We delivered
another year of solid
performance in 2012.
Ahold Annual Report 2012 33 Ahold at a glance
Our strategy
Our performance
Governance
Financials
Investors
In 2012, customers continued to focus on value while expecting
quality, leading to a heightened focus on price and promotion in
all of our markets. The overall uncertain economic climate, high
unemployment and continued inflation resulted in lower consumer
confidence and cautious spending. We continued to successfully
adapt to these market conditions, investing to maintain an attractive
proposition for our customers, while managing the balance between
sales and margins. Overall, we grew market share and delivered
another year of positive identical sales growth in the United States
and the Netherlands.
Net sales in 2012 were €32.8 billion, up 8.5% compared to 2011.
At constant exchange rates, net sales grew 3.5%. Our underlying
operating margin was 4.3%. Operating income was €1.2 billion,
negatively impacted by significant non-recurring charges, which
included the net additional pension costs and the write-down of
capitalized software development costs.
We were able to invest in our offering and deliver better value to
customers, while also reducing pressure on margins, as a result of our
rigorous approach to cost control. To further fuel these investments, we
increased the target for our three-year (2012-2014) cost savings
program from €350 million to €600 million, including sourcing and
commercial efficiency as additional focus areas.
Our business continued to achieve strong cash generation and,
in 2012, we delivered a record free cash flow of €1.2 billion.
Strong operating cash flows enable us to invest in growth by further
developing and rolling out our successful store formats, building
our online business and expanding our geographic reach.
During 2012 we invested cash for business acquisitions of €0.7 billion
and made payments for regular capital expenditures of €0.9 billion.
During the year, we increased our total number of stores by 66 to
3,074 and added 2.4% to our sales area. In the Netherlands, we
made an agreement with Jumbo to transfer 82 stores, enhancing
Albert Heijn's market position and ability to serve towns and cities
where we were not present before. We also expanded our Albert Heijn
business further into Belgium, a market we entered in 2011, by
opening an additional nine supermarkets, for a total of 11 at year end.
Our performance in this market so far is encouraging. Albert Heijn to
go, our convenience format, was introduced in Germany with three
new stores. By 2016, we plan to operate at least 50 supermarkets in
Belgium and to open 150 new convenience stores in Europe.
In the Czech Republic, the enhanced commercial proposition, combined
with cost control, led to improved performance. We continued to
remodel our Czech hypermarkets to a new compact hyper format as
part of our ambition to remodel 50 of our large stores by 2016.
Ahold USA further expanded its reach with the acquisition of 15
Genuardi's stores in the Giant Carlisle market area. All of the locations
were converted to the Giant banner through a smooth transition
process and we see positive initial results from these new stores.
Continuing to broaden our offering for customers and expanding
further into the online domain, we acquired the largest non-food
online retailer in the Netherlands, bol.com. In 2012, our overall online
home delivery grocery business continued to enjoy double-digit
growth. To expand this sales channel even more, we accelerated our
testing of pick-up points in 2012, opening our first stand-alone pick-up
points in the Netherlands and in the United States. In the coming
years, we plan to strongly drive the roll-out of additional pick-up points,
to offer this convenient shopping alternative to more of our customers.
We will continue to look for innovative ways of broadening our online
assortment and improving our overall offering across channels.
In 2012, we progressed in making our capital structure more
efficient by further reducing our cash balance. While we continue
to consistently generate strong free cash flow, we take a balanced
approach to allocating capital. Last year, we invested in growth,
repaid maturing debt and returned cash to shareholders through
the completion of our €1 billion share buyback program and a 38%
increase in our dividend. We also delivered on the guidance that we
gave for 2012 on capital expenditures, increase in sales area, and net
interest, and had a lower effective tax rate.
We remain cautious in our outlook for 2013, and do not expect
market conditions to change significantly from last year. We will stay
focused on simplifying our business to reduce costs so that we can
invest in our offering and further improve the value we provide to our
customers. We will continue to drive growth and work to offer our
customers a better shopping experience every day, both in our stores
and online. Reflecting the confidence we have in our strategy and our
ability to generate cash, we propose a 10% increase in our dividend
to €0.44 per common share. This represents a payout of 44% of
adjusted income from continuing operations that amounted to
€1,044 million or €1.00 per share in 2012. Our strong balance sheet
enables us to launch a new 12-month €500 million share buyback
program while continuing to actively pursue our growth strategy and
taking advantage of opportunities as they arise.
At current exchange rates, we expect net interest expense for 2013 to
be in the range of €200 million to €220 million, excluding €24 million
notional interest related to pensions, following the implementation of
the amendments to IAS 19. Capital expenditures, excluding
acquisitions, are expected to be around €0.9 billion. Our ambition for
return on capital employed is to stay in the top quartile of the food
retail sector.
