Zaandam, the Netherlands – Ahold’s Annual General Meeting of Shareholders on April 15, 2015, included a speech by Ahold Chief Executive Officer Dick Boer. Following is the full text of the speech.
Zaandam, the Netherlands – Ahold’s Annual General Meeting of Shareholders on April 15, 2015, included a speech by Ahold Chief Executive Officer Dick Boer. Following is the full text of the speech.
Welcome and thank you all for being here today, both those of you who are in the room and those joining us by webcast. I hope you were as impressed by our inspiring video as we were. I would like to share with you, our shareholders, the story of Ahold in 2014, and briefly look ahead to 2015.
What a time it is to be a retailer! In today’s world, change – in shopping habits, in lifestyles and in technology -- is happening at a faster pace than ever before. Not a day goes by without stories about our industry in the media, whether it is on healthy products, food labeling, online, prices. Or home gardening. It reflects the sentiment in society and among our customers, who are the heart of what we do.
At Ahold, we have been serving customers’ daily needs for over 125 years. Retail is in our blood – and change is in our DNA.
Our Reshaping Retail strategy is enabling us to address changing trends to serve the customer of today -- and tomorrow. Ahold is reinventing the shopping experience with our omni-channel approach, allowing customers to shop how, when and where they want to: in supermarkets, online, through home delivery or through pick-up-points. We are working to give them the products they want to buy and helping them make informed choices.
Many of you have been shareholders for quite some time now, and it is good to see many familiar faces again today. Ahold’s strategic promises -- better place to shop, better place to work and better neighbor -- will not be a surprise for most of you. We are delivering on our promises, which are helping us get better every day for our customers, our associates, and our communities.
Before I go into more detail regarding our financial performance, allow me to take a look at the economic environment. In 2014, we have seen some improvements in most of our markets, with the U.S. in the lead compared to Europe in terms of economic recovery. In the U.S., we have seen unemployment go down, as well as a recovery in purchasing power, partly thanks to gas prices. In the Netherlands, we also saw some positive signs in the fourth quarter. The economy grew, supported by exports and investments in particular. And more recently, we have seen an improvement in consumer confidence here as well.
This is good news, both for our customers and for our business. But it is early days, so we continue to drive our successful Simplicity program, which is aimed at both cost and efficiency improvements. This allows us to keep investing in what our customers are asking for: quality, reasonable prices, innovative products and services, inspiring and easy-to-shop formats, and a seamless omni-channel offering.
Now briefly turning to our financial performance, which Jeff will discuss with you in more detail. I am pleased to report that the actions we took last year helped us to deliver an improving sales performance through the course of the year.
For the full year, net sales were close to €33 billion, up 0.8% in constant currency, helped by a positive Q4 sales trend in the U.S. and a strong December period in the Netherlands. We reported double-digit growth in our online businesses, which are now contributing almost 4% to net sales, up from more than 3% in 2013. We reached online consumer sales of €1.4 billion.
Our underlying operating profit margin fell to 3.9% in 2014 from 4.2% in 2013, reflecting our investments in our customer proposition, for instance in our U.S. stores.
Our total three-year Simplicity plan delivered €865 million from 2012 to 2014 and we expect to deliver €350 million in 2015. In part thanks to this disciplined approach we were again able to invest in all of our businesses and all of our channels. I will discuss our actions in more detail in a minute.
We also had another year of strong cash flow generation in 2014 - over €1 billion. As a result of this, and our confidence in our Reshaping Retail strategy, we announced a new €500 million share buyback program, to be completed over the next 12 months. And today we are proposing an increase in our dividend to 48 cents per share.
Let me now discuss some of the investments we made in 2014 as we aim to become a better place to shop. One of the main areas of investment is of course in our omni-channel offering. And no one is better placed to offer customers a seamless combination of online and offline shopping than us. Ahold has about 3,200 stores. We are also by far the largest online retailer in the Netherlands, with bol.com and AH.nl as market leaders, and Peapod is the largest online grocer in the U.S.
Albert Heijn Online is experiencing its highest growth ever, and we recently also moved into the Belgian market. Our offering almost tripled to 25,000 products last year from 9,000 products in 2012. Shoppers in the Netherlands, for instance, now have access to about 800 Belgian products. In the U.S., we opened a new distribution center in the New Jersey area. This will enable Peapod to serve more customers in the large metro New York market.
Bol.com reached record sales in 2014, of about €680 million. Its store partners, who are able to sell products on bol.com’s site through its marketplace, together achieved sales in excess of €100 million over a 12-month period. Opening its doors to other retailers has enabled bol.com to increase its offering to over nine million items.
Let’s not forget, though, that today most customers still shop in our stores, and the stores will of course continue to be essential to our business. That is why in recent years, on average, we have invested around €800 to €900 million annually to improve our customers’ experience when they visit us.
Our supermarkets have always been an integral part of the communities they serve. They are the place where we can connect with our customers face-to-face. Through our stores, we can inspire customers. But we also see a role for ourselves outside of our stores. We aim to contribute to the well-being of our communities, either through our own initiatives or by supporting programs organized by reputable charitable organizations.
We have made considerable strides with our U.S. stores in 2014. We are among the top five supermarkets in the country, and we are market leader in most of our regions. But we wanted to get even better. So our team, led by James McCann, made a plan to distinguish ourselves from competitors, on price, quality and service. It is really an all-encompassing program; this is not just about cutting prices. This is about changes in our price communications, changes in fixtures and displays, changes in the way we train our staff and so on. And it is about the quality of our products.
We are funding this U.S. program largely with savings from our Simplicity program, which I mentioned before. We have already rolled out the first wave of this program to almost all of our stores and we have seen an encouraging sales uplift in recent quarters.
In the Netherlands, at Albert Heijn, our expanded and remodeled XL store in Eindhoven is a great example of how we are trying to inspire both customers and associates. It is focused around fresh and healthy eating, with innovative products that are affordable for any budget. Some of the concepts we have introduced here will be used to improve our offering in other stores. Let me also mention that this store is world-class in terms of energy efficiency. Please take a look at the following video to get an impression.
Etos, our chain of Dutch specialty stores offering health and beauty care products, was elected Best Drugstore of the Netherlands for the fifth time last month. Consumers also voted Etos #1 for “friendliest personnel” – a testament to all our team’s hard work. Gall & Gall succeeded in gaining market share in a difficult market, thanks to a modern and distinctive assortment.
In Belgium, we are well on track to meet our goal to have 50 stores by 2016, and Albert Heijn remains very popular with customers. They ranked us as the best supermarket in Belgium. And you should note that this was even before we launched our online proposition just a few weeks ago! Bol.com, by the way, started in Belgium a few years ago, and has seen tremendous growth.
Last, let me mention the Czech Republic, where we bought SPAR’s stores last year, in a transformational deal for the business there. It made Ahold a top player in the country. We are also one of the largest employers there now, with more than 17,000 associates. Our teams finished the enormous project of converting all SPAR stores to the Albert brand within seven months after the deal was completed in August.
In addition to these high-level, more strategic, investments, we have recently had several exciting additions to our assortment, both online and offline. Let me just mention some of my own personal favorites. We have rolled out new Fresh departments in many of our U.S. supermarkets, expanding our assortment of healthy products. After a successful pilot we will continue to roll these departments out to more stores.
Another favorite is the range of fresh products from local suppliers we are offering in our Albert stores in the Czech Republic – such as bread and fruits and vegetables from local farmers.
And finally, let me mention our AH Biologisch brand. We were the first supermarket in the Netherlands to launch its own organic brand back in 1998, and with this new brand we are expanding the range of products even further. To briefly quote Mr. Heijn on this: “we take pride in being first.”
Albert Heijn sells more organic products than other non-specialist supermarkets in the Netherlands. In fact our range of organic products is so large we were able to fill an entire store with it! A couple of weeks ago we displayed and offered the complete assortment, more than 1,200 products in total, in a pop-up store in Amsterdam.
Becoming a better place to shop is a key strategic promise for us, as customers are at the heart of everything we do. But we have also made promises to our associates and to our local communities. And of course these are interlinked.
We are very proud of our 227,000 associates. We are only as strong as our relationship with customers, and our associates are the ones who interact with our customers and prove why shopping with us is special. They deserve workplaces built on fairness and mutual respect, with ample opportunities to build great careers or gain work experience for the first time. We are also dedicated to providing competitive wages and benefits, everywhere we operate.
As you know, the majority of our associates in the U.S. are members of unions. Almost all of our Netherlands-based associates are covered by collective bargaining agreements. We respect and protect the rights of associates, including the choice of whether or not to join a labor union and we work collaboratively and constructively with union representatives. Ahold is a socially engaged company -- and that goes beyond our own stores. We also want to offer our customers products that are produced in a fair way, and under good circumstances, with respect for people, animals and the environment. We actively monitor our suppliers against our standards, which require they treat their workers well and with dignity, and offer fair wages.
As you know, in recent years, these meetings were attended by representatives of the Coalition of Immokalee Workers. Today, I can tell you that we have been engaged in very productive conversations with CIW. We intend to continue those discussions in the hope of announcing something positive in the near future.
In 2014, our Associate Engagement Survey had its highest response rate in three years. We have around 227,000 associates, and four out of five participated in our annual Survey. I will not share all the detailed results here today, but if I can mention just one outcome: overall engagement went up to 68%, a good result during a year when a lot of change took place in our businesses.
Let me now mention some specific initiatives we have underway to become a better place to work. As mentioned, in the U.S. we have rolled out a training program to help our associates better engage with customers. The skills they are learning drive both customer and associate satisfaction. We engage our associates in responsible retailing activities, for instance through Ahold’s Green Captain program, which identifies store associates who can take the lead on environmental initiatives. In 2014, the Green Captains played a crucial role in scaling up associate participation in Ahold USA’s waste separation activities.
Another inspiring initiative can be found at Albert in the Czech Republic, where our teams are striving to make each store the favorite in its neighborhood. They measure themselves not only against our own ambitions but also against local competitors, and therefore really look at themselves from the customer perspective. This initiative is building team pride, strengthening the culture in the stores, and making associates feel valued and empowered.
As you just saw in the film, our Albert Heijn stores are creating more opportunities for associates who need extra support and face challenges in entering the job market. In addition to the well-known homework classes, in 2014, the company decided to more than triple the number of young disabled associates it hires – from 600 to 2,000 by the end of 2016. This creates development opportunities for store managers at the same time, as we use them to coach and mentor this specific group.
And this is also an example of the role our approximately 3,200 stores can play in local communities. We take pride in our promise to be a better neighbor.
Like change, responsible retailing is in our DNA. I am pleased with the results we have achieved against our Responsible Retailing targets this year. Let me just touch upon a few key developments.
Globally, lifestyle-related illnesses are rising. And the food industry is often perceived to be part of the problem, and not part of the solution. At Ahold, we strongly believe that we have an opportunity -- and also an obligation -- here. Not just to offer healthier choices to our customers, but also to help them understand the choices they make. In the Netherlands, for instance, we have educated hundreds of thousands of children on nutrition through our “I eat better” educational program.
We offer our customers a range of products and services to support them in achieving healthier diets and lifestyles. And we aim to make healthy, fresh, sustainable food available and affordable – for example through our popular own brands like Nature’s Promise in the U.S. -- while still offering plenty of choice. In 2014, we increased our assortment of affordable fresh produce and healthy products by over 500 – to a total of around 9,500 healthy products. Ahold USA also has in-store nutritionists in several supermarkets, available to advise our customers while they do their groceries.
Helped by improving technology, insights and input from stakeholders, we continue to strive to limit the impact we have on the environment as much as possible. Our Ahold USA divisions succeeded in cutting back the number of disposable bags distributed in their stores by 547 million since 2011. LED lighting, eco-friendly refrigerants in our stores and natural gas delivery trucks are all helping to further reduce CO2 emissions compared to a 2008 baseline.
As you just saw in the movie, four of our trainees who won the “Young Ahold Best Idea” competition opened a successful pop-up restaurant in Amsterdam, called Instock, which is the first in the Netherlands to tackle the issue of food waste.
Our Responsible Retailing Report 2014 takes you through a great many more examples that show Ahold is ahead in the industry.
We are pleased that our efforts were again recognized externally. Ahold was included on the Dow Jones Sustainability World Indices for a sixth consecutive time, with an improved score compared to the previous year and scoring well above the industry average. And we were included in the FTSE4Good Index for the first time.
We continue to work toward our targets, and actively engage with stakeholders. On March 9, Albert Heijn updated 60 organizations on where we stand. We shared results and dilemmas at that event, and asked for input on our next steps. Since our current targets under our Responsible Retailing strategy expire at the end of 2015, we are finalizing new ambitions for 2020, which we will share in the second half of this year.
Now let me briefly mention some important leadership changes we have made at Ahold since we last met. We recently welcomed two new members to our Executive Committee. Jan Ernst de Groot started on February 1, 2015, as Chief Legal Officer. Wouter Kolk was appointed CEO of Albert Heijn, to succeed Sander van der Laan, who stepped down as of February 1, 2015.
Let me take this opportunity to thank Sander, and also Lodewijk Hijmans van den Bergh, our Chief Corporate Governance Counsel, who stepped down on March 1.
Rob van den Bergh temporarily took over as interim Chairman when Jan Hommen became CEO of KPMG the Netherlands. As Jan is now back in his seat, let me thank you, Rob, for stepping in and fulfilling the Chairman role!
In the past 20 minutes I have tried to give you an overview of the key accomplishments of our company in 2014. But what about the other side, the challenges we have had?
Let me be perfectly clear –- as CEO of this great international food retailer you are faced with a variety of dilemmas and difficult decisions. As I mentioned, economic uncertainties remain and our customers continue to focus on value after years of crisis. Online presents great opportunities, but it is also a disruptive market with potential competitors coming in from unexpected areas. Competition will always be very intense in our industry. Are we able to attract and retain the right talent for the future?
Together with my colleagues on the Ahold Executive Committee, I am confident that our Reshaping Retail strategy is the right one. We are growing in terms of stores and the number of associates we employ increased again last year. Ahold continues to rank among the most preferred employers, we are being recognized for our sustainability efforts, and our online growth strategy was received with enthusiasm when we presented it in November.
Before I wrap up, let me briefly touch upon 2015. What are we going to do? First, we will focus on further strengthening the strong core of our company, the supermarkets we operate. On the one hand we are going to improve our value proposition, as well as price perception, in our stores. And we are also investing in a better customer experience with exciting new products and well-trained staff to inspire our customers.
Secondly, we will continue to invest in growth through our omni-channel approach. Our strategy – aimed at more customers, more places and more choices – will help us reach our ambition of generating €2.5 billion in online consumer sales by the end of 2017.
Finally, all of our actions will be supported by our strong balance sheet and cash flow generation.
And this is fully intertwined with our Responsible Retailing strategy. Being responsible is integral to our business and is reflected in the way we support the health and well-being of our customers, communities and associates.
I want to close today by thanking our associates for their endless enthusiasm and energy, which is the driving force behind bringing all of our plans to life. Their friendly service is what keeps our customers coming back to shop with us.
I also want to thank our customers, whose high expectations of us make us better every day. We appreciate their loyalty to our brands and the privilege of serving them every day.
And I would like to thank you, our shareholders, for your support over the past year and your confidence in our future.
Now over to our CFO Jeff Carr.
This press release 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 statements as to Ahold’s strategy and dividend, omni-channel, Ahold’s simplicity program, investments, expansion in Belgium, responsible retailing, strengthening supermarkets, value proposition, price perception, new products and well-trained staff. Many of the above risks and uncertainties relate to factors that are beyond Ahold's ability to control or estimate precisely, such as 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 press release. Koninklijke Ahold N.V. does not assume any obligation to update any public information or forward-looking statements in this release to reflect subsequent events or circumstances, except as may be required by law. Outside the Netherlands, Koninklijke Ahold N.V., being its registered name, presents itself under the name of "Royal Ahold" or simply “Ahold".