20-F 1 d358563d20f.htm 20-F 20-F
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

(Mark One)

  REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE

SECURITIES EXCHANGE ACT OF 1934

OR

  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the fiscal year ended January 1, 2017

OR

  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from                              to                             

OR

  SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report                     

Commission file number: 001-12510

Koninklijke Ahold Delhaize N.V.

(Exact name of Registrant as specified in its charter)

Royal Ahold Delhaize

(Translation of Registrant’s name into English)

The Netherlands

(Jurisdiction of incorporation or organization)

Provincialeweg 11

1506 MA Zaandam

The Netherlands

Tel: +31-88-659-5100

(Address of principal executive offices)

Jeff Carr

Provincialeweg 11

1506 MA Zaandam

The Netherlands

Tel: +31-88-659-5100

E-mail: jeff.carr@aholddelhaize.com

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)


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Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of each class   Name of each exchange on which registered  

None

Securities registered or to be registered pursuant to Section 12(g) of the Act:

Common shares, nominal value €0.01 per share

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 1,272,276,000

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes   No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes   No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes   No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

(*) Yes   No

(*) This requirement does not apply to the registrant in respect of this filing

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer   Accelerated filer   Non-accelerated filer

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP   International Financial Reporting Standards as issued by    Other

the International Accounting Standards Board

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:

Item 17   Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes   No    


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CONTENTS

GENERAL INFORMATION

CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS

 

PART I      6  
Item 1. Identity of Directors, Senior Management and Advisers      6  
Item 2. Offer Statistics and Expected Timetable      6  
Item 3. Key Information      6  
Item 4. Information on the Company      32  
Item 4A. Unresolved Staff Comments      49  
Item 5. Operating and Financial Review and Prospects      49  
Item 6. Directors, Senior Management and Employees      87  
Item 7. Major Shareholders and Related Party Transactions      109  
Item 8. Financial Information      111  
Item 9. The Offer and Listing      114  
Item 10. Additional Information      116  
Item 11. Quantitative and Qualitative Disclosures About Market Risk      149  
Item 12. Description of Securities Other than Equity Securities      151  

 

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PART II      154  
Item 13. Defaults, Dividend Arrearages and Delinquencies      154  
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds      154  
Item 15. Controls and Procedures      154  
Item 16. Reserved      156  
Item 16A. Audit Committee Financial Expert      156  
Item 16B. Code of Ethics      157  
Item 16C. Principal Accountant Fees and Services      158  
Item 16D. Exemptions from the Listing Standards for Audit Committees      159  
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers      160  
Item 16F. Change in Registrant’s Certifying Accountant      161  
Item 16G. Corporate Governance      162  
Item 16H. Mine Safety Disclosure      163  
PART III      163  
Item 17. Financial Statements      163  
Item 18. Financial Statements      164  
Item 19. Exhibits      165  

 

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GENERAL INFORMATION

References to “Ahold Delhaize” in this Annual Report on Form 20-F for the financial year ended January 1, 2017, (this “Form 20-F Report”) are to Koninklijke Ahold Delhaize N.V. and its consolidated entities, unless the context otherwise requires. References to “the Company,” “our Company,” “Group,” “we,” “us” and “our” in this Form 20-F Report are to Ahold Delhaize for the period beginning on July 24, 2016, or to Koninklijke Ahold N.V. and its consolidated entities (“Ahold”) for the period before July 24, 2016, unless the context otherwise requires.

As of July 24, 2016, Koninklijke Ahold Delhaize N.V. is the new name of Koninklijke Ahold N.V. following the completion of the merger between Ahold and Delhaize Group NV/SA (together with its consolidated entities, “Delhaize” or “Delhaize Group”). Ahold Delhaize is an international retailing group based in the Netherlands and primarily active in the United States and Europe. Ahold Delhaize is a public limited liability company (naamloze vennootschap) incorporated under Dutch law with its statutory seat and its principal place of business in Zaandam, the Netherlands. As of January 1, 2017, Ahold Delhaize employed approximately 370,000 employees and had over 6,556 stores in nine countries. In financial year 2016, Ahold Delhaize achieved consolidated net sales of 49,695 million. Ahold Delhaize’s business is divided into five reportable segments: the United States - separated into Ahold USA and Delhaize America, The Netherlands, Belgium and Central and Southeastern Europe. In addition, Other Retail, consisting of two unconsolidated joint-ventures, and the Group’s Global Support Office, are presented separately. Ahold Delhaize is the group parent company and operates through a number of direct and indirect subsidiaries.

The common shares of Ahold Delhaize are currently listed on the regulated markets of Euronext Amsterdam and Euronext Brussels, both under the symbol “AD.” Ahold Delhaize’s American Depositary Shares (the “ADSs”), evidenced by American Depositary Receipts (the “ADRs”) and each representing one Ahold Delhaize common share as of the date of this Form 20-F Report, are not listed on any securities exchange. Ahold Delhaize’s ADSs currently trade in the over-the-counter market and are quoted on the OTCQX International marketplace (the “OTCQX”) under the symbol “ADNRY.”

Ahold Delhaize’s financial year consists of 52 or 53 weeks and ends on the Sunday nearest to December 31. Ahold Delhaize’s 2016 financial year ended on January 1, 2017, and consisted of 52 weeks. The financial year of 2015 ended on January 3, 2016, and consisted of 53 weeks, while the financial year of 2014 included 52 weeks and ended on December 28, 2014.

Our consolidated financial statements appear in Item 18 “Financial Statements” of this Form 20-F Report. Our consolidated financial statements presented herein were prepared using accounting policies in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB.

Our Management Board proposed, with the approval of the Supervisory Board, a gross dividend of 0.57 per share to be paid to owners of common shares in respect of 2016. This dividend is still subject to approval by the General Meeting of Shareholders to be held on April 12, 2017, and, therefore, has not been included as a liability in our consolidated financial statements prepared under IFRS as of January 1, 2017. The estimated dividend liability, based on the number of shares outstanding at February 28, 2017, is 720 million. The payment of this dividend will not have income tax consequences for the Company.

Our address, telephone number and Internet address are provided below:

Koninklijke Ahold Delhaize N.V.

Provincialeweg 11

 

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1506 MA Zaandam

The Netherlands

Telephone number: +31-88-659-5100

www.aholddelhaize.com

The information included on www.aholddelhaize.com and other websites that appear in this Form 20-F Report is not incorporated by reference herein. From time to time, we may use our website as a channel of distribution of material company information. Financial and other material information regarding our Company is routinely posted on and accessible at www.aholddelhaize.com.

 

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CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS

Statements included in, or incorporated by reference into, this Form 20-F Report, other than statements of historical fact, that address activities, events or developments that we expect or anticipate will or may occur in the future, including, without limitation, statements regarding the expansion and growth of our business, anticipated store openings and renovations, future capital expenditures, projected revenue growth or synergies resulting from acquisitions, cost savings from internal reorganizations, and business strategy, are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, Section 21E of the Securities and Exchange Act of 1934, as amended, or the Exchange Act, and the Private Securities Litigation Reform Act of 1995 about us that are subject to risks and uncertainties. These forward-looking statements generally can be identified as statements that include phrases such as “believe,” “will,” “prospects,” “outcome,” “project,” “estimate,” “strategy,” “may,” “could,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” “likely,” “should” or other similar words or phrases. Although we believe that these statements are based upon reasonable assumptions, we can give no assurance that our goals will be achieved. Given these uncertainties, prospective investors are cautioned not to place undue reliance on these forward-looking statements. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included under “Risk Factors” of Item 3 “Key Information” within this Form 20-F Report. Other important factors that could cause actual results to differ materially from our expectations are described under “Factors Affecting Financial Condition and Results of Operation” of Item 5 “Operating and Financial Review and Prospects” and elsewhere below. Forward-looking statements reflect the current views of the Company’s management and assumptions based on information currently available to the Company’s management. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

 

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PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

 

A. SELECTED FINANCIAL DATA

The following selected financial data is derived from our audited consolidated financial statements, included in Item 18 “Financial Statements” of this Form 20-F Report, which have been prepared using accounting policies in accordance with IFRS, as issued by the IASB.

The selected financial data presented below should be read in conjunction with our consolidated financial statements, related notes thereto and other financial information included in this Form 20-F Report.

Our presentation currency is the euro. For information about the euro/U.S. dollar (“USD” or “$”) exchange rates, see “Exchange rates” below in this section.

Ahold Delhaize’s financial year consists of 52 or 53 weeks and ends on the Sunday nearest to December 31. Ahold Delhaize’s 2016 financial year ended on January 1, 2017, and consisted of 52 weeks. The financial year of 2015 ended on January 3, 2016, and consisted of 53 weeks, while the financial years of 2014, 2013 and 2012 included 52 weeks and ended on December 28, 2014, December 29, 2013, and December 30, 2012, respectively.

Delhaize has been included in our consolidated financial statements since July 24, 2016.

 

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     As of and for the financial years ended  
      January 1, 
2017 (1)
     January 3, 
2016
    December 28,
2014
    December 29,
2013
    December 30,  
2012 (5)
     million, except per share data, other data, share data and percentages  

 Consolidated Income Statement Data:

          

 Net sales

     49,695       38,203       32,774           32,615           32,682  

 Operating income

     1,584       1,318       1,250           1,239           1,336  

 Income from continuing operations

     830       849       791           805           869  

 Income (loss) from discontinued operations

           2       (197)(2 )      1,732(3 )      46  

 Net income

     830       851       594           2,537           915  

 Consolidated Statement of Financial Position Data:

          

 Current assets

     9,977       5,260       4,448           6,268           4,416  

 Total assets

     36,275       15,880       14,138           15,142           14,572  

 Share capital

     13       8       9           318           318  

 Equity attributable to holders of common shares(4)

     16,276       5,622       4,844           6,520           5,146  

 Long-term loans and other non-current financial liabilities

     5,838       3,709       3,449           3,189           3,361  

 Consolidated Statement of Cash Flow Data:

          

 Net cash from operating activities

     2,893       2,133       1,876           2,035           2,110  

 Operating cash flows from continuing operations

     2,898       2,139       1,893           2,051           2,112  

 Net cash (used in) from investing activities

     1,470       (1,124     109           279           (1,282

 Net cash used in financing activities

     (2,249     (936     (2,990)        (1,633)        (1,339

 Per Share Data:

          

 Net income per share (basic)

     0.81       1.04       0.68           2.48           0.88  

 Net income per share (diluted)

     0.81       1.02       0.67           2.39           0.85  

 Income from continuing operations per share (basic)

     0.81       1.04       0.90           0.79           0.84  

 Income from continuing operations per share (diluted)

     0.81       1.02       0.88           0.77           0.81  

 Dividend per common share(6)

     0.57       0.52       0.48           0.47           0.44  

 Dividend per common share in USD(7)

     0.60       0.60       0.54           0.65           0.57  

 Other Financial Data:

          

 Underlying operating income(8)

     1,899       1,461       1,267           1,379           1,412  

 

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     As of and for the financial years ended  
       January 1,
  2017 (1)
        January 3, 
    2016 
      December 28,  
2014
       December 29,  
2013
     December 30,
2012 (5)
 
     million, except per share data, other data, share data and percentages  

 Operating income margin

     3.2     3.4     3.8%        3.8%        4.1%  

 Underlying operating income margin(8)

     3.8     3.8     3.9%        4.2%        4.3%  

 Other Data:

            

 Number of stores(9)

     6,556       3,253       3,206          3,131          3,074     

 Number of employees (in thousands headcount)(9)

     370       236       227          222          225     

 Share Data at Period-end:

            

 Common shares outstanding (in millions)

     1,272       818       823          982          1,039     

 Share price at Euronext ()

     20.03       19.4     14.66          13.22          10.16     

 

(1) Includes the results of the Delhaize activities since merger date, which was effective on July 24, 2016.
(2) The 2014 loss from discontinued operations included a net of tax settlement amount and associated legal fees for the Waterbury litigation of 194 million. This litigation was related to Ahold’s U.S. Foodservice operations, which were divested in 2007. See Note 5 of Ahold Delhaize’s consolidated financial statements included in Item 18 of this Form 20-F Report.
(3) Income from discontinued operations in 2013 included a gain of 1,751 million in connection with the sale of Ahold’s 60% stakeholding in ICA.
(4) In 2016, 1,001 million was returned to shareholders through a capital repayment (2015: nil, 2014: 1,008 million, 2013: nil and 2012: nil) and nil as a result of a share buyback (2015: 161 million, 2014: 1,232 million, 2013: 768 million and 2012: 277 million). See Note 20 of Ahold Delhaize’s consolidated financial statements included in Item 18 of this Form 20-F Report.
(5) The financial data for the financial year ended December 30, 2012, has been restated for discontinued operations that occurred in subsequent years.
(6) For the purposes of this table (and not the financial statements), dividends per common share are included in the financial year to which the dividends relate, although dividends are normally approved and paid in the financial year following the financial year to which they relate. For example, the 0.52 dividend per common share for the financial year 2015 is the dividend for the financial year ended January 3, 2016, which was approved by the Ahold General Meeting of Shareholders held on April 19, 2016, and paid on May 4, 2016. Our Management Board proposed, with the approval of the Supervisory Board, a gross dividend of 0.57 per share to be paid to owners of common shares in respect of 2016. This dividend is still subject to approval by the General Meeting of Shareholders to be held on April 12, 2017.
(7) For convenience, the euro per share dividend amounts have been translated into U.S. dollars using the exchange rate on the date of the payment of the dividend, except for the proposed dividend for the financial year ended January 1, 2017, which was translated into U.S. dollars using the exchange rate as of January 1, 2017, since the dividend is not yet approved and paid.

 

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(8) Ahold Delhaize defines “underlying operating income” as the operating income adjusted for items management believes can cause a distortion in understanding the trend of the development of its underlying operating performance. Underlying operating income is calculated as operating income adjusted for impairments of non-current assets, gains and losses on the sale of assets, restructuring and related charges, and other unusual items. Ahold Delhaize has included underlying operating income as it is a key performance metric used by Ahold Delhaize’s management across its businesses. Ahold Delhaize believes this is a useful measure for investors in understanding the performance of its underlying operations. Underlying operating income is not a measure calculated in accordance with IFRS, may not be comparable to similar measures presented by other companies and accordingly should not be considered as an alternative to operating income. Underlying operating income margin is calculated as underlying operating income as a percentage of net sales. The following table provides a reconciliation from operating income to underlying operating income:

 

     For the financial years ended
       January 1,  
2017
      January 3,
    2016
      December 28,
  2014
    December 29,
2013
      December 30,  
2012
     million, except percentages

 Operating income

                 1,584       1,318       1,250       1,239     1,336   

 Adjustments:(*)

          

 Impairments

     104       39       31       83     37   

 Gains and losses on the sale of assets

     (22     (18     (20     (28   (21)  

 Restructuring and related charges and other items

     233       122       6       85     60   

 Underlying operating income

     1,899       1,461       1,267       1,379     1,412   

 Underlying operating income margin

     3.8     3.8     3.9     4.2   4.3%
  (*) For more details regarding these adjustments, see Item 5 “Operating and Financial Review and Prospects” of this Form 20-F.

 

(9) The number of stores and employees includes discontinued operations (Slovakia), specialty (Etos and Gall & Gall) and franchise stores but excludes the stores operated by Ahold Delhaize’s joint ventures. The number of franchise stores at the end of each reporting period is as follows: 1,627 stores (January 1, 2017); 887 stores (January 3, 2016); 869 stores (December 28, 2014); 850 stores (December 29, 2013); and 809 stores (December 30, 2012).

Exchange rates

The Group reports its financial results and balance sheet position in euros.

The following tables set forth, for the periods and dates indicated, certain information concerning the exchange rates for the euro expressed in U.S. dollars per euro. Information concerning the U.S. dollar exchange rate is based on the noon buying rate in New York City for cable transfers in foreign currency and certified for customs purposes by the Federal Reserve Bank of New York, which we refer to as the noon buying rate.

On February 28, 2017, (the latest practicable date for inclusion in this report), the noon buying rate was $1.0618 per euro.

The following table shows the average exchange rate of U.S. dollars per euro for the last five financial years:

 

     For the financial years ended  
       January 1,  
2017
     January 3,  
2016  
     December 28,
2014
     December 29,
2013
     December 30,
2012
 

 Average(1)

     1.1029        1.1032        1.3217        1.3302        1.2912  

 

(1) The average of the noon buying rates of the euro on the last business day of each month during the year.

 

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The following table shows the high and low noon buying rates expressed in U.S. dollars per euro for the previous six months:

 

         February    
    2017    
     January 2017        December   
  2016   
       November  
  2016  
     October 2016        September  
2016
 

 High

         1.0802        1.0794        1.0758        1.1121        1.1212        1.1271  

 Low

         1.0551        1.0416        1.0375        1.056        1.0866        1.1158  

 

 

B. CAPITALIZATION AND INDEBTEDNESS

Not applicable.

 

C. REASONS FOR THE OFFER AND USE OF PROCEEDS

Not applicable.

 

D. RISK FACTORS

The following discussion of risks should be read carefully in connection with evaluating our and our respective subsidiaries’ businesses, our prospects and the forward-looking statements contained in this Form 20-F Report. Any of the following risks could have a material adverse effect on our financial condition, results of operations, liquidity, the trading price of our securities and the actual outcome of matters as to which forward-looking statements contained in this Form 20-F Report are made. The risks and uncertainties described below are not the only ones that we may face but are all the risk factors that are known to Ahold Delhaize and that could be deemed material. The risk factors discussed below are, however, based on certain assumptions made by us, which later may prove to be incorrect or incomplete. In addition to the following factors, please see the information under the heading entitled “Key Factors Affecting Results of Operations” under Item 5 “Operating and Financial Review and Prospects.” For additional information regarding forward-looking statements, see “Cautionary Note Concerning Forward-Looking Statements” included in this Form 20-F Report.

Risks Relating to Our Business

Antitrust conditions imposed or to be imposed by the Belgian Competition Authority could have an adverse effect on Ahold Delhaize or could partly prevent the consummation of the merger as originally intended.

The Belgian Competition Authority approved the merger of Ahold and Delhaize Group on March 15, 2016, conditional upon our commitments to divest eight Albert Heijn stores, five Delhaize franchisee stores and a limited number of planned stores in Belgium to address competition concerns raised by the regulator.

The fulfillment of these commitments was not a condition precedent to the completion of the merger. In view hereof, the merger has lawfully taken place effective as of July 24, 2016.

 

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We are conducting the divestment process in full compliance with these commitments. There can be no assurance, however, that the Belgian Competition Authority will not impose unanticipated conditions, terms, obligations or restrictions and that, to the extent that any such conditions, terms, obligations or restrictions are imposed, they will not have an adverse effect on Ahold Delhaize, impose additional material costs on, or materially limit, our revenues. Also, such unanticipated conditions, terms, obligations or restrictions could partly prevent the consummation of the merger as originally intended.

We will continue to incur integration, assimilation and restructuring costs following the merger.

We will continue to incur integration and restructuring costs following the merger, as we continue to integrate, assimilate and restructure the former Ahold and Delhaize businesses during the transition period following the merger. We cannot give any assurance that the realization of efficiencies related to the integration of the former Ahold and Delhaize businesses will offset the incremental integration and restructuring costs in the near term, if at all. An inability to realize these efficiencies could have an adverse effect on our businesses, subsequent integration, assimilation and restructuring and related transactions, cash flows, financial condition or operating results.

Uncertainties associated with the integration of Ahold and Delhaize may cause a loss of management personnel or other key employees, which could adversely affect our future business and operations.

We depend on the experience and industry knowledge of our officers and other key employees to execute our business plans. Our success depends, in part, upon our ability to attract and retain key management personnel and other key employees. Current and prospective employees may experience uncertainty about their roles within our and our respective subsidiaries’ businesses post-merger, which may have an adverse effect on the ability to attract or retain key management and other key personnel. Accordingly, no assurance can be given that our and our respective subsidiaries’ businesses will be able to attract or retain key management personnel or other key employees.

We may be unable to successfully integrate, assimilate and restructure the businesses of Ahold and Delhaize and the respective subsidiaries, and realize the anticipated benefits of the merger.

The merger involved the combination of two companies that operated as independent public companies. This requires devoting significant management attention and resources to integrating, assimilating and restructuring the businesses of the merged entities during the post-merger transition period. Potential difficulties we may encounter as part of this process include, but are not limited to, the following:

 

    Inability to successfully coordinate the businesses, or particular business segments, of Ahold and Delhaize in a manner that permits our Company to enjoy the advantages of a complementary base of strong local brands and a strong financial profile for investing in future growth, to be able to provide a superior customer offering, to achieve the full cost synergies and other benefits anticipated to result from the merger, and to further expand our global market reach and customer base
    Inability to achieve or maintain leading industry standards in quality and food retail offerings of the respective subsidiaries

 

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    Complexities associated with managing the respective businesses, including challenges of integrating or coordinating complex systems, technology, networks and other assets in a seamless manner that minimizes any adverse impact on customers, suppliers, employees and other constituencies
    Continuing to provide consistent, high quality customer service during the period of integration and restructuring
    Potential unknown liabilities and unforeseen expenses or delays associated with the merger, including but not limited to costs of integration and restructuring the former Ahold and Delhaize businesses that may exceed the costs that we anticipated prior to the execution of the merger agreement

Any of the foregoing could adversely affect the ability to maintain relationships with customers, suppliers, employees and other constituencies, or the ability to achieve the anticipated benefits of the merger, or could reduce our earnings or otherwise adversely affect our businesses and financial results.

Our business relationships or those of our respective subsidiaries may be subject to disruptions due to uncertainty associated with the merger, which could have an adverse effect on our operating results, cash flows and financial position.

Parties with which we or our respective subsidiaries do business may experience uncertainty associated with the merger and related transactions, including with respect to our current or future business relationships or those of our respective subsidiaries. Our relationships or those of our respective subsidiaries may be subject to disruption as customers, suppliers and other persons with whom we or our respective subsidiaries have business relationships may delay or defer certain business decisions or might decide to seek to terminate, change or renegotiate their relationships with us or our respective subsidiaries, as applicable, or consider entering into business relationships with parties other than Ahold Delhaize or our respective subsidiaries.

Our results are subject to risks relating to competition and pressure on profit margins in the food retail industry.

The food retail industry is competitive and generally characterized by pressure on profit margins. Our competitors include international, national, regional and local supermarket chains, supercenters, independent grocery stores, specialty food stores, warehouse club stores, retail drug chains, convenience stores, membership clubs, general merchandisers, discount and online retailers and restaurants. It is possible that we could face increased competition in the future from some or all of these competitors. In addition, consolidation in the food retail industry due to increasing competition from larger companies is also likely to continue. Food retail businesses generally compete on the basis of location, quality of products, service, price, product variety, store condition and eCommerce offerings. The ability to maintain our current position depends upon the ability of our respective subsidiaries to compete in the food retail industry through various means such as price promotions, continued reduction of operating expenses where the cost savings are reinvested in our Company, enhancing customer offerings and store expansions. To the extent that prices are reduced to maintain or grow market share, net income and cash generated from the respective subsidiaries’ operations could be adversely affected. Some of our competitors may have financial, distribution, purchasing and marketing resources that are greater than ours, and there is no assurance that we will be able to successfully compete in the markets where our respective subsidiaries operate. Profitability could be impacted as a result of the pricing, purchasing, financing, advertising or promotional decisions made by our competitors. Such an impact on profitability could have an adverse effect on our business and the businesses of our respective subsidiaries, cash flows, financial condition or operating results, which may affect the value of our common shares and American Depositary Receipts.

 

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We have significant financial debt outstanding that could negatively impact our business.

We have significant debt outstanding. As of January 1, 2017, Ahold Delhaize’s consolidated net debt was approximately 3,244 million, which represents approximately 9% of our total assets. Net debt is the difference between (i) the sum of loans, finance lease liabilities, cumulative preferred financing shares and short-term debt (i.e., gross debt) and (ii) cash, cash equivalents, current portion of available-for-sale financial assets, and short-term deposits and similar instruments.

Our level of debt could:

 

    Make it difficult for us to satisfy our obligations, including interest payments
    Limit our ability to obtain additional financing for us and our respective subsidiaries to operate our businesses
    Limit our financial flexibility in planning for and reacting to industry changes
    Place our Company at a competitive disadvantage as compared to less leveraged companies
    Increase our vulnerability to general adverse economic and industry conditions
    Require our Company to dedicate a substantial portion of our cash flow to payments to our debt, reducing the availability of cash flow for other purposes

We may borrow additional funds to support our capital expenditures, working capital needs to finance future acquisitions and for other purposes. The incurrence of additional debt could make it more likely that we will experience some or all of the risks described above. For additional information on liquidity and leverage risk, see Item 5 “Operating and Financial Review and Prospects –B. Liquidity and Capital Resources.”

Future changes in accounting standards may result in increased levels of assets and debt being recognized on our Company’s balance sheet.

Our Company’s financial statements are prepared in accordance with IFRS as issued by the IASB. From time to time, the IASB issues new accounting standards or amendments to existing standards. The IASB issued a new standard on lease accounting in 2016, with an effective date for annual periods beginning on or after January 1, 2019. A consequence of this standard is to recognize substantially all leases on the balance sheet and thereby bring an end to off-balance sheet lease accounting. This will have a significant impact on many companies including those in the retail industry, due primarily to long-dated property leases. We or our respective subsidiaries have a large number of operating lease liabilities currently not included on the balance sheet but disclosed as commitments. When this new lease accounting standard becomes effective, it is expected that substantially all operating leases will be recognized in our financial statements, which would result in a significant increase in leased assets, liabilities and changes to the allocation of expenses within the income statement and which could have an adverse impact on various debt ratios and other key performance indicators of our Company.

 

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If we do not generate positive cash flows, we may be unable to service our debt.

The mid- to long-term ability to pay principal, premium, if any, and interest on our debt will depend on the future operating performance of our and our respective subsidiaries businesses. Future operating performance will be subject to market conditions and business factors that will often be beyond our or their control. Consequently, we are not able to guarantee that there will be sufficient cash flows to pay the principal, premium, if any, and interest on our debt. If cash flows and capital resources are insufficient to allow us to make scheduled payments on our debt, we may have to take alternative measures, such as reducing or delaying capital expenditures, selling assets, seeking additional capital or restructuring or refinancing our debt. We are not able to guarantee that the terms of our debt will allow us to take these alternative measures or that these alternative measures, individually or in the aggregate, will allow us to satisfy our scheduled debt service obligations. If we cannot make scheduled payments on our debt, we will be in default and, as a result:

 

    Our debt holders could declare all outstanding principal and accrued interest to be due and payable
    Our lenders could terminate their commitments and commence foreclosure proceedings against our assets
    We or one or more of our respective subsidiaries could be forced into bankruptcy or liquidation

Certain of our debt agreements may contain covenants requiring us to maintain specified financial ratios and meet specific financial tests. Our failure to comply with these covenants could result in an event of default that, if not cured or waived, could result in our Company being required to repay these borrowings before their due date. If we were unable to make this repayment, or otherwise refinance these borrowings, our lenders could foreclose on our assets. If we were unable to refinance these borrowings on favorable terms, our business could be adversely impacted.

General economic factors may adversely affect our financial performance.

General economic conditions in the areas where our respective subsidiaries operate may adversely affect our overall financial performance. Factors such as higher interest rates, higher fuel and other energy costs, weakness in the housing market, inflation, deflation, higher levels of unemployment, unavailability of consumer credit, higher consumer debt levels, higher tax rates and other changes in tax laws, overall economic slowdown and other economic factors could adversely affect consumer demand for the products our respective subsidiaries sell, require a change in the mix of products that are sold to one with a lower average profit margin and result in slower inventory turnover and greater markdowns on inventory. Higher interest rates, higher fuel and other energy costs, higher transportation costs, inflation, higher costs of labor, insurance and healthcare, foreign exchange rate fluctuations, higher tax rates and other changes in tax laws, changes in other laws and regulations and other economic factors could increase the cost of sales and selling, general and administrative expenses, and otherwise adversely affect operations and operating results. These factors could affect not only our respective subsidiaries operations, but also the operations of suppliers from whom they purchase goods, which could result in an increase in the cost to our Company of the goods sold to customers.

Our international operations subject us to numerous risks.

We are a global company incorporated in the Netherlands with key suppliers operating internationally. We may further expand our business and operations into new countries. The international nature of our business and operations subjects us to risks inherent in operating in or selling products imported from

 

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foreign countries, including government regulation; political and economic instability; currency restrictions; fluctuations and other restraints; import and export restrictions; complex and burdensome tax regimes; additional tax assessments in foreign jurisdictions; risks of expropriation; threats to employees; terrorist activities, including extortion; and risks of U.S. and foreign governmental regulation and action in relation to these operations.

Our respective subsidiaries’ operations are subject to economic conditions that impact consumer spending.

Operating results are sensitive to changes in overall economic conditions that impact consumer spending, including discretionary spending, in the areas where we operate, including Greece. Consumers may reduce spending or change their purchasing habits due to certain economic conditions such as decreasing employment levels, slowing business activity, increasing interest rates, increasing energy and fuel costs, increasing healthcare costs and increasing tax rates. In Greece, the occurrence of certain economic policy developments, such as the implementation of capital controls or the potential exit from the Eurozone, could have an adverse impact on consumer spending and cause us to impair assets related to our operations in Greece and record lower contributions from those assets in our operating results. A general reduction in the level of consumer spending or the inability to respond to shifting consumer preferences regarding products, store location and other factors in the markets where our respective subsidiaries operate could adversely affect growth and profitability.

Turbulence in the global credit markets and economy may adversely affect our financial condition and liquidity and of our respective subsidiaries.

Disruptions in the capital and credit markets could adversely affect our ability and of our respective subsidiaries to draw on our bank credit facilities or enter into new bank credit facilities. Access to funds under our bank credit facilities is dependent on the ability of the banks that are parties to the facility agreements to meet their funding commitments. Those banks may not be able to meet their funding commitments to our Company and our respective subsidiaries, if they experience shortages of capital and liquidity or if they experience excessive volumes of borrowing requests from our Company and our respective subsidiaries and other borrowers within a short period of time. Also, disruptions in the capital and credit markets may impact our ability and of our respective subsidiaries to renew bank credit facilities or enter into new bank credit facilities as needed. In addition, our suppliers and third-party service providers could experience credit or other financial difficulties that could result in their inability to supply us with necessary goods and services in a timely fashion or at all.

The significance of the contributions of our U.S. businesses to our revenues and the geographic concentration of our respective subsidiaries’ U.S. operations on the East Coast of the United States make us vulnerable to economic downturns, natural disasters and other catastrophic events that impact that region.

A total of 62% of our revenues (excluding discontinued operations) during the financial year ended January 1, 2017, was generated through our respective subsidiaries U.S. operations. We depend in part on these U.S. operations for dividends and other payments to generate the funds necessary to meet financial obligations. Substantially all of the U.S. operations are located on the East Coast of the United States. Consequently, the operations depend significantly upon economic and other conditions in this area, in addition to those that may affect the United States or the world as a whole. Our operating results as a whole may suffer based on a general economic downturn, natural disaster, change in regulations or other adverse condition impacting the East Coast of the United States.

 

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Increases in interest rates and/or a downgrade of our credit ratings could negatively affect financing costs and ability to access capital.

We are exposed to changes in interest rates with respect to our outstanding debt position and/or additional debt to the extent that we raise debt in the capital markets to meet maturing debt obligations, to fund our capital expenditures and working capital needs, and to finance future acquisitions. To manage interest rate risk, we have an interest rate management policy aimed at reducing volatility in its interest expense and maintaining a target percentage of its debt in fixed rate instruments. As of January 1, 2017, after taking into account the effect of interest rate swaps and cross-currency swaps, the entirety of our long-term debt was at fixed rates of interest.

It is anticipated that our Company’s daily working capital requirements will continue to be primarily financed with operational cash flow and through the use of various committed and uncommitted lines of credit. The interest rates on these short- and medium-term borrowing arrangements will generally be determined either as the inter-bank offering rate at the borrowing date plus a pre-set margin, or based on market quotes from banks. Although we may employ risk management techniques to hedge against interest rate volatility, significant and sustained increases in market interest rates could materially increase our financing costs and negatively impact our reported results.

We will rely on access to bank and capital markets as sources of liquidity for cash requirements not satisfied by cash flows from operations. A downgrade in our credit ratings from the internationally-recognized credit rating agencies, particularly to a level below investment grade, could negatively affect our ability to access the bank and capital markets, especially in a time of uncertainty in either of those markets. A rating downgrade could also impact our ability to grow our businesses by substantially increasing the cost of, or limiting access to, capital.

A credit rating is not a recommendation to buy, sell or hold debt, as the credit rating does not comment as to market price or suitability for a particular investor. The credit ratings assigned to our debt address the likelihood of payment of principal and interest pursuant to the terms of the debt. A credit rating is subject to revision or withdrawal at any time by the assigning rating agency. Each credit rating should be evaluated independently of any other credit rating that may be assigned to our securities and should only be viewed as the opinion of the assigning credit rating agency.

A competitive labor market, changes in labor conditions or labor disruptions such as strikes, work stoppages and slowdowns may increase our respective subsidiaries’ costs or negatively affect their financial performance.

Our success depends in part on our and our respective subsidiaries’ ability to attract and retain qualified personnel in all the businesses, including executives to lead them. We compete with other businesses in our markets in attracting and retaining employees. Tight labor markets, increased overtime, collective bargaining agreements, increased healthcare costs, government-mandated increases in the minimum wage and a higher proportion of full-time employees could result in an increase in labor costs, which could materially impact our respective subsidiaries’ operating results. A shortage of qualified employees may also require increases in wage and benefit offerings to compete effectively in the hiring and retention of qualified employees or to retain more expensive temporary employees.

 

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A number of our Company’s and our respective subsidiaries’ employees, both inside and outside of the United States, are members of unions. It is possible that relations with the unionized portion of some or all of those workforces could deteriorate or that the workforces could initiate a strike, work stoppage or slowdown in the future. Similar actions by the non-unionized workforces of our Company or the respective subsidiaries are also possible. In such an event, our respective subsidiaries’ businesses, cash flows, financial condition and operating results could be negatively affected, and we or they may not be able to adequately meet the needs of customers by utilizing the remaining unaffected workforce. Further, as existing collective bargaining agreements are expected to expire, we or our respective subsidiaries who are signatory to such agreements may not be able to negotiate extensions to, or replacements for, such agreements on acceptable terms, which could result in work stoppages or other costs, which could be disruptive to business, lead to adverse publicity and have a material adverse impact on cash flows, financial condition and operating results.

While we believe that relations with our employees and those of our respective subsidiaries will continue to be good, we will always face the risk that legislative bodies may approve laws that liberalize the procedures for union organization, and there can be no assurance that our non-unionized employees will not become unionized. If more of our workforce becomes unionized, it could affect our operating expenses. Increased labor costs could increase our costs, resulting in a decrease in our profits or an increase in our losses. There can be no assurance that we will be able to fully absorb any increased labor costs through our efforts to increase efficiencies in other areas of our operations.

Because of the number of properties that we own and lease, we have a potential risk of environmental liability associated with these properties.

We are subject to laws, regulations and ordinances that govern activities and operations that may have adverse environmental effects and impose liabilities for the costs of cleaning, and certain damages arising from sites of past spills, disposals or other releases of hazardous materials. Under applicable environmental laws, we could be responsible for the remediation of environmental conditions and could be subject to associated liabilities relating to our or our respective subsidiaries’ stores, warehouses and offices, as well as the land on which they are situated, regardless of whether we lease, sublease or own the stores, warehouses, offices or land in question and regardless of whether such environmental conditions were created by us or by a prior owner or tenant. The costs of investigation, remediation or removal of environmental conditions may be substantial, and these costs may increase if stricter laws are passed or applicable environmental laws are more strictly enforced. Certain environmental laws also impose liability in connection with the discharge, storage, handling, disposal of, or exposure to, hazardous or toxic substances, including materials containing asbestos, pursuant to which third parties may seek recovery from us or owners, tenants or sub-tenants of real properties for personal injuries associated with such substances or materials. There can be no assurance that environmental conditions relating to prior, existing or future store sites will not harm us through, for example, business interruption, cost of remediation or harm to reputation, which could have a material adverse effect on our financial position, operating results and liquidity.

If we are unable to locate appropriate real estate or enter into real estate leases on commercially acceptable terms, our respective subsidiaries may be unable to open new stores.

The ability to open new stores depends on success in identifying and entering into leases on commercially reasonable terms for properties that are suitable for the needs of our respective subsidiaries. If they fail to identify and enter into leases on a timely basis for any reason, including inability due to competition from other companies seeking similar sites, growth may be impaired because they may be unable to open new stores as anticipated. Similarly, our respective subsidiaries businesses may be harmed if they are unable to renew the leases on existing stores on commercially acceptable terms.

 

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Unfavorable exchange rate fluctuations may negatively impact our financial performance.

Our respective subsidiaries’ operations are conducted primarily in the United States, the Eurozone countries of the Netherlands, Luxembourg, Belgium, Germany and Greece and to a lesser extent in other parts of Europe outside the Eurozone, including the Czech Republic, Romania and the Republic of Serbia. Although our historical financial information is being presented in euros, during the financial year ended January 1, 2017, we derived approximately 67% of our revenues from subsidiaries that have functional currencies other than the euro. The operating results and the financial position of each of our entities outside the Eurozone are accounted for in the relevant local currency, including the U.S. dollar, and are then translated into euros at the applicable foreign currency exchange rate for inclusion in our consolidated financial statements. Exchange rate fluctuations between these local currencies, including the U.S. dollar, and the euro could have a material adverse effect on our consolidated financial statements.

Because a substantial portion of our assets, liabilities and operating results are denominated in currencies other than our presentation currency, the euro, we are particularly exposed to currency risk arising from fluctuations in the value of these currencies against the euro.

Various aspects of our and our respective subsidiaries’ businesses are subject to federal, regional, state and local laws and regulations in the United States, the Netherlands, Belgium and other countries, in addition to environmental regulations. Our compliance with these laws and regulations may require additional expenses or capital expenditures and could adversely affect our ability to conduct our business as planned.

In addition to environmental regulations, our and our respective subsidiaries’ businesses are subject to federal, regional, state and local laws and regulations in the United States, the Netherlands, Belgium and other countries relating to, among other things, zoning, land use, workplace safety, public health, community right-to-know, store size, alcoholic beverage sales, tobacco sales and pharmaceutical sales. A number of jurisdictions regulate the licensing of supermarkets, including retail alcoholic beverage license grants. In addition, under certain regulations, we are prohibited from selling alcoholic beverages in certain of our stores. We are also subject to laws governing our relationships with employees, including minimum wage requirements, overtime, working conditions, collective bargaining, disabled access and work permit requirements. A number of laws exist that impose obligations or restrictions with respect to property access. Compliance with these laws could result in modifications to properties or prevent performing certain further renovations. Compliance with, or changes in, these laws could reduce revenue and profitability and could otherwise adversely affect our businesses, financial condition or operating results.

In the past year, some notable events occurred in the political world of our market areas, including the Brexit referendum in the UK and the U.S. elections, which will directly or indirectly impact international trade and the legislative and regulatory environment across our markets. The outcome of the various national elections in Europe during 2017 might have implications as well. These political developments may have a material adverse effect in our businesses, financial condition and results of operations.

 

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As a result of selling products, we face the risk of exposure to product liability claims and adverse publicity.

The preparation, packaging, marketing, distribution and sale of products purchased from others entail an inherent risk of product liability, product recall and resultant adverse publicity. These products may contain contaminants or other hazards that may be inadvertently redistributed by our respective subsidiaries. These contaminants or other hazards may, in certain cases, result in illness, injury or death if processing at the foodservice or consumer level does not eliminate the contaminants or other hazards. Even an inadvertent shipment of adulterated, contaminated or defective products may lead to an increased risk of exposure to product liability claims. There can be no assurance that these claims will not be asserted against us or our respective subsidiaries that we or they will not be obligated to perform such a recall in the future. If a product liability claim is successful, insurance may not be adequate to cover all liabilities incurred, and we may not be able to continue to maintain such insurance, or obtain comparable insurance at a reasonable cost, if at all. If our businesses do not have adequate insurance or contractual indemnification available, product liability claims relating to defective products could have a material adverse effect on the ability to successfully market products and on our businesses, financial condition and operating results. In addition, even if a product liability claim is not successful or is not fully pursued, the negative publicity surrounding any assertion that our products were defective, or caused illness, injury or death, could have a material adverse effect on the reputations of us and our respective subsidiaries with existing and potential customers and on our businesses and financial condition and operating results.

We are subject to risks related to corporate responsibility and sustainable retailing.

Many factors influence our reputation and the value of our respective subsidiaries’ brands, including perceptions of our Company held by our key stakeholders and the communities in which we do business. Increased regulatory demands, concerns about climate change, stakeholder awareness and the growing sentiment that large retailers should address sustainability issues across the entire supply chain mean that our respective subsidiaries’ brands and reputations could suffer if we, our suppliers or our other business partners do not adequately address, or are perceived as not adequately addressing, relevant corporate responsibility issues affecting the food retail industry.

We may be unable to successfully develop and execute our strategy, which may include, but is not limited to, completing renovations and conversions, implementing brand repositioning plans and growing our eCommerce business.

Our success depends in large part on the ability of our respective subsidiaries to operate their customers’ preferred local supermarkets. If they are unable to successfully develop and execute a strategy, or if our plans fail to meet customers’ expectations, our overall financial condition and operating results could be adversely affected. The introduction, implementation, success and timing of new business initiatives and strategies, including but not limited to initiatives to increase revenue, reduce costs or enter into new areas of business, could be less successful or could be different than anticipated, which could materially adversely affect our business.

A key to our respective subsidiaries’ business strategy is the renovation and/or conversion of existing stores, as well as the renovation of infrastructure. Although it is expected that cash flows generated from operations, supplemented by the unused borrowing capacity under our credit facilities and the availability of capital lease financing, will be sufficient to fund capital renovation programs and conversion initiatives, sufficient funds may not be available. The inability to successfully renovate and/or convert existing stores and other infrastructure could adversely affect our businesses, operating results and ability to compete successfully.

 

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In addition, we anticipate that many customers are increasingly shopping over our eCommerce websites – including delhaize.be, ah.nl, bol.com and Peapod – and mobile commerce applications. We anticipate that online and mobile shopping will continue to be a key component of growth for food retailers in years to come. Any failure by our respective subsidiaries to provide attractive, user-friendly online shopping platforms that meet the expectations of online shoppers and adapt to future developments and trends in eCommerce could place them and us at a competitive disadvantage, result in the loss of eCommerce and other sales, harm our reputation with customers and have a material adverse impact on the growth of our eCommerce business, operating results and ability to compete successfully.

We may be unsuccessful in managing the growth of our businesses or realizing the anticipated benefits of acquisitions we have made.

We may continue to reinforce our presence in the geographic locations where our respective subsidiaries currently operate, and in adjacent regions, by pursuing acquisition opportunities in the retail grocery industry and by opening new stores. We may also occasionally consider opportunities to expand into new regions. Realization of the anticipated benefits of an acquisition, store renovation, market renewal or store opening could take several years or may not occur at all. We face risks commonly encountered with growth through acquisition and conversion or expansion. The areas where we and our respective subsidiaries could face risks include:

 

    Identifying suitable acquisition opportunities or markets in which to expand
    Facing competitors who may have more resources to make acquisitions or expand operations or otherwise may make acquisitions that we would have been interested in pursuing
    Diverting management’s time and focus from operating the businesses to acquisition or integration challenges
    Obtaining necessary financing on satisfactory terms
    Making payments on the indebtedness that might be incurred as a result of these acquisitions
    Losing customers of an acquired business
    Entering markets where we have no or limited experience
    Failing to assimilate the operations and personnel of acquired businesses
    Failing to install and integrate all necessary systems and controls
    Needing to integrate operations across different cultures and languages and to address the particular economic, currency, political, and regulatory risks associated with specific countries
    Facing litigation or other claims or liabilities in connection with the acquired company, including claims from terminated employees, customers, former shareholders or other third parties

There can be no assurance that we will be able to execute successfully on an acquisition and integration strategy or store openings. The failure to address these risks or other problems encountered in connection with past or future acquisitions and investments could have a material adverse effect on our businesses, financial condition and operating results.

 

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Businesses and/or financial results could be negatively affected if divestitures are not successfully completed or if contingent liabilities materialize in connection with completed divestitures.

We regularly evaluate the potential disposition of assets and businesses that may no longer help meet our objectives. When we decide to sell assets or a business, we may encounter difficulties in finding buyers or alternative exit strategies on acceptable terms or in a timely manner, which could delay the achievement of our strategic objectives. We may also dispose of a business at a price, or on terms, less desirable than we had anticipated. In addition, we may experience greater dis-synergies than expected, and the impact of the divestiture on our revenue growth may be larger than projected. After reaching an agreement with a buyer or seller for the disposition of a business, we will be subject to satisfaction of pre-closing conditions as well as to necessary regulatory and governmental approvals on acceptable terms, which, if not satisfied or obtained, may prevent us from completing the transaction. Dispositions may also involve continued financial involvement in the divested business, such as through continuing equity ownership, guarantees, indemnities or other financial and commercial obligations. There can be no assurance that the anticipated benefits of our future divestiture strategies will be realized.

Unexpected outcomes with respect to audits of tax filings in the jurisdictions where we or our respective subsidiaries operate could result in an adverse effect on our financial performance.

Because we and our respective subsidiaries operate in a number of countries, our businesses’ income is subject to taxation in differing jurisdictions and at differing tax rates. Significant judgment is required in determining the consolidated income tax position. As a result of our multi-jurisdictional operations, we are exposed to a number of different tax risks including, but not limited to, changes in tax laws or interpretations of these tax laws. The tax authorities in the jurisdictions where our businesses operate may audit our tax returns and may disagree with the positions taken in those returns. While the ultimate outcome of such audits will not be certain, we will consider the merits of our filing positions in our overall evaluation of potential tax liabilities with the objective of having adequate liabilities recorded in our consolidated financial statements to meet potential exposures. An adverse outcome resulting from any settlement or future examination of our tax returns or any other tax audit could result in additional tax liabilities and could adversely affect our effective tax rate, which could have a material adverse effect on our financial position, operating results and liquidity. In addition, any examination by the tax authorities in the jurisdictions where our businesses operate could cause us to incur significant legal expenses and divert management’s attention from the operation of the businesses.

Risks associated with the suppliers from whom products are sourced could adversely affect financial performance.

Significant disruptions in the operations of vendors and suppliers could materially impact our respective subsidiaries’ businesses by disrupting store-level product selection or increasing costs, resulting in reduced sales. The products they sell are sourced from a wide variety of domestic and international suppliers. If disruptions should occur, the ability to find qualified suppliers who meet their standards, and to access products in a timely and efficient manner, could be significantly challenged. Political and economic instability in the countries in which suppliers are located, suppliers’ financial instability or failure to meet required standards, labor problems experienced by suppliers, the availability of raw materials to suppliers, competition for products from other retailers,

 

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the impact of adverse weather conditions, product quality issues, currency exchange rates, transport availability and cost, inflation, deflation, and other factors relating to the suppliers and the countries in which they are located are beyond our control. In addition, tariffs and other impositions on imported goods, trade sanctions imposed on certain countries, the limitation on the importation of certain types of goods or of goods containing certain materials from other countries and other factors relating to foreign trade are beyond our control. These factors and other factors affecting the suppliers and access to products could result in decreased product selection and increased out-of-stock conditions, as well as higher product costs, which could adversely affect our respective subsidiaries operations and financial performance.

Risks associated with our franchised and affiliated stores could adversely affect our financial performance.

As of January 1, 2017, 25% of the stores in our store network were franchised or affiliated (that is, stores with one of our Company’s banners and operated by independent third parties to whom we sell our products at wholesale prices) and 8% of our revenues are generated from our franchise or affiliate activities and are part of retail sales. The operators of our affiliated and franchised stores operate and oversee the daily operations of their stores and are independent third parties. Although we attempt to properly select, train and support the operators of our affiliated and franchised stores, the ultimate success and quality of any affiliated or franchised store will rest with the third party operators. If the operators of the affiliated and franchised stores do not successfully operate in a manner consistent with our standards, our image and reputation could be harmed, which could adversely affect our business and operating results. In addition, we have accounts receivable associated with the franchised and affiliated stores. If the third party operators of these stores do not operate successfully, we could be forced to write-off a portion of or all of the accounts receivable associated with such franchised and affiliated stores.

Natural disasters and geopolitical events could adversely affect financial performance.

The occurrence of one or more natural disasters, such as hurricanes, earthquakes, tsunamis, pandemics or severe weather, whether as a result of climate change or otherwise, or geopolitical events, such as civil unrest in a country in which we or our respective subsidiaries operate or in which our suppliers are located, and attacks disrupting transportation systems, could adversely affect operations and financial performance. Such events could result in physical damage to one or more of properties, a temporary closure of one or more stores or distribution centers, a temporary lack of an adequate work force in a market, a temporary decrease in customers in an affected area, a temporary or long-term disruption in the supply of products from some local and overseas suppliers, a temporary disruption in the transport of goods from overseas, a delay in the delivery of goods to distribution centers or stores within a country in which our respective subsidiaries are operating, or a temporary reduction in the availability of products in their stores. These factors could otherwise disrupt and adversely affect operations and financial performance.

There are inherent limitations in our control systems, and misstatements due to error or fraud may occur and not be detected, which may harm our business and financial performance and result in difficulty meeting our reporting obligations.

Effective internal control over financial reporting is necessary for us to provide reasonable assurance with respect to our financial reports and to effectively prevent fraud. If we cannot provide reasonable assurance with respect to our financial reports and effectively prevent fraud, our reputation, business and

 

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operating results could be harmed. Internal control over financial reporting may not prevent or detect misstatements because of our inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Therefore, even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. In addition, projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risks that the control may become inadequate because of changes in conditions or that the degree of compliance with policies or procedures may deteriorate. If we fail to maintain the adequacy of our internal controls, including any failure to implement required new or improved controls, or if we experience difficulties in our integration and implementation of changes to our internal controls, the businesses and operating results could be harmed and we could fail to meet our reporting obligations.

Operations are dependent on information technology (IT) systems, the failure or breach of security of any of which could harm the operations and our and our respective subsidiaries reputations and adversely affect our overall financial performance.

Many of our functions of our respective subsidiaries operations are dependent on IT systems developed and maintained by internal experts or third parties. It is possible that we may encounter unforeseen technical complexities or issues that we may be unable to resolve, or that the resolution of complexities or issues may require management to devote more attention than anticipated to such matters. The failure of any of these IT systems could also cause disruptions in operations, adversely affecting sales and profitability. There are recovery plans in place to reduce the negative impact of IT systems failures on our operations, but there is no assurance that these recovery plans will be completely effective in doing so. Any of these risks may cause us to incur unanticipated costs and may prevent us from obtaining the expected benefits and cost savings of the IT systems or from obtaining benefits and cost savings as soon as expected.

As part of normal operations, both we and our respective subsidiaries receive and store confidential information about customers (including credit/debit card information), employees and other third parties in our own systems and through our third-party service providers. These third-party service providers are used for a variety of reasons, including, without limitation, encryption and authentication technology, content delivery to customers, back-office support, and other functions. In addition, online operations depend upon the secure transmission of confidential information over public networks, including information permitting cashless payments.

Any failure to protect confidential data could materially damage our brand and reputation, and those of our respective subsidiaries, and result in significant expenses and disruptions to operations and loss of customer confidence and subject us to litigation, any of which could have a material adverse impact on our business and results of operations.

To protect against security breaches and rapidly evolving cyber threats, we maintain administrative, physical and technical security measures to protect, and to prevent unauthorized access to, such information. There are security processes, protocols and standards in place that are applicable both internally and to our third-party service providers to protect information from systems to which they have access under their engagements with us.

Inherent to our businesses, we face attempts – such as phishing, malware and distributed denial-of-service attacks – to access the information stored in our information systems or to disrupt our IT systems.

 

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We have not been subject to intrusions of our network security, nor have we experienced any other cyber attack incidents, which, individually or in the aggregate, have been material to our or our respective subsidiaries’ businesses, financial condition and operations.

We have cyber risk insurance that includes business interruption and recovery cost coverages up to a limit of $150 million to protect against both third-party damages and expenses resulting from a privacy breach and first-party damages and costs incurred as a result of a cyber attack incident.

A change in supplier terms could adversely affect our financial performance.

Our respective subsidiaries receive allowances, credits and income from suppliers primarily for volume incentives, new product introductions, in-store promotions and co-operative advertising. Certain of these funds are based on the volume of net sales or purchases, growth rate of net sales or purchases and marketing programs. If they do not grow our net sales over prior periods or if they are not in compliance with the terms of these programs, there could be a material adverse effect on the amount of incentives offered or paid to them by the suppliers. Additionally, suppliers routinely change the requirements for, and the amount of, funds available. No assurance can be given that the respective subsidiaries will continue to receive such incentives or will be able to collect outstanding amounts relating to these incentives in a timely manner, or at all. A reduction in, the discontinuance of, or a significant delay in receiving these incentives, as well as the inability to collect incentives, could have a material adverse effect on our businesses, results of operations and financial condition.

We are subject to antitrust and similar legislation in the jurisdictions in which we operate.

We are subject to a variety of antitrust and similar legislation in the jurisdictions where we and our respective subsidiaries operate. In a number of markets, we have market positions that may make future significant acquisitions more difficult and may limit our ability to expand by acquisition or merger, if we wish to do so.

In addition, we and our respective subsidiaries are subject to legislation relating to unfair competitive practices and similar behavior in many of the jurisdictions where our respective subsidiaries operate. We or they may be subject to allegations of, or further regulatory investigations or proceedings into, such practices. Such allegations, investigations or proceedings (irrespective of merit) may require the devotion of significant management resources to defending ourselves. In the event that such allegations are proven, there may be significant fines, damages awards and other expenses, and our reputations may be harmed, which could materially adversely affect our businesses, results of operation, financial condition and liquidity.

Unexpected outcomes in our legal proceedings could impact our financial performance.

From time to time, we or our respective subsidiaries are party to legal proceedings, including matters involving personnel and employment issues, personal injury, intellectual property, competition/antitrust matters, landlord-tenant matters, tax matters and other proceedings arising in the ordinary course of business. We estimate the exposure to the claims and litigation arising in the normal course of our business and make what we believe to be adequate provisions for this exposure. Unexpected outcomes in these matters could have an adverse effect on our financial condition and operating results.

 

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Additional legal proceedings, including the Greek litigation and proceedings involving our respective subsidiaries’ operations or the operations of affiliated and franchised stores, are ongoing or may arise from time to time outside the ordinary course of business, for which outcomes could have an adverse effect on our financial condition and operating results. For further information, see Note 34 of Ahold Delhaize’s consolidated financial statements included in Item 18 of this Form 20-F Report.

We may experience adverse results arising from claims against our self-insurance programs.

We manage our insurable risks through a combination of self-insurance and commercial insurance coverage. Our and our respective subsidiaries’ operations in the United States are self-insured for workers’ compensation, general liability, property, vehicle accident and certain health care-related claims. Self-insurance liabilities are estimated based on actuarial valuations. While we believe that our actuarial estimates are reasonable, they are subject to a high degree of variability and uncertainty caused by such factors as future interest and inflation rates; future economic conditions; litigation and claims; settlement trends and results; legislative and regulatory changes; changes in benefit levels; and the frequency and severity of incurred-but-not-reported claims. It is possible that the final resolution of some claims may require significant expenditures in excess of existing reserves.

In addition, third-party insurance companies that provide the fronting insurance that is part of the self-insurance programs require us to provide certain collateral. We assess and monitor the financial strength and credit-worthiness of the commercial insurers from which we purchase insurance. However, we remain exposed to a degree of counterparty credit risk with respect to these insurers. If conditions of economic distress were to cause the liquidity or solvency of our counterparties to deteriorate, we may not be able to recover collateral funds or be indemnified from the insurer in accordance with the terms and conditions of our policies.

Increasing costs associated with our defined benefit pension plans may adversely affect our operating results, financial position or liquidity.

Most of our businesses and those of our respective subsidiaries have pension plans, the structures and benefits of which vary with conditions and practices in the countries concerned. Pension benefits are provided through defined contribution plans or defined benefit plans.

A defined contribution plan is a post-employment benefit plan under which the employing company and/or the employee has an obligation to pay limited contributions to a separate entity. Under such a plan, there are no legal or constructive obligations to pay further contributions, regardless of the performance of the funds held to satisfy future benefit payments. The actual retirement benefits are determined by the value of the contributions paid and the subsequent performance of investments made with these funds.

A defined benefit plan is a post-employment benefit plan that normally defines an amount of benefit that an employee will receive upon retirement, usually dependent on one or more factors such as age, years of service, compensation and/or guaranteed returns on contributions made. Assumptions related to discount rates, inflation, interest crediting rate and future salary increases or mortality rates have a significant impact on our funding requirements related to these plans. These estimates and assumptions may change based on actual return on plan assets, changes in interest rates, demographic situation and governmental regulations. Therefore, our funding requirements could change and additional contributions could be required in the future.

 

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In addition, a significant number of our respective subsidiaries have union employees in the United States who are covered by multi-employer plans (referred to in this Form 20-F Report as MEPs). An increase in the unfunded liabilities of these MEPs may result in increased future payments by us and the other participating employers. In addition, we may become obligated for a MEP’s unfunded obligations if other participating employers cease to participate in the plan. Similarly, if a number of employers cease to have employees participating in the MEP, we could be responsible for an increased share of the MEP’s deficit. If we withdraw from an MEP, we may be required to pay the MEP an amount based on the underfunded status of the MEP, referred to as a withdrawal liability. Since any of the respective subsidiaries with union employees who are covered by a MEP are only one of several employers participating in most of our MEPs and there is no reliable basis to accurately determine its share of plan obligations and assets following defined benefit principles, these MEPs are not included in our balance sheet.

We may be required to pay significantly higher amounts to fund U.S. employee healthcare plans in the future. Significant increases in healthcare and pension funding requirements could have a material adverse effect on our financial position, operating results and liquidity.

Risks Relating to the Ownership of Our Common Shares and American Depositary Receipts

We may fail to realize some or all of the anticipated cost savings, synergies, growth opportunities and other benefits of the merger, which could adversely affect the value of our ordinary shares and American Depositary Receipts.

The achievement of the anticipated benefits of the merger is subject to a number of uncertainties, including whether we are able to integrate, assimilate or restructure the merged businesses in an efficient and effective manner, and general competitive factors in the marketplace. Failure to achieve these anticipated benefits could result in increased costs, decreases in revenues and diversion of management’s time and energy and could materially impact our businesses, cash flows, financial condition or operating results. If we are not able to successfully achieve these objectives, the anticipated cost savings, synergies, growth opportunities and other benefits may not be realized fully or at all, or may take longer to realize than expected.

It is possible that the integration, assimilation and restructuring process could take longer or be more costly than anticipated or could result in the loss of key employees; the disruption of our ongoing businesses; or inconsistencies in standards, controls, procedures and policies that adversely affect our ability to maintain the respective businesses’ relationships with clients, customers and employees, to achieve the anticipated benefits of the merger or to maintain quality standards. Integration efforts may also divert management’s time and energy. An inability to realize the full extent of, or any of, the anticipated benefits of the merger, as well as any delays encountered in the integration process, could have an adverse effect on our business, cash flows, financial condition or operating results, which may affect the value of our ordinary shares and American Depositary Receipts.

In addition, the integration, assimilation and restructuring of Ahold’s and Delhaize’s businesses may result in additional and unforeseen expenses and capital investments, and the anticipated benefits of the integration, assimilation and restructuring plans may not be realized. Actual cost synergies, if achieved at all, may be lower than we expect and may take longer to achieve than anticipated. If we are not able to adequately address these challenges, we may be unable to successfully integrate, assimilate or restructure Ahold’s and Delhaize’s businesses, or to realize the anticipated benefits of the integration, assimilation or restructuring of the businesses.

 

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Declaration, payment and amounts of dividends, if any, to holders of our common shares will be uncertain and subject to a number of factors, including our profits and capital reserves under Dutch law, and distributions of operating earnings to our Company by our subsidiaries.

Whether any dividend is declared or paid to holders of our common shares, and the amounts of any dividends that are declared or paid, are uncertain and depend on a number of factors. We have the discretion to declare a dividend on our common shares, which may be based on a number of considerations, including our dividend policy, operating results and capital management plans and the market price of our common shares. In addition, the amount of any dividends that may be declared by our management board will be limited by Dutch law. Under Dutch law, we are permitted to make distributions to our shareholders only to the extent that our shareholders’ equity exceeds the sum of the paid-in and called-up part of our issued share capital and the reserves that must be maintained under Dutch law and our articles of association, if any, as determined on the basis of our non-consolidated annual accounts. A distribution from the profits available for distribution will first be made to the holders of our cumulative preferred shares (if any) and then, if possible, to the holders of our cumulative preferred financing shares. Any profits remaining after these distributions and any additions to the reserves deemed necessary by our Supervisory Board, in consultation with our Management Board, will be at the disposal of our General Meeting of Shareholders for distribution to the holders of our common shares or addition to the reserves of our Company. Our ability to pay dividends, and the amounts of any dividends ultimately paid in respect of our common shares, will also be subject to the extent to which we receive funds, directly or indirectly, from our subsidiaries. The ability of our subsidiaries to make distributions to our Company will depend on satisfying the organizational documents and the applicable laws of the jurisdictions in which our subsidiaries are organized.

Dividends paid on our common shares, which may include amounts paid by our Company to repurchase ordinary shares, will generally be subject to Dutch withholding tax.

Dividends, if any, paid on our common shares will generally be subject to a 15% Dutch dividend withholding tax. In certain circumstances, amounts paid to repurchase our common shares may be treated as dividends that are subject to a withholding tax. In such a case, if the repurchase of our common shares is from an unknown seller, the Company will be responsible for the tax payment, on a grossed-up basis, at a 17.65% rate.

Claims based on U.S. civil liabilities may not be enforceable.

We are a company incorporated under Dutch law, and, as such, the rights of our shareholders and the civil liability of the members of our Supervisory Board and Management Board are governed by Dutch law and our Articles of Association. A substantial portion of our assets is located outside of the United States. In addition, certain members of our Management Board and Supervisory Board and certain of our executive officers reside outside the United States. As a result, it may be difficult for investors to effect service of process within the United States on us or such individuals, or to enforce outside the United States any judgments obtained against us or such persons in U.S. courts in any action, including actions predicated upon the civil liability provisions of the U.S. federal securities laws. In addition, it may be difficult for investors to enforce rights predicated upon the U.S. federal securities laws in original actions brought in courts in jurisdictions located outside the United States (including the Netherlands) or enforce claims for punitive damages.

 

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The United States and the Netherlands currently do not have a treaty providing for the reciprocal recognition and enforcement of judgments, other than arbitration awards, in civil and commercial matters. In addition, the countries of residence of the members of our Management Board and Supervisory Board and certain of our executive officers may also not have a treaty providing for the reciprocal recognition and enforcement of judgments. Consequently, a final judgment for payment given by a court in the United States, whether or not predicated solely upon U.S. federal securities laws, would not be enforceable in the Netherlands. However, if a person has obtained a final and conclusive judgment rendered by a U.S. court that is enforceable in the United States and files a claim with the competent Dutch court, the Dutch court will generally give binding effect to the foreign judgment to the extent it finds that the jurisdiction of the U.S. court has been based on grounds that are internationally acceptable and that proper legal procedures have been observed, that the foreign judgment does not contravene Dutch public policy and that the foreign judgment is not irreconcilable with a judgment of a Dutch court given between the same parties, or with an earlier judgment of a foreign court given between the same parties in a dispute involving the same cause of action and subject matter, provided that such earlier judgment fulfills the conditions necessary for it to be given binding effect in the Netherlands. It is uncertain whether this practice extends to default judgments as well. In addition, even if a judgment by a U.S. court satisfies the above requirements, the Dutch court may still deny a claim for a judgment if the U.S. court judgment is not, not yet or no longer formally enforceable according to the relevant U.S. state or federal laws. Dutch courts may deny the recognition and enforcement of punitive damages or other awards. Moreover, a Dutch court may reduce the amount of damages granted by a U.S. court and recognize damages only to the extent that they are necessary to compensate actual losses or damages. Enforcement and recognition of judgments of U.S. courts in the Netherlands are solely governed by the provisions of the Dutch Civil Procedure Code (Wetboek van Burgerlijke Rechtsvordering).

There can be no assurance that our Company’s U.S. shareholders will be able to enforce any judgments obtained in U.S. courts in civil and commercial matters, including judgments under the U.S. federal securities laws, against us or members of our Supervisory Board or Management Board or executive officers who are residents of the Netherlands or countries other than the United States.

Provisions in the call option agreement of Stichting Ahold Continuïteit (SAC) could discourage, delay or prevent a change of control of our Company.

Pursuant to the provisions of the call option agreement of SAC, a foundation with the purpose of safeguarding the interests of our Company and all our stakeholders and potentially resisting, to the best of its ability, influences that might conflict with those interests by affecting our Company’s continuity, independence or identity, may acquire from our Company a number of Ahold Delhaize cumulative preferred shares in our share capital with a nominal value of 0.01 per share such that the total nominal value of the Ahold Delhaize cumulative preferred shares so acquired is equal to (a) the total nominal value of all Ahold Delhaize common shares and all Ahold Delhaize cumulative preferred financing shares, in each case issued and outstanding at the time of exercising the SAC call option, minus (b) the total nominal value of any Ahold Delhaize cumulative preferred shares held by the SAC at such time. Each Ahold Delhaize cumulative preferred share would, upon the issuance of Ahold Delhaize cumulative preferred shares following the exercise of the SAC call option, give the holder the right to one vote. The issuance of these Ahold Delhaize cumulative preferred shares would, as a result, cause a substantial dilution of the voting power of any holder of shares in the capital of our Company, including of a shareholder attempting to gain control of our Company, and could therefore have the effect of discouraging, delaying or preventing a change of control of our Company, even if this change in control is sought by our shareholders.

 

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If we issue additional common shares in the future, the value and voting power of our common shares may become diluted as more common shares become issued and outstanding.

We may undertake additional offerings of common shares or of securities convertible into our common shares. The resulting increase in the number of our common shares issued and outstanding, and the possibility of sales of such common shares, may depress the future trading price of our common shares. In addition, if such additional issuances of common shares of our Company occur, the voting power of the existing shareholders of our Company may be diluted.

Holders of the common shares in our Company who are resident or located in certain jurisdictions outside the Netherlands, including the United States, may not be able to exercise pre-emptive rights in future offerings and, as a result, may experience dilution.

In the event of an issue of common shares in the capital of our Company, holders of common shares in our Company are generally entitled to pre-emptive rights unless those rights are restricted or excluded either by a resolution of our Company’s General Meeting of Shareholders or by a resolution of our Company’s Management Board with the approval of our Supervisory Board (if the Management Board has been authorized to do so by our Company’s General Meeting of Shareholders).

However, the securities laws of certain jurisdictions may restrict our ability to allow such holders of common shares to participate in offerings of securities of our Company and to exercise pre-emptive rights. Under the U.S. federal securities laws, the issuance of additional common shares must be registered, unless an exemption from registration is available. Accordingly, subject to certain exceptions, holders of the common shares in our Company with registered addresses, or who are resident or located in certain jurisdictions outside the Netherlands, including the United States, may not be eligible to exercise pre-emptive rights. As a result, such holders may experience dilution of their ownership and voting interests in our Company’s share capital.

The market price of our common shares and American Depositary Receipts may be volatile, and holders of our common shares or American Depositary Receipts could lose a significant portion of their investment due to drops in the market price of our common shares and American Depositary Receipts.

The market price of our common shares and ADRs has, in the past, experienced fluctuation, including fluctuation that is unrelated to our performance, and this fluctuation may continue in the future.

Specific factors that may have a significant effect on the market price for our common shares include, among others, the following:

 

    Changes in stock market analyst recommendations or earnings estimates regarding our common shares, other companies comparable to our Company or other companies in the industries that our Company serves
    Actual or anticipated fluctuations in our operating results or future prospects, which may be influenced by, among other things, changes in food retail industry conditions

 

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    Reaction to public announcements we make
    Strategic actions taken by us or our competitors, such as acquisitions or restructurings
    Our failure to achieve the anticipated benefits of the merger, including the anticipated cost savings, synergies, growth opportunities and other benefits, as rapidly as, or to the extent, anticipated by financial or industry analysts
    The recruitment or departure of key personnel
    Conditions or trends in the industries in which we operate, including new laws or regulations or new interpretations of existing laws or regulations or changes in the food retail industry
    Announcements of investigations or regulatory scrutiny of our operations or lawsuits filed against us
    Changes in tax or accounting standards, rulings, policies, guidance, interpretations or principles
    Adverse conditions in the United States or international financial markets or general U.S. or international economic conditions, including those resulting from war, catastrophes, incidents of terrorism and responses to such events
    Sales of our common shares or American Depositary Receipts by us, members of our management team or significant shareholders or holders of our American Depositary Receipts

There may be less publicly available information concerning our Company than there is for issuers that are not “foreign private issuers” because, as a “foreign private issuer,” we are exempt from a number of rules under the Exchange Act and are permitted to file less information with the SEC than issuers that are not “foreign private issuers.”

As a “foreign private issuer” under the Securities Exchange Act of 1934, as amended (referred to in this Form 20-F Report as the Exchange Act), we are exempt from certain rules under the Exchange Act, and are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as companies whose securities are registered under the Exchange Act but are not “foreign private issuers,” or to comply with Regulation FD, which restricts the selective disclosure of material non-public information. In addition, we are exempt from certain disclosure and procedural requirements applicable to proxy solicitations under Section 14 of the Exchange Act. The members of our Supervisory Board and Management Board, officers and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act. Accordingly, there may be less publicly available information concerning us than there is for companies whose securities are registered under the Exchange Act but are not “foreign private issuers,” and such information may not be provided as promptly as it is provided by such companies. In addition, we may provide certain information in accordance with Dutch law, which may differ in substance or timing from such disclosure requirements under the Exchange Act.

We may terminate our Exchange Act reporting obligations if permitted by applicable law.

If we were to cease to be a reporting company under the Exchange Act, and to the extent not required in connection with any other debt or equity securities of our Company registered or required to be registered under the Exchange Act, the information now available to our shareholders and ADR holders in the annual and other reports required to be filed by us in the United States would no longer be available to them.

 

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The market price of our American Depositary Receipts and dividends paid on our common shares underlying our American Depositary Receipts may be materially adversely affected by fluctuations in the exchange rate for converting euros into U.S. dollars.

Fluctuations in the exchange rate for converting euros into U.S. dollars may affect the value of our American Depositary Receipts and the common shares underlying them. Specifically, as the relative value of the euro to the U.S. dollar declines, each of the following values will also decline (and vice versa):

 

    The U.S. dollar equivalent of the euro trading price of our common shares in Amsterdam or Brussels, which may consequently cause the market price of our American Depositary Receipts in the United States to also decline
    The U.S. dollar equivalent of the proceeds that a holder of our American Depositary Receipts would receive upon the sale in Amsterdam or Brussels of any of our common shares withdrawn from the depositary
    The U.S. dollar equivalent of cash dividends paid in euro on our common shares represented by ADRs.

Due to delays in notification to and by the depositary, the holders of our American Depositary Receipts may not be able to give voting instructions to the depositary or to withdraw our common shares underlying their American Depositary Receipts to vote such shares in person or by proxy.

Despite our efforts, the depositary may not receive voting materials for our common shares represented by our American Depositary Receipts in time to ensure that holders of such American Depositary Receipts can either instruct the depositary to vote our common shares underlying their American Depositary Receipts or withdraw such shares to vote them in person or by proxy. In addition, the depositary’s liability to holders of our American Depositary Receipts for failing to execute voting instructions, or for the manner in which voting instructions are executed, is limited by the deposit agreement relating to our American Depositary Receipts. As a result, holders of our American Depositary Receipts may not be able to exercise their rights to give voting instructions, or to vote in person or by proxy, and may not have any recourse against the depositary or our Company if their shares are not voted as they have requested or if their shares cannot be voted.

Holders of our American Depositary Receipts will have limited recourse if our Company or the depositary fails to meet the respective obligations under the deposit agreement relating to our American Depositary Receipts or if they wish to involve our Company or the depositary in a legal proceeding.

The deposit agreement relating to our American Depositary Receipts expressly limits the obligations and liability of our Company and the depositary. Neither we nor the depositary will be liable to the extent that liability results from the fact that we or they:

 

    Perform the respective obligations without gross negligence or willful misconduct
    Take any action in reliance upon the advice of, or information from, legal counsel, accountants, any person presenting shares for deposit, any holder of American Depositary Receipts of our Company or any other qualified person
    Rely on any documents we or they believe in good faith to be genuine and properly executed

 

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In addition, neither we nor the depositary are under any obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of any of our American Depositary Receipts, which in our or their opinion may involve us or them in expense or liability, unless we or they are indemnified to our or their satisfaction. The provisions of the deposit agreement relating to our American Depositary Receipts limit the ability of holders of such American Depositary Receipts to obtain recourse if our Company or the depositary fails to meet the respective obligations under the deposit agreement or if they wish to involve us or the depositary in a legal proceeding.

ITEM 4. INFORMATION ON THE COMPANY

 

A. HISTORY AND DEVELOPMENT OF THE COMPANY

Koninklijke Ahold Delhaize N.V. is a public limited liability company (naamloze vennootschap) incorporated under Dutch law with its statutory seat in Zaandam, the Netherlands. The address of our principal place of business is Provincialeweg 11, 1506 MA Zaandam, The Netherlands.

Ahold’s origins date back to 1887 when founder Albert Heijn opened his first grocery store in the Netherlands. Albert Heijn’s company expanded in the Netherlands over the years and was first listed on the Amsterdam Exchange in 1948. The Albert Heijn holding company changed its name to Ahold N.V. in 1973. In 1987, Queen Beatrix of the Netherlands bestowed upon the Company its honorary predicate of “Koninklijke,” which means “Royal” in Dutch, in recognition of 100 years of honorable operations.

Ahold opened its first store outside of the Netherlands in 1976. In 1981, Ahold acquired the Giant Carlisle Supermarket chain in the United States, followed by Stop & Shop in 1996 and Giant Landover in 1998. In 2000, Ahold acquired a food service company, U.S. Foodservice, and invested in online grocer Peapod, which Ahold fully acquired in 2001. Ahold entered Central Europe in the early 1990s by setting up a holding company in what was then Czechoslovakia and acquiring a supermarket chain. Ahold expanded further in the Czech Republic in 2005 with the acquisition of 59 stores from Julius Meinl.

In 2007, Ahold sold its U.S. Foodservice business as part of a decision to focus on its core retail businesses.

In 2012, Ahold acquired bol.com, an online retailer of general merchandise that operates in both the Netherlands and Belgium.

In 2014, Ahold’s capital expenditures amounted to 732 million and were primarily related to the construction, remodeling and expansion of stores and supply chain (including online), as well as IT infrastructure improvements. In 2014, Ahold’s Czech subsidiary successfully completed the acquisition of the SPAR business in the Czech Republic. Ahold also made several other store acquisitions in the Netherlands, Belgium and the United States. During the first quarter of 2014, Ahold successfully completed the divestiture of its Slovakian operations.

In 2015, Ahold’s capital expenditures amounted to 804 million and were primarily related to the construction, remodeling and expansion of stores and supply chain (including online), as well as IT infrastructure improvements. In 2015, Ahold acquired 25 A&P stores from the Great Atlantic & Pacific Tea Company in the greater New York metropolitan area in the United States.

On June 24, 2015, Ahold and Delhaize announced their intention to merge their businesses through a merger of equals. As a result of this announcement, Ahold terminated its ongoing share buyback program and 1 billion was returned to Ahold Delhaize shareholders via a capital return and a reverse stock split prior to the completion of the merger. On July 23, 2016, the merger was completed and Delhaize shareholders received 4.75 Ahold Delhaize common shares for each Delhaize Group ordinary share.

 

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Delhaize Group was founded in 1867 and started as a wholesale grocery supplier in Charleroi, Belgium. In 1957, the brand opened the first Delhaize supermarket in Belgium and, since that date, expanded its operations across the country and into other parts of Europe, North America and Southeast Asia, while also divesting certain activities. Delhaize entered the United States by acquiring 35% of Food Town Stores Inc. in 1974 (later renamed to Food Lion Inc. and primarily operational in the southeast U.S.). In 2000, Delhaize acquired the supermarket chain Hannaford Bros. Co., located in the northeast part of the U.S. In 2001, Delhaize acquired the remaining shares of Delhaize America (the consolidated entity through which the U.S operations were conducted) through a share exchange transaction. In Europe, Delhaize acquired Alfa Beta in Greece in 1992, Mega Image in Romania in 2000 and the Delta Maxi retailer in Serbia (currently called “Delhaize Serbia”) in 2011. Delhaize has also owned a 51% stake in the Indonesian banner Super Indo since 1997.

In connection with the merger, Ahold and Delhaize Group announced on July 14, 2016, that 86 stores would be divested in the United States as part of the approval of the U.S. Federal Trade Commission. In Belgium, Ahold Delhaize will divest 13 stores and a limited number of planned stores as part of the approval by the Belgian Competition Authority, as announced on March 15, 2016.

In 2016, Ahold Delhaize’s capital expenditures amounted to 1,302 million and were primarily related to the construction, remodeling and expansion of stores and supply chain (including online) and IT infrastructure improvements.

 

B. BUSINESS OVERVIEW

Ahold Delhaize is an international retailing group based in the Netherlands and primarily active in the United States and Europe.

Ahold Delhaize’s strong local brands in the United States and Europe are well-known and popular with customers. Supermarkets are the core of the Company’s business. In the United States, Ahold Delhaize subsidiaries operate supermarkets under the Food Lion, Hannaford, Stop & Shop, Giant and Martin’s brands. In the Netherlands, Ahold Delhaize operates under the Albert Heijn brand. In Belgium and the Grand Duchy of Luxembourg, Ahold Delhaize operates stores under the Delhaize and Albert Heijn brands. In Central and Southeastern Europe, Ahold Delhaize operates under the Albert brand in the Czech Republic; the Alfa Beta and ENA brands in Greece; the Mega Image brand in Romania; and the Maxi and Tempo brands in Serbia.

In addition to supermarkets, Ahold Delhaize or its subsidiaries operate a range of other formats (such as its Etos drugstores and Gall & Gall wine and liquor stores in the Netherlands and its hypermarkets in the Czech Republic and Serbia), and continues to expand its eCommerce options (bol.com and Albert Heijn Online in the Netherlands, delhaize.be in Belgium, and Peapod and Hannaford To-Go in the United States) to serve the needs of different communities and to give customers more shopping alternatives. Although the vast majority of Ahold Delhaize’s customers shop in stores, today customers can also order online for pickup or home delivery. Being an omni-channel retailer and enabling customers to choose the channel that fits their needs best, online and offline, is becoming ever more important to Ahold Delhaize’s businesses. The Company’s overall share of online sales has remained relatively stable, going from 3.9% of total net sales in 2014 to 4.0% in 2016.

Ahold Delhaize’s net sales in the Netherlands, Belgium and Greece consist of its respective subsidiaries’ sales to consumers and sales to franchise and affiliate stores (that is, stores with one of our Company’s brands that are operated by independent third parties to whom we sell our products at wholesale prices). Franchise and affiliate stores typically operate under the same format as Ahold Delhaize subsidiary-operated stores.

 

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Segments

Ahold Delhaize’s retail operations are presented in five reportable segments. In addition, Other Retail, consisting of Ahold Delhaize’s unconsolidated joint ventures JMR - Gestão de Empresas de Retalho, SGPS, S.A. (“JMR”) and P.T. Lion Super Indo, LLC (“Super Indo”), and Ahold Delhaize’s Global Support Office, are presented separately.

All reportable segments sell a wide range of perishable and non-perishable food and non-food consumer products.

 

 

Reportable segment

   Operating segments included in the Reportable segment

Ahold USA

   Stop & Shop New England, Stop & Shop New York Metro, Giant Landover, Giant Carlisle and Peapod

Delhaize America

   Food Lion and Hannaford

The Netherlands

   Albert Heijn (including the Netherlands, Belgium and Germany), Etos, Gall & Gall and bol.com (including the Netherlands and Belgium)

Belgium

   Delhaize (including Belgium and Luxembourg)

Central and Southeastern Europe

   Albert (Czech Republic), Alfa Beta (Greece), Mega Image (Romania) and Delhaize Serbia (Serbia)
   
      

Other

   Included in Other

Other retail

   Unconsolidated joint ventures JMR (49%) and Super Indo (51%)

Global Support Office

   Global Support Office staff (the Netherlands, Belgium, Switzerland and the United States)

Following the merger with Delhaize, the number of reportable segments increased as of July 24, 2016, due to the addition of reportable segments that consist of the Delhaize businesses merged into Ahold: Delhaize America and Belgium. The Albert (Czech Republic) operating segment that was previously reported on separately is now aggregated into the Central and Southeastern Europe reportable segment together with operating segments in Greece, Romania and Serbia.

The net sales per segment is as follows:

 

 

 

    2016   2015   2014
 

 

    € million   in %    € million   in %    € million   in %  
 

 

 Ahold USA

  23,845   48.0%   23,732   62.2%   19,557   59.7% 

 Delhaize America

  7,065   14.2%        

 The Netherlands

  13,101   26.4%   12,699   33.2%   11,696   35.7% 

 Belgium

  2,199   4.4%        

 Central and Southeastern Europe

  3,485   7.0%   1,772   4.6%   1,521   4.6% 
 

 

 Total

  49,695   100.0%   38,203   100.0%   32,774   100.0% 
 

 

 

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The total number of employees (in thousands) per segment at year-end is as follows:

 

 

 
                 2016            2015            2014    

 

 

 Ahold USA

     114        121        115   

 Delhaize America

     95               —   

 The Netherlands

     100        102        97   

 Belgium

     14               —   

 Central and Southeastern Europe

     47        13        15   
  

 

 

 

 Total

     370        236        227   
  

 

 

 

Ahold USA

Overview

Ahold USA’s operations are organized into four divisions: Stop & Shop New England, Stop & Shop New York Metro, Giant Landover and Giant Carlisle. Ahold USA stores are owner-operated (no franchise locations) and are substantially located on the East Coast of the United States. Ahold USA also includes Peapod, an online grocery shopping and delivery service in the United States, which, in addition to the country’s East Coast, is also active in Illinois, Indiana and Wisconsin. As of January 1, 2017, Ahold USA subsidiaries operated a total of 776 supermarkets and 210 pick-up points in the United States. Ahold USA subsidiaries also operated 229 gas stations in the United States as of January 1, 2017, the majority of which are located in the Giant Carlisle and Stop & Shop New England market areas. In 2016, Ahold USA subsidiaries had net sales of 23,845 million, representing 48.0% of Ahold Delhaize’s consolidated net sales for the full financial year.

Stop & Shop

Stop & Shop was acquired by Ahold in 1996 and is a supermarket brand in the northeastern United States. Stop & Shop is divided into two divisions: Stop & Shop New York Metro, with 200 stores in Connecticut, New York and New Jersey and Stop & Shop New England, with 217 stores in Connecticut, Massachusetts and Rhode Island, each as of January 1, 2017. The Stop & Shop divisions operate superstores, which are larger than typical supermarkets, some of which include gas stations, full-service pharmacies and conventional supermarkets.

Giant Landover

Giant Landover was acquired by Ahold in 1998 and operates supermarkets and superstores under the brand name Giant in Virginia, Maryland, Delaware and the District of Columbia. As of January 1, 2017, Giant Landover operated 168 stores.

Giant Carlisle

Giant Carlisle was acquired by Ahold in 1981. The Giant Carlisle stores operate under the brand names Giant and Martin’s. The Giant Carlisle stores are located in Pennsylvania, Virginia, Maryland and West Virginia. Giant Carlisle operates both superstores and supermarkets. As of January 1, 2017, Giant Carlisle operated 191 stores.

 

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eCommerce

Ahold acquired Peapod, an online grocery service, in 2001. Peapod works in partnership with Ahold USA subsidiaries’ U.S.-based supermarkets to provide online home shopping and grocery delivery and operates pick-up points mainly adjacent to grocery stores. Peapod added in total two pickup points, net of closings, in 2016, bringing the total number of pickup points to 210 as of January 1, 2017. In 2014, Ahold USA’s eCommerce Sales Company opened a new distribution center in the New Jersey area to expand the capacity of the Peapod business in the New York metro market. Peapod serves customers in 12 states and in the District of Columbia.

Own Brands

Ahold USA subsidiaries’ supermarkets sell a number of different own-brand products in their food and non-food assortments. For example, customers can buy food products under our own brands, such as the Stop & Shop and Giant brand, Nature’s Promise organic brand, Simply Enjoy artisan food and the Guaranteed Value line with bottom dollar prices. Customers can also find non-food products under our own brands, including Care One health and beauty care, Companion pet food and accessories, Smart Living household essentials, Etos European cosmetics, and Always My Baby.

Stores

A breakdown of the number and average size of stores at year-end for the years indicated is as follows:

 

    

 

2016

 

     2015      2014                 

   Selling space range   

in square meters in

2016

 
                 Number of stores                              

 Stop & Shop New England

     217        218        216              790 - 5,390   

 Stop & Shop New York Metro

     200        205        182              1,020 - 5,200   

 Giant Landover

     168        169        170              1,580 - 5,200   

 Giant Carlisle

     191        196        200              1,720 - 6,320   

 Total

     776        788        768           

 Sales area of own-operated stores

 (in thousands of square meters)

     2,960        3,031        2,958           

In financial year 2016, 16 stores were remodeled, expanded, relocated or reconstructed as part of the ongoing efforts to keep the stores fresh and up-to-date. As of January 1, 2017, 571 pharmacies are operated in the Stop & Shop and Giant stores. Capital expenditures including new finance leases were 2.2% of net sales in 2016.

 

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Delhaize America

Overview

Delhaize America is organized into two subsidiary brands: Food Lion and Hannaford. Delhaize America’s stores are subsidiary-operated (no franchise locations) and are located on the East Coast of the United States. At the merger date, 1,284 Delhaize America subsidiaries’ stores were brought into the overall Ahold Delhaize portfolio. In the subsequent months, 73 stores were divested, of which 71 were in compliance with the requirements of regulatory authorities. As of January 1, 2017, Delhaize America subsidiaries operated 1,214 supermarkets and 34 pick-up points in the United States. In 2016, Delhaize America had net sales of 7,065 million, representing approximately 14.2% of Ahold Delhaize’s consolidated net sales for the full financial year.

Food Lion

Delhaize acquired 35% of Food Town Stores Inc., a food retailer operating 22 stores, in 1974 and increased its stake to 52% in 1976. In 1983, the company name changed to Food Lion Inc. and, through a share exchange transaction in 2001, Delhaize obtained 100% ownership. In 2016, Food Lion continued with its “Easy, Fresh & Affordable... You Can Count on Food Lion Every Day” strategy, relaunching 142 stores in the Charlotte, North Carolina market after extensive remodeling during the year. Food Lion operated 1,033 stores at the end of 2016 in 10 southeastern U.S. states.

Hannaford

In 2000, Delhaize acquired Hannaford Bros. Co, a supermarket chain in the northeastern United States, present in five states. Hannaford operated 181 supermarkets at the end of 2016. Most stores have full-service pharmacies.

eCommerce

Hannaford To-Go’s click-and-collect service was expanded in 2016 and, by the end of 2016, Hannaford had a total of 34 To-Go sites.

Own Brands

Food Lion and Hannaford both sell a range of own-brand products in their food and non-food assortments. Food Lion sells Food Lion brand, Nature’s Place, Home 360, Cha Ching, Healthy Access and Taste of Inspirations. Hannaford offers the Hannaford, Taste of Inspirations, Nature’s Place, Healthy Accents and Home 360 own brands. Nature’s Place brand is committed to sustainable fisheries and forests, with environmentally friendly and socially responsible packaging. The own brands have been rated by Guiding Stars, which gives each product from one to three stars based on its nutritional value, aiding customers in making healthy choices for themselves and their families.

 

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Stores

A breakdown of the number and average size of stores at year-end for 2016 is as follows:

 

 

 

 

   

 

 

 
    2016         Selling space range   
in square meters in
2016
 
          Number of      
stores
   

 Food Lion

    1,033        1,400 - 3,760   

 Hannaford

    181        2,500 - 4,700   
 

 

 

   

 Total

    1,214     
 

 

 

   

 Sales area of own-operated stores

 (in thousands of square meters)

    2,980     
 

 

 

   

As of January 1, 2017, there were 153 pharmacies in Hannaford and 31 in Food Lion stores. Capital expenditures including new finance leases were 3.2% of net sales in 2016.

The Netherlands

Overview

Ahold Delhaize is headquartered in the Netherlands and operates a number of retail brands in the country. Its Albert Heijn brand is a supermarket and online food retailer with the majority of its business in the Netherlands. Ahold Delhaize also operates drugstores in the country under the Etos brand, wine and liquor stores under the Gall & Gall brand, and an online shopping site for general merchandise at bol.com. Ahold Delhaize’s net sales in the Netherlands consist of sales to consumers and to franchise stores. Franchise stores typically operate under the same format as Ahold Delhaize-operated stores. Franchisees purchase merchandise primarily from Ahold Delhaize, pay a franchise fee and receive support services, including management training, field support and marketing and administrative assistance. In 2016, Ahold Delhaize had net sales of 13,101 million in the Netherlands (including Belgium and Germany), representing approximately 26.4% of its consolidated net sales for the full financial year.

Albert Heijn

As of January 1, 2017, Albert Heijn had 1,011 stores located in the Netherlands, Belgium and Germany. The stores are in three principal formats: neighborhood grocery stores, larger Albert Heijn XL supermarkets and Albert Heijn to go convenience stores. The average sales area of Albert Heijn’s own-operated stores is approximately 1,360 square meters. Albert Heijn also offers online shopping for delivery and operates pick-up points for its customers’ convenience.

Specialty stores

Ahold Delhaize acquired Etos in 1974. Etos is a drugstore chain in the Netherlands offering customers a selection of health and beauty, body care, and baby care products. As of January 1, 2017, Etos operated 547 stores in the Netherlands.

Ahold Delhaize also operates wine and liquor stores through its Gall & Gall brand. As of January 1, 2017, there were 605 Gall & Gall stores in the Netherlands.

 

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eCommerce

In addition to offering online shopping through its retail food and specialty stores, in 2012, Ahold acquired bol.com, an online retailer of general merchandise that operates in the Netherlands and Belgium. Since its origins as an online bookseller, bol.com has expanded its offerings to currently include approximately fourteen million products. Bol.com also launched Plaza, an online marketplace that gives customers access to products from other retailers through its website. In 2016, bol.com’s merchant partners, who sell their products for a commission on Plaza, together achieved sales in excess of 1.2 billion. Bol.com delivered strong growth of over 35% in net consumer online sales in 2016, fueled by the launch of new categories, accelerated growth in Belgium and the success of Plaza.

In addition to bol.com’s online business, The Netherlands segment also offers groceries for home delivery and pickup through ah.nl. At the end of 2016, ah.nl operated a total of 54 pick-up points.

Own Brands

Albert Heijn supermarkets offer customers the AH own-brand line, which includes the sub-brands Excellent, Biologisch (organic) and Basic. AH Excellent includes high-quality products such as real Belgian chocolate, artisan cookies and premium olive oil.

Stores

A break-down of the number and average size of stores at year-end for the years indicated is as follows:

 

  

 

 

      

 

 

 
     2016      2015      2014                Selling space range in     
square meters in 2016
 
  

 

 

      
     Number of stores         

 Albert Heijn: the Netherlands

     884        885        872           100 - 4,000   

 Albert Heijn: Belgium

     42        38        28           700 - 2,000   

 Albert Heijn to go: the Netherlands

     74        66        62           50 - 300   

 Albert Heijn to go: Germany

     11        6                 50 - 150   

 Etos

     547        539        539           50- 850   

 Gall & Gall

     605        600        600           40- 300   
  

 

 

      

 Total

               2,163                  2,134                  2,105        
  

 

 

      

 Sales area of own-operated stores

 (in thousands of square meters)

     998        994        976        

In 2016, Ahold Delhaize opened an additional 29 stores, net of closings, in The Netherlands segment. In 2015 and 2014, 17 and 15 stores, respectively, that were formerly part of the Dutch supermarket chain C1000 were converted to the Albert Heijn brand, bringing the total to 71 stores. These converted stores were part of a 2012 transfer of stores from Jumbo, which had acquired C1000 in 2011. Ahold Delhaize also opened four Albert Heijn stores in Belgium, bringing the total number of stores in Belgium to 42. Ah.nl opened other two pick-up points in 2016, bringing the total number to 54.

Capital expenditures including new finance leases were 3.0% of net sales in 2016.

 

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Belgium

Overview

Belgium was the historical home market of Delhaize. The segments’ store network in Belgium and Luxembourg consists of several brands, depending on the specialty, the store size and whether the store is company-operated or affiliated (that is, stores with a Delhaize brand that are operated by independent third parties to whom we sell our products at wholesale prices).

At the merger date, 903 stores from Delhaize Belgium were brought into our portfolio. By the end of July 2016, 145 stores had been divested as a result of the sale of Tom & Co (specialized pet stores) and 10 Red Market discount stores had been converted into either affiliated or Proxy (a smaller convenience store with fewer products in its assortment) supermarkets. The remaining three Red Market stores will be converted in 2017.

In 2016, Ahold Delhaize had net sales of 2,199 million in Belgium, representing approximately 4.4% of its consolidated net sales for the full financial year.

Supermarkets

At the end of 2016, there were 135 company-operated supermarkets under the Delhaize “Le Lion”/Delhaize “De Leeuw” brand in Belgium and Luxembourg and 231 affiliated supermarkets under the AD Delhaize brand in Belgium and Luxembourg.

Proximity stores

At the end of 2016, our network of smaller conveniently located stores in Belgium and Luxembourg consisted of 399 locations in total, with 248 Proxy stores and 151 Shop & Go stores. Proxy Delhaize and Shop & Go are affiliated stores. Most Shop & Go stores are located in Q8 gas stations and address customer expectations regarding proximity, convenience, speed and longer operating hours.

eCommerce

Delhaize.be, our grocery home delivery brand in Belgium, sells food products to customers who order online or by phone. In 2009, Delhaize Belgium launched delhaize.be (previously Delhaize Direct), allowing customers to order their groceries online and pick them up at their local store. At the end of 2016, 117 Delhaize stores had pick-up points.

Own Brands

Our Delhaize Belgium supermarkets offer customers the Delhaize, Care, 365, Eco, Bio and Taste of Inspirations own brands. The Bio brand offers a wide range of certified organic products at attractive prices.

 

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Stores

A break-down of the number and average size of stores at year-end for 2016 is as follows:

 

  

 

 

    

 

 

 
     2016          Selling space range   
in square meters in
2016
 
           Number of      
stores
    

 Delhaize (company operated)

     135         1,175 - 2,750  

 AD Delhaize (affiliated stores)

     231         670 - 2,800  

 Proxy

     248         190 - 1,500  

 Shop & Go

     151         60 - 425  
  

 

 

    

 Total

                         765      
  

 

 

    

 Sales area of own-operated stores

 (in thousands of square meters)

     282      

Total investments in Belgium, post-merger, amounted to around 3.8% of net sales in 2016.

Central and Southeastern Europe (prior to merger Czech Republic only)

Overview

Ahold Delhaize began operating in the Czech Republic in 1991. Its Czech brand, Albert, operates supermarkets and compact hypermarkets. These stores offer a full range of food and non-food products. At the end of 2016, we had a total of 330 stores in the Czech Republic, focused on fresh food, trusted quality and price.

At the merger date, retail operations in Greece, Romania and Serbia were brought into our portfolio:

 

    Greece: Delhaize Group acquired the Greek supermarket chain Alfa Beta in 1992. Today, our Greek business has five brands – Alfa Beta supermarkets, AB Shop & Go, AB City, AB Food Market and ENA Cash & Carry wholesales stores – and operates both company-owned and franchise stores. Alfa Beta was the first supermarket in Greece to introduce a customer loyalty program. Greece had 378 stores at the end of 2016.

 

    Romania: Delhaize acquired the Romanian business in 2000. Our Romanian brands operated 526 stores and two formats – Mega Image supermarkets and Shop & Go convenience stores – at the end of 2016. Mega Image aims to be the customer’s first choice in terms of fresh food, quality and assortment and uses green energy in all its Bucharest stores.

 

    Serbia: Delhaize acquired the Serbian business in 2011. Our Serbia brands operated 404 stores at the end of 2016 in three formats: Maxi supermarkets, Tempo hypermarkets, and Shop & Go small format stores.

As of January 1, 2017, Ahold Delhaize operated 1,638 stores in Central and Southeastern Europe, of which 103 were compact hypers located in the Czech Republic and Serbia. In 2016, Ahold Delhaize had net sales of 3,485 million in Central and Southeastern Europe, representing approximately 7.0% of its consolidated net sales for the full financial year.

 

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eCommerce

In 2015, our Greek business launched an online sales channel, AB Click2Shop, and Mega Image started to offer online grocery shopping in Romania. Serbia added its Maxi online shopping experience in 2014. The Central and Southeastern Europe segment operated 69 pick-up points at the end of 2016.

Own Brands

Our own-brand lines in Central and Southeastern Europe include both food (fresh and grocery) and non-food assortments.

Albert in the Czech Republic offers two own-brand lines: Albert and AH Basic. Under the Albert line of products, there are a number of sub-categories, including Bio, Free From, Veggie and Excellent, all offering quality products at lower prices than national brands.

Our Greek business offers the AB brand, Delhaize 365 and Care own brands. The AB brand is divided into sub-categories, including Close To Greek Land, Choice, Classic Range and Think Bio.

Our Romanian business has developed a number of own brands addressing different customer expectations, including Gusturi romanesti (traditional, local Romanian products and flavors), Mega Apetit (ready-made meals targeting customers with fast-paced lifestyles), Care, Delhaize, La Boucher, ECO and Bio own brands.

Our Serbian stores offer customers the Premia, Care, Home, Taste of Inspirations, 365, Bio and From Our Land own brands. Around 75% of Maxi’s own-brand products come from local producers.

Stores

The number and average size of stores for the years indicated is as follows:

 

                           2016                2015                2014            Selling space range in   
square meters in 2016
 
     Number of stores          

 Czech Republic

     330        331        333         140 - 8,130   

 Greece

     378                       55 - 5,360   

 Romania

     526                       50 - 2,090   

 Serbia

     404                         60 - 5,540   

 Total

             1,638        331        333        

 Sales area of owned-operated stores

 (in thousands of square meters)

     1,203        549        550      

Total investments in Central and Southeastern Europe amounted to around 4.0% of net sales in 2016.

 

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Joint Ventures

In addition to its consolidated subsidiaries, Ahold Delhaize also holds interests in food retail operations through its investments in joint ventures. Ahold Delhaize’s income from joint ventures is included in its consolidated statement of operations in the line item “share in income of joint ventures” and amounted to 34 million in financial year 2016. As of January 1, 2017, Ahold Delhaize holds interests in two material joint ventures:

 

    JMR-Gestão de Empresas de Retalho, SGPS, S.A. (referred to in this Form 20-F Report as JMR), a joint venture with Jerónimo Martins, SGPS, S.A. (“Jerónimo Martins”), which has been in existence since 1992. JMR is headquartered in Lisbon, Portugal, and owns Pingo Doce, a major supermarket chain, with 415 stores at the end of 2016. Under the terms of the joint venture agreement, Ahold Delhaize is a 49% partner and Jerónimo Martins is a 51% partner in JMR, and Ahold Delhaize shares equal voting power with Jerónimo Martins.

 

    P.T. Lion Super Indo, LLC (“Super Indo”), a joint venture with the Salim Group, 51% of which was acquired by Delhaize in 1997. Super Indo is headquartered in Jakarta, Indonesia, and operated 140 of its own supermarkets and one franchise store at the end of 2016.

Competition

Ahold Delhaize operates in a highly competitive food retail industry in all of its markets. The operating environment for the food retailing industry continues to be characterized by intense price competition, pressure on profit margins, aggressive expansion, increasing fragmentation of retail and online formats, entry of non-traditional competitors and market consolidation.

Competition is based primarily on location, quality of products, service, price, product variety, store conditions and eCommerce offerings. Ahold Delhaize is experiencing increasingly diversified competition in both the premium and discount segments of the retail sector, and is also facing new competition from outside the traditional food retail industry. Ahold Delhaize’s own brands are important, in that they enable Ahold Delhaize’s subsidiaries to provide a more relevant assortment of products in different price ranges, develop new and innovative alternatives and build customer loyalty. In general, these own-branded offerings have a higher gross margin than similarly positioned products from third-party brands. Customers are spreading their shopping trips over multiple stores based on their specific shopping needs or specific occasions. Retailers continue to evolve as consumers also diversify and change the ways in which they shop, both online and offline.

Grocery eCommerce is increasingly becoming a more significant part of the overall retail food market and is growing rapidly. Ahold Delhaize currently expects that online operations will continue to be a key component of growth for retailers in years to come. Mobile apps are creating new opportunities for sales growth and an improved customer experience in online shopping.

Seasonality

Ahold Delhaize’s retail businesses generally experience an increase in net sales in the fourth quarter of each year, primarily as a result of the holiday season. Results are also impacted by changes in weather patterns. For example, store sales of subsidiaries of Ahold Delhaize in the U.S. are generally positively impacted by inclement winter weather, which typically results in increased sales prior to expected snow storms, while adverse winter weather in the Netherlands generally results in increased online sales.

 

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Government Regulations

U.S. Regulations

As a marketer and distributor of food products in the United States, Ahold Delhaize and its respective subsidiaries may be subject to regulation by numerous federal, state and local regulatory agencies. At the federal level, Ahold Delhaize and its respective subsidiaries may be subject to the Federal Food, Drug and Cosmetic Act, the Bioterrorism Act and regulations promulgated by the U.S. Food and Drug Administration (referred to in this Form 20-F Report as the FDA). The FDA regulates manufacturing and holding requirements for foods, over-the-counter drug products and pharmaceuticals, specifies the standards of identity for certain foods and prescribes the format and content of certain information required to appear on food product labels.

For certain product lines, Ahold Delhaize and its respective subsidiaries may also be subject to the Federal Meat Inspection Act, the Poultry Products Inspection Act, the Perishable Agricultural Commodities Act, the Country of Origin Labeling Act and regulations promulgated thereunder by the U.S. Department of Agriculture (referred to in this Form 20-F Report as the USDA). The USDA imposes standards for product quality and sanitation, including the inspection and labeling of meat and poultry products and the grading and commercial acceptance of produce shipments from Ahold Delhaize’s vendors.

Money order and wire transfer services offered by Ahold Delhaize’s subsidiaries’ stores are subject to regulations promulgated under the USA Patriot Act, which is administered by the U.S. Department of the Treasury. Ahold Delhaize’s subsidiary stores lottery, alcohol and tobacco sales and operations are regulated at the federal and state levels.

Ahold Delhaize, its respective subsidiaries and their products are also subject to state and local regulations through such measures as the licensing of Ahold Delhaize’s and its respective subsidiaries’ facilities, enforcement by state and local health agencies of state and local standards for their products and facilities and regulation of their trade practices in connection with the sale of their products. Ahold Delhaize’s subsidiaries’ advertising, weights and measures of products, as well as other marketing, labeling and consumer protection issues, are regulated by state agencies and state attorney general offices, which have jurisdiction over state consumer protection statutes and antitrust statutes.

Ahold Delhaize’s respective subsidiaries’ pharmacy operations are subject to federal, state and local regulations and licensing requirements, including state pharmacy boards, Medicaid and Medicare reimbursement regulations and third-party insurance regulations, as well as the Health Insurance Portability and Accountability Act and regulations promulgated by the U.S. Department of Health & Human Services. Ahold Delhaize and its respective subsidiaries’ premises are generally inspected at least annually by federal and/or state authorities. These facilities are also subject to inspections and regulations issued pursuant to the Occupational Safety and Health Act by the U.S. Department of Labor, which require Ahold Delhaize and its respective subsidiaries to comply with certain manufacturing, health and safety standards to protect its employees from accidents and to establish hazard communication programs to transmit information about the hazards of certain chemicals present in certain products it distributes.

Ahold Delhaize and its respective subsidiaries are also subject to regulation by numerous federal, state and local regulatory agencies. Ahold Delhaize and its respective subsidiaries’ store operations and real estate operations are subject to zoning, environmental and building regulations, as well as laws that prohibit discrimination in employment on the basis of disability, including the Americans with Disabilities Act, and other laws relating to accessibility and the removal of barriers. Ahold Delhaize and its respective subsidiaries are also subject to various laws relating to the protection of personal data.

In the United States, the opening of new stores is regulated by municipalities through zoning and licensing laws. Shopping hours are mostly unconstrained by regulation in all of the states where Ahold Delhaize’s respective subsidiaries are active. Most of Ahold Delhaize’s subsidiaries’ U.S. stores are open 14 to 24 hours a day and seven days a week.

 

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Dutch Regulations

As in other jurisdictions, Ahold Delhaize is subject to various legislative provisions in the Netherlands relating to its products, facilities, health and safety of its employees, environmental matters, antitrust matters, privacy matters, its relationship with franchisees, tax matters and use of local employees and vendors, among other matters.

Ahold Delhaize’s properties are subject to Dutch zoning regulations. Consequently, Ahold Delhaize may only operate at locations designated for retail purposes by the municipality, unless special approval is obtained. Similar regulations apply in certain other European countries where Ahold Delhaize operates.

In general, Dutch law does not require an environmental operating permit for the operation of retail stores. However, retail stores must comply with general environmental rules and, among others, a fire safety notification must be obtained. Operating hours are regulated and, in some municipalities, retail stores may not open on Sundays.

As an employer in the Netherlands, Ahold Delhaize is subject to various labor laws that set employment practice standards for workers, including occupational health and safety standards.

The legislative provisions relating to privacy impose obligations on Ahold Delhaize and restrict its use of personal data (for example, the use of customer data relating to customer loyalty programs or in direct marketing activities).

Regulations in Other Jurisdictions

Ahold Delhaize operates its business in six other countries in Europe, and, accordingly, is subject to a wide variety of national and EU laws and regulations governing standards for its products and facilities, the health and safety of its employees, currency conversions and repatriation, taxation of foreign earnings and earnings of expatriate personnel and use of local employees and vendors, among other matters.

Iran - related required disclosure

In 2016, our subsidiary bol.com sold to two individuals each one book on the Dutch language, which books were delivered to the Iranian Embassy in the Netherlands. These transactions generated net revenues of 67. We have no agreement with this embassy. We do not attribute or allocate net profits to these types of transactions. We may enter into similar sale transactions in the future and will only do so to the extent such sales remain lawful.

Environmental Matters

Ahold Delhaize’s operations are governed by environmental laws and regulations in the countries where it operates, including those concerning the discharge, storage, handling and disposal of hazardous or toxic substances. Ahold Delhaize believes that it possesses all of the material permits required for the conduct of its operations and that its current operations are in material compliance with all applicable environmental laws and regulations.

 

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Ahold Delhaize uses hazardous substances and generates hazardous wastes in some of its operations. Under the U.S. Federal Comprehensive Environmental Responsibility, Compensation and Liability Act and similar state laws, generators of hazardous wastes may be jointly and severally liable for the clean-up of hazardous wastes from the facilities to which the generator sent those wastes for disposal. However, Ahold Delhaize is not aware of any material asserted or threatened claims against it relating to any such offsite disposal location.

Clean-up of hazardous substances or petroleum releases in soil or groundwater takes place at certain of Ahold Delhaize’s facilities. At certain of Ahold Delhaize’s other facilities, studies have shown that soil and groundwater have been impacted by gasoline or petroleum constituents, but the relevant regulatory agencies have not required remediation at those sites. In addition, certain of Ahold Delhaize’s facilities are located on premises that are currently or were formerly gasoline stations or other industrial sites at which contamination from prior operations may exist, but there have been no environmental investigations to determine the condition of those sites. Ahold Delhaize believes that any potential clean-up costs associated with those facilities that may be allocated to it will not materially impact its financial position.

Supplier Relationships

Ahold Delhaize purchases its merchandise from thousands of suppliers as well as through two European supplier purchase alliances, Coopernic and AMS. Ahold Delhaize relies on its suppliers to deliver the high-quality products Ahold Delhaize’s customers expect. Increasingly, the Company works in collaboration with its suppliers and engages with them in many ways, aiming to strengthen and improve these relationships. Ahold Delhaize holds supplier events to discuss a wide range of topics, including company strategy, sustainability, supplier diversity, and food safety. Through the Albert Heijn Foundation in Africa, Ahold Delhaize works to improve the livelihoods of Albert Heijn’s African fruit and vegetable suppliers, which in turn support their families and communities and helps to secure long-term relationships with them.

Ahold Delhaize depends on certain suppliers of strategic own-brand products and services. For more information, see Item 3D. “Risk Factors” on this Form 20-F Report. Ahold Delhaize has taken meaningful steps to ensure its own-brand products are produced in a socially responsible way. For example, Ahold Delhaize has set targets to ensure that its own-brand food suppliers are certified against Global Food Safety Initiative-recognized standards. In addition, the Company is making progress on ensuring that 100% of its own-brand suppliers in high-risk countries are audited on social compliance. Social compliance auditing ensures accountability for working conditions within Ahold Delhaize’s supply chains.

 

 

C. ORGANIZATIONAL STRUCTURE

Ahold Delhaize is an international retailing group based in the Netherlands and primarily active in the United States and Europe. Koninklijke Ahold Delhaize N.V. is the group parent company and operates through a number of direct and indirect subsidiaries.

A list of significant subsidiaries is set forth in Note 36 to Ahold Delhaize’s consolidated financial statements included in Item 18 of this Form 20-F Report.

 

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D. PROPERTY, PLANT AND EQUIPMENT

Stores

As of January 1, 2017, Ahold Delhaize or its respective subsidiaries operated 6,556 stores. Total sales area amounted to 9.3 million square meters in 2016. The total number of stores (including stores operated by franchisees) is as follows:

 

    

January 3, 2016

 

     Acquired
    through the
Delhaize
merger
    

Opened / Other
acquired

 

   

Closed / Sold

 

   

    January 1, 

2017 

 

 Ahold USA

     788               2       (14     776  

 Delhaize America

            1,284        3       (73     1,214  

 The Netherlands

     2,134               63       (34     2,163  

 Belgium

            903        10       (148     765  

 Central and Southeastern Europe

     331        1,238        73       (4     1,638  

 Total number of stores

     3,253        3,425        151       (273     6,556  
                 
     December 28,
2014
     Opened /
Acquired
    

Closed / Sold

 

   

January 3, 

2016 

       

 Ahold USA

     768        29        (9     788    

 The Netherlands

     2,105        69        (40     2,134    

 Czech Republic

     333        4        (6     331    

 Total number of stores

     3,206        102        (55     3,253    
                 
     December 29,
2013
     Opened /
Acquired
    

Closed / Sold

 

   

December 28, 

2014 

   

 Ahold USA

     767        3        (2     768    

 The Netherlands

     2,056        74        (25     2,105    

 Czech Republic

     284        50        (1     333    

 Total number of stores

     3,107        127        (28     3,206    

During 2016, we had a net increase of 3,303 stores, which mainly comprises 3,287 additional stores as a result of the merger with Delhaize Group. The number of closed stores in 2016 includes the stores closed after the merger, including the divestment of 145 Tom & Co stores and the stores divested in compliance with the requirements of regulatory authorities.

Out of the 6,556 stores at the financial year-end of 2016, 1,627 stores (Albert Heijn, AD Delhaize, Etos, Gall & Gall and AB stores) were operated by franchisees.

 

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At the end of the financial year 2016, Ahold Delhaize owned or leased 5,460 store locations, some of which are subleased to franchisees.

 

  

 

 

 
      Ahold Delhaize      Franchisees      Total   
  

 

 

 

 Number of stores leased or owned

     5,460        1,096        6,556   

 Number of stores subleased to franchisees

     (531      531        —   
  

 

 

 

 Number of stores operated

                         4,929        1,627                        6,556   

At the end of financial year 2016, Ahold Delhaize operated 484 pick-up points (either standalone, in stores or office-based) as follows:

 

  

 

 

 
               January 1, 
2017 
 

 Ahold USA

     210   

 Delhaize America

     34   

 The Netherlands

     54   

 Belgium

     117   

 Central and Southeastern Europe

     69   
  

 

 

 

 Total number of stores

     484   

Ahold Delhaize’s total number of retail locations, including the 5,460 stores owned or leased by Ahold Delhaize or its respective subsidiaries and 20 pick-up points in stand-alone locations, was 5,480 at the end of financial year 2016. The following table breaks down the ownership structure of Ahold Delhaize’s stores or retail locations for each of financial year 2016, 2015 and 2014:

 

  

 

 

 
 % of total retail locations     January 1, 2017      January 3, 2016      December 28, 
2014 
 
  

 

 

 

 Company-owned

     23%       20%       20%  

 Leased

     77%       80%       80%  

 of which:

      

 Finance leases

     13%       13%       13%  

 Operating leases

     64%       67%       67%  

Ahold Delhaize’s or its respective subsidiaries’ leased properties have lease terms of up to 25 years, in limited instances up to 30 years, with renewal options for additional periods. Store lease payments are normally payable on a monthly basis at a stated amount or, in a limited number of cases, at a guaranteed minimum amount plus a percentage of sales over a defined base.

 

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Other Property

In addition to retail locations, Ahold Delhaize or its subsidiaries also operated the following other properties:

 

  

 

 

 
      January 1, 2017     January 3, 2016     

December 28, 

2014 

 
  

 

 

 

 Warehouse/distribution centers/production facilities/offices

     149       80        84   

 Properties under construction/development

     41       10         

 Investment properties

     1,012       636        685   
  

 

 

 

 Total number of properties

     1,202       726        778   
  

 

 

 

Ahold Delhaize’s or its respective subsidiaries’ investment properties consist of buildings and land. Substantially all of these properties are subleased to third parties. A significant portion of these properties are shopping centers containing one or more Ahold Delhaize stores and third party retail units generating rental income.

The following table breaks down the ownership structure of Ahold Delhaize’s other properties:

 

  

 

 

 
      January 1, 2017      January 3, 2016       December 28, 
2014 
 
  

 

 

 

 Company-owned

     52%       43%        40%  

 Leased:

     48%       57%        60%  

 of which:

       

 Finance leases

     8%       7%        7%  

 Operating leases

     40%       50%        53%  

For a description of the environmental issues that may affect the utilization of our assets, see Item 4B. “Business Overview – Environmental Matters.”

ITEM 4A. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following section contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under “Risk Factors” of Item 3 “Key Information” above and those set forth under “Factors Affecting Financial Condition and Results of Operations” of this Item 5 below.

 

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INTRODUCTION

This discussion is intended to provide information that will assist the reader in understanding Ahold Delhaize’s consolidated financial statements, the changes in certain key items in those financial statements from year to year, and the primary causes for those changes, as well as how certain accounting principles affect our financial statements. The discussion also includes information about the financial results of the various segments of our business to provide a better understanding of how those segments and their results affect the financial condition and results of our operations as a whole.

In reading the following discussion and analysis, please refer to our audited consolidated financial statements for financial years 2016, 2015 and 2014, included under Item 18 in this Form 20-F Report. The consolidated financial statements referred to were prepared using accounting policies in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB. For further information, see our comments made in connection with “New accounting policies effective for 2016” and “New accounting policies not yet effective for 2016,” which are included in Note 3 under Item 18 in this Form 20-F Report.

Amounts in U.S. dollars in the following discussion and analysis are translated into euros at the exchange rates used to prepare the consolidated financial statements. The year-end exchange rate is used for balance sheet related items; the average daily exchange rate (i.e., the yearly average of exchange rates on each working day) is used for income statement and cash flow statement related items.

Our financial year consists of 52 or 53 weeks and ends on the Sunday nearest to December 31. Ahold Delhaize’s 2016 financial year ended on January 1, 2017, and consisted of 52 weeks. The financial year of 2015 ended on January 3, 2016, and consisted of 53 weeks, while the financial year of 2014 included 52 weeks and ended on December 28, 2014. Our financial information includes all of the assets, liabilities, revenues and expenses of all fully consolidated subsidiaries, i.e., those over which we can exercise control.

EXECUTIVE SUMMARY

Our operations

Ahold Delhaize is an international retailing group based in the Netherlands and active primarily in the United States and Europe.

As of January 1, 2017, we employed approximately 370,000 employees and had 6,556 stores in nine countries. In financial year 2016, we achieved consolidated net sales of 49,695 million. Ahold Delhaize is the group parent company and operates through a number of direct and indirect subsidiaries.

Our profits are primarily generated by selling products at prices that generate revenues in excess of direct procurement costs and operating expenses. These costs and expenses include procurement and distribution costs, facility occupancy and other operational expenses, and overhead expenses. We also generate revenues from the sale of products to retail franchisees. Franchisees purchase merchandise primarily from Ahold Delhaize, pay a franchise fee and receive support services. Franchise stores accounted for approximately 8% of our net sales in 2016.

In prior years, Ahold presented three operational reportable segments (Ahold USA, The Netherlands and Czech Republic) and an “Other” segment consisting of the unconsolidated joint-venture JMR and our Corporate Center. Following the merger with Delhaize Group effective July 24, 2016, we reorganized our reporting structure to reflect our new business organization. Our retail operations are currently presented into five reportable segments: Ahold USA, Delhaize America, The Netherlands (which includes the Albert Heijn stores in the Netherlands, Belgium and Germany), Belgium (which includes the Delhaize activities in Belgium and Luxembourg) and Central and Southeastern Europe (“CSE”) and an “Other” segment consisting of the unconsolidated joint-ventures JMR -Gestao de Empresas de Retalho SGPS, S.A (“JMR”) in Portugal and P.T. Lion Super Indo, LLC (“Super Indo”) in Indonesia and Ahold Delhaize’s Global Support Office (previously called “Corporate Center”).

 

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Ahold USA: In the United States, we operate retail outlets on the East Coast under the Stop & Shop, Giant and Martin’s brands. Ahold USA also has an online grocery service under the Peapod brand, which, in addition to the East Coast, is also active in Illinois, Indiana and Wisconsin. As of January 1, 2017, the Ahold USA brands operated 776 stores. Ahold USA is our largest segment, representing approximately 48% of net sales for the the year ended January 1, 2017 (financial year 2015: 62% and 2014: 60%).

Delhaize America: In the United States, we also operate retail outlets on the East Coast of the United States under the brands Food Lion and Hannaford. The Food Lion stores are primarily located in the southeast United States, while Hannaford is located throughout New England and New York. As of January 1, 2017, Delhaize America operated 1,214 stores. This segment, included since July 24, 2016, represents 14% of our net sales for the year ended January 1, 2017.

The Netherlands: In the Netherlands, we operate under the brands Albert Heijn, Etos, Gall & Gall and bol.com. Albert Heijn is also present in Belgium, where we operated 42 stores as of January 1, 2017. Our online general merchandise retailer, bol.com, also operates in Belgium. In addition, we operate Etos (drugstores) and Gall & Gall (wine and liquor stores) in the Netherlands. As of January 1, 2017, The Netherlands segment operated 2,163 stores. This segment represents 26% of our net sales for the year ended January 1, 2017 (financial year 2015: 33% and 2014: 36%).

Belgium: Our Belgian activities include supermarkets under the Delhaize “Le Lion”/Delhaize “De Leeuw,” brand (company-owned stores) and AD Delhaize brand (franchised or affiliated stores) and proximity stores (a smaller convenience store with fewer products in its assortment) under the Proxy Delhaize and Shop & Go brands. As of January 1, 2017, we operated 765 stores, of which 48 were in Luxembourg. This segment, included since July 24, 2016, represents 4% of our net sales for the year ended January 1, 2017.

CSE: In our Central and Southeastern Europe segment, we operate retail outlets in Greece, the Czech Republic, Romania and Serbia. Our brands and store numbers in this segment as of January 1, 2017, are:

 

    Greece: We operate 378 stores in Greece under the brands Alfa Beta, AB City, AB Food Market, AB Shop & Go and ENA Cash & Carry.
    Czech Republic: We operate 330 Albert supermarkets in the Czech Republic.
    Romania: We operate 526 stores in Romania under the Mega Image brand (including Shop & Go), primarily concentrated in the capital Bucharest.
    Serbia: We operate 404 stores in Serbia under the Maxi, Tempo and Shop & Go brands.

This segment represents 7% of Ahold Delhaize’s net sales for the year ended January 1, 2017 (financial year 2015 and 2014: 5%).

In the “Other” segment, we separately present our unconsolidated joint ventures, JMR in Portugal and Super Indo in Indonesia, and the Global Support Office (based in the Netherlands, Belgium, Switzerland and the United States).

2016 financial results

On July 24, 2016, the merger between Ahold and Delhaize became effective and, consequently, Delhaize Group’s financial results are included in our consolidated financial statements since that date, affecting comparability of the 2016 financial results to the 2015 results. Due to the significance of Delhaize Group’s results to the Company, the Delhaize Group sales and operating expense categories and the merger-related integration and restructuring activities in 2016 are the main drivers of the changes in results of operations when compared to the 2015 results.

 

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More specifically, in 2016, we had:

 

    Net sales of 49,695 million, an increase of 11,492 million, or 30.1%. Excluding gasoline sales in the amount of 919 million and adjusting the 2015 sales for week 53 in the amount of 739 million and at constant rates, net sales increased by 12,290 million, or 33.7%, primarily as a result of the merger with Delhaize Group, which added 11,001 million of sales and store openings. In addition to the merger, sales growth was driven by new store openings (836 million), which includes the full-year impact of the acquisition of 25 A&P stores at Ahold USA in the fourth quarter of 2015 and the full-year impact of the conversion of 17 stores transferred from Jumbo in the Netherlands during 2015. In addition, Ahold Delhaize saw an increase of 631 million in comparable sales. This was primarily driven by sales growth at our online businesses, strong growth reported in the Central and Southeastern Europe (CSE) segment and Albert Heijn’s sales momentum, with an increased number of transactions and a higher average purchase amount per visit in the Netherlands. Our brands in the United States grew comparable sales despite the deflationary environment. Sales growth was partly offset by closed stores.
    Ahold Delhaize’s gross profit increased by 2,935 million, or 28.1%. At constant exchange rates, gross profit increased by 2,896 million, or 27.6%, which was 2,713 million higher as a result of the merger with Delhaize Group. Gross profit margin (gross profit as a percentage of net sales) for 2016 was 26.9%, a decrease of 0.4 percentage points compared to 27.3% in 2015.
    In 2016, operating expenses increased by 2,669 million, or 29.2% (28.8% at constant exchange rates), to 11,794 million. which was 2,361 million higher as a result of the merger with Delhaize Group. Excluding the sale of gasoline and at constant exchange rates, operating expenses as a percentage of net sales decreased by 0.4%. This decrease of 0.4% is mainly explained by the addition of the former Delhaize Group operations in part offset by higher impairments, integration costs and restructuring charges. Delhaize America and Belgium operate with a lower gross margin and with lower operating expenses as percentage of sales. The other operating expenses included restructuring and related charges and other items, totaling 233 million, up by 111 million and consisting of 38 million of transaction costs and 107 million of integration costs related to the merger between Ahold and Delhaize Group, as well as 26 million related to divestment of the remedy stores and other divestments. It also included a lump-sum compensation for a reduction in benefits for employees in the Netherlands and the Global Support Office (35 million).
    Net financial expenses increased by 276 million, or 104.2%, to 541 million, mainly due to the increase in Other financial expenses (244 million), which mainly consisted of a one-off cost of 243 million related to the buyback of the JPY 33,000 million notes.
    Operating income was 1,584 million, up 266 million, or 20.2%, versus 1,318 million in 2015, and the operating margin was 3.2% for 2016, compared to 3.4% in 2015.
    Underlying operating income was 1,899 million, up 438 million, or 30.0%. Underlying operating income margin in 2016 was 3.8%, in line with 2015. At constant exchange rates, underlying operating income was up by 432 million, or 29.5%, compared to 2015, which was 393 million higher as a result of the merger with Delhaize Group. These amounts are not measures determined in accordance with IFRS. See “Non-GAAP Financial Measures and Operating Metrics” for a discussion regarding the limitations on the use of such measures and see Item 3 “Key Information -- A. Selected Financial Data” for a reconciliation of the underlying operating income to operating income.

 

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A. OPERATING RESULTS

Key Performance Indicators

We monitor the performance of our operations against strategic objectives on an ongoing basis. We assess our performance against the strategy, budget and forecasts using various financial measures including the following:

 

  

 

 

 
  million    2016       2015       2014    
  

 

 

 

 Net sales

             49,695                   38,203                   32,774      

 Operating income

     1,584           1,318           1,250      

 Operating income margin

     3.2%        3.4%        3.8%  

 Income from continuing operations

     830           849           791      

 Underlying operating income(1)

     1,899           1,461           1,267      

 Underlying operating income margin(1)

     3.8%        3.8%        3.9%  

 Operating Cash Flow

     2,893           2,133           1,876      

 

Non-GAAP Financial Measures and Operating Metrics

As a supplement to its GAAP results, Ahold Delhaize uses non-GAAP measures and operating metrics to evaluate its results of operations and cash flows as described below. Non-GAAP measures and operating metrics have limitations as analytical tools, and should not be considered in isolation or as substitutes for analysis of operating results or cash flows as reported under GAAP. Ahold Delhaize compensates for these limitations by relying primarily on the GAAP results and using non-GAAP measures and operating metrics only for supplemental purposes. Other companies in the retail industry may calculate these measures differently than Ahold Delhaize does, limiting their usefulness as comparative measures. For GAAP results, see Ahold Delhaize’s consolidated financial statements included in Item 18 in this Form 20-F Report.

Underlying Operating Income and Underlying Operating Income Margin

Ahold Delhaize defines “underlying operating income” as the operating income adjusted for items that the Company’s management believes can cause a distortion in understanding the trend of the development of its underlying operating performance. Underlying operating income is calculated as operating income, adjusted for impairments of non-current assets, gains and losses on the sale of assets, restructuring and related charges, and other unusual items.

The Company has included underlying operating income, as it is a key performance metric used by management across its businesses. Ahold Delhaize believes this is a useful measure for investors in understanding the performance of its underlying operations. Underlying operating income is not a measure in accordance with IFRS and accordingly should not be considered as an alternative to operating income.

Underlying operating income margin is calculated as underlying operating income as a percentage of net sales.

 

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See the section entitled “Item 3. Key Information – A. Selected Financial Data” of this Form 20-F Report for a reconciliation to operating income and a discussion regarding the limitation of the use of such measures.

Financial Information at Constant Exchange Rates

Ahold Delhaize calculates financial information (net sales, cost of sales and operating expenses) at constant exchange rates by applying the monthly average exchange rates from the most recent financial period to local currency-denominated monthly financial information in the comparative financial period.

The impact of foreign exchange rate fluctuations on operating income is estimated by deducting costs of sales and operating expenses at constant exchange rates from net sales at a constant exchange rate basis. Financial information at constant exchange rates are not reflected in Ahold Delhaize’s consolidated financial statements and are not measured in accordance with IFRS. Ahold Delhaize does not believe that these measures are a substitute for GAAP measures. However, Ahold Delhaize believes that disclosing financial information at a constant exchange rate basis provides additional useful analytical information to investors regarding the operating performance of Ahold Delhaize.

The exchange rates of the euro against the U.S. dollar (USD), the Czech crown (CZK), the Serbian dinar (RSD) and the Romanian leu (RON) that have been used in the preparation of Ahold Delhaize’s financial statements are included in Note 2 of Item 18 in this Form 20-F Report.

Comparable sales and comparable sales excluding gasoline sales

The comparable sales metric is defined as net sales, in local currency, from exactly the same stores and online sales in existing market areas for the most recent comparable period plus net sales from stores that are replaced within the same market area. For markets that sell gasoline, Ahold Delhaize also calculates the comparable sales, excluding gasoline sales, to eliminate gasoline price volatility in the comparison.

Comparable sales and comparable sales excluding gasoline sales are not reflected in Ahold Delhaize’s financial statements. However, the Company believes that disclosing comparable sales and comparable sales excluding gasoline sales provides additional useful analytical information to investors regarding the operating performance of Ahold Delhaize as it neutralizes the impact of, for example, newly acquired stores in the calculation of sales growth.

Key Factors Affecting Results of Operations

Ahold Delhaize’s results of operations are driven by a combination of factors affecting the industry in which it operates as a whole and various operating factors specific to Ahold Delhaize. The following is an overview of the key factors affecting Ahold Delhaize’s results during the years presented. Also see Item 3D. “Risk Factors” in this Form 20-F Report for more information.

Economic Environment

The general economic environment in the markets where Ahold Delhaize operates has a direct impact on its operating results. The macroeconomic situation in these markets has improved in 2016 compared to the previous two years. However, shoppers continue to be focused on value, price and promotions.

 

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In addition, the decrease in prevailing interest rates has affected the assumptions used in determining the level of certain provisions and costs, such as defined benefit pension costs and self-insurance liability. This decrease in interest rates has resulted in higher defined benefit pension costs, which negatively affected underlying operating income margin.

Consumer Spending

Our operating results are sensitive to changes in overall economic conditions that impact consumer spending, including discretionary spending, in the areas where we operate. Consumers may reduce spending or change their purchasing habits due to certain economic conditions, such as decreasing employment levels, slowing business activity, increasing interest rates, increasing energy and fuel costs, increasing healthcare costs and increasing tax rates. In Greece, the occurrence of certain economic policy developments, such as the implementation of capital controls or the potential exit from the Eurozone, could have an adverse impact on consumer spending and cause us to impair assets related to our operations in Greece and record lower contributions from those assets in our operating results. A general reduction in the level of consumer spending or our inability to respond to shifting consumer preferences regarding products, store location and other factors in the markets where we operate could adversely affect our growth and profitability.

Competitive Environment

Ahold Delhaize operates in the highly competitive food retail industry in all of its markets. The operating environment for the food retailing industry continues to be characterized by intense price competition, pressure on profit margins, aggressive expansion, increasing fragmentation of retail and online formats, entry of non-traditional competitors and market consolidation.

Competition is based primarily on location, quality of products, service, price, product variety, store conditions and eCommerce offerings. Ahold Delhaize is experiencing increasingly diversified competition in both the premium and discount segments of the retail sector, and is also facing new competition from outside the traditional food retail industry. Customers are spreading their shopping trips over multiple stores based on their specific shopping needs or specific occasions. Retailers continue to evolve as consumers also diversify and change the ways in which they shop, both online and offline.

Foreign Exchange Movements

Ahold Delhaize’s results are exposed to transaction and translation risks associated with foreign currency movements. See Item 11 “Quantitative and Qualitative Disclosures about Market Risk” below for more information about foreign currency exchange rate risks and their impact on the results of operation.

Business Combinations

Our operating results are impacted by the additional results of acquired stores, the related costs of the acquisition (transaction and integration costs) as well as potential subsequent impairment charges.

 

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On July 24, 2016, the merger between Ahold and the Delhaize Group became effective. It has been accounted for as a business combination using the acquisition method of accounting under IFRS 3, with Ahold, which was thereafter renamed Ahold Delhaize, identified as the acquirer. The purchase consideration amounted to 10,765 million.

In 2015, Ahold Delhaize acquired 25 A&P stores in the U.S. for consideration of $154 million (141 million), and several minor stores for a combined purchase price of 15 million.

In 2014, Ahold Delhaize acquired SPAR in the Czech Republic. The purchase consideration was CZK 5,170 million (187 million), and with this transaction, Ahold Delhaize acquired 49 stores, of which 35 are compact hypers and 14 are supermarkets, as well as a location that is still under development. Furthermore, Delhaize Group acquired individual stores across its network for a total consideration of 21 million.

See Note 4 of Ahold Delhaize’s consolidated financial statements included in Item 18 and Item 4 “Information on the Company - A. History and Development of the Company” in this Form 20-F Report for further information.

Disposition Activities

Significant disposition activities meeting the accounting definition for assets held for sale and discontinued operations are shown separately in the consolidated statements of financial position and income statements, respectively. The impact of these on the financial results is further discussed below.

As part of the approval of the merger between Ahold and Delhaize Group by the U.S. Federal Trade Commission, Ahold and Delhaize subsidiaries entered into agreements to sell 86 stores in the United States. The approval of the Belgian Competition Authority was conditional upon the divestment of 13 stores and a limited number of projects in Belgium. Of the 86 stores in the United States, Ahold USA divested eight out of 15 stores and Delhaize America divested all of the 71 stores in 2016. None of the 13 stores in Belgium (eight Albert Heijn stores and five Delhaize franchisee stores) have been divested yet. The divestment of these stores resulted in an 18 million gain and 6 million impairment charge in 2016.

In addition, in 2016, we completed the sale of pet specialist shop Tom & Co with an insignificant divestment loss.

In 2014, Ahold Delhaize recorded a provision of 187 million net of 28 million income tax benefits to settle a class action related to pricing practices of a former subsidiary, U.S. Foodservice. Furthermore, in 2014, the sale of Ahold Slovakia was completed but this did not result in a material impact in the income statement.

See also Note 5 of Ahold Delhaize’s consolidated financial statements included in Item 18 of this Form 20-F Report.

Impact of 53rd Week

Ahold Delhaize’s financial year is a 52- or 53-week period ending on the Sunday nearest to December 31. Ahold Delhaize’s 2016 financial year ended on January 1, 2017, and consisted of 52 weeks. Financial year 2015 consisted of 53 weeks and ended on January 3, 2016. Financial year 2014 consisted of 52 weeks and ended on December 28, 2014.

Net sales in 2015 were positively impacted by the additional week, while the impact on operating margins for the Group was negligible. In some of the discussions below, we have included comparisons of 2016, 2015 and 2014 excluding the actual sales of week 53 in 2015 (referred to as “adjusted”).

 

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Investing in Online Businesses

We are investing in future growth by investing in our online businesses in the United States and the Netherlands. Margins in the Netherlands were affected by these increased investments and the strong sales growth in our online business, particularly at bol.com. The additional dilutive effect on the underlying operating income margin of the Netherlands was approximately 10 basis points in 2016 as compared to 2015 and 25 basis points in 2015 as compared to 2014.

Inflation

Cost of goods sold and labor cost, our primary operating costs, increase generally with inflation and, where possible, are recovered through cost-saving activities and retail price adjustments.

According to the U.S. Bureau of Labor Statistics, overall inflation in the U.S. was 2.1% in 2016, 0.7% in 2015 and 0.8% in 2014. Food inflation was -0.2% in 2016, 0.8% in 2015 and 3.4% in 2014.

According to Statistics Netherlands (Centraal Bureau voor de Statistiek), overall Dutch inflation was 0.3% in 2016, 0.6% in 2015 and 1.0% in 2014.

Seasonality and Weather Patterns

Ahold Delhaize’s retail business generally experiences an increase in net sales in the fourth quarter of each year, primarily as the result of the holiday season. Results are also impacted by changes in weather patterns. For example, our U.S. store sales are generally positively impacted by inclement winter weather, which results in increased sales prior to expected snow storms, while adverse winter weather in the Netherlands generally results in increased online sales.

Fuel Prices

Our sales and cost of sales are impacted by the volatility of fuel prices (selling prices of gasoline and cost of gasoline sold). In 2016, gasoline sales accounted for 1.9% of our net sales (2015: 2.9% and 2014: 4.1%).

Critical Accounting Estimates

Ahold Delhaize has selected accounting policies that it believes provide an accurate, true and fair view of its consolidated financial condition and results of operations. Those accounting policies are applied in a consistent manner, unless stated otherwise, which will be mainly a result of the application of new accounting pronouncements. For a summary of all of Ahold Delhaize’s significant accounting policies, see Note 3 to Ahold Delhaize’s consolidated financial statements included in Item 18 of this Form 20-F Report.

 

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The preparation of the consolidated financial statements in conformity with IFRS, as issued by the IASB, requires that Ahold Delhaize make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. These estimates and assumptions, although based on historical and other factors that Ahold Delhaize believes to be reasonable under the circumstances, inherently contain some degree of uncertainty. Ahold Delhaize evaluates these estimates and assumptions on an ongoing basis and may retain outside consultants, accountants, lawyers and actuaries to assist the Company in its evaluation, with the final decision remaining with Ahold Delhaize. By definition, actual results may and will often differ from these estimates under different assumptions and conditions.

Ahold Delhaize believes the following accounting estimates and assumptions are critical because they involve the most significant judgments and estimates used in the preparation of its consolidated financial statements and the effect of the estimates and assumptions on financial condition or operating performance might be material.

The estimates, assumptions and judgments that management considers most critical relate to:

Business acquisitions

Determining the fair value of assets and liabilities recognized from a business acquisition involves a number of judgments and estimates and typically involve the use of valuation experts.

The determination of the fair values includes the use of:

 

  An income approach (for property, plant and equipment, brand names and contractual relationships), which requires the estimation of the income generating capacity of the relevant assets and the return or yield that a market participant would apply to such assets or an estimate or forecast of future expected cash flows through either a relief from royalty or multi-period excess earnings approach.

 

  A cost approach (for property, plant and equipment), which requires the calculation of the depreciated replacement cost of the relevant assets.

 

  A market approach (for property, plant and equipment, lease related intangibles), which requires the comparison of the subject assets to transactions involving comparable assets or a comparison of contract and market prices.

 

  Expected sales consideration, less any incremental costs directly attributable to the sale (for acquired assets classified as held for sale).

 

  Market-quoted rates for the listed debt.

 

  Assessments of the expected cash outflow and the probability of such an outflow for contingent liabilities related to legal disputes.

 

  Evaluations of a counterparty’s credit risk and the re-let potential for contingent liabilities related to lease guarantees.

See also Note 4 of Ahold Delhaize’s consolidated financial statements included in Item 18 of this Form 20-F Report for more information on acquisitions.

 

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Vendor Allowances

Ahold Delhaize receives various types of vendor allowances from its suppliers of inventory. These allowances and credits take different forms, which vary based on business practices in the regions where Ahold Delhaize operates, but are primarily for in-store promotions, cooperative advertising, new product introductions and volume incentives.

The most common allowances vendors offer are:

 

    Volume allowances, which are off-invoice or amounts billed back to vendors based on the quantity of products sold to customers or purchased from the vendor
    Promotional allowances, which relate to cooperative advertising and market development efforts

Volume allowances are recognized as a reduction of the cost of the related products as they are sold. Promotional allowances are recognized as a reduction of the cost of the related products when Ahold Delhaize has performed the activities specified in the contract with the vendor. If the contract does not specify any performance criteria, the allowance is recognized over the term of the contract. Vendor allowances are generally deducted from cost of sales, unless there is clear evidence that they should be classified as revenue or a reimbursement of costs. Ahold Delhaize recognizes vendor allowances only where there is evidence of a binding arrangement with the vendor, the amount can be estimated reliably, and receipt is probable.

The accounting for vendor allowances requires a number of estimates. First, Ahold Delhaize must estimate the allowances that are earned based on the fulfillment of its related obligations, many of which require management to estimate the volume of purchases that will be made during a period of time. Second, Ahold Delhaize needs to estimate the amount of related product that was sold and the amount that remains in ending inventories and accordingly allocate the allowance to cost of sales or inventories. Management makes this estimate based on the turnover of the inventories and allocates a portion of the related vendor allowance to ending inventories until such product is estimated to have been sold to customers.

Although Ahold Delhaize believes that the assumptions and estimates used are reasonable, significant changes in these arrangements or purchase volumes could have a significant effect on inventory valuations and future cost of sales.

Amounts owed to Ahold Delhaize under these arrangements are subject to counterparty credit risk and Ahold Delhaize provides an allowance for uncollectible amounts. This allowance is based on the current financial condition of the vendors and historical experience, and changes to these factors could affect the allowance. In addition, the terms of the contracts covering these arrangements can be complex and subject to interpretation, which can potentially result in disputes.

Income Taxes

Income tax expense is comprised of current and deferred income tax, both of which need to be determined for each of the taxing jurisdictions in which Ahold Delhaize conducts its business. Management judgment is required for the calculation of current and deferred taxes. Current tax expense is the expected tax payable on the best estimate of taxable income for the period, using tax rates enacted, or substantively enacted, at the balance sheet date. Additionally, any adjustment to tax payable (receivable) for prior periods is reflected in current tax expense. Deferred tax expense is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities and the corresponding tax basis used in the computation of estimated taxable income. Deferred tax is calculated considering (i) the tax rates that are expected to apply in the period when the liability is settled or the asset is realized and (ii) the expected manner of realization or settlement of the carrying amount of assets and liabilities.

 

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Deferred tax assets and liabilities are generally recognized for all temporary differences except those related to the initial recognition of goodwill in jurisdictions in which the goodwill is not tax deductible. Deferred tax assets, including deferred tax assets for tax loss carryforward positions and tax credit carryforward positions, are recognized to the extent that it is probable that future taxable income will be available against which temporary differences, unused tax losses, or unused tax credits can be utilized. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow all or a portion of the asset to be recovered.

The ultimate tax effects of transactions may be uncertain for a considerable period of time, requiring management to estimate the related current and deferred tax positions. Ahold Delhaize recognizes liabilities for uncertain tax positions when it is more likely than not that additional tax will be due. In making this assessment, Ahold Delhaize assumes that the tax authorities will examine the amounts reported to them with full knowledge of all relevant information. Based on Ahold Delhaize’s evaluation of the potential tax liabilities and the merits of its filing positions, Ahold Delhaize believes it is unlikely that any potential tax amounts, in excess of the amounts currently recorded as liabilities in Ahold Delhaize’s consolidated financial statements, would be material to its future financial condition or results of operations.

See also Note 10 of Ahold Delhaize’s consolidated financial statements included in Item 18 of this Form 20-F Report for more information on income taxes.

Intangible Assets

Separately acquired intangible assets and internally developed software are carried at cost less accumulated amortization and impairment losses. Intangible assets acquired in a business combination are recognized at fair value at the date of acquisition (which is regarded as their cost).

Customer, franchise, and affiliate relationships acquired in business acquisitions are stated at fair value determined using an income approach. Direct costs related to the development of software for internal use are capitalized only if the costs can be measured reliably, technological feasibility has been established, future economic benefits are probable, and Ahold Delhaize intends to complete development and to use the software. All other costs, including all overhead, general and administrative, and training costs, are expensed as incurred. Lease-related intangible assets, consisting primarily of favorable operating lease contracts acquired in business acquisitions, are measured at the present value of the amount by which the contract terms are favorable relative to market prices at the date of the acquisition.

Leases and Sale and Leaseback Transactions

Ahold Delhaize leases a significant proportion of its store locations. The classification of the leases as finance leases or operating leases requires judgments about the fair value of the leased asset, the split of the fair value between land and buildings, the economic life of the asset, whether or not to include renewal options in the lease term and the appropriate discount rate to calculate the present value of the minimum lease payments.

 

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Judgment is also required by Ahold Delhaize when considering revenue recognition with respect to sale and leaseback transactions and depends on whether Ahold Delhaize transfers risks and rewards to the buyer, does not maintain (or maintains only minor) continuing involvement in the property, other than the lease payments, and whether the transaction is established at fair value.

Impairments

Judgments and estimates are required, not only to determine whether there is an indication that an asset may be impaired, but also to determine whether indications exist that impairment losses previously recognized may no longer exist or may have decreased (impairment reversal).

Property, plant and equipment

The higher of the value in use or fair value less cost of disposal represents an asset’s recoverable amount. The value in use method involves estimating future cash flows. The present value of estimated future cash flows has been calculated using pre-tax discount rates ranging between 5.8% and 17.3% (2015: 6.3% - 12.7%, 2014: 6.8% - 13.1%). Fair value represents the price that would be received to sell an asset in an orderly transaction between market participants and is generally measured by using an income approach or a market approach. The income approach is generally applied by using discounted cash flow projections based on the assets’ highest and best use from a market participants’ perspective. The market approach requires the comparison of the subject assets to transactions involving comparable assets by using inputs such as bid or ask prices or market multiples.

In 2016, Ahold Delhaize recognized net impairment losses of 71 million for property, plant and equipment (2015: 26 million and 2014: 10 million). These were mainly related to Ahold USA (2016: 60 million, 2015: 17 million and 2014: 7 million) and the Netherlands (2016: 6 million, 2015: 9 million and 2014: 3 million) and were recognized for various operating and closed stores. In 2016, the fair value less cost of disposal was the recoverable amount in the determination of 40 million of the net impairment losses mainly relating to remedy and other divestment stores (2015: 2 million net impairment losses, 2014: nil).

As part of approval of the merger between Ahold and Delhaize by the U.S. Federal Trade Commission, Ahold USA entered into agreements to sell 15 stores (“remedy stores,” see Note 5 of Ahold Delhaize’s consolidated financial statements included in Item 18 of this Form 20-F Report for more information). In addition to remedy stores, Ahold USA intends to divest another 10 stores in the Richmond area (“other divestment stores”). Ahold USA incurred net impairment charges of 17 million in total for the property, plant and equipment of the remedy stores before they were classified as held for sale and a 3 million impairment for the stores’ associated fixed assets to be abandoned. Impairments for the property, plant and equipment of the other divestment stores of Ahold USA amounted to 20 million. The impairments related to remedy and other divestment stores were mainly based on the bid prices received.

Intangibles

In connection with the merger of Ahold and Delhaize Group, Ahold Delhaize recognized 5,926 million of goodwill (see Note 4 of Ahold Delhaize’s consolidated financial statements included in Item 18 of this Form 20-F Report for more information). Goodwill recognized on acquisitions in 2015 relates mainly to the acquisition of A&P stores in the United States (allocated to Stop & Shop New York Metro) and C1000 stores in the Netherlands (allocated to Albert Heijn).

Goodwill acquired in business combinations is allocated, at acquisition, to the cash-generating units (CGUs) or groups of CGUs expected to benefit from that business combination.

 

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CGUs to which goodwill has been allocated are tested for impairment annually or more frequently if there are indications that a particular CGU might be impaired. During the purchase price allocation, the fair value of Delhaize’s CGUs was determined based on their respective business enterprise values by discounting the projected cash flows of these CGUs. There were no significant changes to those projected cash flows after the merger date.

The recoverable amount of each CGU is determined based on value in use calculations. Value in use is determined using discounted cash flow projections that generally cover a period of three years and are based on the financial plans approved by the Company’s management. Due to the expected continuation of high growth in the relevant online retail markets, we project cash flow for bol.com and Peapod over 10-year periods to better reflect the growth expectations in sales, profitability and cash generation after the first three-year projection period.

See Note 13 to Ahold Delhaize’s consolidated financial statements included in Item 18 of this Form 20-F Report for more information about assumptions used and sensitivity analyses performed. The key assumptions for the value in use calculations relate to discount rate, sales growth and operating margin.

Ahold Delhaize and Multi-Employer Pension Obligations

Ahold Delhaize provides its employees with a pension benefit using a combination of defined contribution, defined benefit and multi-employer pension plans. Contributions to defined contribution plans are typically based upon a percentage of an employee’s covered salary and do not require significant estimates. However, defined benefit pension plans include significant estimates and assumptions by management in order to arrive at the value of an individual plan’s net defined benefit liability (asset), defined as the present value of the defined benefit obligation less the fair value of plan assets. In situations when the calculation results in a net defined benefit asset, the amount recognized is limited to the present value of the economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan.

Calculating the net defined benefit pension liability (asset) and the associated net cost (income) involves the application of actuarial valuation methods, which are subject to a number of estimates and assumptions about the future. One significant assumption is the discount rate that is used to determine the present value of estimated future cash outflows expected to be required to settle the pension obligations. The discount rate is determined in the relevant currency in which the relating obligations are denominated by reference to market yields at the end of the reporting period on high quality corporate bonds. Other key assumptions comprise longevity and future salary and pension increases.

Differences between estimates and actual outcomes and changes in assumptions represent actuarial gains and losses (remeasurements of the net defined benefit liability (asset) and experience adjustments), which are fully recognized in the period they occur in the statement of other comprehensive income, and immediately affect the net defined benefit pension liability (asset). In the event that changes in the key assumptions applied to calculate the net defined benefit pension liability (asset) are required, the future amounts of the defined benefit pension costs may be materially affected.

The multi-employer defined benefit plans that Ahold Delhaize participates in require additional estimates and assumptions by management. Since Ahold Delhaize is only one of several employers participating in these plans and there is no reliable basis to accurately determine Ahold Delhaize’s share of plan obligations and assets following defined benefit accounting principles, these plans are accounted for as defined contribution plans. However, Ahold Delhaize does present an estimate of its proportionate share of each plan’s deficit or surplus as a note to its financial statements. This proportionate share is an estimate based on the latest available information received from the plans, which is typically one year old. Ahold Delhaize updates this information, using assumptions based upon market trends and conditions, for the time period through its balance sheet date and, as such, Ahold Delhaize’s estimated proportionate share of multi-employer plan deficits and surpluses is imprecise and not necessarily reliable.

 

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See Note 23 to Ahold Delhaize’s consolidated financial statements included in Item 18 of this Form 20-F Report for more information on key assumptions and sensitivity analyses performed.

Provisions and Contingencies

The recognition of provisions requires estimates and judgment regarding the timing and the amount of outflow of resources. The main estimates are as follows:

 

    Self-Insurance Program: As also discussed in Note 24 of Ahold Delhaize’s consolidated financial statements included in Item 18 of this Form 20-F Report, Ahold Delhaize manages its insurable risks through a combination of self-insurance and commercial insurance coverage. Ahold Delhaize’s U.S. operations are self-insured for workers’ compensation, general liability, vehicle accident and certain health care-related claims up to a certain retention, and Ahold Delhaize holds excess insurance contracts with external insurers for any costs in excess of these retentions.

Self-insurance liabilities are estimated based on actuarial valuations. Estimates and assumptions used in valuing Ahold Delhaize’s self-insurance liabilities include an estimate of claims incurred but not yet reported, historical loss experience, projected loss development factors, estimated changes in claim reporting patterns, claim settlement patterns, judicial decisions and legislation. For example, a reasonably possible change in the 3-year and 10-year Treasury rates of 50 basis points, all else being equal, would have resulted in a hypothetical pre-tax gain of approximately 17.2 million ($18.1 million) or a pre-tax loss of approximately 10.4 million ($10.9 million) as of January 1, 2017. While Ahold Delhaize believes that the actuarial estimates are reasonable, they are subject to changes caused by claim reporting patterns, claim settlement patterns, regulatory economic conditions and adverse litigation results.

 

    Loyalty Programs: In the Netherlands, Ahold Delhaize participates in a loyalty program with other retailers, whereby customers are granted points that may be exchanged for discounted products at any of the participating partners. The program is administered by a third party and the cost of the program is distributed to each of the participating partners based on its share of issued points. The measurement of the provision requires management estimates regarding the expected timing of the redemption of points and the expected breakage (points issued but never redeemed). Management’s assessment is based on historical information regarding the redemption of points and is reviewed at least annually.

 

    Claims and Legal Disputes: Management, supported by internal and external legal counsel, where appropriate, determines whether it is more likely than not that an outflow of resources will be required to settle an obligation. This probability assessment is based on many relevant factors, such as jurisdiction, past experiences, and similar court cases. If the more likely than not probability criteria is estimated to be met, the best estimate of the future cash outflows is recognized.

 

    Severance and termination benefits: Periodically, Ahold Delhaize will identify areas of its businesses or operations that are not generating anticipated results or operating as efficiently as management desires, which may result in plans to close stores or restructure the workforce or offer voluntary separation plans to a select group of employees. The valuation of the associated costs that are provided for is based on formal and approved plans using the best information available at the time of the cash flows that are likely to occur. The valuation estimates include assumptions regarding the number of employees affected or opting to accept separation, the salaries of this population, and length of service or continued employment.

 

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    Onerous Contracts: Ahold Delhaize’s most significant onerous contracts mainly relate to unfavorable lease contracts and are valued based on the excess of the unavoidable costs of meeting the obligations under the contracts over the benefits expected to be received under such contracts. The valuation estimates include assumptions on future lease costs specified in the lease agreement, less any anticipated sublease income.

Estimating the value of onerous contract provisions requires significant judgments and estimates that could be impacted by factors such as the extent of interested buyers, the ability to obtain subleases, the creditworthiness of sub-lessees, and Ahold Delhaize’s success at negotiating early termination agreements with lessors. These factors are significantly dependent on general economic conditions and the resulting demand for commercial property. Finally, applying an appropriate discount rate on the estimated long-term cash flow projection requires the application of judgment. The ultimate amounts incurred may change as the plans are executed and the provision is updated at each balance sheet date based upon the most recent information.

Comparison of the Financial Years Ended January 1, 2017, January 3, 2016 and December 28, 2014

 

  million except percentages   Financial years ended     Change     Change  
 

 

 

 
        January 1,             January 3,         December 28,     2016 vs. 2015     2015 vs. 2014  
    2017     2016     2014     Actual     %     Actual     %  
 

 

 

 

 Net sales

    49,695        38,203        32,774              11,492        30.1 %       5,429        16.6 %  

 Cost of sales(1)

    (36,317)       (27,760)       (24,029)       (8,557)       30.8 %       (3,731)       15.5 %  

 Gross profit(1)

    13,378        10,443        8,745        2,935        28.1 %       1,698        19.4 %  

 Operating expenses(1)

    (11,794)       (9,125)       (7,495)       (2,669)       29.2 %             (1,630)       21.7 %  

 Operating income

    1,584        1,318        1,250        266        20.2 %       68        5.4 %  

 Net financial expenses

    (541)       (265)       (235)       (276)             104.2 %       (30)       12.8 %  

 Income before income taxes

    1,043        1,053        1,015        (10)       (0.9)%       38        3.7 %  

 Income taxes

    (247)       (224)       (248)       (23)       10.3 %       24        (9.7)%  

 Share in income of joint ventures

    34        20        24        14        70.0 %       (4)             (16.7)%  

 Income from continuing operations

    830        849        791        (19)       (2.2)%       58        7.3 %  

 Income (loss) from discontinued operations

    —              (197)       (2)       (100.0)%       199        (101.0)%  

 Net income attributable to common shareholders

    830        851        594        (21)       (2.5)%       257        43.3 %  

 Underlying operating income(2)

    1,899        1,461        1,267        438        30.0 %       194        15.3 %  

 

(1) Comparative data for 2015 and 2014 has been restated to reflect the changes in presentation related to the cost alignment for online business. We refer to “Changes in presentation” in Note 3 “Significant accounting policies” included under Item 18 in this Form 20-F Report.
(2) These amounts are not measures determined in accordance with IFRS. See the section entitled “-Non-GAAP Financial Measures and Operating Metrics” for a discussion regarding the limitations on the use of such measures and Item 3 “Key Information – A. Selected Financial Data” for a reconciliation to operating income.

 

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Our financial year consists of 52 or 53 weeks and ends on the Sunday nearest to December 31. Financial year 2015 consisted of 53 weeks, while 2016 and 2014 consisted of 52 weeks. Net sales in 2015 were positively impacted by the additional week, while the impact on operating margins for the Group was negligible. In some of the discussions below, we have included comparisons of 2016, 2015 and 2014 excluding actual week 53 in 2015 (referred to as “adjusted”).

Net Sales

 

  million except percentages    Financial years ended      Change      Change  
  

 

 

 
         January 1,          January 3,      December 28,            2016 vs. 2015                  2015 vs. 2014        
     2017      2016      2014      Actual      %      Actual      %  
  

 

 

 

 Net sales

     49,695        38,203        32,774            11,492         30.1 %            5,429             16.6 %  

 Of which gasoline sales

     919        1,093        1,337        (174)            (15.9)%        (244)        (18.2)%  
  

 

 

 

 Net sales excluding gasoline

     48,776        37,110        31,437        11,666         31.4 %        5,673         18.0 %  

Net sales in 2016 were 49,695 million, an increase of 11,492 million, or 30.1%, compared to net sales of 38,203 million in 2015. At constant exchange rates, net sales were up by 11,360 million, or 29.6%, in 2016. Net sales in 2015 were 38,203 million, an increase of 5,429 million, or 16.6%, compared to 32,774 million in 2014. At constant exchange rates, net sales were up by 1,586 million, or 4.3%, in 2015.

Gasoline sales decreased in 2016 by 174 million or 15.9%, or 16.1% at constant exchange rates. Adjusted for week 53 in 2015 and at constant exchange rates, gasoline sales decreased 14.5% in 2016, mainly due to a decrease in gasoline prices (approximately 12%) offset in part by a stronger U.S. dollar against the euro. Gasoline sales in 2015 decreased by 244 million, or 18.2%, compared to 2014, mainly due to a significant decrease in gasoline prices (approximately 30%) offset in part by a stronger U.S. dollar against the euro. Excluding the impact of the 53rd week in 2015 in the amount of 21 million and at constant exchange rates, gasoline sales decreased by 31.3% in 2015.

Net sales excluding gasoline increased in 2016 by 11,666 million, or 31.4%, compared to 2015. At constant exchanges rates, net sales excluding gasoline increased in 2016 by 11,537 million, or 31.0%, compared to 2015. Compared to the adjusted 2015 sales and at constant exchange rates, net sales excluding gasoline increased in 2016 by 12,290 million, or 33.7%. This increase was primarily driven by the merger with the Delhaize Group, which added 11,001 million of net sales.

In addition to the merger, sales growth was driven by new store openings (836 million in 2016), which includes the full-year impact of the acquisition of 25 A&P stores at Ahold USA in Q4 of 2015 and the full-year impact of the conversion of 17 stores transferred from Jumbo in the Netherlands during 2015. In addition, we saw an increase of 631 million in comparable sales in 2016. This was driven by sales growth at our online businesses, strong growth reported in the Central and Southeastern Europe (CSE) segment and Albert Heijn’s sales momentum, with an increased number of transactions and a higher average purchase amount per visit in the Netherlands. Our brands in the United States grew comparable sales despite the food deflationary environment.

In 2016, we continued to see strong sales growth in our online businesses, which operate in maturing eCommerce markets, mainly in the United States and the Netherlands, and offered expanded or new sales categories and extended service delivery areas during the year. Our online businesses contributed 1,991 million, or 4.0%, to our net sales in 2016 (2015: 1,646 million, or 4.3%).

 

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Net sales excluding gasoline increased in 2015 by 5,673 million, or 18.0% compared to 2014. Adjusted for the 53rd week in 2015 in the amount of 720 million and at constant exchange rates, net sales excluding gasoline increased in 2015 by 1,365 million, or 3.8%. This increase was primarily driven by higher sales of 765 million due to new store openings, which includes the acquisition of 49 SPAR stores in the Czech Republic, the conversion of 17 stores transferred from Jumbo in the Netherlands and the acquisition of 25 A&P stores at Ahold USA. In addition, Ahold saw an increase in comparable sales. This was driven by sales growth at our online businesses, Albert Heijn’s sales momentum with an increased number of transactions, and a higher average purchase amount per visit in both the Netherlands and the United States.

In 2015, Ahold Delhaize’s online businesses contributed 1,646 million, or 4.3%, of net sales (2014: 1,267 million, or 3.9%).

Net sales per segment can be summarized as follows:

 

  million except percentages    Financial years ended      Change      Change  
  

 

 

 
         January 1,          January 3,      December 28,                2016 vs. 2015                          2015 vs. 2014            
     2017      2016      2014      Actual      %      Actual      %  
  

 

 

 

 Ahold USA

     23,845        23,732        19,557        113        0.5%        4,175        21.3%  

 Delhaize America

     7,065                      7,065        N/A                N/A   

 The Netherlands

     13,101        12,699        11,696        402        3.2%        1,003        8.6%  

 Belgium

     2,199                      2,199        N/A                N/A   

 Central and Southeastern Europe

     3,485        1,772        1,521        1,713        96.7%        251            16.5%  

 

 

 Total

     49,695        38,203        32,774            11,492            30.1%            5,429        16.6%  

 

 

Ahold USA

In 2016, net sales for Ahold USA were 23,845 million, up by 0.5%, or 113 million, compared to 2015. At constant exchange rates, net sales were up by 0.1%.

Net sales growth was affected by lower gasoline sales, primarily due to a decline in gasoline prices and lost sales from remedy stores that were divested during the second half of 2016. Comparable gasoline volumes were down by 2.8%. Excluding gasoline in the amount of 864 million, net sales at constant rates were 0.9% higher than in 2015, or adjusted for week 53 in 2015, higher by 2.8%. This increase was mainly driven by 0.7% growth in comparable sales and the full-year impact of the conversion of 25 acquired A&P stores in the fourth quarter of 2015. Sales growth was adversely impacted by overall market deflation in main product categories. This was most notable in the second half of the year and in the Meat and Dairy categories.

During 2016, Ahold USA completed the transformation of the produce and self-service bakery departments. These transformations, and two waves of price reduction at the end of Q1 and Q4, were part of its program to improve the customer proposition through targeted price reductions and marketing, an improved “Fresh” offering, and an enhanced customer experience through in-store merchandising and employee engagement. Stores where the program has been rolled out continued to see positive performance.

In 2015, net sales for Ahold USA were 23,732 million, up by 21.3%, or 4,175 million, compared to 2014. At constant exchange rates, net sales were up by 1.4%. Net sales growth was affected by lower gasoline sales, primarily due to a sharp decline in gasoline prices (approximately 30%). Comparable gasoline volumes were down by approximately 4%. Excluding gasoline, net sales at constant rates were 3.8% higher than in 2014, or, excluding the 53rd week impact in 2015, higher by 1.8%. This increase was mainly driven by 1.1% growth in comparable sales and was a result of a higher average purchase amount per visit; the conversion of 25 acquired A&P stores (which contributed approximately 0.6% to the sales growth); and the opening of four new stores versus 2014 (which contributed approximately 0.3% to the sales growth).

 

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During 2015, Ahold USA completed the rollout of the first waves of its program to improve its customer proposition through targeted price reductions and marketing, an improved “Fresh” offering, and an enhanced customer experience through in-store merchandising and employee engagement. Stores where the program has been rolled out for more than a year continued to see positive performance. By the end of 2015, Ahold USA had transformed more than 470 produce departments and more than 200 bakery departments.

In 2016 and 2015, our online business, Peapod, continued to grow in its existing market area and the expansion in the New York City area accelerated as further capacity became available at the New Jersey facility.

Delhaize America

For the period July 24, 2016 - January 1, 2017, Delhaize America’s net sales were 7,065 million. The net sales were adversely impacted by overall market deflation in main product categories, which was was more than offset by positive volume development.

In October 2016, Food Lion implemented its “Easy, Fresh & Affordable” initiative in 142 stores in the Charlotte market, with positive initial customer response, especially in fresh.

The Netherlands

In 2016, net sales in The Netherlands were 13,101 million, up by 3.2%, or 402 million, compared to 2015. Adjusted for week 53 in 2015 , net sales increased in 2016 by 665 million, or 5.3%. This increase was mainly driven by the 4.1% growth in comparable sales; the full year impact of the conversion of former C1000 stores in the Netherlands and of last year’s opening of new Albert Heijn stores in Belgium; and further expansion of our store network in the Netherlands.

The comparable sales growth in the Netherlands of 4.1% was fueled by double-digit sales growth of our online operations. Adjusted for the additional week in 2015, net sales at bol.com increased by 25.0% and at Albert Heijn Online by 29.7% (or 22.5% and 27.3%, respectively, including the 53rd week in 2015) because both brands were able to attract more sales from existing customers, and attract new customers in existing areas. Albert Heijn’s comparable sales growth was driven by its ability to attract customers with newly introduced own-brand products, own-brand quality improvements, innovative products and the expansion of its healthy food offering. In December 2016, Albert Heijn was named the best supermarket in the Netherlands by market research company GfK.

For the full year 2016, market share at Albert Heijn increased to 35.2% (source: Nielsen), driven by the growth of Albert Heijn Online and Albert Heijn to go.

In 2016, bol.com delivered strong double-digit growth in net consumer online sales of 32.5%. Adjusted for week 53 in 2015, net consumer online sales increased by 35.5%, as in previous years fueled by new categories and accelerated growth in Belgium as well as the success of Plaza. This platform offers a marketplace to merchant partners and is an important driver in delivering on our 2020 ambition to double net consumer online sales compared to 2016.

 

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In 2015, net sales in The Netherlands were 12,699 million, up by 8.6%, or 1,003 million, compared to 2014. Excluding the impact of the 53rd week in 2015, net sales increased in 2015 by 747 million, or 6.3%. This increase was mainly driven by the 3.7% growth in comparable sales; the conversion of former C1000 stores in the Netherlands; the opening of new Albert Heijn stores in Belgium; and further expansion of our store network in the Netherlands.

The comparable sales growth in the Netherlands of 3.7% was fueled by the double-digit sales growth of our online operations. Adjusted for the additional week in 2015, net sales at bol.com increased by 26.2% and at Albert Heijn Online net sales went up by 26.4% (or 28.5% for both, including the 53rd week in 2015) as a result of the business expanding its geographic reach through the opening of an additional 18 pick-up points in the Netherlands and Belgium and attracting new customers in its existing market areas. Albert Heijn’s identical sales growth was driven by attractive commercial programs and improvements to its assortment that were well-received by its customers.

For the full year 2015, market share at Albert Heijn increased to 35.0% (source: Nielsen), positively impacted by the conversion of 17 more former C1000 supermarkets into our Albert Heijn format.

In 2015, bol.com delivered strong double-digit growth in net consumer online sales of 35.3%. Excluding the 53rd week in 2015, net consumer online sales increased by 32.7%, as in previous years fueled by the launch of new categories and accelerated growth in Belgium as well as the success of Plaza.

Belgium

For the period July 24, 2016 - January 1, 2017, net sales at Delhaize Belgium were 2,199 million.

Our net sales in Belgium consist of sales to consumers through our own stores and to affiliate stores and a limited number of franchise stores (that is, stores with a Delhaize brand that are operated by independent third parties to whom we sell our products at wholesale prices).

For 2016, market share was 24.1%.

Central and Southeastern Europe

In 2016, this segment included the full year results from our operations in the Czech Republic as well as the results from our operations in Greece, Romania and Serbia for the period July 24, 2016 - January 1, 2017, while in 2015 and 2014, this segment only included the results from our operations in the Czech Republic.

In 2016, net sales in Central and Southeastern Europe were 3,485 million, up by 96.7%, or 1,713 million, compared to 2015. At constant exchange rates, net sales were up by 94.9%. Compared to the adjusted for week 53 in 2015 sales, net sales increased in 2016 by 1,729 million, or 98.4%.

Sales growth was driven by the merger with the Delhaize Group (1,737 million) activities in Greece, Romania and Serbia. Sales in the Czech Republic decreased by 24 million compared to 2015. Adjusted for week 53 in 2015, net sales in the Czech Republic increased by 8 million, or 0.4%, in 2016.

In 2015, net sales in the Czech Republic were 1,772 million, up by 16.5%, or 251 million, compared to 2014. At constant exchange rates, net sales were up by 15.3%. Net sales growth was affected by lower gasoline sales due to lower gasoline prices. Excluding gasoline, net sales at constant exchange rates were 16.3% higher than in 2014 or, excluding the week 53 impact in 2015, higher by 14.2%. This increase was driven by the inclusion of 49 SPAR stores acquired as of August 1, 2014.

 

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Gross Profit

In 2016, Ahold Delhaize’s gross profit increased by 2,935 million, or 28.1% compared to 2015. At constant exchange rates, gross profit increased by 2,896 million or 27.6%, which was 2,713 million higher as a result of the merger with Delhaize Group. Gross profit margin (gross profit as a percentage of net sales) for 2016 was 26.9%, a decrease of 0.4 percentage points compared to 27.3% in 2015.

In 2015, Ahold’s gross profit increased by 1,698 million, or 19.4% compared to 2014. At constant exchange rates, gross profit increased by 584 million or 5.9%. Gross profit margin (gross profit as a percentage of net sales) for 2015 was 27.3%, an increase of 0.6% compared to 26.7% in 2014, or 0.4% at constant exchange rates. This increase was primarily driven by lower gasoline sales in the United States as a result of lower gasoline prices. Gasoline sales have a lower gross profit margin compared to non-gasoline sales; therefore, the proportionately lower gasoline sales have a positive effect on the overall gross profit margin. Excluding the sale of gasoline, and at constant exchange rates, gross profit margin was flat.

Operating Expenses

In 2016, operating expenses increased by 2,669 million, or 29.2%, to 11,794 million, compared to 9,125 million in 2015. At constant exchange rates, operating expenses increased by 2,636 million, or 28.8%, which was 2,361 million higher as a result of the merger with Delhaize Group. As a percentage of net sales, operating expenses decreased by 0.2% to 23.7%. Excluding gasoline sales and at constant exchange rates, operating expenses as a percentage of net sales decreased by 0.4%.

This decrease of 0.4% in 2016 is mainly explained by the addition of the former Delhaize Group operations in part offset by higher impairments, integration costs and restructuring charges. Delhaize America and Belgium operate with a lower gross margin and with lower operating expenses as a percentage of sales.

In 2015, operating expenses increased by 1,630 million, or 21.7%, to 9,125 million, compared to 7,495 million in 2014. At constant exchange rates, operating expenses increased by 656 million, or 7.8%. As a percentage of net sales, operating expenses increased by 1.0% to 23.9%, or 0.8%, to 23.1% at constant exchange rates. Approximately 0.3% of the increase at constant exchange rates is explained by the relatively lower proportion of gasoline sales as a part of net sales. Excluding gasoline sales and at constant exchange rates, operating expenses as a percentage of net sales increased by 0.4%. This increase of 0.4% is mainly explained by higher impairments and restructuring charges, increased pension costs in the Netherlands, and the additional dilutive impact of our online businesses on expenses in The Netherlands.

 

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Operating expenses include impairments, gains (losses) on the sale of assets, restructuring and related charges and other items that management believes can distort an understanding of the trend related to the development of its underlying business. Impairments, gains (losses) on the sale of assets and restructuring and related charges are summarized below:

Impairment of assets

Ahold Delhaize recorded the following impairments net of reversals of impairments of assets:

 

  

 

 

 
  million                      2016                 2015                 2014    
  

 

 

 

 Ahold USA

     (78)        (20)        (10)   

 Delhaize America

     (2)        —         —    

 The Netherlands

     (21)        (19)        (21)   

 Central and Southeastern Europe

     (3)        —         —    

 

 

 Total

     (104)        (39)        (31)   

 

 

Impairment charges in 2016 were 104 million, up by 65 million compared to 2015. The impairments in 2016 were primarily related to remedy stores and other divestments at Ahold USA (46 million) and to other store operations.

Impairment charges in 2015 were 39 million, up by 8 million compared to 2014. In 2015 and 2014, an impairment charge of 9 million and 8 million, respectively, was recorded for a write-down of prepaid consideration for stores transferred back to Jumbo (related to the transfer of stores from Jumbo in 2012). The remaining impairment charges mainly related to underperforming stores.

Gains and losses on the sale of assets

Ahold Delhaize recorded the following gains (losses) on the sale of non-current assets:

 

  

 

 

 
  million                      2016                    2015                2015    
  

 

 

 

 Ahold USA

     27          11        6    

 The Netherlands

     (2)         7        14    

 Belgium

     2                 —    

 Global Support Office

     (5)                —    

 

 

 Total

     22          18        20    

 

 

The 2016 gains and losses at Ahold USA mainly related to the sale of remedy stores (19 million).

 

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Restructuring and related charges and other items

Restructuring and related charges and other items were as follows:

 

  

 

  million    2016     2015     2014  
  

 

 Ahold USA

   (66)    (53)    (7) 

 Delhaize America

   (32)    —     —  

 The Netherlands

   (35)    (9)    17  

 Belgium

   (7)    —     —  

 Central and Southeastern Europe

   —     (16)    (6) 

 Global Support Office

   (93)    (44)                (10) 

 

 Total

               (233)                (122)    (6) 

 

Restructuring and related charges and other items in 2016 were 233 million, up by 111 million compared to 2015. The increase is related to the merger between Ahold and Delhaize. In 2016, the restructuring and related charges of 233 million included 38 million of transaction costs and 107 million of integration costs related to the merger between Ahold and Delhaize (of which 33 million were at Ahold USA, 20 million at Delhaize America and 46 million at our Global Support Office), as well as 26 million related to the divestment of the remedy stores and other divestments (primarily at Ahold USA). 2016 also included a lump sum compensation for a reduction in benefits for employees in the Netherlands (28 million) and the Global Support Office (7 million), 11 million in restructuring expenses at Ahold USA (primarily related to the closing of the American Sales Company warehouse) and 11 million in costs due to Hurricane Matthew at Delhaize America.

In 2015, restructuring charges related to a reorganization of Ahold USA’s support office (negatively affecting operating income by 14 million), as well as an early retirement incentive offered to Giant Landover store employees, with an impact of 17 million. Restructuring charges recognized at CSE were related to the acquisition of SPAR in 2014. GSO restructuring charges for 2015 were mainly transaction costs related to the intended merger with Delhaize (37 million).

In 2014, restructuring and related charges and other items included gains from the Dutch pension plan amendments totaling 59 million (of which 50 million was in The Netherlands and 9 million at the Corporate Center). These were partly offset by the 40 million restructuring charge related to the European reorganization (of which 24 million was in The Netherlands and 16 million at the Corporate Center).

Operating Income

Operating income in 2016 increased by 266 million, or 20.2%, to 1,584 million, compared to 1,318 million in 2015. The increase of 266 million is the difference between the higher gross profit of 2,935 million and higher operating expenses of 2,669 million.

Operating income in 2015 increased by 68 million, or 5.4%, to 1,318 million compared to 1,250 million in 2014. The increase of 68 million is the difference between the higher gross profit of 1,698 million and higher operating expenses of 1,630 million.

 

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The following table sets forth, for the period indicated, our operating income as well as the operating margin by segment:

 

 

 

    Financial years ended
 

 

    January 1, 2017   January 3, 2016   December 28, 2014
 

 

    € million    in %    € million    in %    € million    in % 
 

 

 Ahold USA

  818    1.6 %   878    2.3 %   727    2.2 %

 Delhaize America

  218    0.4 %   —    — %   —    — %

 The Netherlands

  578    1.2 %   557    1.5 %   584    1.8 %

 Belgium

  51    0.1 %   —    — %   —    — %

 Central and Southeastern Europe

  125    0.2 %   11    — %   12    — %

 Global Support Office

  (206)   (0.4)%   (128)   (0.3)%   (74)   (0.2)%

 

 Total

  1,584    3.2 %   1,318    3.4 %   1,250    3.8 %

 

This table can be used to reconcile underlying operating income to operating income by segment. The reconciling items (impairments of assets, gains and losses on the sale of assets, and restructuring and related charges and other items) are provided above.

The changes in gross profit and operating expenses are explained above.

Net Financial Expenses

Net financial expenses in 2016 increased by 276 million, or 104.2%, to 541 million compared to 265 million in 2015. This was mainly due to the increase in Other financial expenses (244 million), which consisted mainly of the one-off finance cost of 243 million relating to the buyback of the JPY 33,000 million notes. Net interest expense increased by 32 million compared to 2015, driven by higher interest expenses on debt (49 million) and finance lease commitments (11 million), which was partly offset by the amortization of the fair value allocation of the debt brought in through acquisitions (see Note 4 to the consolidated financial statements included in Item 18 of this Form 20-F Report) and higher interest income. Interest expense and interest income mainly increased as a result of the merger with the Delhaize Group.

Net financial expenses in 2015 increased by 30 million, or 12.8%, to 265 million compared to 235 million in 2014. This increase is driven by a 23 million higher interest expense compared to 2014, attributable to U.S. dollar-denominated interest expenses, which resulted in a higher euro value on conversion due to the stronger U.S. dollar. Excluding the foreign currency impact, interest expense was down by 7 million, largely resulting from lower finance lease interest expenses compared to 2014 at constant exchange rates. Other financial expense of 21 million was higher by 8 million compared to 2014 due to valuation adjustments related to notes and derivatives.

 

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Income Taxes

In 2016, income tax expense was 247 million, up by 23 million compared to 224 million in 2015. The increase in income tax expense in 2016 is mainly the result of positive one-time items in 2015. The effective tax rate, calculated as a percentage of income before income tax, was 23.7% in 2016.

In 2015, income tax expense was 224 million, down by 24 million, compared to 248 million in 2014. The income tax expense in 2015 was positively impacted by one-time items. The effective tax rate was 21.3% in 2015 (2014: 24.4%).

See also Note 10 of Ahold Delhaize’s consolidated financial statements included in Item 18 of this Form 20-F Report for the reconciliation of the effective tax rate to the statutory tax rate.

Share in Income of Joint Ventures

Ahold Delhaize’s share in income of joint ventures, which relates primarily to our 49% shareholding in JMR and 51% shareholding in Super Indo, was 34 million in 2016, up by 14 million compared to last year.

The share in income of joint-venture related primarily to our 49% shareholding in JMR was 20 million in 2015, down by 4 million compared to 2014. For further information about joint ventures, see Note 14 of Ahold Delhaize’s consolidated financial statements included in Item 18 of this Form 20-F Report.

Results from Discontinued Operations

Results from discontinued operations in 2016 were nil, versus a gain of 2 million in 2015 and a loss of 197 million in 2014. In 2015, results from discontinued operations were impacted by various adjustments to the results of prior years’ divestments as a consequence of warranties and indemnifications provided in the relevant sales agreements.

The 2014 loss from discontinued operations included a net of tax settlement amount and associated legal fees for the Waterbury litigation of 194 million. This litigation was related to Ahold’s U.S. Foodservice operations, which were divested in 2007. In 2014, we completed the sale of our Slovakian business to Condorum, an agreement we had announced in November 2013. Ahold recorded a net loss of 1 million in 2014 on this divestment, with negative cash proceeds amounting to 34 million.

For further information about discontinued operations, see Note 5 to Ahold Delhaize’s consolidated financial statements included in Item 18 of this Form 20-F Report.

 

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Underlying Operating Income and Underlying Operating Income Margin

 

million except percentages   Financial years ended   Change   Change
 

 

        January 1,       January 3,   December 28   2016 vs. 2015   2015 vs. 2014
 

 

    2017   2016   2014   Actual   %   Actual   %
 

 

 Operating income

  1,584      1,318      1,250      266    20.2%   68   5.4%

 Adjusted for:

             

Impairments

  104      39      31      65      8  

(Gains) losses on the sale of assets

  (22)    (18)     (20)     (4)     2  

Restructuring and related charges and other items

  233      122      6      111      116  

 

 Underlying operating income(1)

  1,899      1,461      1,267      438    30.0%   194   15.3%

 Underlying operating income margin(1)

  3.8%   3.8%   3.9%        

(1) These amounts are not measures determined in accordance with IFRS. See the section entitled “Non-GAAP Financial Measures and Operating Metrics” included in this Item 5 for a discussion regarding the limitations on the use of such measures and Item 3. “Key Information – A. Selected Financial Measures and Operating Metrics” for a reconciliation to operating income.

The following table sets forth, for the period indicated, our underlying operating income as well as the underlying operating margin by segment:

 

 

 

    Financial years ended
 

 

    January 1, 2017   January 3, 2016   December 28, 2014
 

 

    € million    in %    € million    in %    € million    in % 
 

 

 Ahold USA

  936    3.9%   940    4.0%   738    3.8%

 Delhaize America

  252    3.6%        

 The Netherlands

  636    4.9%   578    4.6%   574    4.9%

 Belgium

  56    2.5%        

 Central and Southeastern Europe

  127    3.6%   27    1.5%   19    1.2%

 Global Support Office

  (108)   N/A    (84)     (64)  

 

 Total

  1,899    3.8%   1,461    3.8%   1,267    3.9%

 

Underlying operating income for our Group was 1,899 million in 2016, up 438 million, or 30.0%, versus 1,461 million in 2015. Underlying operating income margin in 2016 was 3.8%, identical to 2015. At constant exchange rates, underlying operating income was up by 432 million, or 29.5%, compared to 2015; 393 million of this increase can be attributed to the merger with Delhaize Group.

Underlying operating income was 1,461 million in 2015, up 194 million, or 15.3% versus 1,267 million in 2014. Underlying operating income margin in 2015 was 3.8%, compared to 3.9% in 2014. At constant exchange rates, underlying operating income was up by 51 million, or 3.6%, compared to 2014.

 

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In 2015, we completed a 350 million cost and efficiency program. This enabled us to continue to invest in our competitive position and, at the same time, our businesses benefited from optimized store processes and improved sourcing. At Ahold USA, as part of our Simplicity program, we implemented a reorganization of our head office support roles to improve efficiency.

Ahold USA

In 2016, underlying operating income at Ahold USA was 936 million, down by 4 million, or 0.4%, from 940 million in 2015. At constant exchange rates, underlying operating income at Ahold USA decreased by 1.0%. Ahold USA’s underlying operating income margin in 2016 was 3.9%, down 0.1 percentage points compared to 2015. The 2015 margin was positively impacted by the additional week in 2015.

In 2015, underlying operating income at Ahold USA was 940 million, up by 202 million, or 27.4%, from 738 million in 2014. At constant exchange rates, underlying operating income at Ahold USA increased by 6.4%. Ahold USA’s underlying operating income margin in 2015 was 4.0%, up 0.2 percentage points compared to 2014. The improvement reflects better operational performance across the businesses. Favorable commodity prices and lower gasoline sales, due to falling gasoline prices, with a higher margin had a positive impact on the operating margin, but were largely offset by lower reimbursements on pharmacy products.

Delhaize America

For the period July 24, 2016 until January 1, 2017, underlying operating income at Delhaize America was 252 million. Underlying operating income margin for the period was 3.6%.

The Netherlands

In 2016, underlying operating income in the Netherlands was 636 million, up by 58 million, or 10.0% from 578 million in 2015. The underlying operating margin of The Netherlands was 4.9% in 2016, up 0.3% percentage points compared to 2015. Excluding bol.com, the underlying operating income margin was 5.4% in 2016, up by 0.4 percentage points compared to 2015.

Our online businesses in the Netherlands operate at a lower margin and their accelerated growth has a dilutive impact on the segment’s overall margin. In 2016, this dilutive affect was slightly higher, at 0.1 percentage points, compared to 2015 as result of the strong sales growth of our online businesses.

In 2015, underlying operating income in the Netherlands was 578 million, up by 4 million, or 0.7%, from 574 million in 2014. The underlying operating margin of The Netherlands was 4.6% in 2015, down 0.3 percentage points compared to 2014. Excluding bol.com, the underlying operating income margin was 5.0% in 2015, down by 0.2 percentage points compared to 2014.

Our online businesses in the Netherlands operate at a lower margin and their accelerated growth has a dilutive impact on the segment’s overall margin. In 2015, this dilutive effect was in line with our full-year expectations of 25 basis points.

In addition, in 2015, the underlying operating income margin in The Netherlands was negatively impacted by higher pension costs as a result of lower interest rates as well as one-off costs from the glassware collection campaign in the first quarter of 2015.

 

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Belgium

For the period July 24, 2016- January 1, 2017, underlying operating income in Belgium was 56 million.

Belgium’s underlying operating income margin in 2016 was 2.5%.

Central and Southeastern Europe

In 2016, underlying operating income in CSE was 127 million, up by 100 million, or 370.4%, from 27 million in 2015. In 2016, underlying operating income margin in CSE was 3.6%, which was 2.1 percentage points higher than in 2015. This increase was driven by the newly added market areas, as Greece, Romania and Serbia operated at a higher margin than the Czech Republic.

In 2015, underlying operating income in the Czech Republic was 27 million, up by 8 million, or 42.1%, from 19 million in 2014. 2015 also included 7 million of non-recurring costs related to the SPAR integration (2014: 12 million). In 2015, underlying operating income margin in the Czech Republic was 1.5%, which was 0.3 percentage points higher than in 2014, and is mainly a result of the aforementioned non-recurring costs related to the SPAR integration. In 2015, Albert successfully completed the rebranding of all of the former SPAR stores and the divestment of five stores, as part of an antitrust requirement related to the SPAR acquisition. Total one-off costs recognized in 2015 were 21 million, of which 7 million have been recognized in underlying operating income and 14 million as restructuring charges.

 

 

B. LIQUIDITY AND CAPITAL RESOURCES

Existing and Future Cash Requirements

Ahold Delhaize views available cash balances and funds from operating activities as its primary sources of liquidity, complemented with access to external sources of funds when deemed to be required. Ahold Delhaize manages short-term liquidity based on projected cash flows. As of January 1, 2017, the Company’s liquidity position primarily consisted of 3,134 million of cash (including short-term deposits and similar instruments and current portion of assets available-for-sale, adjusted for cash held under a notional cash pooling arrangement), and the fully undrawn 1 billion revolving credit facility. Based on the current operating performance and liquidity position, the Company believes that cash provided by operating activities and available cash balances will be sufficient for working capital, capital expenditures, interest payments, dividends and scheduled debt repayment requirements for the next 12 months and the foreseeable future. Ahold Delhaize subsidiaries are subject to applicable legal and regulatory restrictions in connection with any transfer of funds, as stipulated by, among others, governmental bodies or tax regulations in all countries in which Ahold Delhaize operates. Ahold Delhaize’s subsidiaries are not subject to any additional restrictions as a result of finance agreement covenants.

 

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Capital Risk Management

The Company’s primary objective in terms of managing capital is the optimization of its debt and equity balances in order to sustain the future development of the business, maintain a solid investment grade credit rating and maximize shareholder value. Ahold Delhaize may balance its overall capital structure in a number of ways, including through the payment of dividends, capital repayment, new share issues and share buybacks as well as the issuance of new debt or the redemption of existing debt. Prior to consummation of the announced merger with Delhaize Group, Ahold returned approximately 1 billion to its shareholders through a reverse stock split and capital return. The Ahold capital return resulted in a decrease in the distributable share premium and a decrease in cash and cash equivalents of approximately 1.0 billion. The weighted average number of shares in the earnings per share calculation was adjusted only from the date of the capital return and reverse stock split and not retrospectively because the reduction in the number of ordinary shares outstanding was the result of a corresponding reduction in resources. See Note 20 of Ahold Delhaize’s consolidated financial statements included in Item 18 of this Form 20-F Report for share buyback and capital repayment activities in the periods under review.

Credit Ratings

Maintaining investment grade credit ratings is a cornerstone of Ahold Delhaize’s strategy because such ratings serve to lower the cost of funds and facilitate access to a variety of lenders and markets. Our current credit ratings from the solicited rating agencies are as follows:

 

    Standard & Poor’s: corporate credit rating BBB with a stable outlook as of June 2009 (previous rating BBB- assigned in 2007)
    Moody’s: issuer credit rating Baa2 as of August 2015 (previous rating Baa3 assigned in 2007). The outlook was revised from stable to positive in August 2016.

Cash Flows

The following table summarizes the cash flows from operating, investing and financing activities.

 

€ million  

Financial year ended

        January 1,    
2017
      January 3,    
2016
      December 28,    
2014
 

 

Net cash from operating activities

  2,893    2,133    1,876 

Net cash from investing activities

  1,470    (1,124)   109 

Net cash from financing activities

  (2,249)   (936)   (2,990)

Net Cash from Operating Activities

Net cash from operating activities was 2,893 million, 2,133 million and 1,876 million during 2016, 2015 and 2014, respectively. The increase of 760 million in 2016 over 2015 was primarily due to the addition of new operations as a result of the merger with the Delhaize Group (781 million). The increase of 257 million in 2015 over 2014 was primarily due to a higher operating income mainly influenced by the stronger U.S. dollar.

 

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Net Cash from Investing Activities

Net cash from investing activities was 1,470 million in 2016 and 109 million in 2014, compared to net cash used in investing activities of 1,124 million in 2015. The increase of 2,594 million during 2016 is primarily due to the merger with Delhaize Group (2,205 million compared to a cash outflow for business acquisitions of 150 million in 2015) and the change in short-term deposits and similar instruments (impact of 679 million). The 2,205 million balance from the merger with the Delhaize Group is primarily due to cash acquired of 2,251 million.

The decrease in 2015 versus 2014 of 1,233 million was mainly caused by the change in short-term deposits and similar instruments (impact of 1,469 million), partially offset by a cash-out of 291 million related to divestments in 2014 (mainly the settlement of the Waterbury litigation at U.S. Foodservice for 241 million).

Capital expenditures can be detailed as follows:

 

 million except percentages   Financial years ended     Change     Change  
 

 

 

 
      January 1,   
  2017   
      January 3,  
2016
      December 28,  
2014
    2016 vs. 2015     2015 vs. 2014  
              Actual                 %                       Actual                       %            
 

 

 

 

Ahold USA

    483        448       374       35        7.8 %       74         19.8 %  

Delhaize America

    219                    219        —           —         —      

The Netherlands

    381        305       300       76        24.9 %       5         1.7 %  

Belgium

    74                    74        —           —         —      

CSE

    123        49       37       74        151.0 %       12         32.4 %  

GSO

    22        2       21       21        1,050.0 %       (19)        (90.5)%  
 

 

 

 

Total regular capital expenditures

    1,302        804       732       498        61.9 %       72         9.8 %  

Acquisitions through business combinations

    (2,205)       150       190       (2,355)       (1,570.0)%       (40)        (21.1)%  
 

 

 

 

Total capital expenditures

    (903)       954       922       (1,857)       (194.7)%       32        3.5 %  

Capital expenditures were primarily related to the construction, remodeling and expansion of stores and supply chain (including online) and IT infrastructure improvements. Acquisitions through business combinations primarily include the assets acquired through the merger with Delhaize Group in 2016, the acquisition of 25 A&P stores in the United States in 2015 and the acquisition of SPAR in the Czech Republic in 2014.

Excluding acquisitions through business combinations, capital expenditures were 1,302 million in 2016. The increase of 498 million in 2016 mainly relates to the merger and the construction of bol.com’s new distribution center. Under IFRS, the merger with the Delhaize Group is accounted for as a business combination following the acquisition method. In 2016, acquisition capital expenditures included the merger with the Delhaize Group.

Net Cash from Financing Activities

Net cash used in financing activities was 2,249 million in 2016, 936 million in 2015 and 2,990 million million in 2014. The higher outflow of 1,313 million during 2016 was primarily the result of (i) 1,001 million in returns to shareholders through a capital repayment and reverse stock split, prior to the completion of the merger between Ahold and Delhaize Group, versus a share buyback of 161 million in 2015 and (ii) the buyback of the JPY 33 billion notes and the unwinding of the corresponding derivative (543 million). The lower outflow of 2,054 million in 2015 compared to 2014 is mainly the result of no share capital repayment (versus 1,008 million in 2014) and a significantly lower share buyback: 161 million in 2015 compared to 1,232 million in 2014.

 

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Loans

On November 15, 2016, Ahold Delhaize executed a buyback and cancellation of the outstanding principal amount of its JPY 33 billion floating rate notes, due May 2031 (“JPY notes”) and the unwinding of the associated yen / euro cross currency interest rate swap for a total consideration of 543 million. Together, the JPY notes and the swap represented a synthetic 299 million long-term liability at an annual interest rate of 7.065% (see Note 30 of Ahold Delhaize’s consolidated financial statements included in Item 18 of this Form 20-F Report for additional information related to the JPY cross-currency swap). The buyback of the JPY notes resulted in a one-off finance cost of 243 million, before tax. This cost included a 213 million release from equity to the income statement relating to the unwinding of the swap for which hedge accounting was applied (refer to Note 9 of Ahold Delhaize’s consolidated financial statements included in Item 18 of this Form 20-F Report). The cost of buying back the JPY notes and unwinding the swap has been funded from available cash.

No significant notes were issued or repaid in 2015 and 2014.

The fair values of financial instruments, corresponding derivatives, and the foreign exchange and interest rate risk management policies applied by Ahold Delhaize are disclosed in Note 30 of Ahold Delhaize’s consolidated financial statements included in Item 18 of this Form 20-F Report.

 

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The notes in the table below were issued by Ahold Delhaize or one of its subsidiaries, the latter of which are guaranteed by Ahold Delhaize unless otherwise noted. The amortization of the fair-value allocation to the debt acquired through business combinations is allocated to the respective maturity brackets.

 

    

Outstanding

notional
redemption
amount January 1,
2017

                           Non-current portion                                      Non-current  portion           
     

 

 

       

 

 

   
  million, unless otherwise stated    

   Current

portion

within

1 year

   

Between

1 and 5

years

   

After  

5 years  

   

Total

January 1,
2017

   

   Current

portion

within

1 year

    Between
1 and 5 years
   

After  

5 years  

   

Total  

January 3,  

2016  

 

 GBP 500 notes 6.50%, due 2017(1)

     GBP       250       292             —         292             334       —         334    

 USD 450 notes 6.50%, due 2017(2)

     USD       172       168             —         168                   —         —    

 EUR 400 notes 4.25%, due 2018(2)

     EUR       400       16       413       —         429                   —         —    

 USD 300 notes 4.125%, due 2019(2)

     USD       130       3       127       —         130                   —         —    

 USD 94 indebtedness 7.82%, due 2020

     USD       28       10       17       —         27       9       26       —         35    

 EUR 400 notes 3.125%, due 2020(2)

     EUR       400       12       426       —         438                   —         —    

 USD 71 indebtedness 8.62%, due 2025

     USD       71             21       47         68             8       57         65    

 USD 71 notes 8.05%, due 2027(2)

     USD       71       2       8       81         91                   —         —    

 USD 500 notes 6.875%, due 2029

     USD       500                   475         475                   460         460    

 USD 271 notes 9.00%, due 2031(2)

     USD       271       5       23       333         361                   —         —    

 JPY 33,000 notes LIBOR plus 1.5%, due 2031

                    —                           253         253    

 USD 827 notes 5.70%, due 2040(2)

     USD       827       4       20       935         959                   —         —    

 Deferred financing costs

                          (2     (2)        (4           (1     (2)        (3)   

 Total notes

        512       1,053        1,869          3,434        9       367        768          1,144     

 Other loans

        2       —        3                            2          3     

 Financing obligations(3)

        23       115        247          385        22       102        273          397     

 Mortgages payable(4)

                    2       15        9          26                    7          9     

 Total loans

                    539       1,183        2,128          3,850        31       472        1,050          1,553     

 

(1) During 2005, the Company bought back GBP 250 million of the notes. The remaining notional redemption amount of GBP 250 million (293 million) has been netted with 1 million as of January 1, 2017 (January 3, 2016: 6 million), representing an amount, amortized over the remaining terms of the notes, that relates to a hedging instrument that stopped qualifying for fair-value hedge accounting. The remaining notional amount of the GBP 250 million was swapped to U.S. dollars (see Note 30 of Ahold Delhaize’s consolidated financial statements included in Item 18 of this Form 20-F Report for additional information).

 

(2) Acquired through business combinations (refer to Note 4 of Ahold Delhaize’s consolidated financial statements included in Item 18 of this Form 20-F Report).

 

(3) The weighted average interest rate for the financing obligations amounted to 7.6% in 2016 (2015: 7.6%).

 

(4) Mortgages payable are collateralized by buildings and land. The weighted average interest rate for these mortgages payable amounted to 5.4% in 2016 (2015: 5.6%).

In additions to the loans mentioned above, Ahold Delhaize had 1,960 million of finance lease liabilities and 497 million of cumulative preferred financing shares at the end of 2016, which are both part of our financial liabilities. See Note 22 “Other non-current financial liabilities,” included in Item 18 of this Form 20-F Report for further information.

 

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Debt covenants

We are subject to certain financial and non-financial covenants related to the long-term debt instruments indicated above.

The Company has a Euro Medium Term Note (EMTN) program that had an aggregate of 293 million of outstanding notes as of January 1, 2017. The notes issued under the program include the remaining outstanding balance of GBP 500 million notes, maturing in 2017. The notes issued under the EMTN program contain customary restrictive covenants.

Indentures covering the notes due in 2017 ($), 2019 ($), 2020 (), 2027 ($), 2029 ($) and 2040 ($), the debentures due in 2031 ($) and the retail bond due in 2018 () contain customary provisions related to events of default as well as restrictions in terms of negative pledges, liens, sale and leasebacks, mergers, transfers of assets and divestitures. The 2017 ($), 2019 ($), 2020 () and 2040 ($) notes and the 2018 () bonds also contain a provision granting their holders the right to early repayment for an amount not in excess of 101% of the outstanding principal amount thereof in the event of a change of control in combination with a rating event. While these long-term debt instruments contain certain accelerated repayment terms, none contain accelerated repayment clauses that are subject solely to downgrades in our credit rating (“rating event”). None of the debt covenants restrict the ability of our subsidiaries to transfer funds to the parent.

At January 1, 2017, January 3, 2015, and December 28, 2014, we were in compliance with all covenants for long-term debt.

Credit facilities, short-term borrowings and bank overdrafts

Ahold Delhaize has access to a 1.0 billion committed, unsecured, multi-currency and syndicated credit facility that was amended and extended in February 2015, whereby the Company reduced the size of the credit facility from 1.2 billion to 1.0 billion (providing for the issuance of $275 million in letters of credit). At the same time, the facility was extended to 2020 with two potential extensions after 12 and 24 months that would take the facility to 2021 and 2022, respectively. In February 2016, the first extension was successfully agreed with the lenders. In February 2017, the Company requested that the lenders consent to a second extension. Out of the 1 billion credit facility, 923 million has been agreed with the lenders to extend to 2022. The credit facility contains customary covenants and is subject to a financial covenant that requires Ahold Delhaize, in the event that its corporate rating from Standard & Poor’s and Moody’s is lower than BBB / Baa2, respectively, not to exceed a maximum leverage ratio (as defined in the facility agreement, the ratio of consolidated total net borrowings to consolidated operating income before depreciation and amortization) of 4.0:1. At January 1, 2017, January 3, 2016, and December 28, 2014, we were in compliance with these covenants. As of January 1, 2017, there were no outstanding borrowings under the facility.

The rate of interest on each loan under the credit facility would be the percentage rate per annum equal to the aggregate of the applicable margin and LIBOR or EURIBOR for that specific term. As LIBOR or EURIBOR rates might fluctuate during the life of the credit facility, these rates are commonly referred to as “floating rate” borrowings. In addition, Ahold Delhaize pays a letter of credit fee on the outstanding amount. The rate is computed based on three fixed elements: a fronting fee, a utilization fee and a margin fee based on Ahold Delhaize’s credit rating.

As of January 1, 2017, a standby letter of credit facility for a total amount of $226 million (214 million) was issued and fully drawn to guarantee self-insurance related obligations. Ahold Delhaize also has access to a total of 341 million in uncommitted credit facilities to cover working capital requirements, issuance of guarantees and letters of credit, of which 72 million was utilized as of January 1, 2017.

 

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Bank overdrafts include an amount of 1,184 million that relates to overdraft positions of a notional cash pool arrangement. This bank overdraft is fully offset by an identical amount included under “Cash and cash equivalents” (see Notes 19 and 30 of Ahold Delhaize’s consolidated financial statements, included in Item 18 of this Form 20-F Report).

 

C. RESEARCH & DEVELOPMENT, PATENTS AND LICENSES, ETC.

We operate 21 local brands serving more than 50 million customers in 11 countries and maintain all of the licenses (e.g., pharmacy, liquor) legally required to operate in those markets. Our local brands focus on investing in own-brand product ranges to improve our customer proposition and competitive edge. We invest in our IT infrastructure and operating systems and develop software for internal use mainly to operate smarter, achieve cost efficiencies and improve and grow our omni-channel offering. Software development costs that meet the capitalization criteria under IFRS are included in intangible assets.

We had no significant research and development expenses during 2016, 2015 or 2014.

 

D. TREND INFORMATION

Macro trends

Economics

Customers are very focused on value. In the past year, some notable events in the political world impacted our market areas, including the Brexit referendum in June, when UK citizens voted to leave the EU – which could impact the future European economy, trade partnerships and international businesses, and the culmination of the presidential election in the U.S. in November. While the U.S. economy will most likely outpace other advanced economies in terms of GDP, we see competition intensifying as a consequence of the price investments retailers are making to attract value-focused customers. Although the 2017 growth prospects for Europe remain relatively stable, the outcomes of the elections in France, Germany, Italy and the Netherlands and their unknown policy implications will most likely influence Europe’s economic conditions.

Demographics

We continue to see population growth slowing down in our markets, especially in Europe, and an aging consumer base. The communities we operate in are becoming increasingly diverse in terms of ethnicity, household composition, affluence and urban versus suburban.

Resource availability

With a changing climate and growing global demand for food, natural resources are increasingly under stress. The increasing scarcity of natural resources, such as water and soil nutrients, will continue to impact agriculture and affect how we source products in the future. Since commodities like corn, wheat and rice are at the core of the products we sell, “commodity crunches” could substantially impact our businesses.

 

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Technology

Unprecedented technological change is underway across the globe - and it has direct implications for the retail industry. Everyday objects in people’s homes, such as televisions, refrigerators, and personal wearables are getting connected to the Internet, and are measuring and generating data. This data enables companies to build more intimate relationships with shoppers by understanding their personal preferences and being able to cater to them - or even predict new ones. It also makes possible artificial intelligence and automated devices such as self-driving cars and delivery drones.

Consumer trends

Value

Consumers’ continued focus on value and budget-consciousness comes in the wake of the post-2008 economic downturn and the growth of low-cost players operating stores and online. At the same time, customers are redefining what value means to them. They are less loyal to brands and formats, and online and mobile technology makes it quick and easy to compare offers - so providing great value for money remains a license to operate. Being affordable increasingly means being able to present customers with the right personalized offers at the right time.

Convenience

Customers have busy lifestyles and are increasingly pressed for time. While their awareness of healthy eating is on the rise, both the time they have available and their ability to cook these foods is on the decline - especially among millennials. This explains the growing popularity of fresh ready meal offerings that can be eaten immediately or quickly prepared at home. In addition, customers are looking for smaller store formats that provide a fast and easy shopping experience, convenient locations that reduce their travel time and cost, and multiple delivery options for their online orders.

Health and well-being

Although consumers have become more aware of the relationship between food they eat and their overall health and well-being, diet-related diseases - such as heart disease, diabetes and malnutrition – remain a growing worldwide issue. Customers increasingly demand transparency on product ingredients. For example, they want to understand the effects on their health from additives like sweeteners and artificial colors, but also from the use of plastics in packaging and the preventative use of antibiotics in animals and poultry have on their health. Consumers inspired to strive for healthier and cleaner lifestyles are prioritizing fruits, vegetables, nuts and grains and are increasingly adopting a vegetarian or vegan diet.

Transparency and sustainability

Food is safer today than ever before. At the same time, people are increasingly interested in where their food comes from and how their buying decisions can impact the environment and people’s lives all over the world, for example through climate change or working conditions. They expect retailers to help them make responsible choices, and to ensure the integrity of the supply chain wherever they can.

Connection and communities

In all our markets, people are searching for a feeling of community and personal connection. They are finding it in traditional ways, through involvement in their local neighborhoods, but also in new ways, through social media and online communities. They want to connect with others who have common interests and shared values. Customers increasingly buy local products and support local businesses to feel more involved in their communities.

 

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Industry trends

Consolidation

There is a great deal of consolidation, in both the retail and consumer packaged goods industry, which is continuing to drive scale. This is especially apparent in the U.S. where companies are seeking scale advantages in sourcing and other areas. Another trend that is currently emerging is “vertical integration,” in which retailers acquire specific parts of the value chain to be able to innovate, be more transparent or lower their costs.

Diversification

There is much diversification taking place in terms of channels and formats in the retail industry. More and more, customers are doing their food shopping at multiple retail brands in multiple segments - they do not distinguish between formats, but just want to get their favorite products at the best possible price. Retailers are developing their formats in response to customer needs, leading to increased competition across additional formats. Customers are showing a preference for small formats that emphasize specialty products, urban locations and convenience, while discounters continue to grow by improving their offering and increasing their advertising. The convenience channel is growing at one of the fastest rates of all physical grocery channels.

Online and mobile

The global eCommerce market continues to expand, and is expected to grow by 10-15% each year through 2020 - and food eCommerce is expected to grow even more quickly. Online grocery has reached a tipping point as companies make it beyond the pilot stage and some start to become profitable. Traditional retailers are developing deeper relationships with third-party delivery services to help them keep up with the challenges of “last-mile” logistics. There is growing demand for same-day and instant delivery as customer expectations for convenience increase. Pure online companies are looking for physical touch points to connect with consumers, even launching store based formats to enhance the convenience and customer service they can provide.

 

E. OFF-BALANCE SHEET ARRANGEMENTS

Ahold Delhaize uses customary off-balance sheet arrangements, such as operating leases, guarantees and letters of credit, to finance its business. Except as described below, none of these arrangements has had or is likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. See Note 23 and Note 34 of Ahold Delhaize’s consolidated financial statements included in Item 18 of this Form 20-F Report for further information.

Multi-Employer Plans

A significant number of union employees in the United States are covered by multi-employer plans based on obligations arising from collective bargaining agreements. These plans provide retirement and other benefits to participants based on their service to contributing employers. The benefits are paid from assets held in trust for that purpose. Trustees are appointed in equal number by employers and unions and they are typically responsible for oversight of the investment of the assets and administration of the plan. Contribution rates and benefit levels are generally determined through the collective bargaining process between the participating employers and unions. None of Ahold Delhaize collective bargaining agreements require that a minimum funding requirement exists for these plans.

 

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Most of these plans are defined contribution plans. All plans that are defined benefit plans, on the basis of the terms of the benefits provided, are accounted for as defined contribution plans because sufficient information is not available to account for these plans as defined benefit plans. These plans are generally flat dollar benefit plans. Ahold Delhaize is only one of several employers participating in each of these plans and there is no reliable basis to accurately determine Ahold Delhaize’s share of plan obligations and assets following defined benefit accounting principles. Furthermore, the financial statements of the multi-employer plans are drawn up on the basis of other accounting policies than those applied by Ahold Delhaize. Consequently, these multi-employer plans are not included in Ahold Delhaize’s balance sheet.

The risks of participating in multi-employer plans are different from the risks of single employer plans. Ahold Delhaize’s contributions may be used to provide benefits to employees of other participating employers. Ahold Delhaize may become obligated for a plan’s unfunded obligations if other participating employers cease to participate in the plan. Similarly, if a number of employers cease to have employees participating in the plan, Ahold Delhaize could be responsible for an increased share of the plan’s deficit. If Ahold Delhaize withdraws from a plan, it may be required to pay the plan an amount based on the underfunded status of the plan, referred to as a withdrawal liability. See “Risk Factors-Risks Relating to our Business-Increasing costs associated with our defined benefit pension plans may adversely affect our operating results, financial position or liquidity” in Item 3D of this Form 20-F Report. See Note 23 of Ahold Delhaize’s consolidated financial statements included in Item 18 of this Form 20-F Report for further information.

Guarantees

Ahold Delhaize has issued several guarantees to third parties. See Note 34 of Ahold Delhaize’s consolidated financial statements included in Item 18 of this Form 20-F Report.

Representations and Warranties as Part of the Sale of Ahold Delhaize’s Operations

Ahold Delhaize has provided, in relevant sales agreements, certain customary representations and warranties including, but not limited to, completeness of books and records, title to assets, schedule of material contracts and arrangements, litigation, permits, labor matters, and employee benefits and taxes. These representations and warranties will generally terminate, depending on their specific features, a number of years after the date of the relevant transaction completion date. See Note 34 of Ahold Delhaize’s consolidated financial statements included in Item 18 of this Form 20-F Report.

 

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F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

The following table summarizes Ahold Delhaize’s expected maturity profile based upon contractual undiscounted payments as of January 1, 2017.

 

  

 

 

 
million    Payments due by period  
  

 

 

 
           Total           

Less than  

one year  

    

Between one
and

three years

    

Between   
three and   

five years   

    

More than      

five years      

 
  

 

 

 

Total loans(1)

     5,558        696        923        758        3,181    

Financial lease obligations(2)

     2,771        318        586        497        1,370    

Cumulative preferred financing shares(3)

     95        19        35        29        12    

Reinsurance

     242        84        96        39        23    

Derivative liabilities

     107        26        9        10        62    

Operating lease obligations(4)

     7,489        1,171        1,979        1,483        2,856    

Capital investments commitments(5)

     294        285        8        1        —    

Purchase obligations(6)

     1,086        754        249        71        12    

Total

     17,642        3,353        3,885        2,888        7,516    

 

(1) See Notes 21 and 30 of Ahold Delhaize’s consolidated financial statements included in Item 18 of this Form 20-F Report for more information. The undiscounted cash flows in the table include both the nominal amounts and interest.
(2) These amounts represent the present value of minimum lease payments, being both the future minimum lease payments and interest portion. See Notes 22 and 30 of Ahold Delhaize’s consolidated financial statements included in Item 18 of this Form 20-F Report for more information.
(3) Ahold Delhaize’s cumulative preferred financing shares have no maturity. For the purpose of the table above, the future cash dividend cash flows were calculated until the coupon reset date of each of the four share-series (2018, 2020, 2023 and 2028). No liability redemption was assumed. Actual cash flows may differ. See also Note 22 and Note 30 to Ahold Delhaize’s consolidated financial statements included in Item 18 of this Form 20-F Report.
(4) These amounts represent the aggregated amounts of Ahold Delhaize’s minimum lease commitments payable to third parties under non-cancellable operating lease contracts. See Note 33 of Ahold Delhaize’s consolidated financial statements included in Item 18 of this Form 20-F Report for more information.
(5) Ahold Delhaize’s share in the capital investment commitments of its unconsolidated joint ventures JMR and Super Indo, which are not included in the table above, amounted to 7 million. See Note 34 of Ahold Delhaize’s consolidated financial statements included in Item 18 of this Form 20-F Report for more information.
(6) Ahold Delhaize enters into purchase commitments with vendors in the ordinary course of business. Ahold Delhaize has purchase contracts with some vendors for varying terms that require Ahold Delhaize to buy services and predetermined volumes of goods and goods not-for-sale at fixed prices. Not included in the purchase commitments are those purchase contracts for which Ahold Delhaize has received advance vendor allowances, such as up-front signing payments in consideration of its purchase commitments. These contracts generally may be terminated without satisfying the purchase commitments upon the repayment of the unearned portions of the advance vendor allowances. The unearned portion of these vendor allowances is recorded as a liability on the balance sheet. See also Note 34 of Ahold Delhaize’s consolidated financial statements included in Note 18 of this Form 20-F Report.

The table above does not include the expected payments for our obligations for pensions and other post-employment benefits plans and self-insurance provisions because we are unable to estimate the timing of these future payments. As of January 1, 2017, we had recognized an accrued benefit liability of 659 million and self-insurance provisions of 885 million. See Notes 23 and 24, respectively, included in Item 18 of this Form 20-F Report for further information including expected future payments.

Guarantees are not included, as these obligations typically arise as a result of contracts under which Ahold Delhaize agrees to indemnify a third-party against losses arising from a breach of representation and covenants related to matters such as title to assets sold, collectability of receivables, specified

 

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environmental matters, lease obligations assumed and certain tax matters. In each of these matters, payment is conditioned on the other party making a claim pursuant to the procedures specified in the contract, and it is therefore not possible to predict the maximum potential amount of future payments under these agreements. See also Note 34 of Ahold Delhaize’s consolidated financial statements included in Item 18 of this Form 20-F Report for more information on guarantees.

 

G. SAFE HARBOR

See “Cautionary Note Concerning Forward-Looking Statements.”

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

A. DIRECTORS AND SENIOR MANAGEMENT

We are a public company (naamloze vennootschap) incorporated under Dutch law with a two-tier board structure. Our Supervisory Board is an independent corporate body responsible for supervising and advising our Management Board and overseeing the general course of affairs and strategy of our Company. Our Management Board has ultimate responsibility for the overall management of our Company. We also have an Executive Committee comprised of the members of our Management Board as well as certain of our other key officers. Our Executive Committee is led by our Chief Executive Officer and is accountable to our Management Board. Our Management Board is supervised and advised by our Supervisory Board. Our Management Board and Supervisory Board are accountable to our shareholders.

Supervisory Board

Our Supervisory Board is an independent corporate body responsible for supervising and advising our Management Board and overseeing the general course of affairs and strategy of our Company. Our Supervisory Board is guided in its duties by the interests of our Company and the enterprise connected with us, taking into consideration the overall good of the enterprise and the relevant interests of all our stakeholders. Dutch law and the rules of procedure of our Executive Committee and our Management Board (we refer to Exhibit 1.3 to this Form 20-F Report) require the approval of our Supervisory Board for certain major resolutions proposed to be taken by our Management Board, including (i) the annual budget; (ii) any merger, demerger or joint venture; (iii) any acquisition or disposal of shareholdings from or to a third party (other than our subsidiary or another member of Ahold Delhaize) with a value or capital commitment (including any assumed debt or liabilities) exceeding 50 million; (iv) any transaction as a result of which Ahold Delhaize will enter into new national markets; (v) general capital investments exceeding 50 million; (vi) transactions to add new stores through acquisitions or construction exceeding 50 million; (vii) equity investments or disposals in franchises or leases exceeding 50 million; (viii) the initiation or settlement of any litigation or claim with a value exceeding 50 million; (ix) any programs, facilities or contracts (which include but are not limited to borrowing and investment facilities and bond debt programs), with a term of more than one year, which are not included in the annual budget and exceed a value of 250 million; (x) the issuance of any shares or a right to obtain shares (including stock options and conditional shares for employees, not resulting from an approved general incentive program); (xi) any

 

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dividend payments other than the required dividend payment on our cumulative preferred financing shares or relating to our cumulative preferred shares; (xii) applying for listing or withdrawing of the official listing of securities on any exchange, (xiii) applying for a moratorium of payments or filing of a bankruptcy petition with respect to us, (xiv) terminating the employment of a significant number of employees of our Company or any of our subsidiaries at the same time or within a short timespan, (xv) transfer of the business or virtually all of the business to a third party; (xvi) entry into or termination of long-term cooperation by us or any of our subsidiaries (dochtermaatschappij) with another legal entity or partnership or as a general partner with full liability in a limited or general partnership if such cooperation or the termination thereof is of far-reaching significance for us; and (xvii) acquisition or disposal by us or any of our subsidiaries of a participation in the capital of another company the value of which equals at least a third of the amount of the assets according to the consolidated balance sheet with explanatory notes attached to our annual accounts as most recently adopted. Resolutions with respect to matters under (xv), (xvi) and (xvii) also require the approval from our General Meeting of Shareholders.

Members of the Supervisory Board

Our Supervisory Board has, as of the date of this Form 20-F Report, fourteen members.

 

Name    Current Position    Position Since    Term Expires(1)     

 

Mats Jansson

   Chairman    July 24, 2016    2020   

Jan Hommen

   Vice Chairman    October 1, 2013    April 12, 2017   

Jacques de Vaucleroy

   Vice Chairman    July 24, 2016    2020   

Jack Stahl

   Member    July 24, 2016    2020   

Ben Noteboom

   Member    April 28, 2009    April 12, 2017   

Bill McEwan

   Member    July 24, 2016    2020   

Rob van den Bergh

   Member    April 20, 2011    2019   

Stephanie Shern

   Member    May 18, 2005    April 12, 2017   

Mark McGrath

   Member    April 23, 2008    2020   

René Hooft Graafland    

   Member    January 1, 2015    2018   

Mary Anne Citrino

   Member    March 14, 2016    2020   

Johnny Thijs

   Member    July 24, 2016    2020   

Patrick De Maeseneire

   Member    July 24, 2016    2020   

Dominique Leroy

   Member    July 24, 2016    2020   

 

(1) Terms expire on the date of the annual General Meeting of Shareholders.

 

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The following table sets forth the names of the members of our Supervisory Board and their board positions, their ages, present principal occupation or employment and other directorships as of February 28, 2017.

 

Name    Age   

Present Principal Occupation or Employment, Employment

History and other Directorships

 

Mats Jansson

   65   

Mats Jansson has served as Chairman of Ahold Delhaize’s Supervisory Board since July 24, 2016, and is a member of the Governance and Nomination Committee. Prior to the merger between Ahold and Delhaize, he served as Chairman of Delhaize’s Board of Directors starting in 2012.

Mats was CEO of the Scandinavian airline SAS from 2006 to 2010. Prior to that, he served as president and CEO of Axel Johnson AB from 2005 to 2006, CEO of Axfood from 2000 to 2005, CEO of Karl Fazer Oy from 1999 to 2000 and CEO of Catena/Bilia from 1994 to 1999. Mats began his career with ICA, holding positions of increasing responsibility over a period of more than 20 years and serving as president of ICA Detaljhandel and deputy CEO and chairman of the group from 1990 to 1994.

Currently, Mats is a member of the JPMorgan European Advisory Council, advisor to Prime Public Communications i Sverige AB and advisor to Advent Capital Management LLC.

Jan Hommen

   73   

Jan Hommen has served on Ahold Delhaize’s Supervisory Board since July 24, 2016, and is a member of the Governance and Nomination Committee. Prior to the merger between Ahold and Delhaize, he served as Chairman of Ahold’s Supervisory Board since 2013.

Jan was previously Vice Chairman of Ahold’s Supervisory Board and served as Chairman of the Audit Committee from 2003 to 2007. He is the former CEO of KPMG the Netherlands and was CEO of ING Group N.V., CFO and vice chairman of the board of management of Royal Philips Electronics N.V. and CFO of Aluminum Company of America Inc.

Currently Jan is chairman of Brabantse Ontwikkelings Maatschappij Holding B.V., chairman of the board of trustees of Tilburg University and United World College Nederland, and an advisor to Advent International PLC.

Jacques de Vaucleroy

   56   

Jacques de Vaucleroy has served on Ahold Delhaize’s Supervisory Board since July 24, 2016, and is a member of the Audit, Finance and Risk Committee and the Governance and Nomination Committee. Prior to the merger between Ahold and Delhaize, he served on Delhaize’s Board of Directors starting in 2005 and was Chairman of its Governance and Nomination Committee.

Jacques has spent most of his career within the ING group, where he was a member of the executive board and CEO of ING Insurance and Investment Management Europe. Jacques was a member of AXA’s management committee and CEO of the company’s Northern, Central and Eastern Europe business unit from 2010 until 2016. He also assumed global responsibility for the AXA Group’s life and savings and health businesses from 2011 until 2016.

Currently, Jacques is a member of the board of directors of Fidelity International Ltd and serves on the board of directors of several subsidiaries of Swiss Re Ltd. He is also a member of the advisory board of CVC Belgium.

Jack Stahl

   63   

Jack Stahl has served on Ahold Delhaize’s Supervisory Board since July 24, 2016, and is the Chairman of the Audit, Finance and Risk Committee and a member of the Governance and Nomination Committee. Prior to the merger between Ahold and Delhaize, he served on Delhaize’s Board of Directors from 2008 and was Chairman of its Audit and Finance Committee.

Jack is former president and CEO of Revlon. He started his professional career as an auditor at Arthur Andersen & Co. and then spent 22 years as an executive within the Coca-Cola Company, culminating in the role of president and chief operating officer. He also served as group president of Coca-Cola Americas and chief financial officer.

Jack is chairman of the board of managers of New Avon LLC and serves on the boards of Catalent Inc., Advantage Solutions LLC and the U.S. board of advisors of CVC Capital Partners Advisory Inc. He is also vice chairman and a member of the board of directors of The Boys and Girls Clubs of America.

Ben Noteboom

   58   

Ben Noteboom has served on Ahold Delhaize’s Supervisory Board since July 24, 2016, and is Chairman of the Governance and Nomination Committee and a member of the Remuneration Committee. Prior to the merger between Ahold and Delhaize, he was first appointed to Ahold’s Supervisory Board on April 28, 2009.

Ben is former CEO and chairman of the executive board of Randstad Holding N.V., to which he was appointed in 2001. He had first joined Randstad in 1993 and held various senior management positions during his time with the company.

Ben is a member of the supervisory board of Aegon N.V., chairman of its remuneration committee and a member of its audit committee. He is also a member of the supervisory board and audit committee of Wolters Kluwer N.V. and Koninklijke Vopak N.V., and a member of the boards of the Holland Festival Foundation and the Cancer Center Amsterdam.

 

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Bill McEwan

   60   

Bill McEwan has served on Ahold Delhaize’s Supervisory Board since July 24, 2016, and is Chairman of the Remuneration Committee and a member of the Sustainability and Innovation Committee. Prior to the merger between Ahold and Delhaize, he served on Delhaize’s Board of Directors as of 2011 and was Chairman of the Remuneration Committee.

Bill is the former president and CEO of Sobeys Inc., and was a member of the board of directors of its parent company, Empire Company Limited.

Between 1989 and 2000, Bill held a variety of progressively senior marketing and merchandising roles with Coca-Cola Limited and Coca-Cola Bottling as well as with The Great Atlantic and Pacific Tea Company (A&P), both in Canada and in the United States. Bill served as president of A&P’s Canadian operations before his appointment as president and chief executive officer of the company’s U.S. Atlantic Region.

Bill is a member of the board of Agrifoods International Cooperative Ltd, Ultima Foods and Aimia Inc.

Rob van den Bergh

   66   

Rob van den Bergh has served on Ahold Delhaize’s Supervisory Board since July 24, 2016, and is Chairman of the Sustainability and Innovation Committee and a member of the Remuneration Committee. Prior to the merger between Ahold and Delhaize, he was first appointed to Ahold’s Supervisory Board on April 20, 2011.

Rob is the former CEO of VNU N.V. Prior to that, he held various other executive positions within VNU and was a member of the executive board from 1992 until his appointment as CEO in 2000.

Rob is the chairman of the supervisory board of the Nationaal Museum van Wereldculturen, and a member of the supervisory boards of Pon Holdings B.V., Iddink Groep B.V. and Novamedia. He is also a member of the advisory board of CVC Capital Partners.

Stephanie Shern

   69   

Stephanie Shern has served on Ahold Delhaize’s Supervisory Board since July 24, 2016, and is a member of the Audit, Finance and Risk Committee. Prior to the merger between Ahold and Delhaize, she was first appointed to Ahold’s Supervisory Board on May 18, 2005.

Stephanie was with Ernst & Young for over 30 years, most recently as vice chairman and global director of retail and consumer products and a member of Ernst & Young’s U.S. management committee.

She is the chair of the audit committee of Gamestop and a member of the board and audit committee of Abercrombie & Fitch. Stephanie is also a member of the advisory board of Pennsylvania State University’s accounting major program and a founding member of the Lead Director Network and of the Southwest Region of the United States Audit Committee Network, both organized by Tapestry Networks in the United States.

Mark McGrath

   70   

Mark McGrath has served on Ahold Delhaize’s Supervisory Board since July 24, 2016, and is a member of the Governance and Nomination and Sustainability and Innovation Committees. He was first appointed to Ahold’s Supervisory Board on April 23, 2008. Mark is a director emeritus of McKinsey & Company. He led the firm’s Americas Consumer Goods Practice from 1998 until 2004, when he retired from the company. Mark is a former director of GATX and Aware Inc.

Mark serves on the advisory council of the University of Chicago’s Booth Graduate School of Business. He is a trustee and serves on the executive committee of the Chicago Symphony Orchestra Association.

René Hooft Graafland

   61   

René Hooft Graafland has served on Ahold Delhaize’s Supervisory Board since July 24, 2016, and is a member of the Audit, Finance and Risk Committee. Prior to the merger between Ahold and Delhaize, he was appointed to Ahold’s Supervisory Board on April 16, 2014, with effect from January 1, 2015.

René previously held the position of CFO and member of the executive board of Heineken N.V. until April 2015. Before being appointed as a member of Heineken’s executive board in 2002, he held various international management positions with the company in Europe, Asia and Africa.

René is a member of the supervisory board and chairman of the audit committee of Wolters Kluwer N.V. and a member of the supervisory board and of the audit committee of Koninklijke FrieslandCampina N.V. He is also chairman of the supervisory board of Royal Theatre Carré and chairman of the board of Stichting African Parks Foundation.

 

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Mary Anne Citrino

   57   

Mary Anne Citrino has served on Ahold Delhaize’s Supervisory Board since July 24, 2016, and is a member of the Audit, Finance and Risk Committee. Prior to the merger between Ahold and Delhaize, she was appointed to the Ahold’s Supervisory Board on March 14, 2016.

Mary Anne is a senior advisor to Blackstone. She joined the Blackstone Advisory Partners Group as senior managing director in 2004.

Mary Anne was employed at Morgan Stanley for over 20 years, during which she served as the global head of consumer products investment banking, co-head of healthcare services investment banking, and as a mergers and acquisitions analyst.

Currently Mary Anne is a director of Dollar Tree, Inc. and a member of its audit committee and nominating and corporate governance committee. She is a director of Aluminum Company of America Inc. and a member of its governance and nominating committee and public issues committee. Mary Anne is also chair of the audit committee and member of the finance, investment and technology committee of Hewlett Packard, Inc. and serves on the advisory council for the Center for Health and Wellbeing at Princeton University.

Johnny Thijs

   64   

Johnny Thijs has served on Ahold Delhaize’s Supervisory Board since July 24, 2016, and is a member of the Remuneration Committee. Prior to the merger between Ahold and Delhaize, he served on Delhaize’s Board of Directors starting in 2014.

Johnny was the former CEO of Belgian Post from 2002 to 2014 and served as CEO of TerBeke from 2000 to 2002.

Johnny started his career in 1974 at Vanderelst N.V. (Rothmans group) as product and marketing manager for Belgium. In 1981, he was appointed to the role of marketing and sales manager at Masterfoods N.V. (Mars Inc.) for Belgium, the Netherlands, Germany and France. In 1986, Johnny moved to Côte d’Or-Jacobs Suchard. Five years later, he joined Interbrew N.V. as executive vice president before becoming CEO for Europe, Asia Pacific and Africa from 1995 to 1999.

Johnny is chairman of the board of directors of Spadel SA, Betafence and Recticel, a member of the board of directors of H. Essers and an advisor to CVC Belgium and Lazard Frères Benelux.

Patrick De Maeseneire

   59   

Patrick De Maeseneire has served on Ahold Delhaize’s Supervisory Board since July 24, 2016, and is a member of the Audit, Finance and Risk Committee. Prior to the merger between Ahold and Delhaize, he served on Delhaize’s Board of Directors starting in 2015.

Patrick has been the CEO of Jacobs Holding AG, major shareholder of Barry Callebaut AG, since 2015. He is also chairman of the board of directors of Barry Callebaut. Patrick served as CEO of Adecco from 2009 to 2015, and as CEO of Barry Callebaut from 2002 to 2009.

Patrick started his professional career in 1980 as a consultant at Arthur Andersen. Between 1980 and 1997, he held executive positions at Wang, Apple, Sun International and the Belgian TV station VTM.

Dominique Leroy

   52   

Dominique Leroy has served on Ahold Delhaize’s Supervisory Board since 24 July, 2016 and is a member of the Sustainability and Innovation Committee. Prior to the merger between Ahold and Delhaize, she served on Delhaize’s Board of Directors starting in 2015. She began working at Belgacom SA in 2011 as vice president of sales for the consumer division. In 2012, Dominique held the position of executive vice president of the consumer business unit of Belgacom and was a member of the management committee of Belgacom Group. Prior to this, Dominique worked for 24 years at Unilever. She was managing director at Unilever (Belgium) and a member of the Unilever Benelux management committee.

Dominique has been the CEO of Proximus (formerly Belgacom) and a member of the board of directors of Proximus since 2014. She also serves as board member of the Proximus subsidiaries BICS, Be-Mobile and Proximus Art. In addition, Dominique serves as a board member at Lotus Bakeries and is chair of the international advisory board of Solvay Brussels School of Economics and Management.

Management Board

Our Management Board is responsible for the actions and decisions of our Executive Committee and the overall management of our Company. Our Management Board is supervised and advised by our Supervisory Board.

 

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Members of the Management Board

As of the date of this Form 20-F Report, the members of our Management Board are as follows:

 

Name    Current Position    Management Board member since      Term Expires(1)

 

Dick Boer

  

 

President and Chief Executive Officer and Chairman of our Management Board and Executive Committee

   May 3, 2007      2019

Frans Muller

   Deputy Chief Executive Officer and Chief Integration Officer and a member of our Management Board and Executive Committee    July 24, 2016      2020

Jeff Carr

   Chief Financial Officer and a member of our Management Board and Executive Committee    April 17, 2012      2020

Pierre Bouchut    

   Chief Operating Officer Europe and Indonesia and a member of our Management Board and Executive Committee    July 24, 2016      2020

Kevin Holt

   Chief Operating Officer of Ahold USA and a member of our Management Board and Executive Committee    July 24, 2016      2020

 

(1) Terms expire on the date of the annual General Meeting of Shareholders.

 

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The table below sets forth the ages and biographical information about the members of our Management Board:

 

Name

 

  

Age

 

  

Biographical Information

 

Dick Boer

   59   

Dick Boer has served as Chief Executive Officer of Ahold Delhaize since July 24, 2016. Prior to the merger between Ahold and Delhaize, he had served as CEO of Ahold, appointed by the Supervisory Board on September 29, 2010, with an effective date of March 1, 2011. Before that, Dick had served as Chief Operating Officer of Ahold Europe since November 6, 2006.

Dick joined Ahold in 1998 as CEO of Ahold Czech Republic and was appointed President and CEO of Albert Heijn in 2000. In 2003, he became President and CEO of Ahold’s Dutch businesses and, on May 3, 2007, shareholders appointed him to the Management Board.

Prior to joining Ahold, Dick spent more than 17 years in various retail positions for SHV Holdings N.V. in the Netherlands and abroad and for Unigro N.V.

Dick is a board member of The Consumer Goods Forum and steward of the Future of Health and Healthcare System at the World Economic Forum 2017. He is also vice chairman of the executive board of The Confederation of Netherlands Industry and Employers (VNO-NCW). He is also a member of the advisory board of fashion retailer G-star RAW.

Frans Muller

   55   

Frans Muller has served as Deputy Chief Executive Officer and Chief Integration Officer of Ahold Delhaize since July 24, 2016. In addition, Delhaize America, including the Food Lion and Hannaford brands, has reported to him on an interim basis since October 2016. Prior to the merger between Ahold and Delhaize, Frans served as President and CEO of Delhaize Group from 2013.

Before joining Delhaize Group, Frans had worked for German retailer Metro AG for more than 15 years. From 2006 until 2013, he was a member of the Metro AG Management Board and, in 2008, he was appointed CEO of Metro Cash & Carry, where he served until 2013. He first joined Metro AG in 1997. After serving as operations director, he became managing director of its Dutch subsidiary, Makro. In 2002, Frans became a member of the board of Metro Cash & Carry International and was appointed regional director for Eastern Europe and Russia. He served as president for Asia Pacific and Russia / Ukraine from 2004 until he was appointed CEO of Metro Group Buying in 2005.

From 1988 to 1997, Frans worked for KLM Cargo, serving in various management and executive positions in Amsterdam, Frankfurt, Vienna and Singapore.

Frans is the president of the European Retail Round Table (ERRT) and serves on the board of directors of the Food Marketing Institute Inc.

Jeff Carr

   55   

Jeff Carr has served as Chief Financial Officer of Ahold Delhaize since July 24, 2016. Prior to the merger between Ahold and Delhaize, Jeff joined Ahold on November 14, 2011, as acting member of the Management Board and CFO. Ahold’s shareholders appointed him to the Management Board on April 17, 2012.

He began his career at Unilever, and held senior roles in finance at Associated British Foods, Reckitt Benckiser and Grand Metropolitan. From 2005 to 2009, he was group finance director and a member of the board at easyJet. Jeff was then appointed to the role of group finance director and a member of the board at FirstGroup, the leading transport operator in the UK and the U.S. Jeff has lived and worked in Europe and the U.S.

Pierre Bouchut    

   61   

Pierre Bouchut has served as Chief Operating Officer Europe and Indonesia of Ahold Delhaize since July 24, 2016. Prior to the merger between Ahold and Delhaize, he had served as Executive Vice President and Chief Financial Officer of Delhaize Group since 2012.

Before joining Delhaize Group, Pierre was executive director of growth markets at Carrefour, overseeing operations in Latin America, Turkey, India, Indonesia and Malaysia. He also oversaw Carrefour’s personal financial services and real estate operations worldwide. Pierre had joined Carrefour in 2009 as group chief financial officer.

Pierre began his career in 1979, first at Citibank Paris and then Bankers Trust France SA. In 1988, he joined McKinsey & Company as a consultant in the corporate finance and integrated logistics practices. Two years later, Pierre joined Group Casino, where he successively held the positions of chief financial officer, managing director and CEO responsible for both the French and international operations. In 2005, Pierre became chief financial officer at Schneider Group.

Pierre is a non-executive director and chairman of the audit committee of Hammerson PLC and a non-executive director and chairman of the audit committee of Firmenich SA.

Kevin Holt

   58   

Kevin Holt has served as Chief Operating Officer of Ahold USA since October 2016, after serving as Chief Operating Officer of Delhaize America since July 24, 2016. Prior to the merger between Ahold and Delhaize, he was Executive Vice President of Delhaize Group and Chief Executive Officer of Delhaize America, starting in 2014.

Before joining Delhaize Group, Kevin served as president of retail operations for SuperValu. During his tenure there, the company owned the Albertsons, Jewel-Osco and Save-A-Lot chains and was the third largest food retailing company in the U.S.

Prior to SuperValu, Kevin worked for three years with Sears Holding Company and 14 years with Meijer, serving in various leadership positions including executive vice president of retail operations and senior vice president of information technology / services and strategic planning.

Kevin spent nine years at NCR delivering technology solutions to large and complex organizations before joining the retail industry.

 

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Executive Committee

Our Executive Committee is responsible for managing our general affairs and ensuring that we can effectively implement our strategy and achieve our objectives. Our Executive Committee is comprised of the members of our Management Board as well as certain of our other key officers. Our Executive Committee is led by our Chief Executive Officer and is accountable to our Management Board. As of the date of this Form 20-F Report, the members of our Executive Committee are as follows:

 

Name

 

  

Current Position

 

  

Executive Committee member since

 

Dick Boer

   President and Chief Executive Officer and Chairman of our Management Board and Executive Committee    May 3, 2007

Frans Muller

   Deputy Chief Executive Officer and Chief Integration Officer and a member of our Management Board and Executive Committee    July 24, 2016

Jeff Carr

   Chief Financial Officer and a member of our Management Board and Executive Committee    April 17, 2012

Pierre Bouchut

   Chief Operating Officer Europe and Indonesia and a member of our Management Board and Executive Committee    July 24, 2016

Kevin Holt

   Chief Operating Officer Ahold USA and a member of our Management Board and Executive Committee    July 24, 2016

Hanneke Faber

   Chief e-Commerce and Innovation Officer and a member of our Executive Committee    September 1, 2013

Abbe Luersman

   Chief Human Resources Officer and a member of our Executive Committee    November 1, 2013

Jan Ernst de Groot

   Chief Legal Officer and a member of our Executive Committee    February 1, 2015

Marc Croonen

   Chief Sustainability, Transformation and Communications Officer and a member of our Executive Committee    July 24, 2016

Executive Committee members who are not part of our Management Board are appointed – for an indefinite period of time – and dismissed by our Supervisory Board. Executive Committee members who are part of our Management Board do not automatically cease to be a member of the Executive Committee once their terms as members of the Management Board expire. They continue to be members of the Executive Committee until they are dismissed by our Supervisory Board or they resign.

 

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The table below sets forth the ages and biographical information about the members of our Executive Committee other than for those individuals whose biographies are set forth above:

 

Name

 

  

Age

 

  

Biographical Information

 

Hanneke Faber

   47   

Hanneke Faber has served as Chief e-Commerce and Innovation Officer of Ahold Delhaize since July 24, 2016. Prior to the merger between Ahold and Delhaize, she served as Ahold’s Chief Commercial Officer since September 1, 2013. Hanneke is responsible for eCommerce, digital personalization, customer loyalty and media sales.

Before joining Ahold, Hanneke was vice president and general manager Global Pantene, Head & Shoulders and Herbal Essences at Procter & Gamble. She began her career at Procter & Gamble in 1992 and held various senior roles in marketing and general management in both Europe and the U.S.

Hanneke is a supervisory board member of Bayer AG and a member of the Leading Executives Advancing Diversity (LEAD) advisory board.

Abbe Luersman

   49   

Abbe Luersman has served as Chief Human Resources Officer and a member of Ahold Delhaize’s Executive Committee since July 24, 2016. She is responsible for Global Human Resources, including Talent and Diversity; Leadership and Development; Organizational Effectiveness and Design; and Total Rewards.

Prior to the merger between Ahold and Delhaize, Abbe had served as Ahold’s Chief Human Resources Officer and member of the Executive Committee from November 1, 2013. Before that, Abbe worked for Unilever, where she held various HR leadership roles, most recently as head of human resources for Unilever Europe. Prior to Unilever, Abbe worked at Whirlpool Corporation, holding a number of senior roles in human resources, both in the United States and internationally.

Abbe is a member of the Catalyst advisory board and of the European Leadership Platform advisory board.

Jan Ernst de Groot    

   53   

Jan Ernst de Groot has served as Chief Legal Officer of Ahold Delhaize since July 24, 2016. Prior to the merger of Ahold and Delhaize, he was appointed Chief Legal Officer and member of Ahold’s Executive Committee effective February 1, 2015. He is responsible for Ahold Delhaize’s legal affairs, governance and compliance functions, product integrity and public affairs.

Before joining Ahold, Jan Ernst was general counsel and managing director at TNT Express. Prior to that, he worked for KLM Royal Dutch Airlines in a wide range of business and legal roles, most recently as managing director and member of the board of management. Jan Ernst started his career at law firm De Brauw Blackstone Westbroek.

Jan Ernst is chairman of the supervisory council of Hivos, supervisory board member of ADG Dienstengroep and a board member of Hermitage Museum Amsterdam.

Marc Croonen

   56   

Marc Croonen has served as Chief Sustainability, Transformation and Communications Officer of Ahold Delhaize since July 24, 2016. Prior to the merger between Ahold and Delhaize, he was Executive Vice President and Chief Human Resources Officer at Delhaize Group starting in 2014.

Before joining Delhaize Group, Marc was human resources director for Europe, the Middle East and Africa at International Paper from 2012. Between 2010 and 2012, he was chief human resources officer at Dexia.

Marc began his career with the former Artois brewery. After serving as human resources manager here for nine years, he became head of human resources and communication at Volkswagen Belgium in 1995. In 1999, he joined Danone as human resources director for Northern Europe. From 2001 until 2010, Marc was employed by AB Inbev, including as head of human resources for Western Europe from 2005 onwards.

 

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B. COMPENSATION

Remuneration of the Supervisory Board

The annual remuneration of the members of the Supervisory Board was determined by the Extraordinary General Meeting of Shareholders on March 14, 2016. Remuneration is subject to an annual review by the Supervisory Board.

 

 Chairman Supervisory Board

     220,000  

 Vice Chairman (and member of the presidium)

     180,000  

 Vice Chairman

     125,000  

 Member Supervisory Board

     90,000  

 Chairman Audit, Finance and Risk Committee

     30,000  

 Member Audit, Finance and Risk Committee

     15,000  

 Chairman Other Committee

     20,000  

 Member Other Committee

     12,500  

 Travel compensation intercontinental per round trip

     7,500  

 Travel compensation continental per round trip

     2,500  

The aggregate amount of remuneration, which consists of cash compensation and expense reimbursements, for each member of our Supervisory Board in 2016 was as follows:

Remuneration of the Supervisory Board members

 

  thousand    2016  

 Mats Jansson (appointed in 2016)

     115  

 Jan Hommen (appointed in 2013)

     177  

 Jacques de Vaucleroy (appointed in 2016)

     80  

 Jack Stahl (appointed in 2016)

     76  

 Ben Noteboom (reappointed in 2013)

     133  

 Bill McEwan (appointed in 2016)

     71  

 Rob van den Bergh (reappointed in 2015)

     132  

 Stephanie Shern (reappointed in 2013)

     140  

 Mark McGrath (reappointed in 2016)

     160  

 René Hooft Graafland (appointed in 2014)

     127  

 Mary Anne Citrino (appointed in 2016)

     136  

 Johnny Thijs (appointed in 2016)

     55  

 Patrick De Maeseneire (appointed in 2016)

     59  

 Dominique Leroy (appointed in 2016)

     58  

 Derk Doijer (resigned in July 2016)

     56  

 Total

     1,575  

The Supervisory Board remuneration for 2016 is in accordance with the Supervisory Board remuneration policies applicable in 2016. Up to the date of the merger between Ahold and Delhaize, the Ahold remuneration policy applied. This policy was adopted at the General Meeting of Shareholders on April 16, 2014. Ahold Delhaize’s remuneration policy, adopted at the General Meeting of Shareholders on April 19, 2016, applies as of July 24, 2016 – the first calendar day after the merger of Ahold and Delhaize was finalized.

 

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For the members who were appointed or resigned in 2016, the remuneration for 2016 reflects a partial year.

Remuneration of the Management Board and Executive Committee

The remuneration policy of our Management Board and Executive Committee was prepared in accordance with the Dutch Corporate Governance Code 2008. It was adopted at the General Meeting of Shareholders on April 19, 2016, and became effective on July 24, 2016, the first calendar day after the merger of Ahold and Delhaize was finalized.

Management Board remuneration policy

The Supervisory Board designed the Management Board’s remuneration policy to align with our strategy and to support our pay-for-performance culture, while aiming to be effective, transparent and simple. While developing the remuneration policy, we carried out scenario analyses to determine the risks to which variable remuneration may expose us.

The basic elements of the Total Direct Compensation provided to Management Board members are (1) a base salary, (2) an annual cash incentive and (3) a long-term equity based program. In line with our overall remuneration philosophy, the Management Board’s Total Direct Compensation is structured and more heavily weighted on variable short- and long-term incentives tied to realization of financial and societal performance criteria. These performance criteria are a cornerstone of the Company’s strategy.

Base salary

The level of the Management Board members’ base salary is derived from the benchmarking of Total Direct Compensation. Adjustment of the base salary is at the discretion of the Supervisory Board.

Annual cash incentive plan: Executive Committee Incentive Plan

The Management Board members participate in the Executive Committee Incentive Plan (EIP). The EIP is an annual cash incentive plan that uses three equally weighted financial measures: sales growth (30%), underlying operating margin (30%) and operating cash flow (30%), as well as personal objectives (10%). The at-target payout as a percentage of base salary is 100%, contingent on full achievement of the objectives, with a cap at 150% of the base salary in the event of above-target performance.

 

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Long-term equity-based program: Global Reward Opportunity

The Management Board members participate in our long-term incentive program: Global Reward Opportunity (GRO). Under the GRO program, shares are granted through a three-year program. The vesting of these performance shares is subject to performance over a period of three years. The GRO program employs two financial measures: Return on Capital (40%) and Total Shareholder Return (40%). In addition, a non-financial performance measure (20%) related to sustainable retailing targets is included.

In line with market practice, the target value of the long-term incentives granted under the program differentiates per role. For the CEO, the target value is 235% of base salary; for the Deputy CEO and U.S. COOs, the target value is 200% of base salary; for the CFO, the target value is 175% of base salary; and for the COO Europe, the target value is 150% of base salary.

Pensions and other contract terms

Pension

All existing pension arrangements in the Netherlands have been brought in line with the applicable fiscal pension regulations. The pension plan for Management Board members is calculated similarly to that of all other associates of the Company in the Netherlands and is referred to as a defined benefit plan, based on career average salary. The (current) retirement age is 67. The pensionable salary is capped at around 100,000 (2016: 97,474). Each Management Board member working on a Dutch contract pays a pension premium contribution identical to that of all other Ahold Delhaize associates in the Netherlands. In addition, Management Board members receive a gross (age-dependent) pension allowance and can choose to participate in a Net Pension Arrangement by investing the net (after tax) amount. The Net Pension Arrangement is identical to that of all other associates of the Company in the Netherlands whose pensionable salary exceeds the cap. Participation in this Net Pension Arrangement is voluntary.

Members of the Management Board working on a non-Dutch contract will be offered pensions in line with local practices.

See Note 23 of Ahold Delhaize’s consolidated financial statements included in Item 18 of this Form 20-F Report.

Loans

Ahold Delhaize does not provide loans or advances to members of the Management Board. Nor does the Company issue guarantees to the benefit of members of the Management Board.

Additional arrangements

In addition to the remuneration of the Management Board members, a number of additional arrangements apply. These include expense allowances, medical insurance and accident insurance, use of company cars and, if applicable, expatriate allowances, which apply to other senior associates and are in line with market practice in the Netherlands. In addition, third-party tax services will be provided to ensure compliance with the relevant legislative requirements.

Service Agreements

The term of appointment for all Management Board members is four years. If the Company terminates the service agreement of any member of the Management Board, the severance payment is limited to one year’s base salary. The same applies if an initial service agreement for four years is not continued in the event the Management Board member is not reappointed. The agreement may be terminated by the Company with a notice period of 12 months and by the Management Board member with a notice period of six months.

 

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2016 Management Board Remuneration

The Management Board remuneration for 2016 is in accordance with the Management Board remuneration policies applicable in 2016. Up to the date of the merger between Ahold and Delhaize, the Ahold remuneration policy applied. This policy was adopted at the General Meeting of Shareholders on April 17, 2013, and amendments were adopted at the General Meeting of Shareholders on April 15, 2015. Our remuneration policy, adopted at the General Meeting of Shareholders on April 19, 2016, applies as of July 24, 2016, the first calendar day after the merger of Ahold and Delhaize was finalized.

2016 Annual cash incentive plan: EIP

The Executive Committee Incentive Plan (EIP) for performance year 2016 has been determined pro rata for the period up to the merger between Ahold and Delhaize and after the merger became effective on July 24, 2016.

For the period up to the merger, the EIP used three equally weighted financial measures: sales growth (30%), operating margin (30%) and operating cash flow (30%). In addition, one non-financial performance measure (10%) is included that relates to our Responsible Retailing strategic ambitions. Targets set under this non-financial performance measure are qualitative. The score under the non-financial component is linked to the performance of the financial components. If the financial multiplier is zero, the score on the non-financial component will also be zero (regardless of the achieved score on the non-financial component).

For the period after the merger, the EIP uses three equally weighted financial measures, but uses underlying operating margin instead of operating margin: sales growth (30%), underlying operating margin (30%) and operating cash flow (30%). In addition, personal objectives (10%) are included.

2016 Long-term equity-based program: GRO

The 2016 GRO award was made in the open period following the merger. This grant date was a one-time exception to the consistent grant policy in order to ensure a grant could be made to all members of the Management Board on the same date in 2016. This 2016 award will vest on the regular vesting date in 2019: the day after the annual General Meeting of Shareholders.

Service Agreements of the Members of our Ahold Delhaize Management Board

Dick Boer

In 2016, we provided Dick Boer with an annual base salary, participation in the annual cash incentive plan and participation in our equity-based long-term incentive plan (GRO - see Note 32 of Ahold Delhaize’s consolidated financial statements included in Item 18 of this Form 20-F Report). The annual base salary of 1,000 thousand was increased by 1.75% to 1,017 thousand effective March 28, 2016. The at-target payout under the annual cash incentive plan is 100% of base salary and is capped at 150% in the event of extraordinary performance. Unless Dick Boer’s employment agreement is otherwise terminated, he will be eligible for reappointment at the annual General Meeting of Shareholders to be held in April 2019. If we terminate his employment agreement for

 

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reasons other than cause or because he is not reappointed by shareholders, Dick Boer is entitled to a severance payment equal to one year’s base salary. His employment agreement may be terminated by us with a notice period of 12 months and by Dick Boer with a notice period of six months. Dick Boer participates in our Dutch pension plan.

Frans Muller

In 2016, we provided Frans Muller with an annual base salary of 1,007 thousand, participation in the annual cash incentive plan and participation in our equity-based long-term incentive plan (GRO - see Note 32 of Ahold Delhaize’s consolidated financial statements included in Item 18 of this Form 20-F Report). The at-target payout under the annual cash incentive plan is 100% of base salary and is capped at 150% in the event of extraordinary performance. Furthermore, Frans Muller receives a temporary housing allowance of 7,500 net per month as well as school fees. Effective October 5, 2016, Frans Muller has received a temporary expat allowance related to his interim role at Delhaize America. Unless Frans Muller’s service agreement is otherwise terminated, he will be eligible for reappointment at the annual General Meeting of Shareholders to be held in April 2020. If we terminate his service agreement for reasons other than cause or because he is not reappointed by shareholders, Frans Muller is entitled to a severance payment equal to one year’s base salary. His service agreement may be terminated by us with a notice period of 12 months and by Frans Muller with a notice period of six months. Frans Muller participates in our Belgian pension plan and will transition into our Dutch pension plan.

 

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Jeff Carr

In 2016, we provided Jeff Carr with an annual base salary, participation in the annual cash incentive plan and participation in our equity-based long-term incentive plan (GRO - see Note 32 of Ahold Delhaize’s consolidated financial statements included in Item 18 of this Form 20-F Report). The annual base salary of 666 thousand was increased by 1.75% to 678 thousand effective March 28, 2016. The at-target payout under the annual cash incentive plan is 100% of base salary and is capped at 150% in the event of extraordinary performance. Furthermore, Jeff Carr receives a housing allowance of 7,000 net per month. Unless Jeff Carr’s employment agreement is otherwise terminated, he will be eligible for reappointment at the annual General Meeting of Shareholders to be held in April 2020. If we terminate his employment agreement for reasons other than cause or because he is not reappointed by shareholders, Jeff Carr is entitled to a severance payment equal to one year’s base salary. His employment agreement may be terminated by the Company with a notice period of 12 months and by Jeff Carr with a notice period of six months. Jeff Carr participates in our Dutch pension plan.

Pierre Bouchut

In 2016, we provided Pierre Bouchut with an annual base salary of 641 thousand, participation in the annual cash incentive plan and participation in our equity-based long-term incentive plan (GRO - see Note 32 of Ahold Delhaize’s consolidated financial statements included in Item 18 of this Form 20-F Report). The at-target payout under the annual cash incentive plan is 100% of base salary and is capped at 150% in the event of extraordinary performance. Unless Pierre Bouchut’s employment agreement is otherwise terminated, he will be eligible for reappointment at the annual General Meeting of Shareholders to be held in April 2020. If we terminate his employment agreement for reasons other than cause or because he is not reappointed by shareholders, Pierre Bouchut is entitled to a severance payment equal to one year’s base salary. His employment agreement may be terminated by us with a notice period of 12 months and by Pierre Bouchut with a notice period of six months. Pierre Bouchut participates in our Belgian pension plan.

Kevin Holt

In 2016, we provided Kevin Holt with an annual base salary, participation in the annual cash incentive plan and participation in our equity-based long-term incentive plan (GRO - see Note 32 of Ahold Delhaize’s consolidated financial statements included in Item 18 of this Form 20-F Report). The annual base salary of $763 thousand was increased to $925 thousand effective October 1, 2016, following his appointment as COO of Ahold USA. The at-target payout under the annual cash incentive plan is 100% of base salary and is capped at 150% in the event of extraordinary performance. Furthermore, Kevin Holt is entitled to receive a housing allowance of up to $7,500 net per month. Unless Kevin Holt’s employment agreement is otherwise terminated, he will be eligible for reappointment at the annual General Meeting of Shareholders to be held in April 2020. If we terminate his employment agreement for reasons other than cause or because he is not reappointed by shareholders, Kevin Holt is entitled to a severance payment equal to one year’s base salary. His employment agreement may be terminated by us with a notice period of 12 months and by Kevin Holt with a notice period of six months. Kevin Holt participates in our U.S. pension plan.

 

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James McCann

In 2016, we provided James McCann with an annual base salary, participation in the annual cash incentive plan and participation in our equity-based long-term incentive plan (GRO - see Note 32 of Ahold Delhaize’s consolidated financial statements included in Item 18 of this Form 20-F Report). The annual base salary of 666 thousand was increased by 1.75% to 678 thousand effective March 28, 2016. The at-target payout under the annual cash incentive plan is 100% of base salary and is capped at 150% in the event of extraordinary performance. Furthermore, James McCann receives a housing allowance of $10,000 net per month. James McCann participates in our Dutch pension Plan. On October 5, 2016, it was announced that James McCann resigned as COO of Ahold USA and as a member of our Management Board. His employment relationship with Ahold Delhaize will terminate as of April 30, 2017, without any severance payment due.

2016 Remuneration of the Management Board and Executive Committee

The remuneration of each member of our Management Board in 2016 was as follows:

Remuneration of the Management Board by member

 

 € thousand

 

   Direct remuneration       Deferred remuneration           
     Base salary(1)      EIP(2)              Other(3)     

Total direct 

remuneration 

    

Share-based

compensation

     Pensions(6)      

Total

remuneration

 

 Dick Boer

                    

 2016

     1,013        1,271        297        2,581         2,063        70         4,714  

 Frans Muller

                    

 2016*

     446        323        192        961         1,168        163         2,292  

 Jeff Carr

                    

 2016

     675        773        297        1,745         1,026        31         2,802  

 Pierre Bouchut

                    

 2016*

     280        184        113        577         684        72         1,333  

 Kevin Holt

                    

 2016*

     329        252        15        596         221        60         877  

 Total 2016

     2,743                2,803        914        6,460         5,162        396         12,018  

* For the members appointed to the Management Board in 2016, the 2016 remuneration reflects a partial year.

 

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Remuneration of the former members of the Management Board

 

      Direct remuneration       Deferred remuneration           

 € thousand

 

     Base salary(1)      EIP(2)              Other(3)     

Total direct 

remuneration 

    

Share-based

compensation

     Pensions(6)      

Total

remuneration

 

 James McCann(4)

                    

 2016

     514        590        2,501        3,605         421        31         4,057  

 Lodewijk Hijmans van den Bergh

                    

 2016

                          —                —          

 Total 2016

     514                   590        2,501        3,605         421        31         4,057  

Remuneration of the Executive Committee including Management Board

The table below specifies the remuneration of the Executive Committee in 2016, comprising the Management Board members, the former members of the Management Board, as listed above and the additional Executive Committee members who were not part of the Management Board.

 

  thousand    2016  

 Base salary

     5,121  

 EIP(2)

     5,535  

 Other(3), (4)

     4,436  

 Share-based compensation(5)

     7,544  

 Pensions(6)

     616  

 Total remuneration

     23,252  

(1) Base salary represents the base salaries paid in 2016. Frans Muller, Pierre Bouchut and Kevin Holt were appointed as members of the Management Board effective July 24, 2016. The 2016 base salary for them reflects a partial year.

(2) The Executive Committee incentive Plan (EIP) represents accrued annual cash incentives to be paid in the following year based on an overall weighted EIP.

For Dick Boer, Jeff Carr and James McCann, the EIP for the year 2016 has been determined pro rata for the period up to the merger and after the merger became effective. Frans Muller, Pierre Bouchut and Kevin Holt were appointed as members of the Management Board effective July 24, 2016. For them, the 2016 EIP reflects a partial year and has been determined pro rata for the period after the merger became effective. The overall 2016 performance multiplier was 108%. The individual EIP amounts also include the component linked to individual performance. In recognition of outstanding leadership leading up to and since the completion of the merger, the Supervisory Board increased the EIP payout for Dick Boer by 11% for 2016, in line with the parameters of the Company’s Remuneration Policy.

(3) “Other” mainly includes gross allowances for net pension, tax compensation (tax equalization charges for expatriates), allowances for housing expenses for certain individuals, relocation costs, international school fees, employer’s contributions to social security plans, benefits in kind such as tax advice, medical expenses, and the associated tax gross up. Included in “Other” for Dick Boer in 2016 is a negative amount of 7.6 thousand, an amount reclaimed by the Company in accordance with Dutch law in respect of a share sale before the closing of the merger.

(4) James McCann, Chief Operating Officer of Ahold USA and member of the Management Board and Executive Committee, stepped down on October 5, 2016. His employment relationship with Ahold Delhaize will terminate as of April 30, 2017, without any severance payment due. Outstanding shares under the GRO plan will vest over the

 

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term of employment in accordance with the applicable plan rules. Unvested shares outstanding at the termination date will be forfeited. An estimate of the remuneration costs relating to the period after October 5, 2016, until April 30, 2017, was recognized in 2016 in “Other” in the amount of 1,131 thousand and in “Share-based compensation” as a net reversal of costs of 119 thousand. In addition, tax compensation of 893 thousand was also included in “Other” for James McCann in 2016. An estimate of additional wage tax of 0.1 million due in accordance with Dutch tax laws, is excluded from “Total remuneration” as presented in the tables above.

(5) The fair value of each year’s grant is determined on the grant date and expensed on a straight-line basis over the vesting period. The expense for 2016 reflects this year’s portion of the share grants over the previous five years (2012 to 2016). The share-based compensation expense also includes the expense related to the shares under the special purpose plan as described in Note 32 of Ahold Delhaize’s consolidated financial statements in Item 18 of this Form 20-F Report. Under this program, 105,000 shares were granted in 2013 to Executive Committee members who were not part of the Management Board, of which the last tranche vested in 2015 (2015: 35,000). The total share-based compensation expense in 2016 for these Executive Committee members is 1,961 thousand, of which nil relates to the special purpose plan and 1,961 thousand relates to the grants under the GRO program.

(6) Pension costs are the total net periodic pension costs of the applicable pension plans.

Share-Based Compensation

Long-term equity based program: Global Reward Opportunity

Ahold Delhaize’s share-based compensation program consist of the share grant program called Global Reward Opportunity (GRO). Under the GRO program, shares are granted through a three-year program. The vesting of these performance shares is subject to performance over a period of three years. The GRO program employs two financial measures: Return on Capital - RoC (40%) and Total Shareholder Return - TSR (40%). In addition, a non-financial performance measure (20%) related to sustainable retailing targets is included.

 

    Of the total GRO award, the first 40% is linked to a three-year RoC target. Dependent on performance, the number of shares that eventually vest may range between zero and a maximum of 150% of the number of shares granted.

 

    Another 40% of the total GRO award is linked to TSR (share price growth and dividends paid over the performance period), with performance at vesting benchmarked against the TSR performance of a TSR peer group. The number of shares that vest depends on the Company’s relative ranking in the peer group. An independent external adviser determines the ranking based on TSR performance. No shares will vest to Management Board members if the Company ranks below the seventh position in the performance peer group. The table below indicates the percentage of performance shares that vest based on the Company’s ranking.

 

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    Company ranking   

Shares that will vest

as % of originally granted amount

 

Ranking 1

   175%
 

Ranking 2

   150%
 

Ranking 3

   125%
 

Ranking 4

   110%
 

Ranking 5

   100%
 

Ranking 6

   80%
 

Ranking 7

   50%
 

Ranking 8 - 14

   0%
 

    

  
  TSR performance peer group
 

  Tesco

   Kroger
 

  Carrefour

   Costco
 

  Metro

   Target
 

  Casino Guichard

  Perrachon

  

Walgreen Boots

Alliance

 

  J Sainsbury

   Best Buy
 

  W M Morisson

   Staples
 

  Walmart

    

In anticipation of potential changes to the performance peer group due to delisting, mergers or other extraordinary circumstances, the Supervisory Board has the discretion to include substitute comparable companies.

 

    For the remaining 20% of the total GRO award, the performance at vesting is measured using sustainable retailing targets. This measure relates to the Company’s sustainable retailing strategic ambitions. The targets set under this non-financial performance measure are both qualitative and quantitative. Dependent on performance, the number of shares that eventually vest can range between zero and a maximum of 150% of the number of shares granted.

The outstanding performance shares awarded under the Ahold GRO program (for former Ahold Management Board members and associates) and the Delhaize European long-term incentive plan (for former Delhaize Management Board members) have been rolled over into Ahold Delhaize’s GRO program.

As a consequence of the merger, the outstanding (non-vested) performance share awards remaining from the Ahold GRO plan have been split into two parts. One part, which is related to the full performance years prior to the year of the merger (2012, 2013, 2014 and 2015, where applicable), has been assessed against the performance of Ahold as a stand-alone company on the basis of the existing performance measures. Based on the performance realized in those years, this portion of the award has been assessed and transformed into restricted Ahold Delhaize shares. These restricted shares are not subject to additional performance criteria, but will be subject to the remaining vesting period and continued employment. The other portion, which is related to the performance during the year of the merger and beyond (2016 and 2017), will be assessed against the financial measures of Ahold Delhaize’s long-term equity-based plan. The outstanding conditional shares will continue to be subject to the remaining vesting period and continued employment.

 

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Outstanding (non-vested) performance shares awarded under the Delhaize European long-term incentive plan have similarly been converted into Ahold Delhaize restricted shares and shares subject to meeting the performance measures of the Ahold Delhaize GRO plan.

Please refer to Note 32 of our consolidated financial statements included in Item 18 of this Form 20-F Report for more details on our share-based compensation.

 

C. BOARD PRACTICES

Committees of the Supervisory Board

Our Supervisory Board has four committees to which certain tasks are assigned:

 

    Audit, Finance and Risk Committee. The Audit, Finance and Risk Committee assists our Supervisory Board in its responsibility to oversee our financing, financial statements, financial reporting process and system of internal business controls and risk management. Members of the Audit, Finance and Risk Committee are Jack Stahl (Chairman), Jacques De Vaucleroy, Stephanie Shern, René Hooft Graafland, Mary Anne Citrino and Patrick De Maeseneire.

 

    Governance and Nomination Committee. The Governance and Nomination Committee’s main areas of focus are our governance, the long-term succession planning for our Supervisory Board and management development. Members of the Governance and Nomination Committee are Ben Noteboom (Chairman), Mats Jansson, Jan Hommen, Jacques De Vaucleroy, Jack Stahl and Mark McGrath.

 

    Remuneration Committee. The main responsibilities of the Remuneration Committee include: (i) preparing proposals for our Supervisory Board on the remuneration policy for our Management Board, to be adopted by our General Meeting of Shareholders, (ii) preparing proposals on the remuneration of individual members of our Management Board and (iii) advising on the level and structure of compensation for senior personnel other than members of our Management Board. Members of the Remuneration Committee are Bill McEwan (chairman), Ben Noteboom, Rob van den Bergh and Johnny Thijs.

 

    Sustainability and Innovation Committee. The Sustainability and Innovation Committee’s main areas of focus are sustainability, eCommerce and digital personalization, loyalty and analytics. Members of the Sustainability and Innovation Committee are Rob van den Bergh (Chairman), Bill McEwan, Mark McGrath and Dominique Leroy.

Appointment, Suspension and Dismissal of Members of our Supervisory Board

Our Supervisory Board determines the number of its members. Our Supervisory Board is comprised of members that are able to act critically and independently of one another, the Management Board and other particular interests. Our General Meeting of Shareholders appoints, suspends or dismisses a member of our Supervisory Board by an absolute majority of the votes cast, upon a proposal made by our Supervisory Board. If another party makes the

 

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proposal, an absolute majority of the votes cast, representing at least one-third of the issued share capital, is required. If this qualified majority is not achieved but a majority of the votes exercised was in favor of the proposal, then a second meeting may be held. In the second meeting, only a majority of votes exercised, regardless of the number of shares represented at the meeting, is required to adopt the proposal. A member of our Supervisory Board is appointed for a four-year term and is eligible for reappointment for two additional terms of four years. From 2018 onwards, a Supervisory Board member is eligible for reappointment after his or her first term of four years, for one additional term of four years, followed by two additional terms of two years. A member of our Supervisory Board may not serve for more than 12 years.

Appointment, Suspension and Dismissal of Members of our Management Board

According to our Articles of Association, our Management Board must consist of at least three members. Our General Meeting of Shareholders may appoint, suspend or dismiss a member of our Management Board by an absolute majority of the votes cast, upon a proposal made by our Supervisory Board. If another party makes the proposal, an absolute majority of the votes cast, representing at least one-third of the issued share capital, is required. If this qualified majority is not achieved, but a majority of the votes exercised was in favor of the proposal, then a second meeting may be held. In the second meeting, only a majority of the votes exercised, regardless of the number of shares represented at the meeting, is required to adopt the proposal. The members of our Management Board are appointed for four-year terms and may be reappointed for additional terms not exceeding four years. Our Supervisory Board may at any time suspend a member of our Management Board.

For the date of expiration of the current term of office of the members of our Supervisory Board, Management Board and Executive Committee, as well as the periods during which each one has served in their respective offices, see section “A. Directors and senior management”, included in this Item 6.

For details of the contracts between the Company or any of our subsidiaries and each member of our Management Board providing for benefits upon termination of employment, see section “B. Compensation” included in this Item 6. We have not entered into any agreement with the members of our Supervisory Board providing for such benefits.

Conflicts of Interests

Each member of our Management Board is required to immediately report any potential conflict of interest to the Chairman of our Supervisory Board and to the other members of our Management Board and provide them with all relevant information. Each member of our Supervisory Board is required to immediately report any potential conflict of interest to the Chairman of our Supervisory Board and provide him or her with all relevant information. The Chairman of our Supervisory Board determines whether there is a conflict of interest. The Chairman of our Supervisory Board is required to immediately report any potential conflict of interest regarding himself to the Vice-Chairman of our Supervisory Board and provide him with all relevant information. In such case, the Vice-Chairman of our Supervisory Board determines whether there is a conflict of interest. If a member of our Supervisory Board or a member of our Management Board has a conflict of interest with us, the member may not participate in the discussions and/or decision-making process on subjects or transactions relating to the conflict of interest. If, as a result of conflict(s) of interest, no resolution can be adopted by our Management Board, the resolution may be adopted by our Supervisory Board. If, as a result of conflict(s) of interest, no resolution can be adopted by our Supervisory Board, the resolution may be adopted by our General Meeting of Shareholders. The Chairman of our Supervisory Board arranges for such transactions to be disclosed in our Annual Report. No such transaction occurred in 2016. No transactions between us, on the one hand, and entities or individuals who hold at least 10% of our shares, on the other hand, occurred in 2016.

 

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In addition, the Rules of Procedures of our Supervisory Board (we refer to Exhibit 1.2 to this Form 20-F Report) state that if a member of our Supervisory Board is concurrently a member of another company’s supervisory board, the main duties that arise from, and/or the number and nature of any other supervisory board memberships must not conflict or interfere with that person’s duties as a member of our Supervisory Board.

With respect to the members of our Management Board and our Supervisory Board, we are not aware of any official public incrimination and/or sanctions of any such person by statutory or regulatory authorities (including designated professional bodies), convictions in relation to fraudulent offenses or disqualification by a court from acting as a member of the administrative, management or supervisory bodies of an issuer or from acting in the management or conduct of the affairs of any issuer for at least the previous five years.

 

D. EMPLOYEES

The total number of employees (in thousands) per segment at year-end is as follows:

 

    

 

2016      

    

 

2015      

    

 

2014      

 

 Ahold USA

     114         121         115   

 Delhaize America

     95         —         —   

 The Netherlands

     100         102         97   

 Belgium

     14         —         —   

 Central and Southeastern Europe

     47         13         15   

 Total

     370         236         227   

The changes in the number of employees in 2016 are mainly related to the merger between Ahold and Delhaize completed in July 2016.

Our policy with respect to labor unions is to comply with local regulations and collective bargaining agreements. We consider our relations with our employees to be good.

 

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E. SHARE OWNERSHIP

As of February 28, 2017, the members of our Management Board owned the following shares in our Company:

 

   Number of shares   

 

Common shares 
subject to additional 
holding requirement(1) 

    

Other 

common shares 

     Total common   
shares   
 

   Dick Boer

     152,435        249,112        401,547  

   Frans Muller(2)

            47,642        47,642  

   Jeff Carr

     86,952        26,013        112,965  

   Pierre Bouchut

            442,049        442,049  

   Kevin Holt

                    

   Total

     239,387        764,816        1,004,203  

 

(1) According to the Management Board remuneration policy, shares granted and vested under the GRO program to members of our Management Board should be retained for a period of at least five years after grant, except to finance taxes payable and social security charges at the vesting date, or at least until the end date of resignation from the Management Board, if this period is shorter. The next vesting date is April 13, 2017.

(2) An additional 9,579 shares are held by Frans Muller in the form of American Depository Receipts.

As of January 1, 2017, Jacques de Vaucleroy held 829,023 Ahold Delhaize common shares, Ben Noteboom held 15,637 Ahold Delhaize common shares, Bill McEwan held 7,125 Ahold Delhaize American Depository Receipts, Rob van den Bergh held 13,031 Ahold Delhaize common shares and Johnny Thijs held 5,673 Ahold Delhaize common shares. None of the other Supervisory Board members held Ahold Delhaize shares. As of January 1, 2017, the aggregate number of Ahold Delhaize shares (including in the form of American Depositary Receipts) held by the members of our Supervisory Board and our Executive Committee was less than 1% of the outstanding Ahold Delhaize shares.

For information about our GRO Program, see section “B. Compensation” included in this Item 6.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

 

A. MAJOR SHAREHOLDERS

Pursuant to the Dutch Financial Supervision Act (Wet op het financieel toezicht) (referred to in this Form 20-F Report as the “FSA”), any person who directly or indirectly acquires or disposes of an actual or potential interest in our capital or voting rights must immediately notify the AFM by means of a standard form if, as a result of such acquisition or disposal, the percentage of capital interest or voting rights held by such person in us reaches, exceeds or falls below any of the following thresholds: 3%, 5%, 10%, 15%, 20%, 25%, 30%, 40%, 50%, 60%, 75% and 95%. A notification requirement also applies if a person’s capital interest or voting rights reaches, exceeds or falls below the above mentioned thresholds as a result of a change in our total issued share capital or voting rights.

Under our Articles of Association, each holder of our common shares is entitled to one vote per share. Pursuant to a contractual arrangement between us and the holders of (depositary receipts of) our cumulative preferred financing shares, the total number of votes that can be exercised by holders of our cumulative preferred financing shares is 74,362,963 (approximately 0.28 votes per cumulative preferred financing share). No votes may be cast at our General Meeting of Shareholders in respect of shares that are held by us or our subsidiaries.

 

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The following information was on record in the AFM register or on the SEC website on February 28, 2017, of persons that reported the ownership of an actual or potential interest of 3% or more (or 5% or more in the case of the SEC) in our capital or voting rights:

 

Name   Date of Transaction or 
Filing(1) 
           Number of (depositary 
receipts of) Cumulative 
Preferred Financing 
Shares 
           Number of  
Common  
Shares(2)  
           Percentage of 
Total Voting 
Rights(3) 
           Ownership  
Percentage(3)  
 

 

BlackRock, Inc.

    January 30, 2017         0         94,967,210         7.01       6.13

 

DeltaFort Beleggingen I B.V.(4)

    July 25, 2016         167,636,082         0         3.43       10.82

 

NN Group N.V.(4)

    September 1, 2016         100,779,021         12,474,647         3.00       7.31

 

Stichting Administratiekantoor

Preferente Financieringsaandelen Ahold (4)

    July 25, 2016         268,415,103         0         5.49       17.32

 

(1) Reflects the date on which the relevant transaction has been reported with the AFM as having occurred or the date of the filing with the SEC in the case of BlackRock, Inc.
(2) Reflects the total actual and potential, and direct and indirect, interests held with respect to our common shares, as reported with the AFM as of the applicable transaction date.
(3) Reflects the percentage resulting from the total actual and potential, and direct and indirect, interests held with respect to our common shares and/or cumulative preferred financing shares, as applicable, as reported with the AFM, or the SEC in the case of BlackRock, Inc, as of the applicable transaction date.
(4) Stichting Administratiekantoor Preferente Financieringsaandelen Ahold (referred to in this Form 20-F Report as SAPFAA) holds all of the 268,415,103 issued cumulative preferred financing shares. SAPFAA issued corresponding depositary receipts, and DeltaFort Beleggingen I B.V. and NN Group N.V. hold all of such issued depositary receipts.

Our major shareholders listed above do not have different voting rights.

As of February 28, 2017, there were 9,798 holders of record resident in the United States, representing approximately 3.99% of our outstanding common shares.

We are not directly or indirectly owned or controlled by another corporation or by any government or by any other natural or legal person(s) severally or jointly. We do not know of any arrangements that may, at a subsequent date, result in a change of control of our Company, except as described in the section “Anti-Takeover Provisions.”

 

B. RELATED PARTY TRANSACTIONS

For information regarding related party transactions, see Note 31 to our consolidated financial statements included in Item 18 of this Form 20-F Report.

 

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C. INTERESTS OF EXPERTS AND COUNSEL

Not Applicable.

ITEM 8. FINANCIAL INFORMATION

 

A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

Our consolidated financial statements appear in Item 18 “Financial Statements” of this Form 20-F Report. Our consolidated financial statements presented herein and the Notes to the consolidated financial statements have been prepared using accounting policies in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board (IASB).

Our consolidated financial statements prepared in accordance with IFRS have been audited by independent registered public auditors in accordance with legal requirements and auditing standards applicable in the Netherlands, as issued by the Netherlands Institute of Chartered Accountants (Nederlandse Beroepsorganisatie van Accountants) and with the standards of the Public Company Accounting Oversight Board (United States).

Legal proceedings

From time to time in the normal course of business, Ahold Delhaize and its subsidiaries are subject to legal proceedings. Such legal proceedings are subject to inherent uncertainties. Ahold Delhaize’s management, supported by internal and external legal counsel, where appropriate, determines whether it is more likely than not that a liability has occurred and whether or not a loss is reasonably estimable. If a determination has been made that a loss is reasonably estimable, such estimate is accrued.

United States: Waterbury litigation

During 2014, Ahold Delhaize received approval from the United States District Court for the District of Connecticut to settle a class action pending in the court relating to claims against Ahold Delhaize’s former U.S. Foodservice business (referred to in this Form 20-F Report as the “Waterbury litigation”). Ahold Delhaize recorded a provision for the settlement in the amount of 215 million, which was settled prior to December 28, 2014.

 

The Netherlands: Albert Heijn Franchising litigation

The Vereniging Albert Heijn Franchisenemers (an association of Albert Heijn franchisees or VAHFR) has asserted claims against an Ahold Delhaize subsidiary, Albert Heijn Franchising BV (AHF), for the years 2008 through 2012, the alleged value of which exceeds 200 million in aggregate. AHF and the VAHFR have had ongoing discussions for a number of years about the resolution of certain cost items under individual franchise agreements. On December 24, 2014, AHF and other legal entities within the Ahold Delhaize Group of companies received a writ in which VAHFR and 242 individual claimants would initiate proceedings as of April 15, 2015, before the District Court of Haarlem with respect to these discussions. On November 16, 2016, the court issued a judgment rejecting all claims of the VAHFR and the individual claimants. On February 13, 2017, VAHFR and 240 individual franchisers filed a formal appeal, which is to be substantiated, against the judgment.

 

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Notwithstanding the foregoing, the years from 2010 onwards are still to be settled. Ahold Delhaize has an existing provision of 30 million with regard to the settlement of costs with individual franchisees for the entire period up to and including 2016.

Uruguayan litigation

Ahold Delhaize, together with Disco and Disco Ahold International Holdings N.V. (DAIH), is a party to one lawsuit in Uruguay related to Ahold Delhaize’s 2002 acquisition of Velox Retail Holdings’ shares in the capital of DAIH. The two other related lawsuits in Uruguay were finally decided in favor of Ahold Delhaize in 2013. The damages alleged by the plaintiffs, alleged creditors of certain Uruguayan and other banks, amount to approximately $62 million (59 million) plus interest and costs. As part of the sale of Disco to Cencosud in 2004, Ahold Delhaize indemnified Cencosud and Disco against the outcome of these legal proceedings. The one remaining lawsuit is ongoing. Ahold Delhaize continues to believe that the plaintiffs’ claims are without merit and will continue to vigorously oppose such claims.

Greek litigation

In a shareholders’ matter related to Alfa Beta Vassilopoulos S.A. (“AB”), Ahold Delhaize’s wholly-owned subsidiary in Greece, Ahold Delhaize was notified in 2011 that some former shareholders of AB, who together held 7% of AB shares, filed a claim with the Court of First Instance of Athens challenging the price paid by Ahold Delhaize during the squeeze-out process that was approved by the Hellenic Capital Markets Commission. They have also filed a separate claim for compound interest. Ahold Delhaize believes that the squeeze-out transaction has been executed and completed in compliance with all legal and regulatory requirements and against a fair price, and vigorously defends itself against these claims. A decision on the merits of the matter by the Court of First Instance is expected to occur in the course of 2017.

Other legal proceedings

In addition to the legal proceedings described above, Ahold Delhaize and its former or current subsidiaries are parties to a number of other legal proceedings arising out of their business operations. Ahold Delhaize believes that the ultimate resolution of these other proceedings will not, in the aggregate, have a material adverse effect on Ahold Delhaize’s financial position, results of operations or cash flows. Such other legal proceedings, however, are subject to inherent uncertainties and the outcome of individual matters is unpredictable. It is possible that Ahold Delhaize could be required to make expenditures, in excess of established provisions, in amounts that cannot reasonably be estimated.

See also Note 34 of the Ahold Delhaize’s consolidated financial statements included in Item 18 in this Form 20-F Report for more information on legal proceedings.

 

Dividend policy

On May 4, 2016, Ahold paid a dividend of 0.52 per common share for the financial year 2015, which dividend had been proposed by the Management Board with the approval of the Supervisory Board and approved by the Ahold General Meeting of Shareholders held on April 19, 2016.

 

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Ahold Delhaize’s Management Board proposed, with the approval of the Supervisory Board, a dividend of 0.57 per share to be paid to owners of ordinary shares in respect of 2016. This dividend is still subject to approval by the General Meeting of Shareholders to be held on April 12, 2017, and, therefore, has not been included as a liability in our consolidated financial statements as of January 1, 2017 prepared in accordance with IFRS. The estimated dividend liability, based on the number of shares outstanding at February 28, 2017, is 720 million. The payment of this dividend will not have income tax consequences for the Company.

Since 2016, our dividend policy is to target a payout ratio in the range of 40-50% of underlying income from continuing operations. While we currently intend to contin