Koninklijke Ahold Delhaize N.V.

Frans Muller - Deputy CEO Henk Jan ten Brinke - SVP, IR Dick Boer - CEO Jeff Carr - CFO

Edouard Aubin - Morgan Stanley Bruno Monteyne - Bernstein Andrew Gwynn - Exane Fabienne Caron - Kepler David McCarthy - HSBC Niamh McSherry - Deutsche Bank Xavier Le Mene - Bank of Merrill Lynch Rob Joyce - Goldman Sachs Nick Coulter - Citi

Thank you, operator. And good morning ladies and gentlemen.

Welcome to our second quarter 2017 results conference call and audio webcast. I'm here with Dick Boer, our CEO; Frans Muller, Deputy CEO and Chief integration Officer; and Jeff Carr, our CFO.

After a brief presentation, we will be happy to take your questions but for now, over to you Dick.

Thank you very much Henk Jan, and ladies and gentlemen, good morning and welcome to our second quarter 2017 results conference call. We are pleased to report a strong set of results.

Our sales performance improved across the board with the turning inflation in United States, a robust sales growth in the Netherlands. The group underlying operating margin increased by 30 basis points to 3.9% as merger synergy savings continued to track ahead of projections.

Year-to-date, we realized a 170 million net synergies and expect 220 million of net synergies for the full year 2017. We look towards the second half of the year with confidence.

And expect our underlying operating margin for the full year 2017 to be broadly in line with the first half of the year. The year after the merger, the integration is fully on track.

We expect a total merger of synergies will increase to 750 million with 500 million to the bottom line and 250 million that will be reinvested in our brands. Frans will provide more detail on this including in updates and integration cost and the setup of our U.S.

brand centric organization. Free cash flow or strongest quarter and we continue to expect to deliver a free cash flow of €1.6 billion for the full year.

Now, let me hand over to Jeff, who will take you through the numbers in greater detail.

Thank you, Dick. And good morning, ladies and gentlemen.

As Dick mentioned, it's been a strong quarter. I'm on page 5 now with the presentation and with net sales up just over 16 billion at 3.4% growth versus last year.

A 1.8% in constant exchange rates. It's worth mentioning, we see a foreign exchange gain in the quarter with an average dollar to your exchange rate of 1.10 versus 1.13 last year.

And clearly we see a significant weakening of the dollar over the last few weeks. So, I'd expect to see the reverse of effect in the coming quarter.

EBITDA at €1,790,000,000 is up 8.4% or up 30 basis points to 6.7% margin. An underlying operating profit is up 11.4% to €626 million with underlying operating margins also up 30 basis points to 3.9%.

Onetime costs were slightly low in the last year, 42 million in the quarter, leading to operating income on a pro forma basis at 584 million up 16% versus last year. Now, I'm quickly going to look at each of the five segments in turn, starting with Ahold USA.

Net sales at Ahold USA were basically flat to €5.9 billion at constant rates and comparable sales, excl gas were up 0.3%. Obviously the big news in the quarter was the return of inflation to the USA and we saw a modest inflation at Ahold USA or 0.8% in the quarter.

The benefit from the timing of Easter in the quarter of around 50 basis points was offset also from the shift in the fourth of July being on the Tuesday rather than a Monday, some more sales falling into the third quarter and the negative impact from the reopening of the former A&P stores. And as we've noted before, this is the last quarter that we expect to see this negative impact at Stop & Shop, New York.

Underlying operating margin was 4% in the quarter up 40 basis points versus last year. Clearly you can see the benefit coming through from the strong synergy delivery in the quarter.

During June as part of our ongoing program to improve the customer proposition across the USA, we launched our latest wave of price investments towards the end of the quarter. At Delhaize America, sales grew 1.2% and comparable sales were up 1.3%.

And again we saw the same limited benefit from the calendar effect with Easter and the 4th of July having a relatively neutral impact. Retail inflation for DA was 0.1% lower than USA.

However, Hannaford was broadly in line with Ahold USA but food line remains slightly deflationary in the quarter. However, we continue to see positive volume growth of Food Lion and we expect Food Lion to be slightly inflationary in the second half of the year, in line with our previous guidance.

Underlying operating margins were also up 40 basis points, so good performance up 3% to 3.8% and again the synergy program clearly delivering to the bottom line also supported by our regular saving for our customer program. During the quarter, we experienced a fire driven at our Hannaford BC which did increase on cost in the quarter by around $8 million.

Now, moving on to the Netherlands. Clearly our sales remain very strong.

Both were our supermarket business and food and nonfood online businesses at Aha, die actie! [ph] and bol.com.

Net sales grew 5.6% to €3.4 billion while comparable sales were opening impressive 4.9%. underlying operating margins at 5.1% were flat versus a very strong comparative last year with synergies and good underlying cost program somewhat offset by higher non cash pension charges which we discussed at the beginning of the year.

So, excluding bol.com margins for the Netherlands were 5.8%. In Belgium, retail inflation fell a little in the second quarter at an 0.8%, it was down from 2% in the first quarter.

And this was partly due to our own additional promotional activity. But despite this, we saw a better sales performance with net sales up an 0.2% in comparable sales flat versus a year ago.

And consistent with the last quarter, the affiliate store performs somewhat better while sales at the integrated stores were somewhat weaker. Underlying operating margin was 2.5% which is 40 basis points below last year albeit an improvement on the prior quarter.

In central and South Eastern Europe, net sales grew by 3.9% to constant exchange rates, mostly driven by new store openings particularly in Romania, while comparable sales were up 1.7%, with a good performance in Romania, Serbia and the Czech Republic. And as you can see margins at 3.8% were down 50 basis points.

Now the normalization of the competitive environment in Greece is impacting sales and margins in 2017. In 2016, we had an extraordinary year in Greece and its natural that we see an adjustment in 2017.

However, our stores remained in good shape and our performance, if you look at the trends over two years '15 to '17 is a positive one with market share growth. And finally, let's look at free cash flow.

In the quarter, free cash flow was 400 million slightly down from last year, which is mostly due to timing of working capital movements around Easter. But in the half year, free cash flow stood at just under 600 million up a 162 million versus last year.

Despite an increase in our capital investments of over a 100 million in the half. For the half year, working capital, tax and interest payments were all favorable to the prior year and we remain on track to deliver 1.6 billion as Dick mentioned free cash flow for the full year.

Now, I'd like to hand over to Frans for more into integration of date.

Thank you, Jeff. And a good morning to all of you.

Let me give you on page 13, an update on where we stand in integration process of Ahold Delhaize, which started a little bit over a year ago when we closed our merger. This quite the important organizational changes we are making, sharing our optimism on synergy delivery and detail the associated one time cost.

And finally, I will give you a status update about how our teams are coming together. Slide 14, describes our integration road map and what we are doing from an organizational perspective.

For each part of the integration process, we have taken a phased approach to thoroughly design the Ahold model and then implement it. At the end of 2016, we have completed the implementation of both our global support office and the European support organization.

And I'll describe in more details the approach we have chosen in the U.S. in just a minute.

But if you look into the timeline, you will see that we have started implementing retail business services during the second quarter. We business services really about creating one service entity that can support and fuel all our six U.S.

local brands. The transition to our brand centric organization is taking place this year and we'll be finished in the beginning of 2018.

In parallel, we are designing our IT road map and should start rolling out towards the end of this year. We have implemented a new merged IT organization balancing the needs of the local brands, which opportunity to address synergies.

In 2017, we already have a number of joint projects delivering new solutions and it's mainly in the U.S. for example, campaign management, product master data and transport management.

Both in the U.S. and in the Europe, these synergies are coming from simplification, infrastructure and convergence in security systems.

We for our local brands to collaborate, to accelerate in the domains of digital, personalization, loyalty and analytics. And we expect to start realizing these projects through 2018 and '19.

We started the delivery three quarters ago now and will be complete in the middle of 2019. I'm now on slide 15.

The operating model we have chosen for the U.S. is built on a first giving autonomy to our like six local brands and secondly retail business service supporting these brands.

Each brand will have a distinctive strategy tailored to its own customer base and comparative landscape. Each brand to have its own pricing, its own merchandizing and its own marketing team.

We believe that having this local expertise which each brands allows us to better serve our local customers. And we wanted to continue to win in all our local markets.

Then in support of our local brands, we have created retail business services. RBS offers world class services that innovate and allows us to leverage our skill and expertise across our portfolio.

Within RBS, we have function such as home brands, digital, finance, IT, people systems and surfaces and legal. We are currently investing in critical capabilities to fuel our growth.

For example, we are insourcing our own brand capabilities, transferring this from present brokers. And just a couple of weeks ago, we hosted the large own brand summit in Raleigh, North Carolina with 800 participants and 400 suppliers for own brands gathering with our teams to discuss future collaboration.

We are further investing in digital and loyalty capabilities. We expect the creation of retail business services to deliver $120 million of G&A synergies.

And we now in the last round of staffing and selection for RBS and I'm personally very excited to see this organizational model getting more and more traction in our organization in the coming month. Slide 16 show through the phasing of gross and net synergies until 2019.

Our current procurement synergies are exceeding original plans across all categories and all geographies. We have therefore increased our gross synergies to €750 million to be delivered by 2019.

And we stick to our commitment to deliver €500 million net synergies to the bottom line. The extra 250 million will be reinvested in our brands.

They come in addition to our regular cost savings programs which we call safe for our customer programs. And which will help us fund some of our investments.

We have already started reinvesting in this second quarter. On the right side of the table you see how much synergies have been delivered in the second quarter and year-to-date.

In the second quarter, roughly 60% of net synergies came from the U.S. with the remaining 40% from the Benelux and GSO combined.

Slide 17 provides you with some examples of how we create the synergies. In A-brands, we have harmonized rates we were getting from suppliers between the Latin America and Ahold USA brands and within the Benelux.

For example, for contract categories such as magazines and spices, we aligned on common vendors to offer the best product at the best retail prices for our customers. In Fresh, we have compared specifications.

Shares cost and leverage scale by sourcing jointly to improve quality and price for our customers. And as an example for Fresh, we achieved significant savings in the U.S.

for rotisserie chicken by leveraging our combined volumes with new and incumbent suppliers. In own brands, we have negotiated both product and packaging improvements resulting in better product quality and lower cost.

Additionally, we are evaluating and consolidating our own brand portfolio in an effort to provide our customers the best own brand offering. And as an example here, we are consolidating the production and sourcing of coffee beans, ground coffee, pads and capsules for Europe at the Ahold Delhaize coffee company in Zaandam.

Finally, and not for resale, we are evaluating existing contracts. Aligning specs when possible and negotiating combined volumes for store products and third party services such as floor cleaning, waste and energy management, print the paper and media, Shelf Tex and so on.

And as already stated, we want to reinvest €250 million into our local brands and we have listed some examples of area. So, in investments on the right side of this slide.

The examples of the right slide cover multiple brands and are focusing on for example price competitiveness with investments as stop and stop, Giant, or food line. But also areas like e-commerce with extra marketing effors to accelerate the growth at Peapod or another example, digital and loyalty program.

Let me repeat that these synergies are incremental to our existing say for our customer programs which also will fund investments in our brands. Slide 18 gives more details on the integration cost.

Our integration cost will be €318 million, slightly over the initial amount of 350 million announced two year ago. In addition, we estimate the cost for creating a robust centric U.S.

operating model at €70 million consisting of one-time cost relating to staff, process redesign and conservancy cost. And these costs includes setting up commercial teams for brand locally, redesigning function or processes, insourcing all brands, retention, severance and relocation of people.

On Slide 19, just a few words on our transformation. How people and organizations come together.

Our new strategic framework "Better Together" has been implemented across the whole group. Across the company, we increasingly see great examples of business sharing, businesses sharing their best practices or developing new ones.

And generally, the mood across the organization remain strongly in favor of the view that we are better off together and that are many examples to prove that point. And we measure this on a very regular basis with our Pulse surveys as you can see on this page.

With that, I'll now hand over to Dick.

Thank you very much, Frans. I'll show you some of our business highlights starting with the United States.

Let me begin by saying that we are well positioned in this fast changing competitive landscape. Our strong local brands have leading positions in most of the markets where we operate.

We've seen inflation coming back in almost all markets, in particular for meat and produce; categories that have been deflationary in previous quarters. Our market share has improved year-over-year.

If you would adjust for the remedy stores we had to sell as a result of the merger. Each brand continues to develop affective commercial strategies to continue to win in their local markets and a setup of our brand centric organizations Frans explained, will take it even further.

At Ahold USA, Stop&Shop, New England had a strong quarter. It was a great holiday sales and despite competitive openings Connecticut grew market share.

In New York, most of the former A&P stores have been now reopened by competitors. And as of quarter three, that headwinds in our comparable sales growth will be mostly gone.

As part of our journey in North East, so improving our customer proposition and value, servicing quality, we have announced in June, another price campaign reducing 100s of prices on our brands, produce, milk and eggs. And we continue to work on improving our price perception for all our brands at Ahold USA.

Looking at our Delhaize America brands, Hannaford continues to perform well and continues to roll out its Hannaford to go pick up points now in 39 stores. I would like to spend a bit more time on food line now.

As you can see in page 22. This slide shows how consistency strong food line has performed over the last four years.

The food line team has developed effective competitive plans facing new competition especially in the Carolina's show far the impact of these openings have been limited but would remain vigilant. Monitoring this very closely, making food as we are and remain completely, competitively, priced in A-brands own brands and fresh in these markets.

Let me remind you that food line has been facing over 400 competitive openings in the last few years. Most of them discounts like the Walmart neighborhood stores, et cetera.

And still consistently all performed the markets with now 19 consecutive quarters of volume growth. Our easy, fresh & affordable strategy continues to drive sales as it made significant investments in price since 2013 across the entire banner and today we have remodeled almost half of our stores with 71 more stores plan for the fourth quarter in the Richmond market area.

I'm now going to slide 23. Already mentioned the robust sales performance in the Netherlands and I will talk about online in a second.

We would highlight a few of the commercial successful initiatives at Albert Heijn. Albert Heijn continues to improve at a new wins assortment providing a healthy and freshier assortment this ongoing efforts to further improve the quality of that own brand.

Only this year, ready to improve the quality of nearly 500 own brand products across all categories. Now, recently almost a 100 young entrepreneurs were invited to pitch their innovative products to the commercial team.

Aiming for a place in the shelves and this fall the first products will be available for customers. Now offering Scan&Go in all our self-scan stores, customers can not only use a hand scanner or a smart phone to scan their purchases but now also can scan, pay and go at one point, making shopping even faster and more convenient.

In Belgium, our affiliate stores continue to perform well despite lower inflation their sales performance improved, benefitting from more attractive commercial activities. First step have been taken to improve the performance from own stores, focusing on further commercial and operation execution in the second half of this year.

Furthermore, we're well on the way with our extensive remodeling program for a 120 stores this year with close to 13 new stores being opened in 2017 in Belgium. Let me share a few highlights of our central and South Eastern European business with you.

I'm now on slide 24. In Greece we saw the competitive environment, normalizing and also retail.

And as Jeff alluded to, still cycling last year with major competitive eruptions. So, very tough comparable, also put it up coming second half of the year.

Over to Czech Republic, opened its third distribution center with 8000 nonperishable SKUs and supporting new growth of our supermarket and remodeled compact hypers. In Romania, comparable sales growth remain very strong.

11% this quarter and Mega Image is now expanding outside to Greater Bucharest area into Transylvania. Another area with high growth is Serbia.

With 7% comparable sales growth at our Maxi supermarkets. Fast and on track to realize almost €5 billion sales in 2020.

And not only these brands, think about Hannaford to go, the opening of our Belgium warehouse for online. We are accelerating our investments in a live way as capacity both in the United States and in the Netherlands as you can see on this slide.

With prior to bol.com was recognized as the strongest retail brand in the Netherlands for three years in a row now. The recently introduced subscription model offering free delivery even same day and that only for €14.99 for a full year.

Ah.nl continues to contribute to the sales growth of Albert Heijn. They had more customers today, and ah.nl has a quarter of a million active customers and also saw their order frequency going at this quarter.

Peapod increased the capacity of its New Jersey warehouse of by 25% and doing more than 20,000 orders a week and is stepping up their marketing campaign, successfully in rolling out Podpass subscription model to new and existing customers. And as mentioned by myself, before in Belgium Delhaize recently adopted a single website and single warehouse for all this online activities offering both home delivery and collect and collect to their customers.

So, before we start the Q&A session, let me briefly wrap up. Quarter two, 2017 was a strong quarter with an improved sales growth performance across the board and increased margin driven by synergies.

12 months after the merger, the integration is well on track while making good progress building our U.S. brand centric organization and synergies are coming in ahead of projections.

On top of the 500 million targeted net synergies, we have identified 250 million additional synergies for 2017 to '19 which we will reinvest in our brands. In addition to the safer hour customer programs.

For the full year 2017, we expect our underlying operating margin for the group to be broadly in line with the first half of this year. We expect the free cash flow 1.6 billion up to 1.8 billion of capital expenditures.

Now, with that I would like to hand it back to the operator to start the Q&A session.

Yes, good morning guys. One question for Jeff and one for Frans.

If you look at your guidance 3.9% EBIT margin for the year. I think in the first halves you had a EBIT margin expansion of about 25 basis points.

So, your guidance implies around on the 15 basis point improvement in the second half. I know it's a small difference but why the moderation in the margin increase as the inflation is coming back in the U.S.

is it because of the price investments you're making at Ahold USA on that? And I guess the question for Frans is on the brand centric approaching model, a few years ago you went through a phase of centralizing operation in the U.S.

and it looks like you are now decentralizing the way Delhaize USA is organized. So, why the need to change now and what are the benefits you're expecting from this decentralization process?

Let me start, thanks Edouard. Yes, the guidance where you said is broadly in line, so I wouldn’t get too precise about it and the difference in terms of the basis points that you mentioned there is pretty small.

So, we expect to continue to see the bottom line impacted by synergies. We've said you'll see the 220 million of synergies on the bottom line.

Now, of course we did flag at the beginning of the year, some impacts from PPA and some impacts from pension. We also had the first quarter some deflationary impacts from that but we should continue to see margin expansion in the second half and I'm not going to try and get tied down to precisely to the rounded single percentage point.

But are broadly aligned in terms of the second half versus the first half and should coincide with the delivery as I just mentioned.

Edouard, talking about the brand centric organization. I think a couple of years ago, it was the right thing to do to vendor within the USA central skill and resource.

And what we have done now is that we combined that learning together with the less share surfaces into this new retail business surfaces where we do the same, where we used skill and vendor expertise in a few new areas, digital, private label and so on. In the same time, also have our central sourcing, and let's say if our A-brand and private label negotiations with the suppliers in one hand for the total company.

At the second time at the second instance is also that if you talk about brands that we strongly believe that our brands should be get more autonomy locally with more autonomy in marketing as I said, pricing, merchandizing and category, which is for us working well also for food line and Hannaford. And we believe that the company is ready to give more profile to Stop&Shop, to Giant, and these type of brands including Peapod, which have very strong market positions.

And we think that we can win in those markets more even by giving more autonomy to managers. So, you see that there's a little bit energy now with the teams which are already selected the management teams for all those brands to do exactly that.

So, we will combine brands and great local markets the more distinction and more profile for those brands with the same skill and expertise in RBS.

Maybe to add also in that area. I suppose of course 70 years ago that Ahold centralized, but going forward you need to get to one model.

And we've looked at the both models and the last model and finally came to the conclusion that more localness of our brands would help to make let's say the competition which is also more local in the U.S. to have the best answer to that.

So, that's why we've chosen to go for one model and we had to choose one of the two, we believe the brand centric model is better off to cater our customers and the competition.

Okay, great. Thank you.

Good morning. A few from me.

If I look at you online guidance or the decide with the online business, I mean I get to about a 20% growth CAGR over the next few years to your target. But that's pretty much the bottom end of the old tag users from 20% to 25%.

So, is there really an acceleration in online growth, anything new in the announcement today? The second thing is if I look at your net synergies in your margins, I estimated you're having about 33 let's say 1/3rd of your synergies being reinvested in the business sort of underlying margin compression.

Is that a fair estimate of how much is going into that underlying pre-synergy business and do you expect that to continue for future years? And those two right now, please.

Thank you.

Thank you, Bruno. I'll leave the second question to Jeff.

The first one is clear that we, we're having it a new guidance in a way on online. We only reiterate fact that we what we said last year in our December capital markets.

They would double our sales in 2020 and the only thing we commit again is that we are well on track with getting the 3 billion for this close to 3 billion, Jeff will also explained this, 2.8 I think on the numbers and on the graphs. And the 5 billion which around 5 billion for 2020.

So, no new guidance in a way.

No, I think on the synergies we're talking about 750 million over the course of the three years with 250 reinvested which is about a 3rd. that will be reinvested.

On a year-to-date basis, I think we saw this quarter 30 basis points which is substantial part of the synergies touching the bottom line. There was less in the first quarter obviously because of the discussion that we had on deflation impact in the U.S.

business. And as I said going forward, we will explain the full 250 that we expect to see in 2017.

And will explain if we've lost some of those synergies due to the points we raised at the beginning of the year. Belgium -- Dutch pension increases, PPA increases, and as we said we won't be recapturing the amounts that we lost in terms of the deflation in the first quarter.

And we'll give a full reconciliation of that at the end of the year.

Thank you.

Hi, good morning all. I just have two questions as well if that's possible.

So, the first is just on Netherlands, I mean also again another very strong period. Is there an expectation there of that potentially flowing and maybe could you just elaborate on just that more as to why it is quite so strong.

And then on Slide 16, again maybe I'm reading a bit too much into it. But if I look at sort of ratio of nets to gross synergies, it seems to be there's a little bit more reinvestment towards the end of the plan.

That's on slide 16. Am I just reading a bit too much into the brochure?

Thank you.

Maybe Frans could take the second one on the synergies. First of all if you look at the Netherlands, we are in a good flow and I want to say that the energy the team as given by the [indiscernible] of the last two years and innovation and the stores and being in the forefront of digital and online.

It was a lower few elements but also innovation to products. I think that's clearly recognized by our customers.

And market leading of course in the Netherlands where we always have been market leading but now also mentally again I think we lost our competitor over the last couple of years. We're back on that.

People see all the time really as the number one supermarkets with great innovation and quality and freshness. Also I think the campaigns we have are attracting customers.

The other thing I would say, the inflation is a bit high and now in Netherlands than certainly last year. So, it's also a bit supported by more inflation in the market.

But nevertheless, the Albert Heijn brands are standing strong and continue to perform in the right direction and the same is cost taken in this with the improvements we're making both common and Ahold for now. So, I don’t see at this moment any concerns from my side on the expectations for Albert Heijn in this shape and form because they're really attracting customers with the right elements.

And then on the question, relationship between gross and net. If you look at 2018, and '19, then it's more or less the same type of distribution in percentage.

So, don’t reach too much out of those numbers for the moment. I think what is more important to say is that we created with 750 gross a 250 extra room to reinvest on top of our already safe for our customer programs we have in the countries.

And I think this is very positive news to our businesses to make sure that there's enough fire power in the brands to reinvest. And we talked about the few examples that is partly price competitor and the price investments were needed but also in marketing, also in positioning, and also reinvesting in the brands to have a better shopping experience.

So, all know this if for our company's good news but also for our brands, brand lead is very good news, that they ask fire power extra here to reinvest in our business.

And Frans, just very quickly, so once I got you. But I mean its' the centralization is hopeful.

But is there a possibility that we're going to see some of the stores being rebranded. And so, for instance when you put geographies where it just makes a bit more sense to have in a more food lines or more joint stores.

Is that profitability?

We'll talk about the U.S. but globally in general we are very proud about our local brands.

So, the local branch strategy is strongly cemented in our DNA. And for the U.S.

we have a very good positions in the markets where we are with the existing brands. Number one and two positions along the all East Coast.

So, we are very confident there and of course there will be maybe some discussions on some territories in food line and Stop&Shop. But those are really details, we are not having any plans to rebrand our stores.

Thank you, very much. Thank you.

Pleasure.

Sorry, excuse me, yes. Excuse me, I've got two questions.

The first one on synergies circled one of the U.S. on the synergies, the 750 million gross synergy you're talking about, is it new number or is it just so first time you dislodge it.

Because on my head have the feeling that 750 was always the growth number behind this 500 net. But the way you talk about, did you talk about 250 million additional synergy.

So, I was wondering if you increase your gross synergies and you see as by how much. And still on the synergies, when you said the 500 million net synergy towards base on the dollar 1.1 and 70% of such synergies, this is the U.S.

so, can you tell us how it could evolve or how will it work internally now that the dollar is weakening. And the second question on the U.S.

following the opening of leader and the announcement of buying world food. That would be interesting to know how does it change or how does it impact its way you are positioning the business mid-term?

Thank you.

Thank you, very much. And probably on the synergies, either there's a new number, at least so 750 maybe, Jeff?

We have only talked about 500 in the past as the net synergy. We haven’t talked about number of gross synergies.

We've certainly been working on delivering above the 500 but this is the first time we've discussed the 750. And obviously that allows us to make the reinvestments that we've been discussing which were incremental obviously to day-to-day business as usual, saving for our customer programs.

I think on the exchange rates of course, we currently have seen a move to 118, I think it's backed down to 117, close to 117 today. So, it's difficult to project what exactly -- less that has an impact.

And I think it's well understood. And that impacts both the earnings and also our cash flows.

Obviously we do what we can to adjust the smaller facts. But when we have to see an exchange rate move from 108 to 118, we have to report in Euros and that’s a clear understanding of the fact that that will be adjusted.

Okay, Jeff. Just a follow-up to make sure on this time.

When you repurchase the first time you talk about 500 million net synergies, when you are on the merger. What was the gross synergy you had at this point in time?

And what my question was also dollar was not on the 80 20 earning towards on the synergy amount. If it if will move as well along with the dollar, I guess, the €500 million?

Well, I mean it will move along with the dollar. When we first announced the 500 million, I'm not sure what the exchange rate was.

I think it was 1.1, 1.10 you had in mind at that time.

Well, clearly it puts it under a little bit more pressure. But it's I think I wouldn’t we look to offset that as much as we can but it clearly puts it under a little bit of pressure.

Okay.

So, when we first announced the 500, we said these were net synergies and we didn’t give a gross number. We have been working over the last year to ensure that we achieve both the 500.

Obviously, we've had visibility of that as we've gone through the year. But we felt we wanted to get as I've said a few times, one or two quarters of track record under our belt before we started talks about achieving greater than 500.

So, we haven’t disclosed the gross number before. And I think the 750 is a clear target that we're now happy to discuss and which will as I say give us the extra money to reinvest in the business.

And two quarters on the developed, Fabienne, gives us confidence that 500 net synergies will right bottom line. The 750 gives us confidence for two things that we have apparently the head room to be short to deliver the 500 but also have extra money on top of our existing progress to reinvest in our companies and our businesses.

So, it's good news for our businesses that we managed to create so many more synergies then we initially communicated I think that’s what we announced today for the first time.

I had question for Ian about the competitive environment in the U.S. it’s clear that I also explained a bit more on what we do Food Lion how we’re continuing to grow on markets in grow comparable sales, grow volume over the last several quarters.

So Food Lion is well positioned in the new competitive environment. We’ve seen the openings of 400 stores over the last couple of years so a couple of new store openings is not neglected by us, but clearly we know how to react and we also know how to react to new comers in the market.

We strongly believe that our kind of positioning of the success is helping us to drive the Food Lion business going forward. On the Amazon integration – of acquisition I think it’s clear it’s of course, a major development for a market when an online retailer stepping into the physical world.

It also tells us that with our activities over the last 20 years is building the omnichannel offering in the U.S. is clearly the way forward.

We’re investing heavily in all our online businesses that’s why we reiterated our close to $5 billion sales number for 2020, the investments we do, we’re building a new home ship center in Chicago to add capacity to Chicago. We’re carry out of the situation where we were not, say having the right capacity opportunities in New Jersey so we now exceeding our capacity again with 20,000 towards a week in the New Jersey warehouse.

We’re building new warehouses here in the Netherlands for [indiscernible] and for Bol so we continue to invest in what we call omnichannel shopping environment and that’s where customer shop in stores and at the same time online and in food it’s really a prerequisite to have that and if anything you could say that Amazon foods is really addressing the same issue.

Okay, thank you.

Yes, good morning gentlemen. You’ve increased the synergy target which I get and where I saw that would end.

And this incurred excess €30 million to achieve that. But I’m interested in what you’re going to achieve from the extra 70 million on the U.S.

restructuring costs. Is there any incremental benefit from that that we do not have in guidance already or is that an incremental spend that you need to do to actually hit the underlying guidance that we already have.

So what’s the marginal benefit of this restructuring in the U.S. and how we will see that flow through or is it already there?

Thank you, David. It’s clear that we’re having to invest this stand above brands it’s clear an investment we do to make the brands more agile, more closer to the customers.

It’s hard to say what that will bring first of all, but we believe it’s a best going forward for the market and to make as more agile, more close to the customer in the competition and on the long run that should be, make us better space and a better situation in the U.S. market and hopefully that will help us to continue to grow and exceed our expectation.

But that’s something is hard to predict. So but it’s the way we’ve seen, we’ve seen also in the [indiscernible] when they went from a more centralized approach to the decentralized approach at least it helped the ownership of the business but Frans may be could say something more about that because that was your tenure also that you’ve been standing up the brand.

Yes, we’ve now and we will have now six brands in the U.S. with autonomy in a management team and with a brand precedence.

Responsible for the P&L, responsible for the brands and the positioning in the market. And that gives him also tools like their own marketing team, their own pricing, their own merchandising and category management.

And that is of course a change for the way how use brands for position before. And that cost we’re going to invest because we strongly believe looking also at Food Lion and Hannaford that this creates more ownership and it creates also an identity of a brand which can be unique in the marketplace and we believe that local brands are very powerful.

The other thing as an example I’d like to give to you is also, in the meantime in-source all our own brand work -- so where we worked in the past now for packaging, for the private label brands, for the sourcing of those – of $120 million. And those are recurring cost, so for the brands in itself the cost will go down because of the skill effects in RBS.

So I think overall cost go down and so we should be able to compete even better.

Okay, thank you very much.

Good morning everybody. I had two questions and they’re again about synergies.

The first one is about the Q2 net synergy achievement since I’ve set down quite a bit from Q1 and Q4 last year, and I was wondering if that reflects the actual kind of gross side of the equation or the investment side of the equation and then kind of just, if we could get some color on the 80 million investment in 2017 and whether that’s kind of mostly common to second half or whether it’s kind of mostly happen in the first half? That’s the first question please.

You want to take that one Jeff.

Well, the first one no, I don’t see that Q2 net synergies stepping down at 61 million I think that’s pretty much in-line with the year-to-date number which is roughly double that. So I think they have been consistent.

Sorry, I didn’t catch the second question.

Your second question was about the reinvestment in the business. We clearly have just started comparing in the United States again which we started in the second quarter.

And second quarter to invest back money into the business, I mentioned that in my introduction that [indiscernible] is reducing prices on 800 products mainly on brands but also Fresh and critical commodities like eggs and milk etcetera. So, we’re investing back into the business already which we promise to the market today also that we will reinvest and we’re taking the action there.

Okay. And then the second one was just about the regional allocation of the additional 250 million of synergy investment, I think you said that you’ve seen individual businesses achieved more than their targeted synergies that they'd be free to reinvest that and back in the business.

Is this still the case or will it be more dictated by marketing management competitive and situations?

We have it's in itself good news by the way, like you have 250 million.

It’s great news.

Yes, it's good news. And I also said that both in Europe and in the U.S.

we have this performance across all the categories and across all the geographies. And we said that the businesses who are earning those money's can also reinvest it themselves.

And that was also in great motivation of the teams to do much better than originally expected. So, roughly also there is 60/40 distribution splits, Europe and the U.S.

where we also get it for to reinvestments.

Alright, thank you.

Yes, good morning gentlemen. Three question actually if I may.

The first one, back to this questions actually about the 70 million cost if got for retail business services. You're also mentioning one of the US$20 million of savings of G&A cost actually.

Is it one out of US$20 million part of the synergies target, total 750 million? Or is it coming on the top of the 750 million.

So, can you just clarify that, that would be my first question? The second thing.

You talked about the synergies that you're going to reinvest in the brands. You also said it comes on the top of you let's say for our customer plan or program.

Can you give us a kind of indication of how much say for our customer is going to deliver as you know it's easier on potentially next year. So, as to get a sense of how much ammunition you've got to reinvest in the business.

And lastly, just on Peapod. Can you just a bit us on where you are in terms of set score specifically for Peapod.

And potentially, what are you doing with three count like on Peapod, in the U.S?

Yes. I think --.

Shall I take the first one, and you have the second one?

Yes. I will take the second one.

Down with the 20 million SG&A saving is a part of the 750 synergies in total. We already mentioned in the very beginning when we launched the synergy program that were SG&A savings as well.

To be a little bit more specific to you, the 120 is roughly 60 million of pure headcount and staff savings and the other half is coming from IT and other savings on cost and it has been a part of the original schemes.

Let me just also mention, you mentioned the 70 is part of RBS. The 70 is very much part of the brand centric model which is slightly different execution in RBS.

The RBS is putting together the finance, logistics, commercial support organizations. And the 70 million is more the work to take the Ahold USA commercial teams and break those back into brand specific teams, Stop&Shop, Giants.

And the 70 million is more related to that. I think in terms of say for a customer, you're right.

We talk simplicity numbers at Ahold premerger. Those programs which we have been working on in the last several years have continued and obviously that continued incremental to that as been the synergies.

Obviously the Dallas team and their own cost initiatives which many of which have also continued. We haven’t given the target for this year really because we wanted to focus people onto the synergy number and not really confuse the situation.

But if you go back to 2015, 2016, you saw the numbers that we were quoting at Ahold USA were over €300 million. €300 million, €400 million, and that was the target we were delivering and reinvesting back in the type of initiatives to improve the quality of own brands which has allowed us to be successful in competing against Lidl in the Netherlands and also the price initiatives that we've had over the years at Ahold USA which is close to price gap and helped develop the price perception scores at Stop&Shop and Giant.

So, we haven’t given a number and I'm not going to give a number this year for us say for a customer. We are discussing given targets going forward.

But the reason we didn’t give the numbers to keep the focus on the synergies in 2017.

On Peapods, and clearly we have two different models in the U.S. we have the Peapod's home delivery model and you asked what the growth is.

It's in the high single digits, so still below double digit. So, which is I would aim of course going forward, also for Peapod's and it should go into double digit again.

Clearly, the model in the U.S. is two folds.

We have the Hannaford Click & Collect model which clearly is better resonating in the Ahold model. So, we're now looking at the Click & Collect model of Hannaford to if you could apply it all to Stop&Shop and the Giant brands where of course we continue to grow in our home delivery model this Peapod.

Which is say we're customers preference at the end of the day is if you want to really make it easier to bring it home at your doorstep. But you clearly see that you need both models in the U.S.

and one of the thing we currently undertaking is looking at what we can do is the Hannaford model. And can we also use that more effectively for brands in [indiscernible]

Thank you.

Good morning. Couple of from me as well.

Just on the price investment you mentioned at the end of the second quarter, can you say whether they were competitive response or more of sort of proactive action and where those price investment leave you now on those KVI’s versus Wal-Mart in terms of the price gap and the second one, just on what you are seeing in terms of wedge inflation in the US across your market, can you say whether that running at the moment, thank you.

Thank you very much. The price investment we did mainly [indiscernible] are clearly to compete to our, mostly our supermarket competitors that’s the main we focus on, as you know in the northeast and other area the Wal-Mart is present but not in depths over, let’s say presence in the Carolina, so we focus a lot on our current competitors over there.

We are outperforming all our supermarket competitors in the Northeast so we are better priced, we take blended approach and of course become closer to the Wal-Mart pricing on the super KVI’s by taking these actions. It’s the rhythm of the what we call our northeast program but this clearly for this year was another impactful cut of prices which clearly continuation for the market going forward and as I said it was also support us now by as soon as delivery that becomes [indiscernible] towards this.

On the wedge inflation, may be Jeff you can.

I think on the regular wedge inflation, we have seen certain around and bit less than 2% but what we are seeing in the expression coming from things like minimal wedge increases which were incremental to that which I have quoted the number in the past the 50 million from minimum wedge increase across the US in 2017 for our businesses but I would also says we have programs in place to improve the efficiency, improve operation about labor which allows us to offset those increases, so where we are seeing increases above inflation due to things like the minimum wedge, we have programs in place to increase the use of self checkouts, self scan, increase the use of automatic scanning machines and those types of projects can help us offset those minimum wedge increases. Just a bit what Dick said on price investments, this is a normal 50-50 as a growth rate to make sure that your price right and also for the food line, I read quite some stories about food line in the South in various reports.

Also for food line, we invested over the years always on time to be well priced and there is no difference now and let's not over estimate the competitive openings and response we are aggressively priced right because it's our price positioning of food line if it's compared to Wal-Mart other discount is coming into the marketplace and Wal-Mart the biggest discounter in the country, we're well priced towards them but also new discounters or new dollar stores coming in and 400 openings of competitors in the last year for food line, and if you look at the rally, the rally sit like rally this year 28 competitive openings from a legal point of view and we are in all the geographies where we compete that legal on prior priced and well priced as food line and as [indiscernible] our daily activity.

Thanks very much [indiscernible] would you be able to quantify then why you all food line versus Wal-Mart and did you just say, you are [indiscernible] versus little or could you confirm what that number is. Thank you.

Yes, we are very close to on par with legal [indiscernible] strategy and we feel very comfortable and priced right.

Okay, thank you very much.

Good morning three for me please, could you talk more about the operating performance of the different A: USA banners in the quarter and what you'll seeing from your competitors in terms of pricing and store openings in those markets and I guess I'd be slickly interested in [indiscernible] and their markets? And then on-line in the US, could you explain the rationale of some of the banners being on insta Cards, I guess that's immediacy and incremental volume but I also wanted to check as it is kind of an extra leg of an online strategy or tactic?

And then also if you can also talk more about your Peapod pricing strategy going forward versus the stores, I would be grateful thank you.

Thank you very much Nick. Clearly on Insta Cards, it's of course one hour, two hour delivery slot which we learn by using and [indiscernible] moment I think in the long run for online propositions, as a food retailers you need to have all three you need to have a pickup solution from your stores, you have to have a home delivery in urban and large urban territories to be sure as you also are able to do that and last but not the least there will be solutions for one or two hour delivery slot is limited assortment and I think that's what we're learning now.

We learned that everywhere [indiscernible] test by ourselves, can do as a third parties so that work is continue going on and we will see that that's necessary, with different prices by the way the end of the day we will see a charge more for the one or the other, of course the pickup will be the lowest to the charge, where the high surcharge would be at the end of the day for the one hour, two hour delivery because you are into delivery of course more costly at the end of the day. So that will be [indiscernible] of online.

Our competitive position in the different markets, I mentioned already in my opening statement about Stopper Shop New England, pleased with their development. Stacking up operational commercially the stores better so than I think we would see improvements there but also gaining from the competition better price perception that's what we see this all our US [indiscernible] a brands improving the price perception by all the activity replacing as playing out now.

If you look at the Giant-Landover of continuation of course of new entrance but if I look at our Giant-Landover positioning they really outperforming the supermarket competitors there on price as well currently on operational performance and of course competitive openings have been continues an issue for the Giant-Landover market, we shall also in the opening at most of our markets gaining market share the only one where we some pressure on market shares Giant Carlyle where we have seen, the openings of Wal-Mart, more Wal-Mart of course already a Wal-Mart territory but also discount with [indiscernible] also the Carlyle has been investing more in price to be priced right to which the competition there.

And talking about competitiveness, I understand you talk a lot about pricing and price investments which is of course not the only way to compete and just to give you some examples I told you that as an hygiene factor we have to be price right as food line and use the example for the moment but in the meantime we also invested decently in remodeling of our stores and if you look at the stores now in Charlotte and in Valley and we see also now the same effects in Greensboro where we just re-launched 93 stores last week and that of course you're priced right but customers also very much interested in full assortment, center store, organic produce, surface, checkout, parking, the state of your stores, clean and well merchandised and they are hoping to get us into the proposition and we also feel that debt proposition is also richer proposition for food line and the lot of discounters in their space and it's up to our teams grand centric as they are to prove they have a better proposition and that the teams in the stores are also making customers more satisfied then in the discount format and that's our job.

Thank you. If I may just one follow up on the discount and to ask whether you are seeing any deflection in your loyalty data from the first [indiscernible] probably more [indiscernible] coming into the system.

I only can give you, let’s say rather early and limited data. We talk about 23 little opening so far in our food line territory.

And apart from the fact that we are priced right as I said to you we see so far reasonably limited impact on our stores and as I said before I mean if you walked all the stores and of course it is a great company but we learned in the meantime a lot from Europe and we are very well prepared ourselves and if you look at the proposition of food line it's our brand in the in the Carolinas, it's our proposition our stores talk about surface that we have to make a difference so far the impact is limited.

And for the revamped [indiscernible] in terms of their, do you see impact?

also there are, what you see and I think we all see to same. Again, we will never underestimate any competitor not one of the four hundred which came to the food lines geographies in the past and you see that a lot of people react around the sort of legal entry Wal-Mart last October pricing all the revamping the stores but all in all if you look at the our food line stores which I monitor very closely as you can imagine, we see a very stable development for ourselves both from revamped all these as from legal openings, every new opening of course does not help but I mention to you 28 openings this year in rally four of them are legal, the rest of them are all kind of other traditional grocers and dollar stores and we managed the competition quite nicely and we are well competing.

Alright, thank you very much.

Good morning, two questions from me please both of them for Dick. First question is on the competitive openings you mentioned for food line that have been 400 store opening in the past few years, could you say that how many years and also how many openings you're expecting per year going forward for the next few years and the second question is around a comment base that you are outperforming all competitors in the Northeast hold USA, could you comment on whether or not you are outperforming [indiscernible] in the market basket.

I would find given that the absolute level – relatively there? Thank you.

That’s clear. What I mentioned is the traditional supermarket, but I just, you could say market basket clearly one of them but we’ve been seeing market basket over the last year let’s say less aggressive in their price positioning so we have come closer with Stop & Shop to market basket which is I think a positive note on the market in the New England territory because that’s what we’re talking about and clearly the good work of the team with Stop & Shop has been staying out in growing market share in the area.

And as the majority of our reader competition in the northeast is traditional supermarket that’s why I made that point at the same time of course to see new entrants coming but their presence is still very limited and your other example of Wegmans is also very limited, a couple of stores of Wegmans in the northeast. On the Carolina I think France alluded already to that.

The hundreds of stores over the last couple of years coming into the Carolina is I think over the period of four years by the way has been also driven by the fact that Carolina is growing as a market. So I think it’s today already the seventh market in the U.S.

from population point of view. So clearly that is attracting more competition, more stores to enter.

And at the same time the company is able to offset that by stronger performance of Food Lion itself. I think that’s very beneficial for the team over there, was able to offset that.

I think that’s what we need to do. We also need ourselves of course to expand our position in a market where competition is growing with number of stores, we’re working with the team of Food Lion, we’re back on track, how can we also expand our own footprint in these markets.

Also for Food Lion I mentioned already a few elements. Apart from price where we compete this company is also having 80% of the sales food entry fee loyalty card.

We launched a couple of weeks ago our new shop & earn system which is completely digitally savvy which has been welcomed very nicely. So also this company is adding a lot of very contemporary marketing techniques since years and also there we think that we can effuse lot of our customers in a digital space, attract new customers, attract millennial to the stores, excellent locations, strong brand and I think with all the remodeling in Riley and Charlotte which is 80% of the population growth in the Carolina I think we’re very well positioned there.

And you also asked how many stores opening, of course, it’s also predictions, we only can see what we hear in the market and what we see. But we all know of course [Indiscernible] are exactly in the market of giant land over in the Carolina for Food Lion.

So we know these stores will come up next year so we’re clear on that. We see some opening of the traditional retailers which I also have noticed for incident giant land closing down some of the stores of our competitors now.

So we can look on one hand to the opening of [indiscernible] you also should look at what is some areas also closing down stores.

Okay, many thanks Dick.

Thank you.

Good morning gents. A couple from me.

Just in terms of inflation rates in the U.S. you talked about the fact that some of Ahold Food Lion markets have remained in deflation.

Obviously it’s more competitive in the Food Lion markets but you’ve also seen some little opening in the Ahold U.S. markets.

So could you perhaps talk about what’s driving the divergence and trends there? And then second one from me, on the RBS saving you highlighted the $120 million of SG&A savings, but if you’re doing things like in-sourcing home brands shouldn’t that be some benefits for input cost savings as well.

Could you provide some color and please quantify around that please?

Yes sure, will answer the second one. On the inflation it’s quite actually, we’ve seen in the northeast similar inflation in [indiscernible] and Shop & Shop 0.8% as you have alluded to, we’re expecting but similar for the rest of the year.

We’ve seen of course in the Carlyle area some more activity of the discounters first of course we see all the arrival of Food Lion stores two years ago and some Littles also opening there. That’s more regional for us in the joint Carlyle division so it’s mostly focused on Philadelphia area.

There of course, we’ve stepped up our competitive positioning but also able to offset the normal what we call say for our customers investments we do. I haven’t seen that really and lowering the inflation level in this market because it’s smaller percent is of course on the total group of Philadelphia market versus the total of [indiscernible] of 25 billion.

Yes, on the private label, we of course already did quite some private label sourcing together in our total synergy program northern Fresh and in central store. So a number of those savings are already in the 750 gross.

What is not in yet is, what we will get out of the in-stores organization we expect a few things on quality, on specs taking strategically own brand stronger in our own hands. And those savings we’ve not quantified yet because it’s little bit too early, we’ve run the present organization up to the end of 2017 with the existing brokers in place and then we migrate towards that’s from 2018 to the new private label organization.

We expect quality that quality packaging in specs, I think we also should expect some better cocks but it’s little bit too early to tell at this moment.

And I think this is a great example by the way and happy opportunity today as to share that what we do in the integration. And if you look at where we’re today after the year where the teams are working in the U.S.

on creating complete own brand organization and as we know also from Europe how important it is to get these own brands in your own hands and to be focused on quality improvements, price cocks I think this is great example of the companies coming together. And that’s why we feel confident about where we’re with the integration, with the way forward, with the positioning we do and I think the delivery of synergies is great aspect to our organization and to enable also deliver $250 million more even on the synergies.

So very pleased with all the work the guys are doing in the U.S.

And then there is local knowledge sharing on supply chain, on digital, on loyalty, on price at label which is not immediately let’s say quantified now in synergies, but we will have a better customer proposition and in the end also better cost in the years to come for those activities as well. So I’m very optimistic here in teams coming together and combining the rich experience in the U.S.

from both companies.

Thanks guys.

Okay that ladies and gentlemen concludes this conference call and webcast thanks very much for joining us today and thank you.