Koninklijke Ahold Delhaize N.V.

Henk Jan ten Brinke - SVP of Investor Relations Dick Boer - Chief Executive Officer Jeff Carr - Chief Financial Officer

Bruno Monteyne - Bernstein Cedric Lecasble - Raymond James Fabienne Caron - Kepler Xavier Le Mené - Bank of America Merrill Lynch Sreedhar Mahamkali - Macquarie Matthias Maenhaut - ING Andrew Porteous - HSBC Niamh McSherry - Deutsche Bank James Tracey - Redburn Dan Ekstein - UBS Rob Joyce - Goldman Sachs Andrew Gwynn - Exane Nick Coulter - Citi

Thank you, operator, and good morning, ladies and gentlemen. Welcome to our third quarter 2017 results conference call and audio webcast.

I'm here with Dick Boer, our CEO; and Jeff Carr, our CFO. And after a brief presentation, we look forward to take your questions.

So with that, over to you, Dick.

Thank you very much, Henk Jan. And ladies and gentlemen, also good morning from myself, and welcome to our third quarter 2017 results conference call.

We are pleased to report a strong financial performance again this quarter. Sales grew by 2.1% at constant exchange rates.

In the United States, we saw inflation at low levels, and our sales performance further improved. Across our brands, we gained market share in a competitive landscape with new entrants.

Our online business continues to grow, with total sales up more than 20%, well under way to reach close to €3 billion net consumer sales this year. Underlying operating margins increased significantly, driven by synergies from the merger and ongoing cost saving programs across all our businesses.

Free cash flow remained strong. Jeff will say more about this, and we confirm our guidance for €1.6 billion for this year.

We announced today a new 12-month €2 billion share buyback program, starting at the beginning of 2018, reflecting confidence in our Better Together strategy. Now let me hand over to Jeff who will take you through the numbers in greater detail.

Thank you, Dick. As expected, in the quarter, we saw, as Dick mentioned, retail shelf price inflation returned in the U.S., and that's obviously contributed to the growth of the group at 2.1% in the quarter at constant exchange rates, and that gives sales of €15.1 billion in the period.

I'm pleased to see strong EBITDA and underlying operating profit margins, both up by 40 basis points, largely due to synergy delivery of some €68 million in the quarter. Underlying operating income at €595 million is 13.3% ahead of last year at constant rates, and margins were 3.9% for the group in the quarter.

While this is I think, an excellent performance, it's worth highlighting the comparative quarter last year was a relatively weak quarter, with the group underlying operating margin at 3.5%. And if you recall, for the full year 2016 we delivered 3.7%.

Onetime costs in the current quarter were €55 million, which mainly relate, of course, to the integration of the businesses, and these were significantly lower than last year, which was at €91 million. Hence, operating income of €540 million was up 23.9% versus last year.

Finally, income from continuing operations was up 34.2%, and we remain on track to deliver strong underlying earnings per share growth for 2017. Now moving on, let's look at the performance by segment.

First, looking at Ahold USA. Net sales grew by 0.8% in comparable sales; ex gas, grew at a similar rate, 0.7%, with retail inflation.

And that's our own internal shelf price inflation at 0.9%. So you see little growth in volume at Ahold USA in the markets that they cover.

We did see stronger growth in the Northeast and Carlisle, the Carlisle market, but negative total market developments, market growth in New York and Landover. Overall, though, I'm pleased that we still delivered an overall market share gain in the quarter for the total AUSA business.

At Ahold USA, we continued to make price investments and see increased promotional intensity in many of our markets. However, due to our synergies and save from our customer program, we are able to show a 20 basis points margin improvement versus quarter 3 last year, with underlying operating margin at 4.1% for the quarter.

At Delhaize America, retail inflation was a little less at 0.3%, with inflation just slightly positive at Food Lion and somewhat higher at Hannaford. Comparable sales were up 2.3%, so we see very strong volume growth in both these markets and gaining market share.

We remain very pleased with the continued strong results from Easy Fresh and Affordable at Food Lion, and Dick will comment a little more on that a little later in the presentation. Again, at Delhaize America, we benefited from the strong synergy delivery, and margins were up 30 basis points to 3.8%.

Now if you move on to the Netherlands. Growth remained strong at 3.6%, including bol; 2.3% excluding bol.

Underlying operating margins at 4.9% were up 40 basis points versus last year. But again, last year at 4.5% was a relatively low performance.

Excluding bol.com, the Netherland margins were 5.5% in the quarter. Moving on to Belgium.

Sales of €1.2 billion were flat versus last year, with comparable sales down slightly 0.3%. And the pattern we've seen in previous quarters has continued with a good performance, relatively good performance at the affiliate stores and a somewhat weaker performance at our integrated company-owned stores.

During the quarter, we announced new leadership in Belgium, and plans to improve the company-owned stores performance are now well under way. In Central and Southeastern Europe, we continued to see a strong sales performance in Romania and Serbia, a good performance in the Czech market, and we've continued to see a correction in the Greek market.

Overall sales grew 3.1%, largely as a result of some 116 incremental stores, mostly in Romania, and we continue to see strong double-digit growth in the Romanian market. As you can see, margins were up 20 basis points to 4.3% in the period, with strong performance on margin again, especially in Romania, Serbia and the Czech Republic, and I'm pleased that the Greek -- Greece business continues to deliver great performance in a more challenging conditions.

So moving on, as Dick mentioned, we're pleased with the free cash flow generation in the quarter. In the quarter, we generated €426 million free cash flow.

That means we've now delivered over €1 billion of free cash flow on a year-to-date basis, nearly double this time last year. So we remain very much on track to deliver the €1.6 billion for the full year.

Moving on to synergies. As I mentioned at the beginning of my presentation, the impact of synergies in the quarter was €68 million of net synergies, giving a year-to-date total of €185 million net synergies.

For the full year, we now expect the synergies -- net synergies to be at €250 million, up from our previous guidance of €220 million. And that's simply a result of the current higher run rate flowing through to the end of the year.

We maintain our previous guidance for the full integration synergies of €750 million gross synergies and €500 million net synergies, with €250 million to be reinvested in our brands. Integration costs incurred to date at €262 million and restructuring costs at €30 million, and we remain on track with the guidance we've given in these areas previously.

Now before I hand back to Dick, as was previously highlighted, I'm pleased to announce a new €2 billion share buyback program starting early in January 2018, following the completion of the current €1 billion program in December 2017. Now it may be a bit early to give guidance for 2018, but I think it's important that we set the context for the new program.

So additionally, therefore, we expect capital expenditure to increase from €1.8 billion in 2017 to €1.9 billion in 2018. And due to the strong cash-generative nature of the business, we expect free cash flow, and that's after the increase in capital expenditure, to increase in 2018 from the €1.6 billion target we guided to in the current year.

Thank you. Now I'll hand back to Dick.

Thank you very much, Jeff. So that was some of our business highlights.

Before I talk about the individual businesses, I'd like to share our ambition and some of our plans to innovate our customer offering across all our businesses, increasing customer loyalty and driving growth on both on and off-line. With continued innovation, we want to provide our customers with a seamless shopping experience, whether they shop online or in our stores, and many do both.

We want to make shopping easier, hassle free and more entertaining. And as you have seen, we are accelerating and increasing our investments in online and in warehouse capacity in the United States and the Benelux to enable us to grow to almost €5 billion net consumer sales in 2020.

Our own brand portfolios are important to become the retailer of choice for our customers to create loyalty and to provide healthy and convenient solution for our customers. And our teams on both sides of the Atlantic are working together, as I will show in the next slide.

Developing and testing new concepts, products and services are an essential part of our plans for the future as well as using data analytics to expand our digital loyalty programs, providing our customers with unique offers and promotions, both in our stores and online. So now let me give you some few highlights of our Ahold USA business, and I will turn to Page 16 of the slide deck.

Our Stop & Shop and Giant brands today have already more than 20,000 SKUs in own brand, representing close to 40% of total sales, including Fresh. We are combining the best of our both U.S.

natural and organic own brand, with a combined annual sales of almost $1 billion in our Nature's Promise brand that we will introduce across all our business in the United States. We are extending the range to 1,400 unique SKUs and have the ambition to make it to a $1.5 billion brand in 2020.

Let me give you a few examples on what we do as we are strengthening our digital capabilities at Ahold USA. Investing in new technology had resulted in new digital tools, including more personalized digital coupons, new websites, mobile app improvements and a new recipe center, helping our customers to save time and money and providing a personalized shopping experience.

Ahold USA gained 1 million new digital users over the last year, with 20% web traffic growth on their new brand websites and over 70% more monthly mobile app users, so an enormous next step in our digitalization also at Ahold USA. We already spoke about our ambition in online.

We continue to develop Peapod leading position in the U.S. East Coast, providing both home delivery and pickup solutions for our customers.

The Podpass membership, offering free delivery at a fixed annual fee, so more members with higher renewal rates. Podpass members order more frequently and spend more in total than other customers.

Also here, new technology, both at a customer interface and in our warehouse, is being implemented to stay ahead. And we see more competition coming into this segment.

I'll go to next slide and looking at our other U.S. brands, Food Lion and Hannaford.

We're proud that Food Lion reported volume growth for the 20th consecutive quarter. It proves that the brand is well positioned in a competitive environment, with new discount competition coming in, particularly in the Carolinas.

But although the impact from new entrants has been limited in those markets, we remain vigilant and make sure that we have a competitive offer to our customers. The rollout of Food Lion's Easy, Fresh and Affordable program continues to be successful, resulting in strong sales growth.

For instance, more than 7% in Charlotte. Despite competitors opening stores, in Greensboro, the most recent market where the program was rolled out, shown more than 5% growth, even with a new discounter coming into this market.

We are planning to implement the program in another 160 stores next year, another example on how we continue to invest to improve our store network. Also here, digital loyalty programs are being rolled out.

Food Lion's Shop & Earn, which offers customers personalized savings on the products and categories they shop the most, was expanded during the quarter, with the rollout to the Greensboro market. During the quarter, Hannaford introduced a fully digital loyalty program called My Hannaford Rewards, that offers new and personalized ways for customers to save when they shop.

This program will be launched in phases, with a full rollout in 2018 and is expected to further enhance its strong customer loyalty. We also are further improving our pickup points at Hannaford, whereas Food Lion is now also testing its click and collect model and will expand its ecommerce offer to additional zip codes.

Let's turn to the Netherlands, Slide 18. We're pleased this quarter that the Dutch consumer association ranked Albert Heijn for the -- first for having the most attractive promotions, providing the best value in the Dutch market.

Albert Heijn continues to optimize the customer experience, using data analytics to select 14 million weekly personalized offers to more than two million customers and introduced predict my list for online consumers based on their regular purchases, learning from their Peapod colleagues. Another great example of digitalization, how to use our data analytics.

Own brand products, representing more than 50% of Albert Heijn's sales, including Fresh, continued being improved, which was recognized externally by winning several Best Buy awards again this quarter. In addition, its heritage Delicata chocolate and Perla coffee brand range was re-launched with new products this quarter.

We're accelerating our investments to support our fast growing online business in the Netherlands. bol.com just opened a new distribution center that will store up to one million different SKUs and can handle more than 250,000 orders per day.

The ah.nl opened its fourth Home Shop Center in Eindhoven, with a capacity of 40,000 orders per week, which represents about €0.25 billion annual sales at full capacity. After a successful test at ah.nl, customers now also opt for a subscription service, free delivery at a flat fee, another new feature we are piloting as the so called Rappie service that promise online customers home delivery within two hours.

We're testing that today out in the City of Rotterdam. All products can already be picked up at your local Albert Heijn store, but bol.com is now introducing dedicated pickup and return desks in large Albert Heijn stores, another great example of providing convenience for the customer by integrating online and in store shopping.

And finally, some highlights from our Belgian business and our brands in Central and Southeastern Europe. In Belgium, we work hard to improve the performance of our company owned stores.

Delhaize ran a successful food and veg loyalty campaign and a wine fair, connected to its long heritage, experience and reputation of selling great wines at good prices. We have sold the last store required by the competition authority and opened 80 new stores so far this year.

In addition, we expect to have renovated 120 stores this year total, both affiliate and owned stores. Let's now move to Central and Southeastern Europe.

As Jeff explained, in Greece, the competitive landscape is normalizing. Alfa Beta is piloting digital personalized communication with its customers, enhancing loyalty and driving sales.

And our brands in Romania and Serbia continue to perform well. We continued to make our own brands travel to other, like Etos brand to Czech to Greece, the Czech Republic and Romania, and our U.S.

Nature promo brands also to the Czech Republic. So before we start the Q&A session, let me briefly wrap up.

Quarter three showed a strong financial performance, again, with increased sales, growth and strong synergy delivery, resulting in 40 basis points margin expansion. We continue to enhance our leading online businesses, together, grew more than 20% this quarter.

It puts us well on track to almost €3 billion online consumer sales this year and close to 5 billion by 2020. We're investing in our own-brand portfolios, providing healthy and convenient choices for our customers, leveraging expertise from both the United States and Europe.

We keep on investing to offer our customers a unique shopping experience, using data analytics to develop digital loyalty programs and provide personalized offers and promotions to them. For the full year 2017, we expect cumulative net synergies to increase from 220 million to 250 million, including the 22 million realized in 2016.

And for 2019, we still expect €750 million gross synergies, of which 250 million will be invested in our customer proposition, in addition to the save for our customer saving. Following our strong cash flow year-to-date, we stick to our guidance for €1.6 billion for free cash flow for the full year 2017.

We expect free cash flow next year to further increase, despite increasing our capital expenditures to €1.9 billion, as we continue to improve our store network, accelerate our online investments and further develop our digital capabilities. And finally, we announced today a new 12 month €2 billion share buyback program that we expect to start early next year, following completion of the current 1 billion program this year.

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

Dick and Jeff, three questions for me. In U.S., you're saying you're gaining market share.

We also know there's new entrants, and Walmart is doing well as well. So who are the losers in those U.S.

market, the people that must be giving up market share to make space for your growth and the new entrants'? My second question is, what gives you the confidence to step up the share buyback program to this extent?

I mean, share buyback with dividends will be bigger than your free cash flow. Just to understand the thinking behind that.

And the third one is, on Slide 16, Dick, you went quite fast over those new technologies. And I just wondered if you can elaborate a bit more on the Dutch picking technology that you're bringing to the U.S., how much better is that?

What does it mean for the efficiency and potential growth? Can you give a bit more color about that?

And also, the voice-based ordering, is that a collaboration with Google or any other technology company on that Slide 16 at the bottom?

Thank you very much, Bruno. I'll start with the U.S., and Jeff elaborate on that also.

On the share buyback, Jeff will handle and then I will come back on the third. Gaining market share is, clearly, in a market which is not growing on its own, so the market itself in the U.S.

is even in some parts still a bit contracting as we've seen in Giant Landover market. We are doing better than our competitors because we have good programs, but also, clearly, some of our competitors has been not matching and could be matching continuously the price positioning points we have put in the markets, together, of course, with other major, other retailers who have done the same.

So I think that's what you see currently happening. And I'm sure you allow me not to use names in this case, but I think there are such smaller retailers, of course, getting more in trouble of keeping up to the fast-changing environment from the digital side, from the connection with your customers, the online piece.

So that's why I think also we're gaining, although slightly, market share in the market. Jeff, something you'll add?

No, I think on the buyback, Bruno, I think we look at the strength of the balance sheet, the strength of the cash generation, both this year and our expectations for next year. And we set the appropriate target.

We announced it now because we don't really have any more scheduled times to make any announcements to the market until middle of January, and we wanted to start the program very early in the New Year. I think we've been clear that we will utilize the balance sheet, and we set leverage targets of around two time's net debt-to-EBITDA.

This will move the needle slightly above two times in 2018. We still have a lot of headroom in our ability to fund growth.

And I think it was also important to put it in the context that we will be increasing our CapEx. We expect to increase our CapEx in 2018, as we continue to invest in the stores, invest in digital, and invest in e-commerce.

And so I think that context is also important for people to understand.

Jeff, sorry, can I interrupt you there for a second. Because I remember, before the Delhaize merger, you returned an extra €1 billion to your own shareholders before doing that merger.

You're expecting more cash out of the business to your shareholder at this stage. That would not be in a similar kind of anticipation of more M&A activity in the U.S.

or at the broader sense, would it?

No, I wouldn't read that into it. Obviously, we have a strong -- so no, I would not read that take into it.

So this is -- we've said, regularly, we will review the share buyback program around this time of the year each year. We'll establish the right amount, and we'll announce the new program.

So I think it's based on the current market conditions, the confidence in that cash generation and the strength of the balance sheet. And it has -- there's no read across as to potential future activities in terms of M&A.

But that said, we remain strongly positioned with a strong balance sheet, and we'll continue to look at growth opportunities in 2017 and '18. But no, I wouldn't take that reference of the €1 billion buyback that was done premerger.

On the technology, thanks for asking, Bruno. A lot of things are happening in the technology side, of course, on online in the Netherlands.

The speed of pickup and picking in the warehouse, the Home Shop Centers, which still outperform anyway the full mechanized way of picking, because helped by also the support of our internal logistics, our Home Shop Centers are more or less a big [indiscernible] story, if you could say, with a high rotation and a high use of order picking of our order pickers there. So that's why we have a huge capacity, but also a capability which we can use also in the United States.

I don't think we will certainly not get the same high picking ratio as we do in the Netherlands. But still, it's a much better model than the current models that we've seen in the markets, so that's why we continue to look at our Home Shop Center expansion.

Also, in the United States, we're looking at this. There, the logistics support for the Home Shop Center is a bit different, so we will have -- we have more direct deliveries on the warehouses there.

But also there, we can use the technology which we are using here in the Netherlands. And it's -- for this, the picks are about 100, so that's quite a good number for manual pick.

Dick, if I remember, they were costing you about €10 million in the Netherlands you disclosed at the previous Capital Markets Day. How many of those do you envisage to roll out these new pick centers in the U.S.

in the next few years?

Yes, we haven't done it. That one in the plan for next year, that would be the test also we do, and then see how it works in the United States.

As I said, the logistics support of the United States is different than in the Netherlands, so we need also to look into that, how we can make it as efficient also in the Netherlands and then see how we can roll it out to more of the markets in the United States. On technology, for the rest, yes, we're working together with Google.

We worked with Siri here, for instance. We now have -- you can use your app for ah.nl to make an order and use Siri.

So a lot of voice technology. They have high cool on the fridges in the Netherlands, we are testing also for voice recording and voice ordering.

So -- and most important, I would say, is predict your list at the same time because that helps the customer really fast forward to make their pre-order in a way ready, so they can add then really the things they need. So that's also helping.

One of the big things for online home delivery and online ordering is to simplify and make it easier for the customers to make their order, and that's I think where the biggest advantage is for our customers.

I have some follow-ups. So first one, very easy answer, synergies, what is going faster than you had previously expected to explain the change in pace?

Second, in the stores which are closed, which is a follow-up question to the previous ones, in the stores which are next to Lidl and Whole Foods, not to mention them, have you seen any change in traffic patterns and in consumer behavior? First, they'll need to adapt your pricing, your pricing structure, et cetera.

And the last one, on your target of going from €3 billion to €5 billion sales online or multichannel by 2020, could you please split the €3 billion between the regions and your €5 billion target between the regions?

Cedric, sure, I'll take -- and Jeff can elaborate more on the synergies. Maybe on the market circumstances, we, of course, seen the Whole Foods price reduction, but that didn't impact us really because they were, as you know, quite high-priced products.

So it has -- and where needed, we, of course, adjusted our prices. And there's the example also in the Carolinas, where you see where discounters are coming in.

Also with the Carolinas example I gave and Greensboro markets still growing with 5% after the Easy, Fresh and affordable remodelings. It's clear that we have a good, let's say counter reaction for the upcoming new entrants in the market.

And I think everybody did that, so it's clear that everybody is hard working. We lowered and improved our price positioning, of course and, in a lot of cases, we haven't seen traffic really changing a lot with the new entrants coming in, because we were prepared ourselves, and I think that's the good news also to think.

On the online business, we have to go back, I think, to our Capital Markets Day, how it was really described there because we gave that in December last year, our €5 billion target for 2020. I'm not sure exactly what the geographical spread was?

But maybe, Jeff, you can...

Well, I'd say slightly more than half of it is non food, which is bol, and just under half is food. And we didn't give a split between -- broken out between ah.nl and Peapod.

But over 50% is non food and the rest is the food businesses.

I think on the synergies, we have seen the pace during the year. So I think it's important that people realize that the run rate during the 2017 has been trending ahead of 220 million.

We're kind of a bit cautious about increasing the 220 million this year to 250 million. If you just take the 68 million in this quarter and annualize it, you see we're tracking ahead.

But most of the positive news is on the procurement synergies, especially in the U.S., and that's across not just national brands, but it's also across own brands, private label and Fresh, and that's where we've received higher than the expected run rates, slightly higher than the expected run rate. And obviously, that sets us up well as we go into 2018.

The first one, on your increased CapEx for the 100 million on online, what makes you confident that it will be enough? And is it mainly for the U.S.?

And based on that, can you remind us what has been the net sales growth of Peapod year-to-date in Q3? And the third question would be on your guidance.

You haven't changed your margin for the year, but the flow-through of your synergies has increased in Q3, and you're having a bit more synergies this year than expected. So taking all that into account, everything being equal, you should come above 4% for the full year.

So does it mean you'll try to be a bit more cautious on your underlying business?

Do you want to -- well, I'll take that in terms of the CapEx, in terms of online, if it's not enough, we can increase it. I mean, quite frankly, we will invest in our businesses to be successful.

We have flexibility in terms of the free cash flow that we generate, in terms of how we can prioritize amongst our businesses. Most of the incremental 100 million, I'm not sure if it's mostly in the U.S., but the U.S.

is a reasonable part of it. And we don't give specific numbers for Peapod relative to ah.nl.

But as Dick mentioned, earlier this morning, Peapod is still in a single digit growth, whereas we see for our total online business, something like 20 -- well, 20%, yes, which is on a consumer sales number. So clearly, Peapod is growing at a slightly lower rate than ah.nl and bol, and that's something that we're addressing as we look to add capacity and improve the performance at Peapod.

Can you tell us what will you do exactly with the 100 million?

That's mostly distribution related, so it's mostly in relation to Home Shop Centers, that type of investment. It's partly also IT related in terms of the investments on the web stores and such...

And click-and-collect solutions in the stores.

And click and collect for in-store. So activity at individual ones are not expensive, but as you roll out click and collect, small amounts in each store add up.

In terms of the full year, we've been very clear with the guidance. Now it's a big company, so there's a lot of scope, we said around 3.9%.

I think we did overperform this quarter. It was a quarter which, relative to last year, we had a low comparative.

If you look at quarter 4, we had a strong quarter 4 last year, but we've been very clear with the guidance that we expect around 3.9%, and that gives quite some scope relative to the outlook for the year.

Two question, if I may. The first one, can you comment a bit more on Stop & Shop and tell us exactly what is the result of the price investments you've seen in terms of price perception, price positioning versus your competition?

And you are also doing some refurbishments into your stores. So what is the opportunity you're seeing there by refurbishing the Stop & Shop stores?

And is there any plan to accelerate the refurbishment? So can you tell us how much you did, and what is the plan for next year?

Thank you very much. At Stop & Shop, we continue to, as we did with all our brands, by the way not only Stop & Shop, but also the Giant brands, to invest in price.

We started a couple of years ago with what we call sort of the center program, where we continue to take articles, super KPIs, KPIs, sometimes also full product categories where we lower our price or improve our price positioning points, and that has led, certainly the Stop & Shop market to an improved score of NPS, so Net Promoter Score. And Net Promoter Score is more than only price, but also the operational standards.

Mark McGowan and his team has been putting on the forefront, so better store operations. And with our investments, we make the distance between our major competitors, of course, also bigger from a price point, and certainly through the traditional supermarket retailers in the Stop & Shop market.

So that's clearly where we continued to invest. We are working, and we currently are doing some new testing on new store formats in the U.S., and mostly on refurbishment and remodelings.

There are quite some plans going out. There's a new store opening, I think, in two weeks from now.

Also with new IDs and more ready to eat, more focus on convenience for the customers, easy to shop, easy to check out. So a lot of IDs, but that's still in piloting, in a way, in our Stop & Shop stores.

And if we see, and certainly, that's what we will see in the coming year, what kind of these new innovations are really making sense, that will be used for much more the future of the new Stop & Shop. So we're testing now more then we already are rolling it out.

So two quick questions then, please. Just to follow-up on Xavier's question on Ahold USA.

Can you give us a sense of the price investments, where you are in terms of have you done it across all of the stores, or have you done it in a handful of markets in Ahold USA? And how much more to go, on the Ahold USA side?

The second one, just trying to understand what's going on in the Netherlands since right at the end of the Q3. Market seems to have got a lot more competitive.

I'll be interested in hearing your thoughts on if you've responded at all, or do you see no need to respond to some of these competitive activity? Those are the two questions.

So I'll take the -- on the price investments, the vast series of price investments was just at the beginning the quarter, the major price investments, they amounted to something like [€150 million] annualized, some €3 million a week, focused in various areas, but on -- significantly on fresh eggs, milk, for example. And that wow program was launched, and we have seen a good performance in New England.

For example, in New York the market is a little bit more constrained. We don't see the growth in the New York market today, but we are pleased with those investments, and we will continue to invest.

I think the idea that we are just starting and stopping on price investments is not the right way to think about it. I think it's a continuous program to maintain and improve our market position.

So we expect to continue to have to generate opportunities through synergies, through our save for our customer program, to continue to look at the competitiveness of Stop & Shop and continue to improve it. As Dick mentioned, that's a program that's been going on some time, certainly if you go back now three years, with what we call the Thunder program, we've been making those price investments, and we have seen, and we've presented numbers in the past and we'll certainly present numbers going forward, but not today, improvements in the reality in terms of price position.

But we've also seen improvements in our price perception, and we continue to track that and see those improve. And as Dick mentioned, the NPS is one of the key KPIs that we have in all of our U.S.

managers' short-term incentive programs, and that's one of the ways we track that. Dick, on the...

Yes, on the Netherlands.

Just quick one, to follow up. So that's done across all banners, across all markets?

That was done across USA. Yes.

You see Food Lion and Hannaford with their own -- very much their own program, their own pricing strategies, but that was specifically done across the Ahold U.S. banners.

And on the Netherlands, Sreedhar, we've seen some more activity, commercial competitive activity at the end of the quarter three. It's clearly our -- a bit heating up the market by addressing the price again.

I must say, it was very much focused on what we call our [indiscernible] line, which is the Best Buy of Albert Heijn, that's exactly what we have been improving at Albert Heijn on, as well our price positioning versus the major discounters in the Netherlands as quality, and we have been winning a lot of the marks now in the Dutch consumer tests on these products. So we're gaining clearly a recognition from our customers that our price entry brand is quality-wise similar to what our discounters are bringing, but also pricewise, and that clearly had brought a reaction of our major supermarket competitor in the market.

It has been widely announced. And then after a while it disappeared off the markets.

We haven't seen it over the last couple of weeks back in any major advertisements anymore. So -- and of course, we have been silent, looking at price adjustments without not making a lot of noise on it.

Has your price gap widened relative to your key competitor?

No. No.

It's even improved continuously over the last quarters. So we continue to improve our price positioning, but we do it in a way that it's -- go under the radar screen, and that's the best way to do it for Albert Heijn, but we continue to improve our price positioning.

Since the activities and skirmishes that we've been seeing, that continues to be the case in Q4, your price relative position is improving?

Yes.

One question left on Belgium. Can you talk a little bit about your market share performance in Belgium in the third quarter?

And also, I understood that the plans to improve the performance of the company operated stores are well on track. Can you just give a little bit more color on those plans?

And are you happy with your price positioning in Belgium?

Market share, third quarter, flattish, so we have been putting a lot of energy over the last, let's say, quarters already to improve our operational performance of our own stores. I must say that still needs improvements.

I know the team is working hard on it. We have quite some activities going on, new leadership.

Javier has put clear priorities on improving the current operational standards of our stores to get, let's say, better performance also for company-owned stores. And that starts with the product on the shelves, the right prices, the good commercial activities.

And I'm sure that with the leadership of the team, but also with the fact that we have an open dialogue now between Albert Heijn and Delhaize because of the fact that we sold our last store, which have more opportunities, of course, to have sharing knowledge and best practices how you can you drive sales in a market, which is very competitive in Belgium. We all know how competitive [indiscernible] and any other discounters are.

So -- but that's the plan, and we continue to work on that.

And are you happy with your price positioning in Belgium?

I think as every price positioning, you always can improve, so we can improve our price positioning in Belgium clearly. When you look at major opponents there.

We have goods versus traditional supermarkets, but as you can see, the market in Belgium is driven not only by traditional supermarket, but also quite some big other players, and that's why we continue a need to work on our price points.

A couple for me, if I may. Could you talk a little bit about the relative rates of inflation you're seeing across your U.S.

regions? You called out that perhaps the Food Lion markets are seeing lower levels of inflation than you're seeing in some of the northeastern markets.

Can you perhaps explain why that is? If there's any sort of mix impacts or competition differences in those markets?

And then the second question I had was around your own brand. You talk about 38% of total sales.

If you're doing some -- it sounds like you're doing some good work on it. Could you perhaps talk about the rates of growth you're seeing in your own brand sales relative to your overall sales in the U.S.?

Okay. Let me start, Andrew, with the inflation.

Yes, the numbers we quote, 0.5% for Delhaize America and 0.9% for AUSA are our own shelf price inflation. Therefore, at Food Lion, we are seeing, as a consequence of the price investments we've talked about in previous quarters from Walmart, and for example, the impact of the entry of Lidl into those Carolina markets, we've seen more price activity in the Carolinas, and therefore, the shelf price inflation is a little lower at the food -- in the Food Lion market than it is, for example, at Hannaford.

Hannaford is running pretty much close to the AUSA numbers at around just under 1%. So there is a little bit of a split, but it's positive to see Food Lion back into positive numbers.

So we are seeing positive inflation across all of the brands in the third quarter. And then on own brands, Dick?

Yes. No.

A great question, by the way. I think it is a trend which you continue now to see moving also in the United States.

The customer are much better appreciating; the work we are doing as a team is in the U.S. to bring all the own brand sourcing together, which we are putting under one leadership in the United States, which helps us to consolidate the sourcing.

As I mentioned, the first steps are all made and also on aligning brand names, we're using what we call the national brand equivalents that most of the time we use your brand name as a store on it, but then you have what we call venture brands or innovative brands like Nature's Promise where Nature's Place and Promise are now mixed -- brought together, one nature promise brand, which is natural and organic, more than 1 billion sales in the United States on our brands, so. And that's high double-digit growth on a continuing base.

If we then look at the other developments we see, we see opportunities in more convenience, more innovation on the shelf as we do in the Netherlands also. We just launched, for instance, in the Netherlands re-launched our, let's say, heritage brands which are Perla coffee, which is a strong brand of the past.

We reintroduced it, we call it venture brands to make it more a quality, but also a nice price point for the customers. And you see, overall, customers more enjoying the own brands products, and I think that's helpful for our margin, but also our recognition as a store.

So I see the store brands also growing in the U.S. and continuing to do that.

Three quick ones for me. The first one is on synergy guidance.

I mean is -- I think, if you continue at your current run rate of synergies, you'll already be at the 250 million target for the full year. So I was just wondering, is this another conservative target?

Or is there a specific reason why the rates of synergy extraction would be lower or zero in Q4 versus all the other quarters? The second question was on the share buyback.

Is this 2 billion a new norm? So I mean is that a number that we might expect going forward or not?

And then the third question was on the inflation outlook, specifically in the U.S., for the rest of this year and potentially next year, if you have one.

Okay. I'll take, I think, those questions.

I think you're right. On the synergies, the current run rate gets us through to the 250 million number pretty much for quarter four.

I wouldn't see that as a reduction in the pace of delivery on the synergies. What I'd say is that we will be reinvesting.

If you remember, we talked about a gross and a net number, so whatever we generate in quarter 4 incremental to the current run rate will be we reinvested, and they'll be reinvested back into the brands, either in price, quality or other areas. So we're reporting the net number.

We talked about a gross and a net, but we're only reporting the net number, and that's what the 250 million is. So anything incremental will be reinvested.

On the buyback, no, I wouldn't look at it as the new norm. I'd look at it as a consistent strategy, a consistent part of our policy to maintain an efficient balance sheet.

And each year, we look at that, and we'll decide what we think the appropriate returns to shareholders are, relative to investments in growth, relative to the balance sheet and the overall leverage in the balance sheet. So it's an annual review that we do.

And I wouldn't take the 2 billion as a new norm going forward. And then on inflation, I think we see the outlook to be pretty much in line with the current levels.

I don't see inflation growing above 1% in the U.S. in the fourth quarter.

So I think we will continue to run at levels reasonably similar to where we're at today in the U.S. specifically.

That's very helpful. And just on the inflation, is that commodity-inflation driven?

Or is there more price investments, we'll say, this second half of this year than you've seen maybe last year?

Well, it's a mix of those activities going on. As is mentioned, this is our average shelf price inflation measured across a big basket of items and includes promotional activity, includes our pricing activity.

And so there's a lot of factors going on there including commodity inflation. So what we saw relative to the first half of this year, where the commodities, the proteins, the produce were negative, they became positive, and they generally maintained that positive inflation in the second half.

So it's a mix of all of those factors that we give in terms of the guidance of just under 1%.

Three questions from me. The first one is, could you break out if there was any impact from the hurricane on the comp store sales in the USA?

The second one is, can give us an indication of the price gap versus Walmart in the Ahold USA banners and Food Lion as well? And the final question is on the synergies.

What do you expect the run rate of synergies to be in FY '18?

On the first one, no impact on the hurricane in our case. It was far more south for our business, so we didn't have a real impact on this for our business on the East Coast.

Walmart versus Ahold USA, it depends also where we are, of course, as our stores, so when we have Walmart close to us, then we, of course, try to get very close with our super KVS to their price level. But, of course, if you take the whole range, it will come up to a 10% gap sometimes when you take some of the articles.

So you see that what you do with pricing is focusing on the right products to be close to their prices. And then of course, you leverage a bit to that because you have a much better assortment and much better quality quite often than what our larger competitor is offering there.

And on the synergies, I'll leave it to Jeff.

Yes. We gave guidance on that in the second quarter, and there's no change.

We expect net synergies by cumulative 2018 to be €420 million, that's an incremental €170 million on the €250 million, and we don't see any change in that.

I've got two questions. The first is on your capital allocation process.

Now there's different ways to create shareholder value, and I would acknowledge that buying back stock below fair value is one of those. But you did face an uncertain and increasingly competitive environment in the U.S.

where your margins presynergies are declining and the Ahold U.S. business is cycling negative like-for-like volume.

So at a time when your competitors are investing billions in price, would that €2 billion on the buyback not be better spent investing in your customer proposition to move the business to a place, I suppose, where you can deliver shareholder value on a more sustainable basis? First question.

And secondly, just a bit more specifically on some of the targeted price investments you're making to deflect the effects of discounter store openings. Could you help us understand a bit more specifically the breadth of the range where you're needing to do that?

Presumably it's on KVIs rather than the whole range? And also the depth of the investment on those items.

Maybe if I take the first part on the capital allocation and then Dick on -- I think we take the long-term health of the business to be the most important priority. And I think you can see that in what we report this quarter in terms of, for example, the DA business is growing at 2.3% comparative growth rates.

I was looking at the previous growth rates from our competitors in the U.S. and I think that's probably best in class.

So I don't think we're under-investing in our businesses. I look at AUSA, 0.7% growth and flat -- pretty much flat volumes and I recognize that's in a market where we're seeing very limited growth, and in fact, negative growth in total market development in New York and in the Washington markets.

Now we've made significant investments in price in terms of the last 3 or 4 years, keeping up and improving our relative price positioning, and we'll continue to do that. So I don't think it's a black-and-white situation of could -- should we take the €2 billion and invest in price, we will do that.

We will continue to improve our competitive position. We'll continue to increase our capital and invest in capital where we need to invest in capital.

And because we have best-in-class cash generation of all of the retailers in our peer group, we're able to do that and give strong returns to our shareholders. And I think that's the key message that comes out of that.

So I think we take all of those factors into account when we make this type of decision.

Yes, and I fully agree with that. And if you look at traditional approach for a retailer, if you continue to look at where you need to invest also from a price point, but it's not only price.

We'd like to make that also clear. If you look at the successes of the Albert Heijns of this world, the Hannafords of this world, and the Stop & Shops, there's a lot you do, at the same time, it's creating an exciting shopping environment, good quality, nice people, good service.

And if it was price alone, then it would not be a good thing in our industry. Prices are, of course, important.

You mentioned our competitors with the discounters. To give you a clear number, 300 articles will be matched in -- because that's what you can find like-for-like almost in comparing ourselves with discounters, because you need also the same quality, the same product.

But that's where we're matching really the product and the price because you want -- in food line, because you want to be very sure that you have the KVIs, super KVIs, but also fast-moving other items. So 300 is a lot in the discount store, which normally have 1,200 to 1,500 SKUs max.

So then you take really most of the sales by the consumers already on your price point equal to them.

Three from me. Firstly, just on those 300 items you mentioned there.

Can you say what the size of the price reduction or investment would be to match on those 300 items? And second one is just on the cost savings outside of the synergies.

I know you mentioned the Simplicity, I think you said in the past, is still running in the background, for example. Can you give us an idea of what sort of level of cost savings you expect to generate in the U.S.

and the Netherlands outside of the synergy program in 2017? And then, finally, just on your comments on New York, where you say that seems to be a sluggish market at the moment, do you think there's any chance that's because of the -- that being one of the most early adopters of online grocery shopping in the U.S.?

On the first question, no, we don't disclose what the investments are because they're, of course, local, and we are running 2,000 stores in the U.S., so -- and they're quite limited if you look at the investments we finally do in matching the prices.

Is it like a 20% price gap generally that you're taking them down by, something? No.

No, no, no. It's not 25.

No, no, no. Not at all.

No, no, not at all. So -- and as I said, we take the 300 items, which are the most sold items, and we make them hand-in-hand with the entrants of our Lidl friends in the U.S.

market. On the cost saving, I think we have a lot what we do, and Jeff, you can...

Yes -- no, I think just on the cost savings, we took a decision because of the focus on synergies not to really publish a target number for our save for our customer program in 2017. And that's because not that the programs weren't running, but because we really wanted people to focus on delivery on the synergies.

What I'd say is, across the group, in premerger, we've generally been targeting numbers in the range of 0.5% of sales up to 1% of sales. And we've been able to keep that run rate for the group.

I'd say we've been able to keep that run rate growing during -- going during 2017. I think one of the learnings is perhaps we need to publish that number in 2018.

It's very important to us because it's how we're able to gain the ammunition to continue to invest in our businesses and to be able to, to be blunt, offset some of the inflationary items that have taken place, such as minimum wage increases in the U.S., for example. I think in terms of New York, no I don't think it's a leakage to online because we are the leading online player in that market in terms of -- so we see the development of the online business in the Northeast.

There is a small leakage I think to online. But I think, generally, that market is just not showing any growth.

It's actually seeing, well, negative volumes. We've been quite a lot of work to see if that has been due to leakage, and we don't believe it's a significant leakage into the online sector.

There, of course, in the New York market, you see a lot of, of course, specialty type of stores [Indiscernible] and so on, so that might have some leakage also, which is not massive by their -- by them, so. What I think is, for us, important to -- we're cycling, of course, also a period of re-openings of the old A&P stores.

Pretty much, yes. And that's pretty much done now.

That's done.

We do expect to see more growth coming through following that.

That cycling was also an effect, of course, of our business. And yes we'll see what's going to go in 2018 with the New York market.

Maybe we will certainly expect more stabilization again.

Well, Dan actually asked my question just around capital allocation, but a follow-up question just on that would be, I suppose sat behind our computer screens, we worry about channel shift and we worry about sort of discounters online and all that kind of stuff. But to the extent that you can see, is there a significant change in consumption happening?

Do you think that Amazon's move to Whole Foods has really accelerated that channel shift or are you effectively seeing more of the same and Peapod's fairly lackluster performance really reflects the kind of lackluster demand?

I think, in general, what you see is much more competition out in the online space now than five years ago where you had five years, a couple of online home delivery retailers like [Indiscernible] and a couple of them. And you see now that every retailer is stepping up in a click and collect solution or an instant delivery solution, so there's much more going on from our competitor base.

So that's I think driving more the change, then the acquisition I must say. But we are not underestimating what Amazon will do with their acquisitions, so we have to speed up and to accelerate our own performance, and it's clearly something we are focusing on for the years to come, how we can accelerate our e-commerce performance also in the United States.

And we don't, we don't minimize the competitive challenges from discount, but we have continued to compete very successfully against discounting in all of our European operations. We've been competing very well against discounters, Walmart, for example, and Aldi in the U.S.

And I think you continue to see in these results that the impact of the discount expansion, I guess, in the U.S. with the Lidl, entry so far has a relatively small impact.

But if I just go back to the online element, it's obviously a very, very small part of the U.S. market overall, but Peapod's growing low single -- or mid-single digit perhaps.

Presumably it's losing market share. Have you seen a significant step up in the demand part of the equation.

There's obviously a big change on the supply side, but on the demand side of the equation, have things changed materially?

I don't think there's a step change, I think there's a continuous shift that we see across many of our markets to a growth on online, and we will be able to match that demand. But I don't think that, you know, we haven't really seen a significant step change in demand for online.

What we do see is a continuous movement from a very small base in the U.S. and we're well positioned with 2% of our U.S.

food being online, I think we have the strongest online proposition of all of our competitors. We're not happy with Peapod's performance, but we feel confident we'll be able to improve that performance and increase Peapod's performance and be able to maintain our market share of online business.

Two quick ones for me, please. Just to follow-up on online.

Could you say how those emerging or new offers stack up versus Peapod, I guess on price and other performance metrics? And then where you think Peapod needs to improve on that basis?

So I guess you've highlighted the need to evolve, and it feels like it's growing at a lower rate than the broader online grocery market. And secondly, just a quick clarification on the price investments in the Northeast.

Would you say in the realm that you're investing ahead of the market or keeping pace with the larger more proactive players in the Northeast?

I'll come back to the Northeast. First, who would you classify as a larger more proactive player in the Northeast?

Walmart.

Well, We generally have a bigger market share in the Northeast than Walmart, and we haven't seen Walmart making price investments in the Stop & Shop market, for example, or in the Massachusetts or in the main markets north of Massachusetts or in New York. The only area we've seen significant price investments with Walmart has been in the Carolinas.

So we've seen that a little bit in Carlisle, as well in the Carlisle market which overlaps with us. So I'd say overall in the Northeast, we're still closing the relative price gap on average to our competitors.

I think Carlisle is a specific market where we'll continue to see more activity next year because we expect more Lidl stores entering next year. But I don't think we expect to see much difference in the Stop & Shop markets in terms of 2018, for example.

But in the rounds, you are investing ahead of the market effectively?

In total, I'd say, across the Northeast, I'd say we're investing ahead of the market, yes.

And certainly, versus our traditional supermarkets in these markets which are still the main players, if you look at New York, you look at Giant Landover and Stop & Shop, the major competitors are supermarkets still.

And that is driving the volume outperformance?

Absolutely, yes. The market share growth at least so.

As I mentioned in my script, although it's 0.7% on average across the banners, we do see a stronger performance in Carlisle and New England, and we see a relatively weaker performance in Landover and New York, but that's partly related to the market not showing any growth in those markets. I think you mentioned then online, I'd say it's just too varied the offers that are happening in the market.

We see it whether it's in Instacart, which is usually pretty expensive, or whether it's in AmazonFresh, which is not a very widely -- I'm not sure what the sales performance of AmazonFresh is, I don't see numbers, but I don't think it's a significant performance. What I understand, if you look at Amazon Pantry, which is a bigger player, they're generally priced ahead of Walmart's pricing, they're generally more expensive than Walmart.

So I'd say it's a wide variety of prices that you see in the online market. And I think for Peapod, for sure, we need to improve, for example, the interface with our stores, for example, in terms of how we make offers.

Peapod has tended to be a little, I wouldn't say, its own business because it is very linked to the stores, but it runs its own offers which aren't generally therefore necessarily linked to what we offer in the stores. And I think those are the types of areas we're looking to improve as we go forward in the rest of this year and 2018.

And Jeff mentioned AmazonFresh, but you should also know that AmazonFresh is more expensive from a delivery fee than Peapod. So we always think it's cheaper with Amazon, but clearly, delivery fee on AmazonFresh is higher and more costly than for Peapod -- versus Peapod buyers, et cetera.

So that should be not the case, and I think also, that's why we are winning -- have been winning over the last years continuously from the other home delivery guys like Amazon, but we are not winning enough from the rest of the market in an online click and collect, et cetera. And as Jeff also mentioned, the interface with the customer from a store base I think needs to be improved in all the work we are currently undertaking.

I thought I'd come back and ask two follow-ups. Just about online, you've talked about the capital investment related to online for next year, the increase.

And given your ambitions to improve the performance of Peapod in the U.S., should we expect a kind of margin investment related to an accelerating growth in that online business? That was the first question.

And then the second one was just following up on your comments about the New York market negative volume growth. Can I just clarify that, that is your volume growth as opposed to the New York market volume growth?

And then related to that, generally, are there any markets where you think volume growth in the market is deteriorating?

I'll just come back on New York. No, that was the market [I was talking about].

In New York, we see -- overall in the East Coast, we don't see a lot of volume growth. We see a bit more in the Carolinas, a bit more in the Northeast.

But in New York and Washington, for example, the overall market we see has been negative today. We continue to perform reasonably well in those markets and that's why, overall, we said we've gained in market share.

But it's a pretty low growth market today. But I mentioned negative volume growth is -- in relation to the total market in New York -- the total food market in New York that can be measured.

And on prices of Peapod, yes, when we have to invest and we look at pricing for us in general, what you have seen over the last years with more competitors entering the markets for online, that more and more, they are, of course, [using] and matching their store prices, we and Peapod have not done that everywhere, so that might impact that we need to invest more in price also for Peapod. At the same time, we can improve our efficiencies hopefully with better picking modules in the stores in the pickup centers.

And at the same time, our warehouse is improving their efficiencies now in their new [indiscernible] warehouse. So we also should find ways to finance this.

But clearly, that's one of the reasons that you see online in general, of course, now more and more to become a commodity also from a price point of view.

I actually meant more on the operating costs rather than the gross margin, because I believe that online grocery for you as for most people would be margin dilutive. And that's the point I was asking about, actually.

No. We've said -- we said our online businesses are slightly negative in terms of margin, around 1% to 2% negative margin.

The food businesses in the short term, I expect will continue to be negative, although we do see past to profitability. We're more optimistic that we see past to profitability in terms of bol.com.

Overall, our online businesses are around about breakeven on an EBITDA level. So it's manageable the investments that we make, but we'll be -- continue to make investments where we need to in terms of generating growth.

And we've discussed that in the past on bol, for example, how we stepped up our operating expense investments to -- in order to step up the growth. We're now seeing that growth continue very strongly, but we are in a position where we can get more leverage of our operating costs and see a path to profitability on bol.

So we'll continue to operate slightly negative in terms of operating margin and be dilutive, but they are, overall, our online business is around about flat, zero EBITDA, which is manageable.

Okay. That, ladies and gentlemen, concludes this conference call and webcast.

Again, thanks for joining us, and have a good day.