Koninklijke Ahold Delhaize N.V.

Henk Jan ten Brinke - Vice President, Investor Relations Dick Boer - President & Chief Executive Officer Jeff Carr - Executive Vice President & Chief Financial Officer

Patrick Roquas - Rabobank Adet Obin - Morgan Stanley Robert Jan Vos - ABN AMRO Xavier Le Mene - Bank of America, Merrill Lynch Gerard Rijk - SNS Securities Cedric Lecasble - Raymond James Arnaud Joly - Societe Generale Thijs Buitenhuis - Kempen & Co Nick Coulter - Citi Matthias Maenhaut - ING

Thank you, operator. Good morning, ladies and gentlemen.

Thank you for joining the Ahold Q1 results conference call. I'm here with Dick Boer our CEO, and Jeff Carr our CFO.

After a short presentation, that is available on our website, we're happy to take your questions. So with that, over to you, Dick.

Yes. Thank you very much, Henk Jan, and ladies and gentlemen, also good morning.

Welcome from my side and Jeff to the quarter 2016 results conference call. Let me start by taking you through the Group highlights of the quarter, and we're using the presentation which is on the web.

So Slide 2. We saw a strong start to the year with a 4.3% increase in group sales to €11.8 billion.

It was based on a solid store performance and continued strong online sales growth. Net consumer sales were up 27.4% and online at constant exchange rates in our online business.

And we are pleased to report an underlying operating margin of 3.8%, and expect underlying margin for the full year to trend in line with last year supported by our Simplicity cost saving program. group underlying operating income increased by 15% with better numbers in all our segments.

Free cash flow was strong again this quarter; €287 million compared with €186 million last year. Jeff will spend a bit more time on this.

And last but not least, we made a good progress on the intended merger with Delhaize and are on track to close the transaction in mid 2016. Now let me hand over to Jeff who will take you through the numbers in greater detail.

Thank you and good morning. As Dick stated, it's a pleasing start to the year with good progress across the group.

Net sales at €11.8 billion were up 4.3%, and that's 3.5% at constant exchange rates and also, when we exclude gas, that's a growth of 4.3%, the key drivers of the growth being our online businesses and our New York Metro business. Underlying operating margin grew by 14.7% at constant rates to €449 million, and margins grew for the group by 30 basis points to 3.8%.

The margin improvement is partly due to the continued focus obviously on our Simplicity program, but also bear in mind the, that the relatively low margin in 2015 and for those of you with good memories, we reported several one offs in quarter 1 last year, including the impact from the Albert Heijn glassware promotion. One off charges in this period amounted to €53 million, the majority of which were related to the merger and restructuring charges and income from continuing operations, therefore, were up 14.2% to €241 million.

Now on the next slide, we look at our reporting segments and we see good momentum across all three. The net sales, excluding gas in the US grew 4.1%, and that is mostly due to the additional 25 stores in New York and I must say we're pleased with the performance of these stores and we're making strong market share gains in that market.

Although we continue to see deflation in meat and dairy in the US, overall inflation was flat in the quarter. Identical sales, excluding gas, grew by 0.8%, although we see a stronger underlying trend when we adjust for the change in the calendar and the impact of weather and off course and were off course we saw many fewer winter storms this year compared to the record snowfalls in 2015.

In the Netherlands, sales grew by an impressive 4.9% and identical sales grew 2.9% and while our supermarkets performed well with good volume growth, the key driver of growth remains our online businesses, ah.nl and bol.com, which both grew over 40%. In the Czech market, net sales growth, excluding gas, was 1.1%.

Now, of courses is impacted by the sale of the five stores we reported last year and identical sales showed good momentum of 0.7% which is also obviously impacted by the New Year timing, but this is positive compared to the 2.1% decline in the first quarter of last year. So we see good momentum there.

Margins were up in all three segments 30 basis points in the U.S. 40 in the Netherlands, and 70 basis points in Czech.

And as I've mentioned this is helped by Simplicity, but also the fact that we have relatively low comps in 2015. So moving on to the cash flow, it's good to see a good performance also results from the operating performance also resulting in strong cash flows, with free cash flow up €101 million to €287 million in the period.

Working capital improved compared to last year and that's mainly due to the fact last year we had a negative holiday effect both at the beginning of the quarter and the end of the quarter, while we saw no such impacts this year. However, taxes were higher this year due to some one-off benefits.

And as we said in February, we expect higher capital spend in 2016 and we saw that in the quarter. We saw investments at €234 million, and that's up 38 million.

And for the full year, and obviously here I'm only talking about Ahold, I expect capital expenditure of around €1 billion, which is up on last year but we still expect to deliver a strong free cash flow. So thank you and I'll hand back to Dick.

Thank you very much, Jeff, and we're on Slide 6. I will show you some of our business highlights, starting in the United States.

Our journey to improve our customer proposition continues as we keep on investing in quality, service and price. By now, we have launched over our new produce department in more than 550 stores, delivering improved quality, better value, resulting in increased volumes in fruit and vegetables.

We expect the rollout to be completed in the second half of this year. At the same time, our new bakery departments have been rolled out to over 400 stores.

It should be implemented in all stores by Q3 this year. But as we said before, this is not only about quality and service.

We continue to work hard on further improving our price perception. In quarter one, we lowered prices on more than 1,000 products, supported by additional media campaigns, and all of this is being funded by our successful Simplicity cost saving program.

Meanwhile, Peapod continues to make progress on delivering good growth going forward. Operations in our New Jersey facility are improving.

We're stepping up our marketing in the New York City area and this quarter was resulting in a sales growth in the New York City area of 26%. Peapod expanded its popular meal kit line to include 15 different offerings and introduced them into new geographic markets.

Since we launched the meal kits, we have delivered over 100,000 to our customers. Moving to the Netherlands, Albert Heijn continues to show good momentum with increased customer traffic as a result of continuous product innovation and successful promotions.

During the quarter, we launched new and innovative products in various categories including meat, fresh juices and bakery. Many of these new products address the growing customer demand for more sustainable, natural and less processed foods, and allow our customers to vary their daily eating pattern even more.

We continue to improve our own brand proposition, introducing new items, improving the specs, while providing excellent customers to our customers. Sales at Albert Heijn benefited from a cutlery collection campaign that was just as successful as last year's glassware collection campaign.

And our second grow your own garden promotion was again popular with our customers. Our Albert Heijn colleagues also launched a great new marketing campaign which was well received by customers.

It started out as an internal message, an internal manifesto of who they are. The My Appie campaign is based on showcasing the unique personal connection customers feel with Albert Heijn.

During the quarter, Etos launched a customer loyalty program with a card and app called My Etos, combining personalized offers, advice on health and beauty, and discounts for customers and reward healthy lifestyle behaviors with gifts and attractive offers. Our Dutch online businesses continue to grow by over 30%.

In quarter one bol.com launched two new categories children's apparel and maternity, now offering in total more than 10 million different product items. Bol.com was awarded the Best Webstore 2016 and Best Online Department Store 2016 by the Dutch Thuiswinkel Awards, and is one of the strongest consumer brands in the Netherlands.

The Allerhande meal box that Albert Heijn introduced last year was rated best among Dutch meal boxes by the Dutch Consumer Association. Following a successful launch online, the Allerhande meal box is also available at our stores.

Our Czech business has shown an encouraging performance this quarter. Our supermarkets representing roughly half of our sales continued to perform strongly.

And in addition, sales trends in the former larger SPAR stores further improved following the implementation of our favorite store concept. We saw strong customer perception scores in the first quarter and ran two successful collection campaigns, including the grow-your-own-garden campaign that originated from Albert Heijn, another example of good best practice sharing.

And finally, on the intended merger with Delhaize, we made good progress to get ready for day one, and we are on track to complete the transaction in mid-2016. On this slide, you can see the status of the major milestones.

On March 14, nearly 100% of our shareholders voted in favor of the merger. We received approval from the Belgian Competition Authority and the U.S.

regulatory review by the FDC is well underway. All key integration work streams are well on track, working on strategy, organization and synergy capture.

The new corporate headquarters organization is ready for day one. Recently, we also held our first joint meeting of a wide group of Ahold and Delhaize leaders, which only reaffirmed how much we have in common and the exciting opportunities we see ahead of us.

I am particularly pleased that with so much work and energy being put into the preparation for the merger, our business leaders remain focused on the performance of our operations. Looking at today’s results, we feel there is a good momentum to combine the two strong retailers, building on great local brands, and to deliver enhanced value for our customers, associates and shareholders.

We’d now like to take your questions. Over to Henk Jan.

Operator, can you open the line for questions, please?

Gentlemen, I’ve got three questions on the Netherlands. First, can you help me understand the performance of Albert Heijn?

You indicated volume growth, and I think it’s rumored in the market that you also gained some market share in Q1. But if I try to reconcile your 30% growth in online, I do not get to positive ID sales growth for the Netherlands.

So that’s question number one. Second, there are some changes in the wage terms for young people in the Netherlands, and the question is, do you expect these to be mitigated by your cost-savings program?

And then thirdly, there’s an indication in the press that you are progressing in a discussion with your franchisors to solve the existing dispute, I’m happy to hear your comments on that.

Thank you, Patrick. Yes, it’s correct.

We had a good performance of Albert Heijn also in the first quarter, of course taken by and large also by the online growth of ah.nl and, of course, bol. But clearly, also our supermarket has although an identical growth on the low side, but even if you compare that with the impact on the year end, I think we’re quite happy with the performance of Albert Heijn.

On an identical base it's still positive. So together, of course, with the ah.nl, we increase our market share.

That’s correct. On your other question on the employees, of course, there’s more discussion in the market about lowering the maximum step-in moment from minimum use wages towards traditional minimum wage.

That’s gradually going down. So we now have agreed with our unions it goes to 22, it will certainly go to 21 maybe.

But at the same time, you also have to understand that in most cases, we already pay higher, no, in all cases, we pay higher than the current minimum wage from governmental point of view is, from a law perspective is there. So we pay already on a higher level than the minimum wage is from a law perspective.

So that’s to correct, or at least to inform you also on that rightly. And the third bullet or the third point you made about franchise, we continue to have the dialog going on with our franchises.

We continue to have a good dialog on getting the position of both coming closer together, and hopefully, solving that at a certain moment in time. And the dialog I think is important because there it starts with a good dialog between the two, the franchise owners of the stores and us as an organization.

Yes. Good morning, guys.

Just some focus on the U.S., if you wouldn’t mind for me. So first of all, would you mind giving us the contribution of online to your like-for-likes in the U.S.?

And also in the U.S., regarding your market share, if you could just comment on excluding the benefit from the acquisition of some A&P stores and the benefit of online, how your market share did evolve in some of your main geographies. And finally, more broadly regarding the U.S.

I think your investment in your customer proposition started about two years ago at the end of 2014. Your like-for-likes are decent, but then we were talking about roughly 1% when some of your peers like Kroger or Publix are printing 3% to 4%.

Are you happy with the uplift you've been able to generate so far, and should we expect an acceleration in terms of top-line momentum in the US in the coming quarters?

Yes. A couple of questions you had on the US and, Jeff, please fill in where we can add on the market share.

I think in general what you would say on the Peapod side is you could reach single digits or low single digits. The impact on the total market share growth of the US is with that very little, of course in a way, because it's not like in the Netherlands 30%.

So we are seeing improvement in our Peapod operation but not to the extent what you've seen in the growth in the Netherlands. And we're working hard with the team to continue also growing Peapod.

We're happy with the performance, of course, that we're above single digit again. So the impact on market share, maybe you can take the market share question also, Jeff.

Yes. Most of the market share, we are seeing market share gains in the US; you're right to point out.

Most of that is coming from the New York market where we make strong gains. That's partly because of the 25 stores we purchased, but also the fact that, obviously, with the demise of A&P, some of those stores still haven't opened.

So we see strong gains in New York. We see market share in the other three divisions relatively flat which is, whilst not positive, it's also not negative.

So we see about flat market shares in the other divisions. And just on the ID sales, I'd say we report 0.8% ID in this quarter.

Obviously, we explained the impact of the 53rd week, which means the quarter doesn't include the New Year week. If we adjust for that and we adjust -- and I know you guys love hearing about weather, but if we adjust for the fact that we did see a lot of storms last year and a pretty mild winter this year, we see a much stronger underlying trend.

And I think that will obviously come through as we continue to report results in the second quarter. So we are seeing a stronger underlying trend in the US, but in terms of are we satisfied with where we're at, no.

We'd like to see the identicals growing faster, and that's why we continue in the program. And we will continue the program rolling out both in terms of improved qualities, and in the end of the quarter, we announced a significant price-reduction program, which again is a part of a rolling program with many reduced prices with a significant investment.

Yes. Maybe also you refer to 2014 where we started.

If I visit the stores and visit the markets and look at the perception, we see coming up from our customers is that they start understanding, and giving also that back to our perception on pricing improving, our quality of our department goes up. So let's say the direction of our investment clearly goes in the right way, so what we call north east.

So better value perception and better quality perception. At the same time, we also know that in our north-east market, there's not lot of growth of inhabitants; it's not like the south.

So we also have to see that in perspective of where we are positioned, the north east versus the rest of the market when you compare us with other retailers.

Yes, hi good morning everyone. A few questions.

One-off expenses, €50 million in the quarter. I suppose this mainly relates to -- or you wrote in the press release that a big part relates to the pending merger with Delhaize.

Do you maintain your expectations on the one-off costs and also the transaction costs related to this pending deal? Where are you currently on these numbers?

So almost a year since announcement, so where are you on these numbers? And then on this also, well, if everything goes as planned, the second quarter should be the quarter in which the merger is completed, so what is your view on the one-off costs for the second quarter?

And I have another question which is on the remaining hurdle for completion. It's obviously the antitrust approval in the US.

You said something in the press release, but can you maybe add some flavor on the current discussions with the FTC and how close you are on obtaining approval? Thank you.

Shall I start with the one-off costs? Yes.

Most of the costs in this quarter were related to the merger. We did have some restructuring charges related to the warehouses and distribution in the US also, but we remain on track.

So we don't change our estimates for the transaction costs. At the last update, we estimated that full transaction costs for ourselves and our merger partners at Delhaize would be €140 million.

And most of that is now spent and I think that remains a reasonable estimate. On the 350 again, I think that's a good number which we'll give more detail post-merger in terms of what exactly is in the €350 million and the phasing of it.

I don't want to get into that now, but that remains the estimate for the total integration costs over the first two or three years of the deal. Now what we've also said is incremental to that is the impact of remedies which will include, obviously, any profit or loss of sale and any transaction costs related to remedy store disposals.

So those estimates don't change. I don't want to get pulled into an estimate for the actual second quarter, but those overall estimates don't change.

And as I mentioned at the beginning, what we do plan to do is post completion of the merger give much more detail on the one off costs as well as the synergies in terms of the timing and the breakdown.

Your second question, Robert Jan, was around the FTC. This is an important process.

As you rightly say, this is one of the remaining parts of the whole those who before we can close the merger. We are closely working together on this with the FTC, and we started already with our first submitted proposal, or at least the fact that we are merging on July 8 last year, so we're now almost 11 months on the way.

This is, let's say, always important in this case also to be very cautious in what we say about it because it's still in the review of the FTC, but some of the things we can call out for you, we are already, of course, now in close contact with several buyers for the identified remedy stores, and as this is all pre merger close, if we need to have that done. So in a way, we still feel confident that we will be able to complete the transaction mid 2016.

Good morning gentleman, two questions from me, if I may. The first one, we both on the U.S., actually.

The first one is, in the US, we saw your margin up during Q1, but it seems that you were committed actually to invest any gains you would have got from operating leverage. So why you are not investing more is the first question also, and that's the second question, you started to cut prices at the end of Q1, so what can we expect for the US margin in Q2 given that most of the price investment was done actually at the end of Q1?

Well, let me come back on the margins in the US. Margins in the US were 4%, 4.0%.

It's pretty much close to where we were at last year. Our guidance was that margins would for the Group be in line with last year and, of course, you get occasionally, if you look at Q1 2015, we were down at 3.7%, and we discussed at the time that sometimes the investments and the savings don't always go hand in hand in terms of quarter to quarter or period to period, so we do see slight fluctuations.

And we've said margins, we're comfortable with margins in the high 3% to 4% for the US, and that continues. We made the price investments towards the end of the quarter, and they'll be significant investments.

But as we continue, these will be funded out of our Simplicity project. So I don't expect the margins to vary significantly from that guidance that we gave, and I do think we sometimes read too much into small movements in margin.

But overall, we remain on track and our principle in the US, obviously pre merger, it's a different question post merger, but our principle in the US has been that we hold margins relatively flat and invest the savings. We have seen significant improvements in our price reality; our price perception is improving and we'll continue to see that as we go through Q2.

A question on the impact of bol.com and pension charges in the Netherlands on the margins. Can you give some more color on how that will be felt in 2016?

I think earlier on, you said that pension costs would see no material change in 2016, and bol.com mathematically would give some pressure. However Belgium would be better.

So can you give some update on that?

Yes. I think we've said in 2016 that we don't see any, we did obviously see significant pension cost increases in 2014 and 2015, but we don't expect to see any significant increase in our overall P&L charge for pensions in 2016.

By the way, during that period, 2014, 2015, 2016, when the interest rates have been coming down, our cash contributions to our plans have remained pretty stable. But we don't see the same pressure on our P&L from pensions in 2016.

And the impact of bol hasn't -- from year-on-year '16 from '15, the margin impact on bol hasn't changed and it remains around 40 basis points, which is the P&L impact. So if you want to factor bol out and look at the underlying margin of the Netherlands ex-bol, it's around about three basis points impact which is similar to what we had last year.

And then within the business yes, we are pleased with the improvement in Belgium. We see good margin development in Belgium, which was in line with our plans, which obviously is one of the factors that we see some slightly stronger margin in the first quarter.

Yes good morning gentlemen, I have three questions, the first one on your very good gross margin development in Q1. Can you tell us if it was across the geographies and in particular in the U.S?

And could you help us going through the different drivers for this improvement? I imagine online is diluting and improved mix with produce and bakery might be helping.

Could you confirm that? Second question is on your U.S.

wages, can you tell us how they compare to state and competitors for the minimum wages and what percentages of your workers are close to these legal minimum wages? And the last question is on working capital, you had a very good development in Q1.

You mentioned some one-offs compared to last year, or last year. What do you expect for the full year on working capital?

Can you improve it further? Thank you very much.

Thank you, Cedric.

Shall I start on margin?

Yes. Why don't you take the margin then?

Yes. The gross margin development was positive, strongest in the Netherlands.

And I think that's a consequence not just of our strong Simplicity program that we've initiated and is gathering real pace in the Netherlands, and that includes not just our buy-for-less program but it also looks at the way we engineer our products, the way we look at eliminating waste in terms of excess plastic or reducing packaging. And that’s along with a strong performance from our fresh and produce areas has resulted in a good gross margin in the Netherlands where that has certainly been where it's strongest.

We did see a slight positive also if you exclude gas, we see a slight positive variance in the U.S. as well on gross margin.

Bu the strongest performance was in the Netherlands. Let me cover working capital.

I would say when you look at Ahold's working capital position, it's pretty much best in class. I think our inventory management is excellent.

I think we have pretty stable payables. We're comfortable with the position we have on our payables.

So I don't see a lot of room to improve working capital, although we continuously look to deliver some improvements. So I see working capital mostly being held flat or slightly improvements year-on-year.

So, pretty small improvements year on year in working capital. And obviously, most of the benefits from operating cash flow coming from the operation and the EBITDA development.

So let me just clarify the working capital comments I made about last year, because this year is a fairly true figure. Last year, we had a payables benefit in the Q4 of 2014, and a negative in Q1 of 2015, and I think the figure was around €60 million.

And we also had a little bit of a similar effect at Easter last year which was towards the end of the quarter where we had a slightly higher payables and then a benefit in the second quarter last year. It was a smaller amount, more like €20 million.

So those two factors impacted working capital by about €80 million or €90 million last year negatively. And if you look at our number last year, it was relatively lower.

So this year's is much cleaner, because again, our period started well into January and finished well after Easter, so it was a much cleaner number this year.

Thank you, Jeff. Cedric, you had one other question.

It was on the U.S. wages, the minimum wages.

Of course, the mandatory minimum wage increases we continue to execute that also as companies where we are based in the area. Don't forget that in general of course, in our markets where we operate in a lot of markets, we have collectively bargained with the unions on the contracts and on the packages.

And we apply of course, the state rules no way that that's not the case. But again there were a lot of packages negotiated, we’re quite often already quickly above the minimum wages in the markets we operate.

So the impact for Ahold has been up to date always quite limited on the discussion of minimum wages in our markets.

Yes, good morning. Good morning, Dick and Jeff.

I have two questions on the U.S. The first one, by how much did you cut prices on average on the 100 products?

And if like-for-sales growth in the U.S. remains quite soft, are you ready to invest in prices more than see savings generated with the Simplicity program?

And the second question regarding food online in the U.S., Walmart and Kroger seem to accelerate the rollout of pickup points. Have you noticed any change in U.S.

customers’ behavior and a growing appetite for food online in the U.S. , I would say, for the last few quarters?

Thank you.

Let me take the price investments. It was over 1,000 items, SKUs, where we made price investments.

This isn’t the first set of price investments we’ve made. This particular set of price investments will cost around $100 million.

That’s funded from the Simplicity program. We do see it come back in lower shelf prices, and we do see that eventually feed through into better price perception.

And we continue to close gaps and improve our price position generally in the U.S., and this part of a rolling program which we will, the $100 million being an annualized number, obviously, as Henk Jan just pointed out to me; so around about just under $10 million a month which we will basically fund through continuously looking to ways to improve the efficiency of our U.S. operation.

And so that's part of an ongoing program. In terms of food online, Dick?

Yes. We see competitors coming up also with more online propositions.

As you say, it’s both in a way. Home delivery in some of the markets we see continue to have new entries, but also using the current competitors which are coming up strongly in our markets.

So we have a good offer. Certainly with Peapod we have been in a strong capability building over the last decade with our online.

And pickup points I think is clearly something what you see more now in the U.S. markets.

We have a lot of them. You see Grower and others also building now.

It's the customer wish, and we have to answer that well. But on the specific of home delivery, and I would just like to stress it again, I think there are not there’s many players in the market in the U.S.

who have understood really well how to run that. And there is still a big advantage for Ahold in the market, certainly in the dense operated markets where we are running our business, like big cities.

Okay. Thanks.

And just one follow-up on pricing investment. Are you ready to potentially invest more than the savings generated by the Simplicity program or not?

If we felt we needed to, I think we would always look to be competitive, and our first priority is to offer high-quality, competitive prices to our customers. And if there was a requirement that we needed to invest more, then obviously we’d look at that.

But we’re comfortable with the opportunities that the Simplicity program offers us that we can be really competitive in all of our markets. And if you go round our markets, of course you see price leaders like Walmart, but if you look in Giant-Landover market, for example, the key challenge for us is not a price challenge.

Yes, that’s something we focus on, but if you look at our relative pricing compared to a Safeway or a Harris Teeter, we’re in a very good position. Again, Giant-Landover, we’re in a really good price position and we continue to win market share against Walmart.

So yes, we’ll continue to invest in price as we need to, both in all of our markets, but today, we currently feel that our Simplicity program is providing sufficient funding and sources of funds that we can maintain margin and drive identical volume growth, which is our key focus.

Good morning, gentlemen. A few questions from my side.

Firstly, on Belgium, on the like-for-like development of the stores you’ve opened there, could you maybe elaborate a bit there on what you’re seeing on the stores you've opened there for more than a year? Secondly, on U.S.

inflation. Jeff, I think you mentioned last time at the full year numbers you still saw 2016 inflation positively of around 1% to 1.5% for the market.

Can you confirm this is the number for the remainder of the year given the inflation you’ve seen in the first quarter? And thirdly, maybe a bit of a broader question on the merger.

I can understand that obviously the preparations of the merger would take a lot of toll on your organization, and could you maybe elaborate and maybe specifically on the U.S. the stores that probably will be disposed, we all know the 83 stores that are mentioned, how the underlying performance has been in those stores in the U.S.

Thank you.

Thank you, Thijs. On Belgium, we continue to see positive identical sales growth in the Belgian market as we've seen in the Netherlands.

So clearly, the stores which were opened a year longer, more than a year, have shown good progress on a continued base. On the inflation, Jeff will take that.

And on the merger, the total view of where we are with the merger, and I said it also in my opening statement -- we can be really proud on what happened with our organization during this period. People as well in headquarters and also in businesses have sometimes double-headed work.

They are working on preparation for merger close and doing all the work to be ready for synergy capture, having the buying teams ready, etcetera, and at the same time running our business. And it's a great compliment to our organization, our people, that they are able to do that in this way, and that tells something about the enthusiasm and the excitement they have about the journey that they feel also this is really bringing something good for the organization, but also for us as a company.

I think about the merger, about strong local brands that we have -- 95% of our business is in supermarkets. We know to play that game together with Delhaize, and we are strong positioned in that.

Our online proposition, our capabilities, there's a lot of opportunities. People also see and also excited to see also from a leadership perspective.

We got the leaders together a couple of weeks ago talking about this merger. On your specific question on stores, the number of stores of course impacted by the merger in the US is rather limited.

We haven't seen big changes in the performance because it's still unclear which stores really need to be disposed. So there is also a continuation of the people in the stores to do their utmost to show that they would like, of course, to stay on with the Company going forward.

And on the U.S. inflation, yes, we've seen flat numbers in the first quarter.

What we've seen really bringing the inflation down is the deflation in meat and dairy; and, obviously, that meat, for example, coming off real highs in 2015. So it's just really normalizing meat prices.

And during 2015, we talked about the extra cost that we incurred due to the meat inflation and not passing all of that on, but we did see meat volumes coming down and we do see them recovering in 2016. So I think -- so certainly in the quarter it was net-net it was zero.

Not a lot of change in dry grocery, but the real change coming from the deflation from meat and dairy. And I wouldn't expect as I look to the rest of the year it's going to change a lot.

I don't see any structural changes. It's really the impact of meat and dairy which is creating the zero inflation environment that we see at the moment.

Just one from me, please. Could you talk about some of the US Simplicity projects that have landed in the quarter and how we should think about the phasing of those savings in the year?

And I guess also to your point around the use of resource in the merger, could you talk about the ongoing streams for Simplicity going into future years as well? Many thanks.

Yes. I'd say the Simplicity program in the US now is well embedded, and I would see it as a program of continuous improvement which is really embedded in the culture of the whole business.

James McCann has done a great job talking to the teams about how we need to save to invest. And the cultural change in the US over the last three or four years has been quite marked where people aren't tired by the idea of cost savings, they don't roll their eyes; but they actually see the opportunity to improve our business, to improve our stores, to improve the price positioning.

And that's what at the end of the day all of our associates love. They love our brands.

They love serving the customer. And really, being able to link those cost programs with the improvements in the customer proposition creates a culture where we get an ongoing program.

So I see this, the savings pretty evenly phased over the year in terms of 2016. And the question of where they're coming from, they're coming right through the P&L.

We continue to improve programs, and it's partly coming from capital investments. So I'll give you an example.

We invested a significant sum of money on reducing our shrink through investments on how we manage the till with a product called LaneHawk which identifies items on the bottom of the basket. We've improved -- we've made significant improvements in our lighting which have significantly reduced out energy bills; significant reductions in energy bills throughout our stores.

And that's created, certainly from a capital perspective, a significant investment to get those savings. We talked last year about the reductions in administrative costs and the investment we've made.

I think it was in the third quarter last year, where we made a significant investment and it's one of those one of costs that came through where we looked at our organization to make it more efficient and we reduced our administrative costs and we see a reduction in the US in that area. But I'd also talk about ongoing programs in terms of promotional efficiency.

We've talked about that in the past, and that continues to improve. We look at, as I mentioned earlier, surplus packaging on our private label.

I think retailers have lagged what the best consumer products companies have done. They're manufacturers by nature and they've optimized, people like P&G, the packaging, the cardboard used in their own products, the plastic used in their own products and we are going through that program also in our own brands areas and significantly reducing the waste in terms of surplus cardboard and such forth.

So those are some of the programs that we've been continuing to exploit in the US. The biggest contributors in this year are coming from the areas of the energy consumption, administrative costs; shrink also and as we look to the future, obviously, we're going to be focused on synergies as well as the Simplicity program, and we've got to manage both of those.

and at some stage, obviously, some of those programs merge together, and we have a job on which we'll work with our auditors and with our finance community to make we try and identify what's a synergy and what was an ongoing Simplicity program. But the synergy numbers that we've given, the €500 million which will impact the bottom line, we're also striving to achieve higher numbers than that, which will also contribute to the improvements in the customer proposition.

The €500 million is really related to the cost, the benefits of bringing the two businesses together and the opportunities that provides in terms of reducing admin and in terms of improving our procurement opportunities. But the Simplicity program will continue.

There's no reason we can't, whether we call it Simplicity going forward or something else, because as we expand, there's no reason we can't continue some of those good ideas into the Delhaize business, the same as we look at the good cost saving programs that Delhaize have been operating; and we'll continue to report on that. So I think that gives you an overview of where we're at with Simplicity.

We'll continue to focus on running an efficient business, looking to eliminate waste and optimize our cost structures and that's critical in order that we can win in the market and invest in our customers and that's our key focus and that's what motivates our people.

Thanks, Jeff. That's very comprehensive.

Thank you.

Actually, two left, maybe the first on the US. Food retail inflation there is flat, but could you comment if your purchasing price inflation is actually below your CPI and if that is actually giving a gross margin tailwind?

And then secondly, on the Netherlands, also on inflation, could you maybe give a bit more flavor on how that is actually trending throughout the quarter and what we can expect for the full year? Thank you.

On the Netherlands, inflation was also on the low end; I think we said around close to 1%. I don't think we will see big changes going through the rest of the year on that either, so not expecting big changes in the US.

Jeff, maybe you want to finish that also.

No. I'd say on the Netherlands, we did actually see our average item value negative in the first quarter.

Although the shelf inflation was 0.8%, our actual AIV was slightly negative, partly because we ran a little bit more promotional activity in Q1 and we don't see, purchase price inflation in slightly positive but we don't see a lot of pressure in terms of the gap between the two. They're pretty close and they've been tracking pretty close and therefore, we feel there's room within our Simplicity program to make sure we can absorb the slightly higher purchase price inflation number than the consumer inflation at the moment.

Thank you.

Thank you. Ladies and gentlemen, this concludes this conference call.

Thanks for listening in or being in the webcast, and have a nice day. Thank you.