | ||||
| Ahold USA | 250 | (7) | - | - | - | 243 |
| The Netherlands | 186 | - | 2 | - | - | 188 |
| Other Europe | 4 | - | - | - | - | 4 |
| Corporate Center | (24) | - | 2 | - | - | (22) |
| Ahold Group | 416 | (7) | 4 | - | - | 413 |
1. See Note 2 for a further explanation of the restatements.
The reconciliation from EBITDA per segment to operating income per segment is as follows for Q1 2013 and Q1 2012, respectively:
| EBITDA | Depreciation and |
Operating income |
EBITDA | Depreciation and |
Operating income |
|
|---|---|---|---|---|---|---|
| Q1 2013 | amortization | Q1 2013 | Q1 2012 | amortization | Q1 2012 | |
| (€ million) | (restated)1 | (restated)1 | ||||
| Ahold USA | 343 | (170) | 173 | 408 | (165) | 243 |
| The Netherlands | 260 | (73) | 187 | 253 | (65) | 188 |
| Other Europe | 17 | (12) | 5 | 19 | (15) | 4 |
| Corporate Center | (19) | (1) | (20) | (22) | - | (22) |
| Total | 601 | (256) | 345 | 658 | (245) | 413 |
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
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 share buyback, management of U.S. pension plans, efficiency of Ahold's balance sheet, capital discipline, a balanced approach between investing in profitable growth and providing attractive returns, deliveries on Ahold's Reshaping Retail strategy, 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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