Koninklijke Ahold Delhaize NV

AEX:AD

Earnings Call Transcript 2019-Q4

[Operator]

Ladies and gentlemen, good morning, and welcome to the analyst conference call on the fourth quarter and full year 2019 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 statements. Such risks and uncertainties are discussed in the summary report fourth quarter and full year 2019 and also in Ahold Delhaize's public filings and other disclosures. Ahold Delhaize disclosures are available on aholddelhaize.com. Forward-looking statements reflect the current views of Ahold Delhaize's management and assumptions based on information currently available to Ahold Delhaize's management. Forward-looking statements speak only as of the date they are made, and Ahold Delhaize does not assume any obligation to update such statements, except as required by law. The introduction will be followed by a Q&A session. Any views expressed by those asking questions are not necessarily the views of Ahold Delhaize. At this time, I would like to hand the call over to Mr. Alvin Concepcion, Vice President, Head of Investor Relations. Please go ahead, sir.

[Alvin Caezar Concepcion, VP & Head of Investor Relations]

Thank you, operator, and good morning, everyone. Welcome to our fourth quarter 2019 results conference call. On today's call are Frans Muller, our CEO; and Jeff Carr, our CFO. After a brief presentation, we will open the call for questions. In case you haven't seen it, the earnings release and the accompanying presentation slides can be accessed through the Investors section of our website, aholddelhaize.com. I ask that you please limit yourself to 2 questions. If you have further questions, then please reenter the queue. I'll now turn the call over to Frans.

[Frans W. H. Muller, President, CEO & Chairman of Management Board]

Thank you very much, Alvin, and good morning to everyone. I'm pleased with the strong fourth quarter results, which ended 2019 on a high note. While the year certainly had challenges, we were able to grow our underlying EPS by over 8% in 2019, exceeding our full year guidance of low single-digit growth. We also met our free cash flow target of EUR 1.8 billion for the year. We exceeded our net synergy goal in 2019, closing out a successful merger between Ahold and Delhaize. And our Save For Our Customers program generated EUR 709 million in cost savings in 2019, ahead of our target of EUR 600 million. As a result, we are raising our cumulative savings target to EUR 1.9 billion from EUR 1.8 billion previously, by 2021. Now I'll focus a bit on the fourth quarter results. Net sales grew 3.1% at constant rates. Global net consumer sales were up 30% at constant rates. And in the U.S., online sales growth accelerated to nearly 43% in the fourth quarter, which helped us to solidify our position as the leading omnichannel operator on the East Coast. Comparable store sales across nearly all our regions, accelerated in the fourth quarter relative to the third quarter, excluding calendar impacts. And Jeff will go over to various segments in more detail shortly. Overall, we posted 17.1% growth in underlying earnings per share from continuing operations. Now a quick moment on our outlook. In 2020, we plan to further strengthen our position as the leading omnichannel operator, and expect another year of consistent operating results, with group underlying operating margins in 2020 that is broadly in line with 2019. Now let me hand over to Jeff.

[Jeffrey Carr, CFO & Member of Management Board]

Good morning, ladies and gentlemen, and thank you, Frans. As Frans mentioned, it's been a strong fourth quarter with net sales up 3.1% at constant rates to EUR 17.4 billion, and operating income up 7.4% to EUR 749 million. Underlying operating income was up 1.1% to EUR 765 million, while underlying operating margins for the group were down 10 basis points to 4.4%. and as you'll see on the segment review later on the next chart, this was mainly due to the strong comparable quarter in the U.S. last year. For the full year, group net sales were up 2.3% to EUR 66.3 billion, and underlying operating margins at 4.2% was slightly down from 4.4% in 2018. But adjusting for the strike impact at Stop & Shop, group margins in 2019 would have been in line with 2018. Of course, during the year, we've had margin headwinds, the dilutive impact of our growing eCommerce business, labor cost inflation, price and quality investments, but we've mitigated these due to our strong Save For Our Customers program which, as Frans mentioned, delivered above expectations of EUR 709 million for the year. And underlying earnings per share, EUR 1.71 per share, was up 8.4% at actual rates and 5% at constant rates. So I'm going to move on to Slide 6 and look at the fourth quarter performance by segment, starting with the U.S., where net sales grew 2.7% in the quarter to EUR 10.4 billion. Comparable sales were up 2.3%, accelerating from 1.8% in the third quarter and growing at 5% on a 2-year stack basis. In the U.S., as Frans mentioned, online sales grew 43% in the quarter due to the success of our click and bricks omnichannel strategy. Within our U.S. brands, Food Lion continued to show strong market share gains, while comparable sales at Stop & Shop improved quarter-on-quarter, but still remains slightly negative. Underlying operating margins in the U.S. for the quarter were in line with expectations at 4.3%, and this is down 40 basis points versus a very strong quarter last year. And as we flagged earlier in the year, we saw an increase in the level of investments at Stop & Shop, which had been deferred from earlier in the year. In the Netherlands, sales grew by 4.5% to EUR 4 billion, and underlying operating margins were up 20 basis points to 5.2%. bol.com grew net consumer sales by 29% in the quarter and finished the full year with positive underlying operating profit margins. Albert Heijn made strong market share gains in the fourth quarter, and the Netherlands margin, excluding bol, was at 5.6%, up 20 basis points versus last year. In Belgium, net sales at EUR 1.3 billion were broadly in line with last year, but pleasingly underlying operating margins at 3.5% or 50 basis points higher than last year. And in the CSE, net sales grew by 5.4% to EUR 1.7 billion, and comparable sales were up 3.6%. This was a strong sales performance in the Czech Republic, Romania and Serbia, while in Greece, sales -- comparable sales remain slightly negative. Underlying operating margin was 5.9%, up 10 basis points versus last year, with a good performance and good margins across all 4 of the CSE countries. I'm going to look briefly at the full year. Now I won't dwell on these numbers too long. Suffice to say, as you look at Slide 7, U.S. performance is impacted by the Stop & Shop strike in the second quarter. However, excluding the impact, comparable sales would be over 2% for the year, and margins in the U.S. for 2019 would be right in line with 2018. So moving on, I'm pleased we achieved our goals in terms of free cash flow in the fourth quarter and delivered on our EUR 1.8 billion guidance for the full year. In the fourth quarter itself, free cash flow was EUR 1 billion, which reflected strong working capital inflow of EUR 532 million due to the strong seasonal sales across all of our businesses. Additionally, income taxes were EUR 124 million lower than last year and capital expenditure, net of divestments, was EUR 111 million lower than last year. Fundamentally, our cash generation remains strong and predictable, and we delivered on our Capital Market Day guidance while absorbing the impact of the strike and with net capital expenditure growing to EUR 2.1 billion ahead of our guidance, as we continue to invest in our stores, our omnichannel growth and our technology goals. Moving on to Slide 9. You can see we have a strong track record of delivering sustainable growth in our dividend per share. For 2019, we're proposing a cash dividend of EUR 0.76 per share, an increase of just under 9% compared to 2018. This represents a payout ratio of 44% based on underlying income from continuing operations. Therefore, following the introduction of the interim dividend, which we introduced in 2019, the final dividend of EUR 0.46 per share will be paid on April 23, 2020, following approval at our AGM. Now I'm going to move on and look at our outlook for 2020, and we have a couple of details to go through. In 2020, we have a 53-week year. And as we've previously said, this won't impact our comparable sales nor significantly impact underlying operating margins, but it will result in net sales for the full year, having a benefit of 1 to 2 -- 1.5% to 2% for the year. Now we finished 2019 with underlying operating margins at 4.2%, and we're guiding for 2020 margins to be broadly in line with 2019. We have 2 discrete events impacting 2020 margins. Firstly, our investment in the U.S. supply chain, which will incur something in the region of EUR 45 million transitional expenses in 2020. That will impact group underlying operating margin by about 7 basis points. We know this is fundamentally the right thing to do, building for the future, reducing waste, cutting time from farm to plate and benefiting both our stores and our eCommerce businesses. And from 2022, we'll also start seeing significant financial benefits. Secondly, as a result of decreases in the discount rate in the Netherlands, we'll see an increase in the P&L service charge related to our Dutch pension plan. This will be an additional EUR 45 million, again, about 7 basis points to the group. I note this is a noncash charge, and the cash contributions of the Dutch pension plan will remain flat year-on-year. Without these 2 items, margins in 2020 would be ahead by around 14 basis points due largely to the improvements of Stop & Shop, as we lapped the 2019 strike. So finishing up on our outlook. As Frans mentioned, our Save For Our Customers program has exceeded expectations in 2019. So we've now raised our cumulative goal for -- by 2021 to EUR 1.9 billion. And finally, we expect earnings per share growth in 2020 in the mid-single digits, and as previously discussed, free cash flow of around EUR 1.5 billion. Thank you. Now I'll hand back to Frans.

[Frans W. H. Muller, President, CEO & Chairman of Management Board]

Thank you very much, Jeff. I would like to go with you to Slide #12, where we show some highlights in the U.S. for the fourth quarter. Overall, our brands continue to innovate in digital and eCommerce as well as at our stores, in order to meet the evolving needs of our customers. You have seen these efforts materialize in our strong sales results. We also announced our investment in our supply chain in order to save costs and strengthen our in-store and eCommerce infrastructure. The Re-imagine Stop & Shop program, continues to build momentum, with sales in Long Island and now also Hartford, performing in line with expectations. In 2020, we expect to remodel another 65 Stop & Shop stores. We're also proud of the recognition Giant Heirloom has received for the innovative store format and are pleased that the remodels at Food Lion continue to help us gain share. On Slide 13, I think it's worth spending a moment to talk about our focus on expanding our leading omnichannel position on the U.S. East Coast. We currently have a strong platform, which is generating high levels of sales growth. And we plan to continue to build on that strong momentum. We expect to accelerate our online sales to over 30% in 2020, and we will grow our Click and Collect points from 692 at the end of 2019 to around 1,000 by the end of 2020. 86% of our customers now have access to either delivery or Click and Collect options for their purchases. This reflects the confidence we have in our omnichannel strategy, which is underpinned by having leading brands with #1 or 2 share and providing convenient options to our consumers, whether that is in our store with frictionless checkout and the same-day Click and Collect offering or through same-day or next day home delivery. We will continue to increase our focus and resources on the East Coast by closing the Midwest online grocery sales operation, which is a market where we don't have a leading store base, which is crucial to executing on our omnichannel strategy. Peapod Digital Labs, which is our digital and eCommerce innovation center, will continue, of course, to provide solutions for our U.S. East Coast business. The omnichannel brands and technologies will continue to drive our growth on the East Coast. Moving now to Europe on Slide 14. In the Netherlands, we saw strong online sales growth, particularly at bol.com. At Albert Heijn, we saw a significant increase in market share in the fourth quarter, driven by a strong holiday campaign. And we're seeing performance in line with our expectations on the new fresh and technology-focused format, which has been rolled out to 123 locations in 2019. We plan to convert around another 120 more locations in 2020. We are pleased with the growth in Central and Southeastern Europe, and our Delhaize brand in Belgium, helped customers eat better and make healthier choices by providing discounts on thousands of healthy products based on good Nutri-score ratings. On Slide 15 to 17, you see the progress we've made, making since we announced our Leading Together strategy at our November 2018 Capital Markets Day. The Leading Together strategy revolves around helping our customers make healthier choices, provide innovative solutions to make shopping more convenient and less time-consuming and investing in our network to drive growth, both in stores and online. And starting on Slide 15, I'm pleased to say that we have been meeting our financial targets like free cash flow, in many cases, and they have been exceeding them such as in EPS growth and the Save For Our Customers program. On Slide 16, as I mentioned earlier, our Re-imagine Stop & Shop progress is performing in line with our expectations so far. That said, we would have liked to have remodeled more stores at this point, but the strike earlier this year -- earlier last year and -- at a brands took us a bit off course, and we have been learning and making tweaks along the way. As you heard me talk earlier, we plan to step up the pace of remodelings in 2020 with 65 remodelings. We have been making further progress with achieving our eCommerce targets as well, which you can see also on Slide 16. We remain focused on find ways to increase efficiencies, such as in the area of fulfillment. Let me make it clear, though, our ability to drive e-commerce sales is not hindered. We are not capacity constrained by any means. We just simply want to find more cost-effective solutions. And in fact, we are very confident about our growth prospects and are well on track to doubling our net consumer online sales from 2018 levels to EUR 7 billion by 2021. on Slide 17, and like you heard from Jeff earlier, we are very pleased with the developments at bol.com, where we have made good progress on net consumer online sales growth, third-party sales penetration and on profitability. We're also well on our way to becoming a more healthy and sustainable-focused retailer. We're on track to reach our target of increasing our own brand sales of food with good inflational value. We also exceeded our CO2 emissions goal early, but we have more work to do in further reducing food waste. Overall, we are very proud of our progress with our Leading Together strategy so far, but we know that we have more work to do. So let me wrap up. We ended 2019 on a high note, with strong fourth quarter results and significant growth in online sales, particularly in the U.S. We met or beat many of our key goals and have made significant progress against key targets provided since the Capital Markets Day in November 18. And in 2020, we will make investments to strengthen our local brands in order to accelerate our growth, and our teams will help consumers in the communities we serve to eat well, save time and live better. And now I would like to turn into the Q&A session.

[Operator]

[Operator Instructions] The first question is from Mr. Scott Mushkin, R5 Capital.

[Scott Andrew Mushkin, Founder & CEO]

So I just wanted to talk a little bit about the U.S. business. Obviously, the comp store sales were strong. It's nice to hear about Stop & Shop doing a little bit better. I guess my question goes to the margins, which actually came in a little bit worse than we were anticipating. So I wanted to see if you could give us a little -- was it just all the eComm growth? Or was there something else driving that? And then when we look at the U.S. business into next year, ex the investments in the supply chain, can you hold margins in the U.S.?

[Jeffrey Carr, CFO & Member of Management Board]

Yes. Scott, it's Jeff. I'll take that question. Yes, I think when we look and plan our years out, we sometimes see variations on quarter-to-quarter. And what we flagged, I think, as actually on the first quarter call, that we would expect to see more investments in the second half of the year as the acceleration of the program in terms of Re-imagine Stop & Shop. And so we were predicting following a very strong first quarter in 2019, slightly lower margins in -- towards the end of the year. And I think it's important if you look at the full year number. And if you look at the full year number, and factor out the EUR 90 million or $100 million that we talked about, the direct impact of the strike, margins are very stable. And I think that's a testament, considering the fact that we've absorbed some margin headwinds from the strong eCommerce growth that we've had, but also from the fact that there was a recovery period at Stop & Shop and the only margin impact that we took was the direct margin impact, the $100 million that we described in the second quarter. So I think generally, the story is that we have stable margins in the U.S. If you look at the last several years' track record, we've been able to manage slightly improving margins because of the synergies. And I think as you look forward, we don't give segmental guidance, but we've been very clear that we expect flat margins for the group 2020 versus 2019. So I think that's the best I can say. We have a strong Save For Our Customers program. Obviously, we'll be making investments in the supply chain in 2020. EUR 45 million will be the impact on our underlying operating profit in the U.S. in relation to those investments in the supply chain. But we absolutely feel that's the right thing to do. It will improve the quality of our fresh. It will improve the -- our store business, but also our eCommerce business. And we'll see financial benefits of that starting to come through in 2022.

[Scott Andrew Mushkin, Founder & CEO]

Perfect. And then my follow-up question was just on what's going on down there, the Washington area? I don't know if you guys have any thoughts there around the workers.

[Jeffrey Carr, CFO & Member of Management Board]

Yes. We are -- we have been -- we are in the negotiation with our social partners. And at the moment, there's not that much we can say. But we have a good feel about the relationship we have with our unions, and we negotiate both the CBA and the pensions. And we have a good atmosphere at the negotiation table, and we feel that we can come to very constructive solutions, but we don't have final outcome here.

[Operator]

The next question is from Mr. Judah Frommer, Crédit Suisse.

[Judah C. Frommer, Senior Analyst]

Congratulations on the quarter. Maybe first, just to follow-up on the investment in the U.S. in Q4. If I remember correctly, there was some pull back on promotion at Stop & Shop during and kind of just after the strike in Q2. So can you give us a sense of what the investment looked like in Q4? Was it largely promotion? Do you think that drove traffic in any outsized manner in Q4? Or is there some level of price investment in Stop & Shop that you'll continue into next year, given the results here?

[Jeffrey Carr, CFO & Member of Management Board]

No. I think it was largely promotional, but there was some price investments as well in Stop & Shop, particularly. As you said correctly, we pulled back obviously during the strike in Q2, and we've been bringing customers back into the store, at Stop & Shop. Obviously, what I said earlier on the call is we're not back to positive comparable sales at Stop & Shop, and that's what we need to target. We are making investments as well, particularly in the Re-imagine Stop & Shop areas in Long Island and in Hartford, we continue to make investments there. So all in all, for Stop & Shop, I'd expect to see, obviously, a rebound in margins in 2020. We won't have the impact of the strike, of course. So we'll annualize that. So we should see a good recovery in terms of Stop & Shop in 2020.

[Judah C. Frommer, Senior Analyst]

Okay, great. And my follow-up is kind of more broad on the U.S. environment. So maybe you could talk a little bit about the decision to exit the Midwest. What does that say about delivery versus pickup in general and specifically, for your U.S. business? Is there a reason you didn't maybe implement a mini fulfillment center or micro fulfillment in the Midwest? And then if you could just maybe address, I know you highlighted Heirloom, but we've seen some recent bankruptcies in small box, fresh led concepts, particularly on the East Coast. So any thoughts around that as well?

[Frans W. H. Muller, President, CEO & Chairman of Management Board]

Thank you, Judah. On the Midwest, we always support the strategy of omnichannel food retailing, the combination of bricks and clicks. And as you know, in the Midwest, we don't have the bricks. And the second reason is why we took the decision for the clicks in the Midwest, which is a $97 million sales number for the full year, is that we would like to focus on the East Coast and to deepen our footprints with our brands there supported by, first of all, the Peapod Digital Labs technology and innovation, but also by the Peapod fulfillment. It's a matter of focus. We had a $1.1 billion sales in 2019. We expect to grow a 30% more in 2020. So we're very much on a growth path. And as you know, our online business is only in food, with a high level of fresh and frozen in that sales number. So we consider ourselves the leader on the East Coast in omnichannel and especially in the big food share. So strong growth planned for 2020, leaving the Midwest for that part of our fulfillment. The main reasoning is that we cannot get there an omnichannel proposition, which is our strong belief. And we would like to focus on the East Coast, to even strengthen our business there and deepening our footprint and gaining share. On the small formats, like Giant Heirloom in Philadelphia, we're very happy with the first 3 stores there. We used a lot of knowledge, both from our Giant teams, but also from our Tiny teams in Holland, which, as you know, operates smaller formats. And the [ former 7 ], a full-fledged assortment in fresh, frozen, center store, online, self checkouts, and we're very happy with the progress there so far. So we are confident that we can run those formats. And we see also the Philadelphia and Pennsylvania market as a good market to grow that business.

[Jeffrey Carr, CFO & Member of Management Board]

Could I just add just on the e-commerce? I'd just like to add that we shouldn't take the news in Chicago as any view of preference of our omnichannel operation down the East Coast, in terms of delivery or Click and Collect. We'll continue to offer a strong delivery both same-day and next-day delivery options as well as Click and Collect in our omnichannel offerings down the East Coast. So don't read into that a pullback from a delivery option. That's very important to our omnichannel offering.

[Frans W. H. Muller, President, CEO & Chairman of Management Board]

And you saw that a few numbers in our report as well, Judah, is that last year, we had more than 600 Click and Collect operations. And in 2020, we will extend them to 1,000 Click and Collect operations. And together with our home delivery market, Click and Collect and home delivery markets, we'll be able to serve 86% of our total customer network.

[Operator]

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

[Nick Coulter, Director]

I'd say 2, please, if I may. With apologies for being so banner-specific, but if the margin erosion is in Stop & Shop, I guess the math would suggest it's quite meaningful in Q4, putting the year to one side. So seasonal promotions aside, is it possible to give a little bit more color or the building blocks to recover margins at Stop & Shop? Because that does seem mathematically look quite challenging. And I might add that by default, obviously the other banners must be doing quite well. And then secondly, still on Stop & Shop. I might be misreading, but it sounds that the Hartford remodels have improved. Could I ask what you changed? Where you've invested in those remodels? And I guess, what learnings you can roll out to the rest of the Stop & Shop portfolio?

[Jeffrey Carr, CFO & Member of Management Board]

Let me start, Nick, with comments on the margin at Stop & Shop. We went through a difficult time in the second quarter, and we've seen sales recovery and we are seeing margin coming back to normal. But you're right to say that the Stop & Shop margins are still under pressure in the fourth quarter. I do see opportunities. We see significant opportunities to improve that through self-help. We still see shrink levels higher than pre-strike, for example. And we can do that by improving the operation of our stores. And it's areas like that, that we can continue to focus on to bring the margins at Stop & Shop back up during the course of 2020, where it should be a positive headwind. And of course, you don't have the strike, and we don't have the recovery period that we went through that in terms of the sales going back, customers coming back into the store. So I'd be optimistic that we'll see an improvement in Stop & Shop in 2020. And you're right, the other brands are doing very well, and margins have been ahead, for example, at Food Lion, where we've seen significant strong volume performances and strong market share gains for the last few quarters. Food Lion has had a fantastic year in 2019. And that's the whole point of running the portfolio. You see some pluses and some minuses each year. What we focus on is improving the areas that need to improve and make sure that we can balance that going forward, and continue to deliver sustainable strong margins as we have over the last several years.

[Nick Coulter, Director]

Can I ask where you're indexing versus pre-strike and Stop & Shop?

[Jeffrey Carr, CFO & Member of Management Board]

You can ask. I'm not going to get into the specifics of it or brand margins. It's suffice to say, we do have a -- Nick, and I think we've always said this, we have quite a spread of margin in the U.S. businesses. And we don't make any -- we've got some businesses which have much stronger margins than the average, and we've talked about Hannaford in the North, for example, strong market share position, very fantastic brand, strong volume performance. And so we have a mix of margins in the business in the U.S. And obviously, we're introducing eCommerce, which is growing 40%. And obviously, that's creating a headwind. So it's important we have our Save For Our Customers program, and that allows us to balance our investments, to balance the portfolio and to deliver stable margins. But I'm not going to get into the specific margins for each of the banners.

[Nick Coulter, Director]

No, no. I'm just trying to get a sense of what seems to be a lingering impact of the strike that hopefully will normalize as you leverage your loyalty programs and your marketing? And what is the underlying challenge for Stop & Shop that, obviously, you're also trying to address and obviously plays into the second part of the question on Hartford?

[Jeffrey Carr, CFO & Member of Management Board]

Yes. No, I think in the long term, and Frans will take over and talk about the Re-imagine Stop & Shop. But in the short term, I think there's a lot of basic retail, operational improvements and performance that we need to improve at Stop & Shop. I mentioned shrink, labor costs, day-to-day operational execution, which will -- has been improving. We have started seeing margins going back to their pre-strike level. And I'm sure we'll continue to see that as we go through 2020.

[Frans W. H. Muller, President, CEO & Chairman of Management Board]

And the task is pretty clear for our 2020 on Stop & Shop as well and to build on to Jeff's portfolio remark, for the total 80 USA portfolio, we gained market share in 2019, and despite the Stop & Shop stoppage. So gives also a view on how resilient our portfolio is on the East Coast.Which brings me to Hartford, your question there. We set for those store remodelings: is for the first year, we would grow 4% to 6%; second year, 2% to 4%; third year, 2% growth. And we -- in Hartford now in that pro forma. And we were in the beginning of Long Island remodelings, already in that pro forma. So we're quite happy with the sales development and the sales uplift. I mentioned earlier that because of the strike, we were a little bit slow with our remodelings for the 2019 year, where with Hartford and Long Island, we roughly remodeled 40 stores. We will step-up in 2020 to 65 stores. And the learnings are clear. I mean, you know that in Hartford, we made some cluster experiment with both price investment and also the proposition of fresh. But in the meantime, we learned a lot what customers like and what customers felt we should improve more. So in the meantime, in 2019, we have reviewed our total center store categories for the total brand of Stop & Shop with our 400 stores. And that looks pretty solid. We made some adjustments on certain areas where we have surface, kitchen, deli and these kind of things, some pluses and some minuses. We see that customers liked our stores a lot, both in the affluent and less affluent communities. So we're very happy with the sales uplift. And also we're digitizing our stores and the self-checkout and the seamless characters there, plus the fact that we -- the stores all look better and that we also could pick up some extra maintenance there. So...

[Nick Coulter, Director]

And is the product mix and margin profile and cost profile, what you expected it to be? Or is that still a journey?

[Frans W. H. Muller, President, CEO & Chairman of Management Board]

No. I think what we see is that our fresh categories do better than we expected. And there, we see a very positive uplift. And we knew that we had some work to do on center store in Hartford, and that's exactly what the team did so far. So I have a good, very good expectation for 2020 that we will excite even more customers in the 65 stores more. And all those stores will have also an online proposition. And we talked earlier about online as well. So also Click and Collect and home delivery will enrich that experience. I think we have a very strong Stop & Shop brand with strong locations. But as we said earlier, the brand needs a reimagining program to uplift the total proposition, and that's exactly what we're doing. And hopefully, when we, in a couple of weeks' time, can also close the King Kullen transaction after the FTC approval, then those stores on Long Island will, of course, also be remodeled into Stop & Shop. And I think we would have a strong proposition there in that part of the East Coast.

[Operator]

The next question is from Mr. Xavier Le Mene, Bank of America.

[Xavier Le Mené]

The first one on online. So as you said, you're offering the same-day delivery. You're offering the plus one. You've got Click and Collect or home delivery. But if you have to make a choice or you if you have to think about what is getting more traction, is it Click and Collect rather than home delivery? And how would you see potentially your online sales going forward in terms of Click and Collect versus home delivery? If we can get a sense of what kind of breakdown we should expect going forward. And a sense of by geography also would be quite helpful there. Second one, quite technical question, but any guidance on taxes and the financial charges for full year '20?

[Frans W. H. Muller, President, CEO & Chairman of Management Board]

Okay, Xavier. Let me take the first question. And on taxes, I'll turn it to Jeff. If we look at the total portfolio, I think you know very well that when we started our eCommerce business in the U.S., it was mainly home delivery. And we see that consumers in the U.S., but also our own capabilities are giving us now opportunities to grow faster with Click and Collect as well. So the proportion, Click and Collect over home delivery, will swing more to Click and Collect growth than to home delivery growth. In the end, it's up to our customers to decide what they prefer. A number of them have also a combination of Click and Collect and home delivery. And our Peapod home delivery model is uniquely strong on the East Coast. So that capability is proprietary to us, and that is a strong asset we have in our base. But we will see that the growth will turn more. The growth will be faster in Click and Collect than in home delivery. I mentioned already by 2020 that we will have 1,000 Click and Collect locations, which gives also an opportunity for us to be even more efficient because you can imagine, when you can satisfy a lot of customers with Click and Collect that, that total cost profile and margin profile will be more beneficial in the total mix than the expensive last mile. We are very proud that we can offer both. A lot of customers prefer both or make a choice there. But in the total percentage, over time, I think Click and Collect versus home delivery will more develop into a 50-50 title type distribution than where we are now at roughly 70%, 30%. So -- and with the 42% growth in the last quarter in the U.S., you see that those Click and Collect locations are doing very well for us.

[Jeffrey Carr, CFO & Member of Management Board]

Yes, on the tax question, Xavier, I'd say expect an effective tax rate in the very low 20s, so around 20%, maybe it'll touch higher, but in the very low 20% region.

[Xavier Le Mené]

And financial charges, sorry?

[Jeffrey Carr, CFO & Member of Management Board]

Sorry?

[Xavier Le Mené]

What about financial charges, too, any thoughts or guidance?

[Jeffrey Carr, CFO & Member of Management Board]

Slightly down, but very much in line with at 2019. Albeit slightly down as we continue to refinance the mix a little bit and see slightly lower rates, but it's not significantly down.

[Operator]

The next question is from Mr. Vincent Lee, Bernstein.

[Vincent Lee, Retail Analyst]

I have 2 questions, please. The first one, a big part of your Capital Markets Day last year was about being the consolidator of choice on the East Coast. My question is how much progress has there been in that regard? The obvious example is King Kullen, which you touched upon briefly earlier. But I think it's fair to say that, that hasn't gone according to plan. So my question is really what progress have you made against this target since the CMD? The second one is on the Netherlands and the changes you've made to the variable charges at bol.com. I'm estimating about a EUR 10 million impact on fees from that. Does that sound about the right level for the impacts you're expecting?

[Frans W. H. Muller, President, CEO & Chairman of Management Board]

I will talk about the first question. Consolidated growth, I think, a conservative growth of choice, we talked about at the CMD. And we announced King Kullen quite early, and it takes a little bit longer than expected with the approvals of the FTC. I think that's correct. In the meantime, we also talked about, let's say, harmonizing and consolidating our supply chain as well with the CNS transaction, which, by the way, closed yesterday. So that's also behind us. And we're now working on the coming 2, 3 years to make even the supply chain much more servicing and at the same time, also more efficient like Jeff already indicated. And we have also, yes, improved our M&A capabilities, and we'll see how it will play out in the coming year or in the running year. And when we have more to tell, then we'll come back to you.

[Jeffrey Carr, CFO & Member of Management Board]

Yes. So Vincent, on the bol.com fees, yes, you're right to pick that up. It's probably about a -- around about a EUR 10 million impact. But as we look at bol generally, we now have a business which is profitable and at the EBIT level, and is growing 30%, is almost the EUR 3 billion net consumer business. And what we are seeing is improving margins, and that's about leverage. We're now the getting leverage out of bol. When we first acquired bol, we grew the fixed cost, the support staff in line with the sales. But as we're growing, continued to grow at the 30% rate, we're seeing the leverage from that, which gives us the opportunity to see that leverage coming through and see improving margins, albeit we're able to make those sort of reductions in terms of the fee levels. But you're right to point out the number of around EUR 10 million in terms of the cuts.

[Operator]

The next question is from Mr. Robert Jan Vos, ABN AMRO.

[Robert Jan Vos, Analyst]

I have 2 questions. You mentioned that bol.com turned EBIT positive in 2019. You've also seen probably that there is an increasing number of stories of Amazon entering the Netherlands. What are your general thoughts on this? And more specifically, do you anticipate acceleration in price investments and promotions should Amazon decided to enter the Netherlands, i.e., more competition? That's my first question. And second question on Belgium. Is the margin recovery, 50 basis points, reflection of a normalization of the elevated costs as you mentioned them in the third quarter, so returning to more normal levels? That's my second question.

[Frans W. H. Muller, President, CEO & Chairman of Management Board]

Yes. So Robert Jan, just on the first question on the Amazon question. People always say when bol.com -- when Amazon might come to the Benelux. I mean, Amazon is here, already quite some time, through their [indiscernible] operations and they have plan to serve the Dutch market also through the [indiscernible] operations in the future. We focus very much on our strength. We have 100% penetration in the Dutch and Belgium market with bol.com shops. We serve more than 10 million customers on an -- with a very broad assortment of 23 million items. We work on the platform with 22,000 partners, which, together, we are understanding the customers very well. And I think we locally can serve them in a very good fashion, and we're co-creating together with those partners, new propositions, new assortments, new items and especially also in the seasonal area. And if you look at the fulfillment, and in the end, that's important for a lot of customers we serve, is we're the only ones who are delivering bol. As bol delivering packages on the Sundays, on the evenings, the same-day surface. If you order before 2 p.m., you get it the same day. So I think we have a very strong proposition. We feel very competitive with the Amazon offers, and we are much better on the fulfillment side. So we also work, for a long time already, on the shops of bol, and we're enriching our total offer. We are since 5 years already, for example, in the child -- in the children, baby and sports fashion and we now also added shoes and a broader fashion assortment as well. So I think we are very confident that we can serve those customers in the Benelux in the best way. And it's up to customers, of course, and consumers and our partners to see how they value that.

[Jeffrey Carr, CFO & Member of Management Board]

Yes. Coming back to Belgium. I think we look at the continued recovery of the Delhaize business in Belgium in terms of margin development and top line. And we saw -- although the top line looks relatively flat, we did see market share gains in Belgium in the fourth quarter and for the full year. In terms of operating profit margin, we saw a small improvement year-on-year, 10 basis points at 2.9%. The fourth quarter was a little flatted by a couple of small onetime benefits. But overall, we see a positive momentum in terms of margin delivery in Belgium. And I think we've said before, we expect that business to be a 3% to 4% margin business. And I would be hopeful that we continue to make improvements in the margin in Belgium in 2020.

[Robert Jan Vos, Analyst]

All right. If I can squeeze in one other question. In addition to what you've said in the press release, any other comments why you decided to combine the Netherlands, Belgium and Central and Southeastern Europe as from next year in the reporting?

[Jeffrey Carr, CFO & Member of Management Board]

No. Robert, it's just a case of reorganizing how we run the business. And we're very much running the business now as 2 divisions with Wouter Kolk, running Europe and Kevin Holt, running the U.S. business. And as you look at the guidelines from an IFRS perspective, as you look at what makes sense, we just feel that this is the right development. And obviously, we've been adjusting our segments since the merger. And we feel now this is the right place for us to be, and it's in line with how we operate the business.

[Operator]

[Operator Instructions] The next question is from Mr. Andrew Gwynn, Exane BNP.

[Andrew Philip Gwynn, Senior Food Researcher & Analyst of Food Retail]

Well, first off, Jeff, I think it's the last time we talk to you, so best of luck for the future. Just on the U.S. segment. Obviously, you've spoken a lot about Stop & Shop. I'm just wondering if you can comment on some of the performances elsewhere. I mean, particularly, obviously, Food Lion still showing very strong momentum. So I'm just wondering, any sort of further thoughts on the competitive dynamic that you're seeing there? Is there an expectation that, that strong performance could eventually come through a bit of a slowdown? And then unfortunately, returning to the U.S. online theme, which seems to be a big part of the discussion. But at the Capital Markets Day, so just over a year ago, you showed us that Takeoff platform. I think the early experience of that was a bit mixed. So I'm just wondering if you could update us on how that's progressing? And whether or not there's a big rollout?

[Frans W. H. Muller, President, CEO & Chairman of Management Board]

Yes. Thank you very much. On the U.S. brands, we said already, total portfolio, market share gains, knowing what the stoppage at Stop & Shop have brought. Then the conclusion is that we gained even more in the other brands on the U.S., Jeff highlighted already the strong market share growth for Hannaford and for Food Lion. But also the other 2 brands, Giant Food and Giant Martins did very well for us. So we are very, very positive there on that development. And just imagine, because that market share gain is almost without new locations, so it's really on the same-store and the same square footage performance, so that's even more remarkable. We invested quite a lot in our brands, as you know, and we know the easy fresh and affordable. We're now working on the reimagining Stop & Shop, but also Giant Martins did a very good job in making the store even more attractive from a customer experience. They work also here and there on pricing when necessary. They have new assortments in fresh, in kitchen, in the drinks assortment. So all the brands did an excellent job in making it more attractive. And that's why I think customers really come more often to our stores, and that's why we gained share. Overall, I think the customer and the consumer sentiment in the U.S. is a positive one. And whilst we still keep investing in our omnichannel proposition, I think our brands get even more attractive. On Takeoff , that is the multi -- the micro fulfillment center in Hartford, in our Hartford store. We mentioned to you last time that we're working with that new type of technology and learning week by week, and that is still the case. We get closer to the numbers of productivity we would like to see. And as soon as that is the case, then it is for us an instrument to support our Click and Collect and home delivery business. But we're working with the Takeoff team in our Hartford store to get ourselves to the required productivity levels.

[Jeffrey Carr, CFO & Member of Management Board]

Yes. But Andrew, as I mentioned, most important is the development of our omnichannel offering. And with 40% growth in the fourth quarter and achieving the target that we gave at the Capital Markets Day, was to achieve 20% eCommerce growth in 2019, and we've exceeded that target, and we've given guidance for 30% growth in 2020. The most important thing is how we serve the customer and the customer is delighted with our omnichannel offer. I think sometimes, the market mixes up the mechanization with success in eCommerce. And mechanization is only a means to improve efficiency, it's not a means to satisfy the customer or deliver to the customer, and it's certainly not a growth constraint. So when we see mechanization that can improve efficiency, we've shown in the past, we'll invest in it, but it has to deliver real dollars to the bottom line and pay back in a return-on-capital basis before we'll do that.

[Andrew Philip Gwynn, Senior Food Researcher & Analyst of Food Retail]

Okay. That's clear. And just one clarification. I think you said the Click and Collect penetration is about 30% at present. Did I hear that right? Sorry.

[Frans W. H. Muller, President, CEO & Chairman of Management Board]

I gave you an estimate that where we grew, where we started with home delivery as the main fulfillment way that we're growing more with Click and Collect. So the percentage is shifting. And I gave you an indication, that's roughly a 30%, 40% of our sales, and that will move more to a 50-50 balance, home delivery and Click and Collect. So it's shifting more towards a more balanced fulfillment scenario and therefore, also helping our efficiency in the total proposition.

[Operator]

The last question is from Mr. Alan Vandenberg he, KBC Securities.

[Alan Vandenberghe, Head of Research & Equity Analyst of Food Retail]

I have one left. It's regarding, again, Belgium. I would like to know how you see the competitive environment evolving there. At the end of last year, we saw a jumbo entering the market. I would have to -- I would be very glad to hear your thoughts about the evolutions here.

[Frans W. H. Muller, President, CEO & Chairman of Management Board]

Yes. Belgium market. Jeff already mentioned that the Belgium market is a tough market, and the market is actually not really growing, with a low percentage of inflation as well. Let's put those things into perspective. We have 800 Delhaize stores and a market share of 25%. We had roughly a flat growth with Delhaize in Belgium, but we gained market share. It's a good indication how tough the market is. We have now close to 50 Albert Heijn stores, and those stores grow very well, and grow very well in the comp sales fashion, so 50 of those. And we have also our bol.com brand. And you heard that bol.com grew almost 30% and that we go to a French module -- French language model in the middle of 2020. So we have a 3-brand strategy. And you can imagine that we gained market share in the Belgium market. But that means also still that the Belgium market is not growing very fast. And I think you see some entrance of new competitors. But just look at the numbers, 800 Delhaize stores, 50 Albert Heijn stores and a market-leading position for bol.com. And it also means that if we gain share, that a few other bigger and smaller competitors lose share. So let's see how to develop. We are very happy with the 3-brand strategy. And we also have quite some synergy between those 3 brands. So I think we will be even more competitive for the future.

[Operator]

Jeff, please continue?

[Alvin Caezar Concepcion, VP & Head of Investor Relations]

Okay. Thank you. That concludes our conference call and webcast. Thank you for joining and have a nice day.