Annual Report 2015 2015 ANNUAL REPORT DELHAIZE GROUP a Leading Food Retailer

annual report 2015 2015 ANNUAL REPORT DELHAIZE GROUP A leading food retailer Delhaize Group has leading positions in food retailing in key markets. Our operating companies have acquired these positions through distinct go-to-market strategies. The Group is committed to offer its customers a locally differentiated shopping experience, to deliver superior value and to maintain high social, environmental and ethical standards. Our Group’s strength is supported by the close cooperation of its operating compa nies at both the regional and global levels. Delhaize Group is listed on both NYSE Euronext Brussels (ticker symbol: DELB) and the New York Stock Exchange (ticker symbol: DEG). 154 000 Associates Belgium, Luxembourg, United States, Greece, 3 512 Romania, Serbia, Stores Indonesia € 24.4 B Revenues € 872 M Underlying operating profit DELHAIZE GROUP ANNUAL REPORT 2015 • 1 Table of Contents 02 Key figures 04 Interview with the Chairman of the Board of Directors and the Chief Executive Officer 08 Highlights 10 Ahold Delhaize OVERVIEW proposed merger 38 Segment overview 40 Financial review 42 United States 45 Belgium PERFORMANCE 48 Southeastern Europe 52 Corporate governance STRATEGY GOVERNANCE 64 Remuneration report 12 Retail Context and 2016 priorities 72 RISK FACTORS 14 Our Strategic Framework 79 FINANCIAL 15 Delhaize insights: Customer centricity STATEMENTS 16 Keeping our promises 18 Customers 180 GLOSSARY 22 Associates 26 Communities 30 Shareholders 34 Shareholder information 2 • OVERVIEW Key figures REVENUES UNDERLYING OPERATING PROFIT (IN MILLIONS OF €) 789 762 872 % % % UNITED STATES BELGIUM SEE 13 14 15 ASSOCIATES TOTAL 153 937 15 302 BELGIUM 98 566 UNITED STATES 33 133 SEE 6 936 INDONESIA DELHAIZE GROUP ANNUAL REPORT 2015 • 3 ($ IN MILLIONS EXCEPT (€ IN MILLIONS EXCEPT CHANGE PER SHARE AMOUNTS)(5) PER SHARE AMOUNTS) VS PRIOR YEAR 2015 2015 2014 2013 2015 2014 RESULTS Revenues 27 066 24 395 21 361 20 593 +14.2% +3.7% Underlying operating profit(2) 967 872 762 789 +14.4% -3.4% Operating profit 772 696 423 537 +64.5% -21.2% Net profit from continuing operations 409 369 189 272 +95.5% -30.5% Net profit (Group share) 406 366 89 179 +312.5% -50.3% Free cash flow(2) 575 518 757 669 -31.5% +13.2% FINANCIAL POSITION Total assets 14 459 13 032 12 127 11 594 +7.5% +4.6% Total equity 6 847 6 171 5 453 5 073 +13.2% +7.5% Net debt(2) 867 781 997 1 473 -21.6% -32.4% Enterprise value(2),(3) 11 227 10 119 7 210 5 899 +40.4% +22.2% PER SHARE INFORMATION Group share in net profit (basic)(4) 3.96 3.57 0.88 1.77 +307.7% -50.5% Group share in net profit (diluted)(4) 3.92 3.54 0.87 1.76 +305.8% -50.5% Free cash flow(2),(4) 5.60 5.05 7.46 6.62 -32.3% +12.8% Net dividend 1.45 1.31 1.20 1.17 +9.2% +2.6% Shareholders’ equity(3) 65.81 59.31 52.98 49.47 +11.9% +7.1% Share price (year-end) 99.62 89.79 60.43 43.20 +48.6% +39.9% RATIOS % Underlying operating margin(2) 3.6% 3.6% 3.8% +1bps -26bps Operating margin 2.9% 2.0% 2.6% +87bps -63bps Net margin 1.5% 0.4% 0.9% +1.1ppt -45bps Net debt to equity(2) 12.7% 18.3% 29.0% -5.6ppt -10.8ppt CURRENCY INFORMATION Average € per $ rate 0.9013 0.7527 0.7530 +19.7% 0.0% € per $ rate at year-end 0.9185 0.8237 0.7251 +11.5% +13.6% OTHER INFORMATION Number of stores(1) 3 512 3 402 3 225 +3.2% +5.5% Capital expenditures 774 606 565 +27.8% +7.2% Number of associates (thousands)(1) 154 150 145 +2.6% +3.2% Full-time equivalents (thousands)(1) 117 113 109 +3.1% +3.5% Weighted average number of shares (thousands) 102 647 101 434 101 029 +1.2% +0.4% (1) Excluding the stores and related associates of divested and discontinued operations. (2) These are non-GAAP financial measures. (3) Calculated using the total number of shares issued at year-end. (4) Calculated using the weighted average number of shares outstanding over the year. (5) Calculated using an exchange rate of € 1 = $1.1095. 4 • OVERVIEW Interview WITH THE CHAIRMAN OF THE BOARD OF DIRECTORS AND THE CHIEF EXECUTIVE OFFICER IN 2015, WE REMAINED FOCUSED ON How would you describe 2015 in one or two words? OUR CUSTOMERS, WORKING HARD TO [Mats Jansson] – “Credibility” and “merger” were the key words for 2015. DELIGHT THEM WHILE OFFERING A BETTER We increased our credibility as we continued to perform well in our U.S. and Southeastern European markets. We also strengthened our credibility SHOPPING PROPOSITION FOR EVERY as we resolved, with our social partners, our Transformation Plan in our CUSTOMER. Belgian operations in February 2015. Since this resolution we have been focused on recapturing our business, improving our performance, and increasing our credibility with our associates, our suppliers and partners and most importantly, our customers and shareholders. People believe in us and are rewarding us by shopping at our stores. In mid-2015 Delhaize Group and Ahold announced the proposed merger of the two companies. This proposed merger is highly complementary and will result in a base of more than 6 500 stores with 375 000 associates, serving over 50 million customers per week in the U.S. and in Europe. We expect the combined company to realize around €500 million of synergies with yearly turnover of approximately €65 billion. Of course mergers come with challenges; and a key one will be combining our two cultures. However, thanks to outstanding preparation DELHAIZE GROUP ANNUAL REPORT 2015 • 5 For me 2015 was about our focus on the on both sides, we are looking forward to this customer – making challenge and to developing a new culture that blends sure that we give our together the truly exceptional elements from both our customers what’s companies. important to them, [Frans Muller] – For me 2015 was about our focus on the customer – making sure that we give our when, and how they customers what’s important to them, when, and want to receive it. how they want to receive it. For example, in the U.S. at Food Lion, we accelerated our ongoing training Frans Muller, President and to our associates in our customer centric “count on CEO Delhaize Group me” approach. This training brings the “count on me” culture alive in the stores. In keeping with our goal of leveraging best practices across the Group, at Delhaize Serbia we’ve provided the same “count on me” training to over 9 000 of our associates. Our ahead, the combined company can offer a better focus on the customer is also evident at Mega Image online shopping proposition to our customers. in Romania, where we have teams whose job is to respond immediately to customer questions on the Consumers are increasingly asking for and choosing selling floor. products that will enable them to live healthier. In response, Delhaize Group’s private brands offer The proposed merger of course was also a major food made from more local, more sustainable, and theme in 2015. I see the intended merger as the healthier ingredients. We’ve also increased offerings of combination of two companies with similar values specialty diet products like gluten-free, sugar-free and and neighboring geographies, as well as a shared no-sodium foods. focus on the customer. It represents not only our commitment to our customers to provide them a Finally, consumers continue to seek not only value superior offering in stores and online but also our but also convenience. They want to shop near their commitment to our associates and the communities homes, in stores that are easy to navigate, choosing we serve. And while we know that restructuring from an assortment that provides not only the “best and reorganization will be associated with this in fresh” but also allows for a full shopping trip. With combination, many of our associates will benefit from a retail network, especially in Europe, concentrated in this intended merger. There will be opportunities for urban areas and with existing expertise in small format growth and greater responsibility in the combined markets, Delhaize Group is well positioned for growth company. in the area of convenience. [MJ] – We are indeed seeing today, more than ever What were major themes in the retail before, the maturation of e-commerce. Looking back, business in 2015? and with long experience in the retail industry, I have [FM] – Food retail trends in Europe and in the U.S. seen years of failure to meet customer needs online, are similar. We see increasing consolidation, growth followed by the retail industry assessing, refining and of online shopping, and consumers wanting to live adapting in-store offerings to an online context. Today, better while they are living longer. Additionally, there we are deepening Delhaize Group’s commitment continues to be a move towards value shopping, to online shopping. We are using data and facts to convenience, and a focus on health. better understand our customers and to offer them an Group underlying operating profit There has been increasing consolidation in food retail even more personalized and more relevant shopping during the past five years, especially in the U.S. This experience– creating for them an experience online trend has accelerated; over the last three years there that is as great as what we deliver in our stores. has been more consolidation than we have seen in the What would you describe as the most last ten years.

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