Koninklijke Ahold Delhaize N.V.
Q1 2021 Earnings Call Transcript

Published: 13 May 2021

[Operator:]

Ladies and gentlemen, good morning, and welcome to the Analyst Conference Call on the First Quarter 2021 Results of Ahold Delhaize Please note that this call is being webcast and recorded. Please note that in today's call, forward-looking statements may be made. All statements other than statements of historical facts may be forward-looking statements. Such statements may involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those included in the statement. Such risks and uncertainties are discussed in the interim report first quarter 2021 and also in Ahold Delhaize's public findings and other disclosures. Ahold Delhaize disclosures are available on aholddelhaize.com.

[Alvin Concepcion:]

Thank you. Welcome to our first quarter 2021 results conference call. On today's call are Frans Muller, our CEO; and Natalie Knight, our CFO. After brief presentation, we will open the call for questions. The earnings release and the presentation slides can be accessed through the Investors section of our website, aholddelhaize.com . I'll now turn the call over to Frans.

[Frans Muller:]

Thank you very much, Alvin, and good morning, everyone. We have now surpassed the 1 year mark of the COVID-19 pandemic, and its effects continued to have an impact across our geographies. In response, we spent approximately €150 million in the first quarter to support customers, associates and communities with COVID-19 relief care, which is more than double the amount compared to the first quarter of last year. We also pledged approximately €20 million in charitable donations for this year, split evenly between the U.S. and Europe. And we'll continue, of course, to support health and safety measures, which remains a top priority to enable us to further strengthen our brand's positions as leading local omni-channel retailers. Our brands, together with our suppliers, remained focused on fulfilling their vital role on society by maintaining food and product supplies to local communities. And in addition, our U.S. brands have support vaccinations through their pharmacies in the U.S. I remain thankful for the efforts of our associates who have had a consistent focus on safety while at the same time providing great customer service and community support. Now let me focus a little bit on the financial results. Natalie, of course, will go into more detail on the financial performance in the first quarter as well as to our outlook for 2021. And for now, you can see in our press release and Slide 4 some of the highlights. Although COVID-19 continues to impact our results positively, we have now entered a period where our year-over-year growth rates are affected by the lapping of difficult prior year comparisons. That said, We began 2021 in a strategically much stronger position than before the '19 -- COVID-19 pandemic began.

[Natalie Knight:]

Thanks, and good morning, everyone. Our underlying performance in the first quarter was strong and continued to be impacted by high levels of demand due to COVID-19. As a result, net sales grew 5.8% at constant exchange rates to €18.3 billion and group comparable sales growth, ex gas, was 4.2%. Group net consumer online sales increased 103.3% in Q1 at constant exchange rates. Group underlying operating income declined 6.1% at constant rates to €849 million, with underlying operating margin down 60 basis points to 4.6% at constant rates. The margin was strong in the context of historical levels prior to COVID-19. Recall that margins in Q1 2020 benefited significantly from the timing of unexpectedly higher sales late in the quarter that preceded the COVID-19 costs, especially in the U.S. Moreover, this year, group underlying operating margin in Q1 was negatively impacted by COVID-19-related costs of approximately €150 million versus only €70 million in 2020. Underlying income from continuing operations was €566 million, down 11.9% in the quarter. In Q1, we repurchased 13.6 million shares for €312 million. Diluted EPS on an underlying basis was €0.54, down 8.4% compared to last year's record Q1 results. To put this in perspective, 2021 diluted underlying EPS grew approximately 38% relative to 2019, which was prior to those COVID-19 impacts. Slide 11 shows you our results on an IFRS reported basis for Q1. Now moving on to Slide 12. You heard Frans mention that we have held on to the high levels of consumer demand even as we began to lap the COVID-19 impacts from last year. You can see here why that was the case, as comp sales trends on a 2-year stack basis were strong and better than pre-COVID levels. There was even an acceleration in momentum as we move from Q4 into Q1.

[Frans Muller:]

Thank you very much, Natalie. And let me wrap up. We started 2021 in a strategically stronger position when compared to pre-COVID-19, and we delivered a sequential acceleration in the 2-year first quarter comparable sales stack across our regions. We also continue to accelerate our net consumer online sales growth in a meaningful way. We posted a solid underlying U.S. operating margin in Q1 and expanded margins in Europe. In Q1, we successfully closed the acquisitions of FreshDirect and stores from Southeastern Grocers and are progressing as planned for both of them. The acquisition of DEEN stores in the Netherlands is still on track to close in the second half of 2021. We are raising our net consumer online sales outlook to over 40% in 2021 versus 30% previously. And this includes a raised outlook for over 70% growth in the U.S. and a higher target for bol.com to achieve at least €5.5 billion in net consumer online sales. Our strong performance in the quarter provided us the confidence to raise our underlying EPS guidance to low to mid-teen growth relative -- related to 2019. On the ESG front, we are proud to have launched our inaugural sustainability linked bond amounted to €600 million in March linked to achieving targets and reducing food waste in scope 1 and 2 carbon emissions by 2025. And we also recently announced our target to achieve net 0 carbon emissions by 2050. We're now looking forward to take your questions. Operator, can you please proceed from yourself?

[Operator:]

. Our first question is from Mr. Rob Joyce of Goldman Sachs.

[Robert Joyce:]

So my two, the first one just wondering if you could give us an idea of what you're seeing in terms of inflationary pressures on input costs in the U.S., how you see those trending now and through the year and whether you see increased inflation being able to be passed through to the consumers versus the way you see it right now? And the second one is just on bol.com. First, a quick one within that. Could you tell us what sales -- center to sales are now third-party marketplace? And then more broadly, this does look to be one of the fastest-growing online assets in Europe of scale at the moment. Do you think the valuation -- the value of bol is reflected fully in your share price? And if not, are you able to -- are there ways to look at getting that valuation fully reflected?

[Frans Muller:]

Thank you very much for your question. On inflation, and I think you're mainly referring to the U.S., right? So what we normally do as a routine as a retailer, and we do this in inflationary and in deflationary environments, and we do this already for decades that we -- of course, when we talk with vendors about price increases that we have a shoot cost model very firmly in place. So we have a whole team of economists looking at the prices for raw materials, for packaging, for energy, for labor, for transportation and so on. And that shoot cost model should protect us from not accepting illegitimate pricing. So we protect it very well. At the moment, we see a CPI in the Northeast of 2.5%. That's a normal number we also talk about with you. And we follow those price increases very carefully or those demands for that, looking at raw materials and so on. So at the moment, it's reasonably rational the market in itself. And we have to see how this develops in the coming quarters. If it's legitimate price increases, then, of course, we have the intention to pass that on to consumers, but I think retailers are a good protection for consumers to avoid price inflation as much as possible. On bol.com, Natalie?

[Natalie Knight:]

Yes. I'll add some comments there. You saw in the first quarter that sales were up 77%. And if we look at the part that's coming from our Plaza or the third-party sellers that we work with, that grew over 100%. So you're right, we are really transforming that business into not just being what are the sales that we do, but really being a platform provider. And that's now over 60% of the sales that come through bol.com. So yes, it's -- I agree with you that it is a fast-growing and the profitability is improving. It really is something we're very proud of the performance. To your second part of that question, which is, hey, how do we get better visibility and acceptance of the real value creation of that business. I think it's something where it's all about us giving you information so that you can understand the performance of that business and seeing also how it really, I think, adds value not only for bold but across our whole ecosystem in the Benelux.

[Operator:]

Our next question is from Mr. Greg Hanus of Wolfe Research.

[Spencer Hanus:]

This is Spencer Hanus on for Greg. Can you talk about the cadence of the 2-year stack throughout 1Q and what the exit rate looked like in March. And then has there been any change in momentum in 2Q as both the U.S. and Europe start to reopen more fully?

[Natalie Knight:]

Spencer, thanks for the question because it is one that we're, I think, really proud of. You saw that we talked about the 2-year comp sales stack and showed that there had been sequential improvement in Q1 versus Q4. But if we look at it across Q1, we saw, I'd call it, remarkably consistent performance across the month. And as we look into the second quarter, that trend has continued.

[Spencer Hanus:]

Great. That's helpful. And then do you think you'll gain share in U.S. online grocery during 2021? And then can you talk about the pass-through rate and how that's changed from 4Q to 1Q? And how close are we to profitability on that business in the U.S?

[Frans Muller:]

Yes. Thank you for that question. You can imagine with the growth rates we showed, 190%, 135%, excluding FreshDirect that we gained share. So we're very happy with that development. We added capacity last year. Quite a lot of capacity. I think it was a good foresight. That's why I think we are strategically better positioned also to grow this year. And for this year, we see growth of 70% in the U.S. So we upped our growth numbers there. But what's also a great number is that we're expanding our Click and Collect locations, and we have now 95% of our customer base is having access to same-day online services. The other thing is that we will increase our productivity with at least 20% in the U.S. And that's also -- which will make our e-commerce sales less dilutive, which is also a good sign. So a lot of things going in the right direction. And we know that if you talk about fulfillment, if you talk about last mile, if you talk about monetization, if you talk about the digital footprint, those are very important drivers to make the business more consumer-friendly, but also more profitable. And I think we are making progress on all the fronts.

[Operator:]

Next questions are from Mr. Andrew Gwynn of an BNP Paribas.

[Andrew Gwynn:]

Two quick questions. So the first is on the guidance change. Just wondering why the free cash flow guidance hasn't changed. Obviously, it feels static at €1.6 billion? Second question, you mentioned before about the same-day demand within online now reaching, I think, you said 94% of your population. Could you just elaborate a little bit more of what you're seeing in terms of patterns? Are consumers prepared to pay a premium for same-day delivery? Is the demand significant versus next day?

[Natalie Knight:]

This is Natalie. On the free cash flow, I guess, I'd have 3 comments on that one. The first one is don't forget how significant the working capital unwind is going to be for us this year. You saw that, I think, really visibly in Q1, and it is something that's going to stay with us throughout the year. So that's been one of our big thoughts behind that free cash flow guidance. The second one is that as we have outperformed in the first quarter, as we move through the year, one of the things that I think we've really improved over the last 18, 24 months is our ability to be agile, more agile with capital allocation. And so as we look at omni-channel opportunities and really fueling this growth, as we see opportunities in the growth coming, that is the first place we're putting CapEx -- incremental CapEx dollars and euros as we have them. And the last one I'd say is stay tuned on this one. As you watch us develop throughout the year, if we continue to have this momentum, that may very well have a positive impact on the free cash flow beyond what we've got in the numbers right now.

[Frans Muller:]

You asked for a little bit more color on same-day and online and the penetration there. As you heard me earlier talk about this, we are very proud with the progress made in the U.S. 94% same-day availability is a big step forward compared to the last quarter and the last year. We see that Click and Collect is growing faster than delivery, although also our delivery business is still growing at a very high rate. And Click and Collect growth means also more profitable growth in the end. It's a more profitable fulfillment model for us than the rather expensive last mile delivery. We see in the total market more a trend towards the same day and in the future also more instant compared to next-day services. It has also to do with a few providers in the market to help other retailers to grow in that space. You have heard from us before that for us, it's strategically important that we have proprietary fulfillment and proprietary front-end software with our customers that the data remain ours with the consent of our consumers. So I think we are well positioned there, both from a growth perspective and capacity perspective. We added a lot of capacity, and we have capacity to grow that 70% in 2021. Same-day, growing faster. The next day, Click and Collect growing faster. More than 50% of our sales is now Click and Collect, which gives us a better view on profitability going forward. And I mentioned a few other things where we work on also to get our e-commerce more profitable. And I think all those dimensions are cruising in the right directions. And by the way, we also see very good uplifts in our NPS scores from our consumers. We had -- we also announced that for later in this year, we'll have open -- we'll open a next micro fulfillment center for our giant footprint in Philadelphia. So also, those innovations and, call it, partly experiments, what is going to help us with fulfillment and automation, they're also progressing there.

[Operator:]

Following questions are from Mr. Xavier Le Mené, Bank of America.

[Xavier Le Mené:]

Two. The first one, just in your press release, you meant that the brand performance was laid by Food Lion actually. So can we get a bit more color here? So what does it mean for Stop & Shop? And if you can comment also the U.S. market share for both brands, that would be helpful. Second question is on the transformation of the supply chain in the U.S. So can you give us a sense of what was the cost in Q1 versus Q1 last year and maybe versus Q4.

[Frans Muller:]

Okay. If Natalie takes the second, I will take the first. And you broke away a little bit, Xavier, on the first question. I think you asked a little bit more about performance of Food Lion and market shares and Stop & Shop performance, is that correct?

[Xavier Le Mené:]

Yes, correct.

[Frans Muller:]

Okay. Good. So yes, we see a strong growth of the Food Lion brand, which is our strongest growing brand as in the previous quarters. It has, of course, to do with the positioning of the brand, but also with population and GDP growth in the southern part of the East Coast. We're also very content with the remodeling program of Stop & Shop, 60 stores by the end of the year and the stores we have done so far are in line with the pro forma as we indicated before. What we will see most likely with the first quarter market share data are not available yet. We're always getting with a lagging time frame. So -- but our feel is with the growth rates we see that we have overall on the East Coast market share gains, and that is from an omni-channel perspective that we will have considerable market share gains with Food Lion that we have a stable market share with Stop & Shop and that the other brands are also doing well. So we'll have a market share gain on the East Coast. Food Lion, the strongest-growing brand and a moderate performance on market share levels from Stop & Shop, but a very strong remodeling program going on.

[Natalie Knight:]

And on the question you had, Xavier, about what's going on in the supply chain cost in the U.S. I mean this is one of the things for us that is really crucial in transforming our U.S. business to, I'll say, be ready for the future. And as we look at bringing those supply chain activities more in-house, It's really something that this year is changing how we do business. We've brought 2 of the 6 distribution centers in already. By the end of the year, we're going to have 65% of our costs that we are able to negotiate all directly ourselves. So it's, I think, in a period where we need to get our supply chain more aligned in an omni-channel world that's important. And at a time where inflation is an issue, It means we have more in our own control. And when you look at the cost this year, I think the big call out I would make is it's just going to be more evenly spread this year across the quarters than last year. We saw it was quite back-end loaded.

[Operator:]

Our next question is from Mr. Nick Coulter, Citigroup.

[Nick Coulter:]

I hope everyone is staying well. Two questions then, please. Firstly, on Europe, would it be possible to unpack the Europe like-for-like a little, please? If you stripped out bol, I assume that's the majority of that 8%. Or I guess another way of asking the same question would be, what you think you've done on grocery share in the Netherlands and Belgium? And then, Natalie, you mentioned the benefit of bol to the Benelux ecosystem. Could you talk a little more about those benefits, please?

[Frans Muller:]

Yes. To start, what you call unpack the European number, we already gave you quite some information on bol, how that is growing. Our online business is growing. And also, our online business for Albert Heijn grew very, very fast and almost in line with the total number you see here for Europe. The other thing is that if you look at the market shares, market share developments and those data we have for the first quarter, our market share provider is faster in Europe than in the U.S. We see that we gained 30 basis points of market share with Albert Heijn in the Netherlands, but we also gained 3 basis points of market share with Delhaize in Belgium. We're very happy there with the Benelux market share gains, and I'll be also very happy, as you can imagine, with our online performance.

[Nick Coulter:]

Is that the online driving those gains? Is that grocery sharing, including online? Or what's driving those?

[Frans Muller:]

The numbers I gave you are the omni-channel numbers. That's the way we look at our consumer. But it's not only driven by online, also our stores, both Albert Heijn and Delhaize gained share in the market as well. So it's not only an online-driven element. And you can imagine, and you know that our online in the Dutch market is a much bigger component of our total sales than in Belgium. And in Belgium, the 30 basis points is a remarkable market share gain as well.

[Natalie Knight:]

So maybe adding to that because I think there were a couple of little things you had left open. When you talked about the European like-for-like sales, let me make it very clear that while we're very proud of the bol contribution and performance, we had the majority and very solid growth in terms of the rest of our EU business. And to the second question, you'd had sort of about what's going on with that -- the comment I made on bol and the ecosystem in Benelux. I think one of the things that is very exciting for us as we look at our businesses and the Benelux is how we are able to collaborate together. And this is something where we're already doing things in terms of loyalty programs where you can work with not only just bol and Albert Heijn, but also Delhaize. You've got -- our stores are available if you see Atos and other products online that you're able to get at. And you're going to see us continue to do more and more of that because we believe really as the consumer becomes omni-channel, we have a really unique position in this market that is not replicable by anyone in terms of how we service those customers, both online and directly in store.

[Nick Coulter:]

How do you hope to replicate that in the U.S.? Because obviously, you're moving into a marketplace situation there as well.

[Natalie Knight:]

Well, you've heard about our Ship2Me program, which is the endless aisle products we're going to be having later this year, 100,000 new SKUs available where, for the consumer, it will be a seamless shopping experience. You'll go online, and it will be something where you order it all in one place. It's very easy, single checkout. And it allows us there to capture, I'll say, the extra -- the incremental margin opportunity of general merchandise with the frequent shopping that we experience in our stores. So I think that's actually a great way to bring similar learnings to the U.S.

[Frans Muller:]

And what we, in the meantime, tend to forget, not that long ago, we had online through Peapod, and we had stores through the brands in Europe. And now we have omni-channel brands everywhere. So we have Giant Foods, Hannaford and Stop & Shop now as omni-channel brands, seamless for customers if it's online or offline. And that has been a big change because customers have a lot of brand awareness, and the brands are very strong in the local communities as great local brands. So that step, we also, in the meantime made, and that's now really paying off apart from the extended aisle like Natalie told and just shared with us.

[Natalie Knight:]

No, you're exactly right on that front. It gives me a lot of energy because the shopping patterns that we see and spending trends of those people, our consumers as they get on both channels, really goes up dramatically. And that's something we've been tracking very consciously in the last year to say, how does that develop? How -- what do those trends look like, how much stickiness is there. And we remain very confident that that's an ongoing trend that's going to positively impact our business as we make that shift to an even more omni-channel setup.

[Operator:]

Our next question is from Mr. James Grzinic of Jefferies.

[James Grzinic:]

I have two quick ones. The first one is, can you help us reconcile the U.S. margin dynamics? There seems to be a bit of a disconnect between densities in the 2-year stack being up 15% and margins down 10 basis points. I get the point around the logistics investment. But if you could perhaps explain why such a big disconnect. And secondly, do you have some early thoughts in terms of post the upcoming tax reform in the U.S. for what the group tax may look like perhaps from next year? That would be great.

[Natalie Knight:]

Let me start with the tax reform question. That's one where I would just say, honestly, it's too early to say. If you look at that, I think there's definitely conversations about may the tax rate on an overall level go up. That looks likely. But in terms of what happens to the tax base and other issues, I think there's still a lot of open issues there. So we'll see how that one comes at us. In terms of the U.S. margin dynamics, I do think this is one where a lot of people have been waiting to see what would happen in the first quarter. And remember that there's, I think, a cycle of Q4 was a weaker quarter. We had heavy COVID cost, and we also talked about that 50 basis points, kind of onetime effects that we said wouldn't repeat And when we went into Q1, we had, again, in terms of the comparison, there was a bit of this sort of double whammy that hit us. One is, last year, we finished Q1 with essentially in the U.S. COVID costs are very high in the last 2 weeks and almost 0 cost associated with that. It really lagged a bit. And this year, you saw -- we talked about it at a group level. Our COVID costs, they went over the whole period as opposed to just that short time. And for the group, the number had gone up from €70 million last year to €150 million this year. So a big -- last time, almost no cost. And this time, not only the cost, but that extra cost of the comparison, but the additional cost that we had in this period. And that was due to higher absenteeism and really just making sure that we were -- had all of those precautions in place. Having said that, let me make very clear that our expectations for COVID costs going forward this year are that you're going to see that level off very quickly that some of the majority of those costs have been variable. Our absenteeism levels have really returned to much more normalized levels as the vaccine has spread. So that's something where we believe we're going to see significantly lower costs as we go forward.

[Frans Muller:]

Which is also what we indicated last time, right? I mean, COVID costs go hand-in-hand with COVID sales. And we have a good control of our variable costs. And our brands are razor-sharp focused on that element that if your sales gets more moderated as we already predicted that you also -- your costs are under control.

[James Grzinic:]

I sort of get that, but I presume my question was more around the 2-year stack, so the disconnect on sales densities being up 15% in a 2-year stack. And I presume the positive leverage on sales will be greater than the incremental costs than you talked in Q1, those 150 on a 2-year comparison. So it was really around that.

[Natalie Knight:]

Yes. I'm sorry, I thought you were talking about on the margin basis. If we look at on the sales basis, you're right. There is a piece when we look at the first 2 months of the year, where, of course, there is now an inclusion of a COVID supported sales versus where it had been last year. But what I think is very promising is that if you look at the 2-year stack in March and, as I indicated, even coming into the second quarter, we continue to have very consistent delivery in terms of how those numbers are there, and that speaks to us to say, there really is some, I'll say, COVID stickiness out there in terms of change patterns of behavior that supports higher sales.

[James Grzinic:]

Understood. And Natalie, can I just ask you a follow-up on the tax point? Is the restatement of a European holding company for the U.S. business an option that you think is feasible?

[Natalie Knight:]

I have to say that's one I'll have to look into. I don't have an opinion on that, that I would want to share right now.

[Operator:]

Our next question is from Ms. Victoria Petrova, Crédit Suisse.

[Victoria Petrova:]

Congratulations on strong results. My first question is on current inflationary trends on the cost side, both on commodity, freight prices as well as fulfillment expenses. Does your current guidance already account for it? How are you dealing with that? Do you have a flexibility around passing those costs to end customer boost in Europe and in the U.S. and if there is any difference there? That's my question number one. And I have two short small questions. One, on meal kits. I know that in Benelux, you were -- you had meal kit offering from Albert Heijn. And are you continuing that? Are you investing in this area? Do you have any strong view around that in the context of, obviously, very high total valuation of meal kit companies. And do you have a view and overlap with on-demand grocery deliveries, this new trend within 10-, 15-minute grocery delivery in your markets of presence? Are you addressing it anyhow? Do you have anything to comment on maybe around this topic?

[Frans Muller:]

Yes. Thank you very much. On the COGS and expenses and cost inflation, I mentioned earlier that these kind of phenomena are not new to us. I mean, as a retailer, you look at your COGS, you negotiate with your vendors, what is a legitimate cost increase based on raw materials, plastic packaging and these type of things. And if those things are legitimate and clear, then there's a good reason to pass it on and consumers will understand. But we have a very strict model in place with economists, with the shoot cost model, We do those comparisons. And as we have also quite some percentage of our sales in private label, 30% in the U.S., 50% in the Benelux, we know very well what costs are doing for all those various components, including energy and transportation. So it's our job to make sure that we don't take onboard inflation, which we do not understand. It's also our duty to make sure that, for consumers, the prices are being as low as it can be and to also protect our margins. So there is no difference there in how we normally would operate. And also with raw materials potentially going up when we talk about grain and soy or energy, that is quarter-by-quarter. I think we negotiated, and that's why we are very close to that. Historically, if you look at the gap between the CPI or PPI on the East Coast, those differences are not that big, and we also don't expect that they will be much bigger than we used to see them historically. On demand grocery, the 10 minutes service like a few competitors have now in the marketplace, of course, we follow that. We have geared up quite a lot of modalities in our own online services. So we were, not that long ago, a couple of years ago only delivery next-day company. And in the meantime, we have same-day, we have instant, we have Click and Collect, pickup curbside, we have still delivery growing quite fast, both in the Benelux, but also in the U.S. So yes, we are, of course, looking at everything what's happening to the marketplace, what consumers appreciate to pay for and how that is going on. And on the meal kits, which is a component of convenience, I would say. When I say that we are strategically better positioned this year in 2021, then Natalie already mentioned the investments we made in supply chain. We talked about online and capacity and growth. We talked about digital and front end. We talked about harmonization of all kind of applications in both Europe and the U.S. where we made big strides. But we also, of course, worked very hard on our assortment because we see now with the, unfortunately, forced out-of-home transfer that consumers have sticky habits to cook more at home to -- they have rediscovered, let's say, cooking themselves. And that convenience is playing a role. Fresh is playing a role, recipes, meal kits, halfway prepared meals and all these kind of things, including meal kits. And we see a growing assortment and capability in our stores in the U.S. and in Europe for having throughout the total bandwidth of convenience and fresh, those type of solutions coming in. So yes, we grow also there. And what we also believe is that although restaurants hopefully are going to reopen again, the question is how long that will be for offices. And working from home will be more sticky also even if offices have reopened. And we see this in our own company where we will allow people to work more from home. And working from home means also more consumption at home, lunches, breakfast and all these kind of things. So we think in-home consumption will be sticky, and we also believe that in-home solutions for convenience in all those areas I just mentioned will also help us to grow our sales.

[Operator:]

Our next question is from Mr. Andrew Porteous of HSBC.

[Andrew Porteous:]

Congratulations on a very encouraging Q1. Three from my side. Can you just talk about the dynamics around Click and Collect. I thought it was interesting you said that was one of the faster-growing parts of your business. Is that because there's just a lot more of the incremental capacity being added in Click and Collect. Is it something that consumers are choosing? Or is it something that you're driving through making the economics more attractive for consumers? Secondly, on the Stop & Shop refits. Has there anything changed in your mind? Obviously, the industry has changed a lot over the past year or so. Has there anything changed in your mind about what the right format for Stop & Shop looks like? Are you tweaking those refreshes versus what we saw when we were out in the U.S. a couple of years ago? And then lastly, one around bol.com. I think probably related to an earlier question. But given the scale of bol.com now, what's the synergy with the grocery business there? And have you considered whether there would be any benefit from sort of splitting the economics of bol.com out more clearly in order to get more credit for them in your share price or from the market?

[Frans Muller:]

So if it's okay for you, then Natalie will talk about bol a little bit more. I will try to give the goal on Click and Collect and Stop & Shop. Click and Collect, it's an interesting phenomenon in the marketplace in itself because there are, of course, a lot of gig providers of exactly Click and Collect who pick up orders as a third party for customers. And I think a number of retailers follow that trend. For us, ourselves, as I mentioned before, and I always try to emphasize this because it will be crucial strategically going forward, we operate our own Click and Collect services. We operate our own fulfillment. It's our own data. It's our own front end. it's our own relationship with customers. And that's why we invested 2 years ago in our PRISM software, which is operated and designed by people to digital labs, proprietary software to support the total fulfillment picking, but also the front-end process, the total e-commerce suite for the U.S. business. And yes, consumers followed trends on one hand because part of the market is moving more to Click and Collect. But also for a number of consumers, Click and Collect is very, very convenient. I mean if you can order your meals and your basket in Click and Collect and you just drive the stores, pass the stores, in front of the entrance is a parking lot reserved for you. And in 3 minutes, your groceries are in your trunk and you paid already upfront. For a lot of customers, that is very convenient compared to shopping themselves and more time efficient. And some for some consumers, this is more convenient because they don't have to wait at home until an order is delivered. And driving from your office to your home, passing a store, 3, 4, 5 minutes having your fresh well-packed, well-isolated basket in your trunk is a very good service. And I think we do a very good job there in fulfillment. We adjusted a lot of stores to make sure that the growth should be picked before you came -- you coming to us are temperature controlled. So we made those investments well in time, and we started 2 years ago. Stop & Shop, 60 stores by the end of this year. And under the leadership of Gordon Reid, we did a very good analysis on the first 2 batches in Connecticut and Long Island. And we learned a lot there. And we're very happy what we see now with the pro forma performance on those next remodelings. And we tweaked indeed. We tweaked on digital in the stores, on the fresh side, on the service deli departments, the counters for fresh and buffet. So we tweaked a lot there. And we also found a smarter model how to induce customers for center store and promotional levels. So we did a good job there on understanding customers better, what is driving the sensitivity and pricing and volumes, therefore, and we're happy with the tweaking done so far. So we selected now the clusters for Stop & Shop. We have 400 stores in total. So it will be roughly a 5 years program, but we're happy with the progress so far of bol.com. Yes.

[Natalie Knight:]

Yes. And on bol, let me just remind you again that we've seen a sequential improvement in that business from Q4 to Q1. It's gone -- developing very well. In terms of more disclosure, let me just repeat, I think the comments that are really important from our side is, in addition to that strong growth, we also confirm that it is EBIT positive, continuing to improve its profitability. We've talked about return on capital being double-digit. And we are considering to disclose more, especially as we see it grow in size and it becomes a more significant part of the European business. But that's it for the time being. That's one where, as I said, I think we need to look there at how is the best way because it really is a business that there are different metrics that determine success. But when we look at all of those conventional ones, we're very, very pleased with how we're measuring performance there today.

[Operator:]

Our final question is from Mr. Cedric Lecasble of MainFirst.

[Cedric Lecasble:]

I have one actually, a follow-up on your online operations in the U.S. And so first learnings from FreshDirect, could you tell us maybe the positive and negative surprises you've had so far and how the puzzle of online assets is being fixed, especially with Peapod. And maybe how FreshDirect equation contributes to this productivity target of improving productivity online by 20% as a model is quite different from the Click and Collect you have on .

[Frans Muller:]

Yes. It's maybe a little bit early days to talk about the contribution of FreshDirect and productivity gains for the total network. But let me give you a little bit more color. We got approvals for the company to acquire on the 5th of January. So it's still very young. Two weeks ago, I visited FreshDirect and the team there. And I'm quite impressed by the professionalism, the pure-play game, but also the high loyalty of the customer base and their strong position in Manhattan, the Tristate New York and their initiatives to grow the business. Very robust quarter as well for FreshDirect. And what you see is that if you look at the proposition they have on very high fulfillment performance levels on on-time complete orders and super high level of freshness in the proposition, 60% of the total sales is fresh, I think it's a great addition to us where we can learn from. And on the other hand, of course, we would like to make sure that we also share group-wide learnings with them as well when we talk about things like marketing, and digital, e-commerce and these type of areas. So good learning so far, the process of adopting FreshDirect as a family member is going well, impressed by the quality of the teams, impressed by the quality of the operation and more to come and more to learn in the coming quarters.

[Alvin Concepcion:]

Okay. With that last question, this concludes our conference call and webcast. Thank you for joining. Please take care, and have a nice day.