Koninklijke Ahold Delhaize NV

AEX:AD

Earnings Call Transcript 2021-Q4

[Operator]

Ladies and gentlemen, good morning and welcome to the analyst conference call on the fourth quarter and full year 2021 results of Ahold Delhaize. Please note that this call is being webcasted 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 2021 and also in Ahold Delhaize's public filings and other disclosures. Ahold Delhaize's 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 JP O'Meara, Senior Vice President, Head of Investor Relations. Please go ahead.

[John-Paul O'Meara]

Thank you, and good morning, everyone. I'm JP O'Meara, Head of Investor Relations, and I'm delighted to welcome you to our Q4 2021 results conference call. On today's call are Frans Muller, our CEO; and Natalie Knight, 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, which provides extra disclosures and details for your convenience. [Operator Instructions]I'll now turn the call over to Frans.

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

Thank you very much, JP, and good morning to everybody. We ended 2021 on a strong note, with positive fourth quarter group comparable sales momentum and group margins in line with the prior strong year levels. As we begin the next phase of our Leading Together strategy announced at our Investor Day last November, we are well positioned to execute against our ambitious growth plans. This is all down to the continued dedication and hard work of our people. Looking back on the past year, I'm again most proud of how associates brought our values to life in the way they responded to the ongoing developments associated with COVID-19 as well as natural disasters, including major floods in Belgium, tornadoes in the Czech Republic, fires in Greece and Hurricane Ida in the U.S. Through it all, associates rose to the challenge to care for customers and communities.For the full year, our COVID-19 care investments totaled EUR 364 million, including our commitment of EUR 20 million in additional 2021 charitable donations spread evenly between the U.S. and Europe. In total, our brands contributed nearly EUR 200 million in food donations and other charitable initiatives across the globe in 2021.The pandemic highlights the importance of maintaining food and product supplies to local communities, a vital role that we remain focused on fulfilling together with our brands and suppliers. And as a result, we enter 2022 with deeper relationships and trust with customers across our brands and our markets with strong and growing market shares in both regions to build upon.Now let me highlight our key financial results on Slide #5. The good news is our financial results in 2021 significantly exceeded our original expectations with positive full year sales growth and stable 52-week underlying earnings on a comparable basis versus record results in 2020. And you can see the 52-week comparable numbers in the appendix for your context.Our stable underlying earnings is of particular note as we were able to deliver this result despite significant supply chain challenges, increasing inflatory pressures and the dilutive effects from rapidly expanding our omnichannel proposition. Due to our strong revenues and continued excellent delivery of our Save For Our Customer cost-saving initiatives, our underlying operating margins were again very strong relative to historical levels prior to COVID-19.As a result, I'm pleased that we exceeded our initial and later increased guidance for underlying EPS. Free cash flow overall generation, which is extremely important in this environment, also well exceeded our expectations. And this allowed us to take some additional decisions towards the end of the year that Natalie will walk you through later.Behind these results, our investment in our omnichannel platform once again proved its worth during 2021. With 15 million active mobile app users and 1,642 pickup points and click-and-collect locations globally, group net consumer online sales grew by more than 38% compared to 2020, representing a 2-year stack growth of more than 105%. This positively impacted our 2021 group net sales, which at EUR 76 billion was up 3% versus 2020 at constant rates, with 96% of our sales coming from markets where we hold the #1 or #2 position.In terms of the fourth quarter, we maintained the momentum we built throughout 2021 and produced group 2-year comparable sales stack growth of 14.2% accelerated from 12.2% growth achieved during the third quarter.And as I said at the Investor Day and represented on Slide 6, I truly believe we have a repeatable formula for growth in the U.S. and in Europe. We have a strong operating model with our local -- leading local brands supported by service brands who operate at scale and who leverage their best capabilities globally.Between now and 2025, we have 4 big priorities we are doubling down on for the next 4 years. One, serve our customers through deeper digital relationships; two, accelerate the omnichannel transformation and continue to be the best local operators; three, lead the transformation into a healthy and sustainable food system; and lastly, create the ecosystem for smarter customer journeys. These priorities tie straight to our vision: to create the leading local food shopping experience.And with that in mind, let me spend a few minutes on some of the key operational highlights for the quarter and give you a sneak preview of what to expect in 2022. Looking at our consumer value proposition on Slide 8 and 9. In the Netherlands, we launched the Albert Heijn premium loyalty subscription program, which already boasts more than 300,000 customers. Giant Food soft-launched Ship2Me, an online marketplace solution initially offering an additional 40,000 general merchandise and food items. And this has been extended to the food giant company as of January this year.Delhaize started its first in-store kitchen in collaboration with Tastyoo. And in the Czech Republic, Albert expanded their e-commerce service to the greater Brno and Olomouc areas. And our U.S. brands also added new click-and-collect locations in Q4 for a total addition of 270 in 2021 to a total of 1,386, and we plan to add a further 150 plus of those click-and-collect locations in 2022.Looking at our operational priority on Slides 10 and 11. In terms of using the power of data, we rolled out machine learning-based store optimization tools for store managers at Albert Heijn and rolled out a proprietary network optimization engine in the U.S., leveraging predictive analytics, which will be scaled to Europe in 2022.In stores, we continued to drive efficiency with electronic shelf labeling and expect more than 80% of our European grocery stores to be equipped by this year. We're also proud of the GIANT Company's new e-commerce fulfillment center that opened in the Philadelphia market in Q4. It is supporting our ambitions to increase the amount of automation and speed in our supply chain, an important pillar of our Leading Together strategy. We will be looking to take learnings and pilots similar initiatives like this in Europe in 2022.Controlling our own destiny across our entire distribution network is an important principle we firmly believe in, particularly when it comes to fostering pace and agility in building out new digital capabilities. And in the near term, this will particularly be visible at bol.com, where we look to reinforce the modern infrastructure we have carefully put in place for the brand over the last years.Momentum at bol.com remained solid despite significantly less tailwinds as we let the harsher lockdowns from the COVID-19 pandemic of the last 12 months. The investments we planned for 2022 will kickstart a multiyear phase of investment to put infrastructure in place to match the volume growth and new revenue opportunities we expect from a number of areas. First of all, the underlying e-commerce market growth projected in the coming years, where the total addressable market including VAT, or the TAM, is expected to increase from EUR 46 billion in 2021 to EUR 63 billion in 2025.The second item is that our plans to increase our position in underpenetrated categories as well as cross-category selling, which includes a deeper collaboration with our Benelux brands announced at the Investor Day in November. And lastly, as we -- as well as the build-out and scaling up of highly accretive service capabilities in advertising and logistics. We estimate the digital advertising market alone in the Benelux as a TAM, a total addressable market, of just under EUR 5 billion.For 2022, the sub-IPO of bol.com is one of our top priorities. We are excited about this chapter in bol's evolution and continue to progress on our plans to get bol.com ready for a sub-IPO during the second half of 2022. Natalie will also share more details on our progress here in her commentary.Moving over to Slide 13 and moving over to healthy and sustainable, the priority we have there. Throughout 2021, food-at-home consumption and the focus on healthier eating were trends which proved very resilient. And I'm particularly pleased with the share of total own brand food sales from healthy products of 53.6% in 2021. At Ahold Delhaize, we believe that what's healthy and sustainable should be accessible and available to all. We are working towards this with our Grounded in Goodness strategy that focuses on both healthier people and a healthier planet.Grounded in Goodness, officially launched in 2021, is based on the idea that the world health crisis and climate crisis are intrinsically linked. We believe that if we get it right for ourselves, we usually also get it right for the planet. And acting responsibly today is imperative to securing a better tomorrow for generations to come.In this respect, during the fourth quarter, we were pleased to have earned an upgrade to our MSCI ESG ranking to AA from our previous single A ranking. We also maintained our standing as a leader in the Dow Jones Sustainability Index. Our score of 83 out of 100 was well above the industry average of only 26 points and placed as highest amongst food retailers in Europe and the U.S.We also expressed our intention to make continued progress on the ESG front through our decision in the fourth quarter to pull forward our commitment to reach net zero carbon emissions across our own operations by no later than 2040 for Scope 1 and 2. We focus primarily on reducing energy consumption, which is more than half of the emissions; refrigerant or coolant leakage, more than 1/3; and transportation. And we will actively apply this lens as we invest in our future. For example, at bol.com, we have recently reached an agreement to acquire a majority stake in Cycloon, a green and social delivery expert, which will help support bol.com's last-mile delivery ambitions and their sustainability efforts at the same time.As we look towards 2022, another top priority for the company is doing more homework on what it will take to become a net zero business across our entire supply chain, products and services, by 2050, the so-called Scope 3, and we try to be even sooner. In our industry, Scope 3 represents around 95% of our emissions. Our value chain is immense. We sell over hundreds of thousands of products and have thousands of suppliers worldwide. We are currently working towards an updated target and detailed plan for Scope 3, which will be announced later this year.We have joined the Business Ambition for 1.5°C, the global coalition of UN agencies, business and industry leaders in partnership with the Science Based Targets initiatives and the United Nation's led campaign Race to Zero. This means we also set interim science-based targets across all relevant scopes and in line with the criteria and recommendations of the Science Based Targets initiative. There are 3 important elements in our approach here. We need to actively help farmers with a green transition. We need to standardize healthy and environmental product information for consumers. And we need full support from governments in setting clear standards and regulation.Finally, let me spend a moment on our outlook for 2022 on Slide 15. While we have already talked about several key initiatives to support comparable sales growth and further elevate our best-in-class omnichannel offering, let me address the one hot topic in the financial community for this year, namely inflation.Our role as retailers is to provide value to customers. We pride ourselves on being the best local operator. And we will prove our strength in this area and turn the headwind into a competitive opportunity as we navigate the inflationary environment. As I have said many times before, the supermarket business has a deflationary role for customers. This is because we have strong insights into which price increases are justified through our should-cost models, which deconstruct products down to component materials, for example, raw materials, packaging, energy, transportation and labor, so that we have a good sense of what a product should cost. Given that 30% in the U.S. and 50% in Europe of our products are own brand, which is industry leading, by the way, we have exact and broad knowledge, which gives us a significant advantage over competition.While negotiations with suppliers are tougher in this kind of environment, we work hard to make sure to only accept price increases that are justified to pass on to consumers. And you will have seen in the press just -- you have seen in the press just how we prepared, we have talked holding the line aggressively with our suppliers when we see unjustified price moves in our markets.Beyond that and keeping the customer basket demand, it's important to stress that our 19 brands offer price ranges for every wallet. It also goes for healthy products, so customers can maintain a healthy lifestyle, an attractive private label offering, good promotions, but also everyday low prices, like with the Prijsfavorieten, Price Favorites, with Albert Heijn or extra discount on healthy products with the SuperPlus loyalty program in Belgium or the GIANT Choice Rewards loyalty program in the U.S. are all parts of our toolkit to help customers continue to enjoy good value and a healthy basket.From a business perspective, as you have seen with our Q4 numbers, we are navigating the elevated levels of inflation very well. Our gross profit continued to grow in line with sales. In general, we see pretty rational behavior amongst competition in the markets we serve as this is an industry-wide phenomenon. And while we are still waiting for some data, our market shares continued to improve, underpinning the quality of our customer value proposition. While current inflation levels are indeed elevated, we expect inflation to moderate in the second half of this year and also supply chains get back on track.So taking all priorities together, 2022 will be another busy year for our company and we believe another rewarding year for shareholders. And given that we are currently seeing many signs of reopening from the pandemic around the world, our 2022 outlook reflects further strong underlying operating performance in that context. We work hard on achieving our goals and keeping the focus on long-term value creation.Finishing on that note, let me now hand over to Natalie, who will ask -- who will add her comments on the quarter and provide further specifics on the outlook.

[Natalie M. Knight, CFO & Member of the Management Board]

Good morning, and thanks, Frans. I'm also very proud to share another quarter of exceptional results as we finish the year strong, meeting or exceeding all of our original commitments for the year. As you can see on Slide 17, Q4 net sales were EUR 20.1 billion, up 0.1% at constant exchange rates or plus 2.8 percentage points at actual exchange rates, driven by positive contributions from comp sales growth, excluding gas, of 3.2% as well as acquisitions and foreign currency translation benefits, which were partially offset by last year's inclusion of a 53rd week. Excluding that effect, Q4 net sales grew by 6.7% at constant exchange rates.Net consumer online sales grew 13.2% at constant exchange rates versus Q4 2020 due to combined growth at bol.com and the overall online grocery business and the FreshDirect acquisition. On a more comparable 13-week basis, Q4 group net consumer online sales were up 21.5% at constant exchange rate, which builds on top of 71.7% growth in Q4 2020.In Q4, group underlying operating margin was 4.2%, unchanged compared to 2020 at constant exchange rates as sales leverage and strong cost saving initiatives offset higher supply chain costs and inflationary cost pressures. Group underlying operating income increased by 1% at constant exchange rates to EUR 38 million.Underlying income from continuing operations grew 6.7% to EUR 598 million in the quarter as we repurchased 9.9 million shares at an average price of EUR 30.17 for EUR 299 million. As a result, diluted underlying EPS was EUR 0.59, up 7.6% at constant rates compared to last year. Put in the context of 2020's record results, we again clearly leveraged our strong top line and Save For Our Customer initiatives to deliver a result ahead of our expectations. Slide 18 shows our results on an IFRS reported basis for Q4, and Slide 19 and 20 show our results for the full year on an underlying and IFRS reported basis.Moving over to Chart 21. On a 2-year comparable sales stack, growth for the group was 14.2% in Q4 2021 comparing to 12.2% posted in Q3, showing a nice acceleration. On Chart 22, you see that after we adjust for the influences of weather and calendar, our Q4 sales trends were almost identical with reported figures in both regions. In the U.S., we posted 15.9% adjusted 2-year comp sales stack in the fourth quarter, keeping the pace of previous quarters. And in Europe, the adjusted 2-year comp sales stack was -- in Q4 was 11.6%, accelerating compared to Q3 due to market share gains in the Benelux brands.Now let me go a little deeper on our fourth quarter performance by segment. Starting with the U.S. on Slide 23, net sales grew 1.5% at constant rates to EUR 13.8 billion. And excluding last year's 53rd week, fourth quarter sales increased 9.2% at constant exchange rates. U.S. comp sales ex gas were up 4.8%. Unfavorable weather negatively impacted these sales by approximately 0.2 percentage points. Online sales in the segment grew 30.5% in constant currency driven by the continued expansion of our click-and-collect facilities and the FreshDirect acquisition. Excluding FreshDirect, U.S. online sales grew 7.5% in constant currency, building on top of the significant 128.5% growth in the same quarter of last year.In terms of brand highlights, Food Lion achieved its 37th consecutive quarter of positive comparable sales growth. The 71 stores acquired by Southeastern Grocers in early 2021 also continue to exceed sales expectations. At Stop & Shop, we remodeled 19 stores in the fourth quarter, bringing the total remodels for 2021 to 55. Remodeled stores here also continue to exceed our sales expectation.Our U.S. underlying operating margin was 4.4%, up 0.5 percentage points from the prior year at constant exchange rates driven by strong cost savings initiatives and reduced COVID-19-related expenses.In Europe, as seen on Slide 24, net sales in the fourth quarter decreased 1.9% at constant exchange rates to EUR 8 billion. Excluding last year's 53rd week, Q4 net sales in Europe grew 3% at constant exchange rates. Despite lapping some strong comparable sales growth excluding gas in Q4 2020 of 10.6%, comparable sales grew year-over-year on the back of continued market share gains.Albert Heijn was a particular standout in the quarter with positive market share results driven by strong execution and successful marketing campaigns. We successfully converted all 38 stores acquired from DEEN to the Albert Heijn banner in less than 10 weeks. Albert Heijn to go has also introduced 86 BP fueling station locations in the quarter and will scale up to over 100 next year.Next, net consumer online sales in the segment were 7.4%, following 73.4% growth in the same period last year. Underlying operating margin in Europe was 4.1%. This compares to an underlying operating margin of 5.1% in the prior year quarter when margins benefited from strong leverage related to the strict lockdown conditions in Europe.Moving to Slide 25. Let me spend a little more time on bol.com and provide you with some additional disclosure and updates on the sub-IPO process.In Q4, net consumer sales grew by 7.8% or 15.3% on a comparable 13-week basis, which comes on top of the nearly 70% growth in the same period last year. Bol.com's sales from third-party sellers grew 9.1% in the quarter or 17.2% on a comparable 13-week basis, representing 56% of net consumer sales.In December, we formally kicked off the sub-IPO process with internal working teams established and external advisers appointed. In terms of time lines, we are fully on track with our preparations to be ready to launch in the second half of 2022. More details will be shared in the prospectus and other related documents in due course. That being said, however, I'm in a position to give some additional color on 2021 for context on Chart 26.Bol.com sales, and note this is a new figure, increased 21% to EUR 2.8 billion. Net consumer online sales for the year were up 27% to EUR 5.5 billion, fueled by our growing merchant partner network, which now stands strong at 49,000. The gross merchandise value, or GMV, excluding VAT, was EUR 5.6 billion, an increase of 28%. And merchant partner sales grew 36%, now representing over 60% of the GMV. Including VAT, which many external commentators benchmark, GMV was over EUR 6.5 billion in 2021. That's an approximate number of quarters, but profitability was also strong with underlying EBITDA of EUR 166 million, keeping pace with the prior year, which is a strong result given the significant leverage effects due to the pandemic.Bol's net capital expenditure for the year was EUR 159 million. Free cash flow came in at EUR 162 million, a record result for bol.com. The strong financial progress that bol.com has shown over recent years highlights the strength of the underlying business model that Frans already indicated in more detail.So moving on to Slide 27 and switching back to the group. As I stated at our Investor Day in November, you've always been able to count on us to deliver reliable growth and free cash flow. In Q4, our free cash flow was EUR 379 million, which represents an increase of EUR 118 million compared to Q4 2020, mainly driven by higher operating cash flow, working capital improvements and lower net investments, which were partly offset by U.S. pension contributions and higher income taxes paid.The pension payment was $190 million or EUR 170 million pension liability, which we paid in the U.S. ahead of schedule following our 2020 U.S. multi-employer pension withdrawals and was already reflected in our November free cash flow guidance. The increase in taxes, however, mainly relates to the payment of an additional assessment notice of approximately EUR 380 million that our Belgian subsidiary has received in December. We decided that the basis of such an assessment is without any merit and have communicated this also in previous notices. We recorded a receivable in the full amount paid. We decided to pay this amount to ensure that there are no disruptions created from the assessment notice and that our ongoing modus operandi as timing of the resolution to the matter remains unclear. On a full year basis, free cash flow generation was a healthy EUR 2.2 billion and EUR 1.6 billion on a reported basis, underpinning the strength of our business model and our continued confidence in balancing investment in growth and shareholder returns.I'd like now to make a few comments about our outlook for 2022 on Slides 28 and 29. We remain very confident in our growth potential, as indicated during the November Investor Day, albeit with some phasing as we go through the year and lap periods of lockdowns and openings related to the pandemic. With supply chain disruptions, inflation and rising costs posed as well as the expected easing of government subsidies, challenges are facing our industry. Group underlying operating margin is expected to be at least 4.0%, in line with the group's historical profile as our brands continue to offer consumers a strong shopping proposition and are well positioned to maintain profitability in the current inflationary environment.Margins are expected to be supported by a strong Save for Customer target of above EUR 850 million in 2022. This should help offset significant cost pressures related to inflation and supply chain issues, along with the negative impact of margins from increased online sales penetration. Our 2022 target builds on EUR 967 million of savings in 2021, which significantly exceeded our original expectation of EUR 750 million. In addition, we also expect complementary revenue streams to grow by at least 20% in 2022, building off a solid base of EUR 355 million in 2021.Underlying EPS is expected to decline by a low to mid-single-digit rate versus 2021 driven primarily by a return to historical margin levels in 2022 compared with elevated 2021 level.Free cash flow is expected to be approximately EUR 1.7 billion. And that's despite a step-up in our net capital expenditures, which are expected to be around the EUR 2.5 billion level, reflecting higher investments in digital and omnichannel to support accelerated sales growth. Both this free cash flow and the capital expenditure guidance for 2022 reflect approximately EUR 200 million of incremental spend as we begin our multiyear investment strategy in bol.com.When it comes to shareholder returns, we remain committed to our annual dividend policy and our share buyback program in 2022. With that in mind, I'm also pleased to announce today our proposal to increase the dividend per share by 5.6% to EUR 0.95 per share. Subject to approval of the AGM, of course, I also remind you that we started our EUR 1 billion share buyback in January as planned.Finally, let me spend a few moments to add a little more granularity to our 2025 financial guidance as we outlined at our Investor Day. As you can see on Chart 32, we expect to deliver a visible and sustainable uptick versus historical growth rates and will -- this will translate into EUR 10 billion of incremental sales from 2023 to 2025. We see big potential to drive this not only through our efforts at bol.com and enhanced collaboration in Benelux, we also believe there's a big upside in the U.S. business as well. Combined with our Save for Our Customer goal of EUR 4 billion of cumulative savings is also our EUR 1 billion target in complementary revenue streams. This is going to provide a powerful backdrop to continuing to deliver industry-leading operating cash flows. As we outlined at Investor Day, leading together is a future-focused growth plan.Moving on to Chart 33 where you see our capital expenditure split, we plan to shift close to 20 percentage points of our overall spend toward online and new more omnichannel-focused stores in 2025 compared to where we were in 2020 as we complete several large supply chain and other infrastructure projects. A significant part of our investment plan or an additional 50 basis points of that CapEx on an average per year basis relates specifically to bol.com over the period. If we exclude this step-up in investment, which is largely geared towards warehouse and logistical platform and last-mile infrastructure, and look at the grocery business on its own, we expect capital expenditure and free cash flows to continue to be consistent with historical norms. Excluding bol, our grocery business CapEx guidance will continue at prior year averages of around 3%. These additional investments will ensure momentum at bol.com remains strong and will primarily be funded by the strong projected free cash flow generation of our grocery business of at least EUR 7 billion for the period '22 to '25.In closing, we are very proud of our accomplishments at Ahold Delhaize over the past year. We've taken big steps to strengthen our business foundation during 2020 and '21 and are now ready for the challenges and opportunities that lie ahead of us in 2022. Our plans for this year clearly underpin our goal to be the industry-leading local omnichannel retailer in all of our markets. Through our unique, fresh, healthy and private brand assortments and through our great value, convenient and personalized shopping experiences, we have the ultimate formula to drive retention, acquisition and increasing share of wallet over time.Frans and I are looking forward to taking your questions now. Operator, please open the line with those questions.

[Operator]

[Operator Instructions] And the first question is coming from Mr. James Grzinic, Jefferies International.

[James Robert Grzinic, Equity Analyst]

Yes. I just have 2 quick ones. The first one is, is the manner and timetable of the bol.com monetization independent of market conditions? I'd be very interested to hear your thoughts on that one.And secondly, Frans, you talked to inflation moderating in the second half of this year. Do you expect a higher peak ahead of the moderation? Do you think Q1 and Q2 pricing recovery to be greater than what we saw late in 2021 given what you're seeing on input -- in the input side of things?

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

Let me start with the second question, James. And then Natalie will refer to bol.com, the IPO. On the inflation in the second half, we expect a moderation. We also are supported by this by the USDA numbers for the U.S. within 1.5% to 2.5% inflation for the full year 2022. We see a 4% inflation in the Dutch market and 5% inflation in the Northeast. And I think in the first quarter, we might see -- if we might see a higher inflation, if we see the peak there, and then it starts moderating from there. So that's a little bit how we look at this.We're talking about food inflation, of course. And we're very close with our suppliers and with our suppliers also for our own brand sales. So we have a good feel and good connectivity to those costs of products, which is, of course, not only raw materials, it's also energy and packaging and transportation. But that would be a little bit our view, James, at this moment.

[Natalie M. Knight, CFO & Member of the Management Board]

And when it comes to bol.com, we are -- continue to be working hard for that second half timing. We believe there's a great opportunity when we look at bol.com. And the strong numbers and the big outlook that we have for it going forward, we're going to be doubling sales in the next 5 years, growing profit, and we have big investments that are needed to support that plan. So yes, we plan to move that in the second half of the year. It's something we're very excited about. And market conditions always play a role. That's why we have a period of the second half that we can look at what's the optimal placement.

[Operator]

And the next question is from Mr. William Woods, Bernstein.

[William Woods, Analyst]

That kind of margin resetting, what are the drivers of this margin reset? And is it mainly driven too by operating deleverage from lower volumes? And then the second question is on the performance in the U.S. So Food Lion appears to be very strong, which you've reinforced. But Stop & Shop looks weak according to some of our kind of local share data. You've got the remodelings ongoing, but what else are you doing at Stop & Shop to turn around performance, particularly with regards to pricing?

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

Yes. So margin reset, Natalie will take up. I will say a few things about the business in the U.S. You know that the Nielsen market share data always come with a delay, so we don't have the fourth quarter data from there. We have a proxy with IRI, maybe the same proxy you use. And we see there that our total business in the U.S. on the East Coast is gaining share.And I agree with you that the Food Lion is having a greater share gain than Stop & Shop. And we are quite content with the Stop & Shop remodeling process. We're on the 60 stores a year remodeling scheme. We see good uptakes on sales in the remodeled stores, in line with our expectations. And we also invest in pricing, and we see also the gaps compared to our competition getting more favorable.So these kind of things, reorganizing a company and repositioning, always takes a little bit of time. We have very good uplifts in our online sales. We see a good reaction on the remodelings itself where we look at the fresh sales, where we look at the margin components there. So I'm optimistic about Stop & Shop, but these kind of exercises take a little bit more time, like we also have seen with Food Lion itself. So optimistic there, more work to be done, and it will be a strong year in 2022 for the remodeling program as such.

[Natalie M. Knight, CFO & Member of the Management Board]

And when it comes to the margin question, I think you're going in the right direction, which is if you look at the last 2 years, we've had very, very strong sales uplift. The 2-year comp sales stack is 15% if we look at it across the 2 markets. And when we go forward, yes, we expect sales to grow, but it's going to be at a much lower level in 2022. And we also do expect, as we look at some of the challenges out there, whether it's inflation, supply chain, those are things that we're going to have to be focusing on very strongly in '22.When we look at Q4 and all of '21, actually, we've had very big success on that front in terms of maintaining stable margins, really making sure that we get that balance right in terms of what's happening on the inflation side and the cost side. But as we look at '22, I think we just have to be realistic. It is a pretty challenging environment out there. And there are going to be places where we're able to hold and there may be areas where it's more challenging.

[Operator]

And the next question is coming from Mr. Andrew Porteous, HSBC.

[Andrew Ian Porteous, Analyst, European Retail]

Yes. Couple from me. Can you talk about the impact of Belgium? I mean we know it's a tough market there. I know your European margin is a little bit soft in Q4. Is that largely down to Belgium or other parts of the business performing much better? And if so, could you just sort of quantify the drag that just the Belgian market is having on that area, maybe what we can expect into 2022?And then second question, really around, could you give us some idea on the drop-through of that EUR 1 billion of extra sales and how you're thinking about that? I know a lot of other companies have talked about that digital opportunity in sort of an incremental EBITDA opportunity. You're sort of talking about it more as sales, but I assume they're very profitable sales.

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

Yes, Andrew. On Belgium in itself, yes, it's a tough market. We are there with 3 brands, as you know, with Albert Heijn, Delhaize and with bol.com. And overall, we're gaining market share in that market for the 3 brands as a total. That's one thing.The second thing is that if we look at the margin and the setup of Belgium, we're happy with the development. We're not there yet with the Belgium business where we need it to be. That is the high 3% margins, as I mentioned to you before. But we also see overall in our Benelux business that with very strong '20 and '21 years, with a very strong sales leverage and also lower marketing spend overall when the sales is anyhow very strong, that we see a little bit different effect with the marketing costs coming in. And that is a pretty logical story, which we will see everywhere. We have more sales leverage, which is not only the fixed costs but also the marketing costs.

[Natalie M. Knight, CFO & Member of the Management Board]

Would you mind repeating the second question?

[Andrew Ian Porteous, Analyst, European Retail]

Yes. I was just really looking for some more color around the sort of the EUR 1 billion of incremental digital sales that you're talking about. I know a lot of your competitors have sort of talked about that digital opportunity in advertising and the like sort of an incremental EBITDA opportunity and quantify that. I'm just sort of trying to think about the profitability on that extra EUR 1 billion of sales and if you could give us some more color would be helpful.

[Natalie M. Knight, CFO & Member of the Management Board]

So are you talking about our complementary revenue streams, the EUR 1 billion target we have...

[Andrew Ian Porteous, Analyst, European Retail]

Okay, okay.

[Natalie M. Knight, CFO & Member of the Management Board]

Sorry, I wasn't sure if you're talking about that or bol because there's a lot of -- a lot more opportunity at bol. And when we look at that, we haven't given specific guidance on what's the flow-through on that. But I think the most important call-out is that don't expect to see that in the top line. Most of that is going to be coming in through our gross margin and operating margin. So it will be a positive benefit for us. Obviously, it's got a hockey stick on it. So as you look at that, we start to get much more of those benefits as we go out into 2025 because we do have to, I'll say, build up the team and the infrastructure to support that in the next couple of years. But we do expect to have that deliver very strong bottom line profitability for us.

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

And what is important too, Andrew, is that our omnichannel positioning is very interesting for the quality of the data and the way you can monetize your data and those alternative revenue streams. And you have seen our very strong penetration, for example, in food online in the U.S. with 6%, 7% penetration, which is a high number, which we do very fast. We have a very strong omnichannel presence. We talked in the Investor Day already about connecting bol.com with our food supermarkets, Delhaize and Albert Heijn, and to a lesser extent, also the impact from Holland [ Ahold ] and Atos.So that combination, that ecosystem of food and nonfood data coming together in cross-selling and cross-shopping, in loyalty programs you can share, those are very strong elements for the quality of your data and also the marketability of your data. And of course, we have to build up that EUR 1 billion, but that's also not the target for tomorrow. But we see that we have a very good position there. And the way we talk about customers, the way we can share and sell and talk about those different customer journeys in omnichannel food and in the Benelux food and general merchandise model, and I think that makes us pretty unique. And there, we see quite some upside.

[Operator]

And the next question is coming from Mr. Nick Coulter, Citi.

[Nick Coulter, Director]

Two, if I may, please. Firstly, please forgive my dubious math, but it seems like your guidance suggests margins might be weaker than FY '19. Is that just the reality of the situation with the structural impact of online, cost inflation, et cetera? Or is there a degree of conservatism? Is there an aspiration to kind of match those historic margins? Or should we expect lower, I guess, is the question.And then secondly, on bol, if I may, a question about the margin phasing. From what you're saying, you seem to be implying that the margin was stronger for bol on a lower sales base for FY '20, obviously, a COVID year. If you could talk to the puts and takes, please, on the margin evolution in bol, that would be appreciated.

[Natalie M. Knight, CFO & Member of the Management Board]

Okay. Let me start with the overall margin guidance comments. And I think there, we have been very careful with our guidance in terms of saying we expect at least the 4.0%. Now as we go through this period, like many of the last couple of years, there continues to be lots of uncertainty. So in terms of our EPS guidance, depending on do you take the top, middle or end -- or bottom of that, you get to guidance that's pretty close to those historic levels to something a bit lower. And I think that's today our best point of view on where we are. But we remain very aspirational in terms of if there are opportunities to have that number be higher, that's something we're going to pursue. But I would say, I think you've read the guidance right, which is we probably are going much closer to those historical levels than where we were in 2021 and 2020.

[Nick Coulter, Director]

Is that a specific Europe comment, Natalie? Is that -- is Europe the kind of -- the drag, obviously, 4.1% for Q4, if that's kind of an exit rate, then that's maybe lower -- significantly lower than we've seen historically. Is that the real challenge?

[Natalie M. Knight, CFO & Member of the Management Board]

No. I think it is something where you need to look at both parts of the business. We have had some specific challenges in Europe in the fourth quarter. That was something where if you remember, compared to 2020, we had that big lockdown effect. We also had a very big bol effect in that period because of the lockdown that positively influenced that number. As we go into Q1, I think we will see some of those trends continue. But in terms of the full year, I guess my view is there are challenges in both markets. In the U.S., we also have supply chain and inflation.But having said that, right now, we're very pleased with the sales leverage that we're getting through the business. I think we feel good about where the margins are. So I don't want to say, well, we've got a big conservative number there, but I also think we want to be cautious because there are a lot of nuance as we go through the rest of the year.On your second question about the bol margins and sort of what was the story there in terms of margin development in 2020 versus -- sorry, 2021 versus 2020, essentially, what you're starting to see there is that our investment has started. And it is something where we're going to double that number next year and we have bigger numbers thereafter. But it did start this year, and so the large -- the impact there is through the D&A, and that's been the impact.

[Operator]

And the next question is coming from Ms. Fabienne Caron, Kepler Cheuvreux.

[Fabienne Caron, Head of Food Retail Sector]

Just one question from my side. Thank you for the useful comment regarding food price inflation in 2022. Can you share with us how do you see the shift of volume towards food services in 2022 as well as potential consumer trading down? And if you could split your comments between the U.S. and Europe, please.

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

Thank you very much for your question. Talking about the trends in the markets. We see a couple of things and we commented to this earlier. We see some trends which are sticky. And we see that working from home will stay and will be much stronger than pre-COVID. We see that consumers have a higher in-home consumption because, first of all, they understood cooking more. They understood our propositions from convenience, ready-to-eat, ready-to-cook, ready-to-eat type of options for Europe and the U.S. And we see a stronger in-home consumption, which, in the event, will also mean a supermarket sales.So if you then talk out-of-home, in-home, then we see a stronger position for us compared to the pre-COVID years. And that makes us also optimistic about that share of wallet with those customers. So that's a little bit the foodservice out-of-home versus the in-home. Of course, the markets are bouncing back partly where the lockdowns are coming to an end, but we see permanent positive trends in the in-home consumption, and not only for the at-home working, which we all see will be at a much different level than before, but also that people make choices from a cost perspective towards an in-home offer, which is, of course, economically much more attractive. And at the moment, the propositions we have are great in quality. And that brings me also back to your second question, which is the costs and the economic situation and customers more value based.We have to see how that works out. I mean we have now a very strong consumer in the U.S. with strong government programs with a strong overall consumer and spending less on out-of-home and spending less on general merchandise. But we also will know that those government programs will be lower in the U.S. when we talk about SNAP, when we talk about school meals and these kind of things. So we are very prepared if a consumer would be more value focused with our own brands in our stores. And we have for every wallet in our U.S. markets or in the European markets a great offer for customers, if it's price entry, if it's mid-tier, own brands, if it's national brands. And we see there a very positive opportunity to get a higher share of wallet.So this is a little bit how we look at this, Fabienne, from a market perspective. When a customer go more for value, then we're very well much prepared. And just to give you an idea, our Price Favorites in the Dutch market, 1,500 products, are doing extremely well, and we also can manage inflation in a very good way.

[Fabienne Caron, Head of Food Retail Sector]

You expect then more trading down in Europe than in the U.S.? Or how would you compare the 2 regions?

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

No. I would say that's too early to tell. We do not see really trading down in Europe yet. But if inflation would hold on, that could be a reaction of consumers. We have to see how that reacts. We also have to see in the U.S. how the government programs -- the government support programs will develop. But if that would kick in, and inflation is, of course, not only food inflation, it's also energy and these type of elements, then we are well prepared for that. And we work very hard on our private label ranges, both in Europe and in the U.S. I think we have a very good proposition there to satisfy every potential wallet.

[Operator]

And the next question is coming from Mr. James Anstead, Barclays.

[James Robert Anstead, Director]

So a question on CapEx and bol.com. So you told us this morning that the 0.5% increase in CapEx to sales over the coming years is almost entirely down to bol, which, if my math is right, suggests that's incremental CapEx annually of EUR 350 million, EUR 400 million coming from bol. And you've also told us this morning that bol has been spending about EUR 150 million a year over the last couple of years. So I mean that suggests that bol.com's CapEx is going into something like triple or even more in the coming years. So I suppose my first question is, is my math right? Is that what you're effectively telling us? And secondly, perhaps you could just remind us what bol.com is really going to get for that significant increase in investment.

[Natalie M. Knight, CFO & Member of the Management Board]

So I will start with the numbers, and I'll let Frans also give a little color on what we get for it. In terms of the CapEx, your math is, I'll say, directionally right, but there are some granularity I would add to that. So the first one is where are we coming from. We have stepped up the bol investments, especially this year versus where they had previously been. So that's something you can't say it's always been x and we're now taking a number on top of it.Secondly, in terms of how are we developing the actual numbers, you've got it right, just don't assume it's a linear increase. You see that in terms of, I think, some of the expectations, you'll see that be something more in the '23, '24 period. And when you talk about it being -- it's triple the number, that's right. I mean we are going to be growing that number significantly in terms of that's what is, we believe, really required to build out the infrastructure and platform so that bol can be successful going forward.

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

So what do we get for that money was the question here. We have always been a very good investor in bol over time. That's why bol is doing so well. That's why we have a growing market share. That's why we have a huge NPS score with our customers because we are having a very good product and strong collaboration with our 49,000 partners in the meantime on the platform.So bol developed over time in an owned sales operation to more than 60% partner sales share platform. And we invested over time very diligently. Going forward, to support the bol growth, and you heard us talking about the doubling of the sales of bol over time, we have to make sure that there is a capacity for that, and that's capacity in warehousing, in automated warehousing to also deal with the productivity and labor, but also in the last mile. And that's exactly what we have in mind to support that very positive market share growth, and you've seen the strong profitability there with investments in their fulfillment space.At the same time, doing that, we also free up capacity and we make capacity available for partners on the platform to steer their logistics through bol so that we get a more consistent product for consumers, but it will also offer our partners a very good fulfillment opportunity through bol. And those elements, we know, are very important for NPS scores, consistency. But it's also a great service for partners for which they are prepared to pay with a very reliable and, let's say, a hassle-free solution through the bol network. Now all these kind of things need capacity. And when you then talk about capacity, then it is highly sophisticated automated warehousing and facilities for the last mile.

[Operator]

And the last question is coming from Mr. Rob Joyce, Goldman Sachs.

[Robert Joyce, Equity Analyst]

So the first one for me is just on the net debt. It looks like that's up about EUR 1.5 billion this year. Just wondering if you can help us understand the drivers of that and what we should expect for that in the year ahead. And the second one, just more a bit of a theoretical one. Thanks for providing the guidance on the CapEx spend in the core grocery business. At 3% of sales, I look at that compared to some of your major European peers, it's still, give or take, 100 basis points as a percentage of sales ahead of where you see spend at some of the other grocers. Just wondering what you think the difference might be, what it is potentially you're investing in that the other grocers may be aren't.

[Natalie M. Knight, CFO & Member of the Management Board]

So I'll start with the CapEx question and the 3%. That's been a number we've been pretty consistent with if you look at the last few years. And it's really building up, I think, on the one hand, the omnichannel proposition, what we've done with bol and at the same time, maintaining, I think, very good and well-maintained stores. And that's something, I think if you look at us versus our competitors, you see that pretty prominently.I'd also say that I think one of the things that's important we consider CapEx is that we're also looking not only at, I'll say, the traditional food retailers as our competitors, but it's also a very different space as we go forward. And that's a spot where we're looking a little more broadly at the market in terms of the competitive environment.

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

As we heard earlier and that we're talking about is our CapEx levels are on traditional levels, on historical levels for the grocery business in itself. And we see an uptick in the CapEx percentage of sales mainly to be attributed to the bol.com investments. The other thing is look at our network. And for those of you who are close to our markets, we are a well-invested company. So we have modern stores. We believe that the assets must be in good shape. We have homework to do on Stop & Shop, which we announced and very clearly are delivering on now.But also look at our tech and digital. In our total CapEx envelope, tech and digital is making a bigger part than ever before. And we invest in apps. We invest in technology. We invest in automation. We invest in more digital shopping journeys for our customer, which all plays out through loyalty. We have other revenue streams. Those things can only be done when your data in good shape, when you have a safe environment, when you have invested in cybersecurity, when you have a good cloud type of environment. So we modernized a lot, and this is making us a good company. That's what we believe is making us also ready for new revenue streams and loyalty of customers. But it's also the belief we have historically over time, and I think that served us well with the market share gains, #1 and 2 positions in the markets we serve, served as well with our margin outlook to have a well-maintained network. But more money goes to digital and tech and data and at the same time also the IT infrastructure and cybersecurity. On debt?

[Natalie M. Knight, CFO & Member of the Management Board]

Yes. On debt, EUR 1.5 billion that you were talking about, it was -- that was pretty straightforward. It's actually just a direct correlation to the acquisitions that we made around the Southeastern Grocers stores in the U.S., FreshDirect and DEEN as well as some additional leases tied to our expansion efforts, especially in Eastern Europe.

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

Was that an answer to your question?

[Robert Joyce, Equity Analyst]

Yes. I mean the lease number looks to be quite a big increase in that. I was just -- maybe I can take that one off-line if you don't have much on that.

[Natalie M. Knight, CFO & Member of the Management Board]

Well, there's some different things in there. One is, we, for example, extended the lease on our headquarters here. But otherwise, it's really just the expansion of our business as we go into those new markets.

[John-Paul O'Meara]

So that concludes our call for today. So thank you all for joining us. And for those who didn't get to, we're happy to follow up with the IR team and we go to today. Thank you very much.

[Operator]

Ladies and gentlemen, this concludes this Ahold Delhaize event call. You may now disconnect your line. Thank you.