LeadingAnnual Report Together 2018 Who we are Business review Governance Performance: Financial Performance: Sustainability Investors Ahold Delhaize Annual Report 2018 02 In this year’s report 03 Message from our CEO Business review Governance Performance Investors 06 Group highlights 31 Group key indicators 53 Our Management Board 234 Share performance and Executive Committee Financial Sustainability 32 Group financial review 89 Consolidated income 215 Introduction 235 Shareholder returns 55 Our Supervisory Board 47 Group sustainability statement 218 Progress towards 2020 236 Key dates Who we are performance review 57 Corporate governance 08 Where we operate 90 Consolidated statement 220 Sustainable Retailing data 237 Shareholder structure 50 Definitions: Performance 63 Supervisory Board report of comprehensive income 10 Market overview 226 Definitions 238 Five-year overview measures 70 Remuneration 91 Consolidated balance 12 Our stakeholders 230 240 Contact information sheet Assurance report of the 14 Our role in the value chain 77 How we manage risk independent auditor 241 Cautionary notice 92 Consolidated statement 86 Declarations 15 Our Leading Together of changes in equity strategy 93 Consolidated statement 16 Our business model of cash flows 17 Our promises 94 Notes to the consolidated 18 Our growth drivers financial statements 20 Our response to 190 Parent company stakeholder needs financial statements 192 Notes to the parent company financial statements 202 Other information For more information visit our website at www.aholddelhaize.com Who we are Business review Governance Performance: Financial Performance: Sustainability Investors Ahold Delhaize Annual Report 2018 03 Message from our CEO While we completed the merger and Our strong results underscore that delivered the synergies we promised, we have Ahold Delhaize is well-positioned to succeed. PresidentFrans Muller and CEO continued our strong business performance We have top-notch talent across all our in a rapidly changing industry and maintained brands and at our support offices, along with “Our strong results a robust financial profile. This has enabled the specialized experience that comes from us to continue to invest in future growth and being in the food retail business for more underscore that Ahold return excess liquidity to shareholders. than 150 years. Delhaize is well-positioned I am pleased to report that Ahold Delhaize Our new brand-centric organization in to succeed.” and its great local brands had another strong the United States, our updated structure in financial performance in 2018. Net sales rose Europe, and our tremendous regional support Against this backdrop, we performed an 2.5% to €62.8 billion at constant exchange – bolstered by the establishment of Retail in-depth strategic review to fully understand rates, with higher sales across all segments Business Services and Peapod Digital Labs how we are positioned in this very dynamic and market share gains in most of our markets. in the U.S. – give us the right structure to set market and the opportunities and challenges Net consumer online sales rose 24.8% to our local brands up for success. In short, we’ve we face. The outcome was an updated €3.5 billion at constant exchange rates. built a solid platform for growth – both in bricks strategy we call “Leading Together,” which Dear reader, and mortar and online. Our full-year underlying operating margin will drive our growth and help us gain market I’m happy to present our was 4.1%, up from 3.9% in 2017, driven share in a sustainable, omnichannel way. Annual Report for the first time by synergies that amounted to €432 million Launching a new strategy “Leading” means that we want to be at the by the end of 2018. Free cash flow was In 2018, we already took our first steps toward as Chief Executive Officer. In 2018, forefront of innovation and strengthen our €2.3 billion, enabling us to continue to invest the next phase of our company. we essentially finalized our merger leading positions in our markets – and that in our stores, digital capabilities and online and integration and turned our We operate in an industry that is going through we have trusted leaders to take our teams channels. focus to the next, exciting chapter a period of significant change, fueled by shifts forward. And we will do it “Together,” We completed a €2 billion share buyback in consumer behavior, rising competition from with colleagues across the local brands of our company. I’m very proud online players and advancing technology. of the associates across our great and launched a new €1 billion program for and in partnership with vendors, communities 2019. Our strong financial position enables These changes are pressuring traditional and the other stakeholders our business local brands who have made our us to propose a dividend of €0.70 a share, business models, prompting retailers to rethink touches every day. Especially in the areas success possible. an increase of 11.1% compared to last-year’s their strategies and find new and innovative of technology and sustainability, the world’s dividend, representing a payout ratio of 42% of ways to serve customer needs and operate challenges today are too big for companies underlying income from continuing operations. more efficiently. to tackle on their own. We need strong As of 2019, we have committed to making partnerships to further innovate and improve semi-annual dividend payments, and we have our business, but also to make a difference the ambition to maintain a sustainable growth in addressing challenges such as climate of our full-year dividend per share. change and plastic waste. Who we are Business review Governance Performance: Financial Performance: Sustainability Investors Ahold Delhaize Annual Report 2018 04 Message fromcontinued our CEO For years we’ve had a strong focus on making Finally, our fifth growth driver recognizes that Accelerating our growth our offering healthy and sustainable. More our people are our greatest assets. We have Our updated strategy focuses on five growth and more customers are conscious of the link outstanding store teams that serve customers drivers that will help us accelerate in the areas between food, health and sustainability and in our stores and work with our communities, we believe will make a difference in the future “Our updated strategy want to know where our products come from strengthened by colleagues in distribution food retail landscape. The first is growing and how they are produced. Our third growth centers and support offices. We are aware focuses on five growth our omnichannel business, which includes driver is focused on creating healthier solutions that technological advances are changing the our network of stores in great locations and drivers that will help for our customers, which will have an impact way people work. Every day we are engaged our online businesses. We want to ensure that on overall disease prevention, while also in attracting and retaining the best talent with us accelerate in the areas customers can shop how, where and when they becoming more sustainable in the way we the specific skills and the right capabilities, want, and that we can help them get a healthy we believe will make a source, the way we work, the way we deal both for our current business and to adapt us and affordable dinner on the table in a fast and difference in the future with our people, and the way we operate as for and propel us into the future. It is making easy way. a company. a difference, and I am pleased to report that food retail landscape.” Secondly, we will invest in technology to further our 2018 associate engagement score was 79%, As a signatory member of the UN Global improve our customer proposition and increase up from 78% in 2017, with higher marks on all Compact, we join the other member companies efficiency. Our customers are embracing dimensions of engagement. around the world to align our strategies and technology – and it is helping us provide operations with the Compact’s ten universal Diversity and inclusion are crucial factors in them with a more personalized, convenient principles around human rights, labor, having the best workforce, both now and in the shopping experience. environment and anti-corruption. We support future. We believe that our people should reflect We are partnering on technologies that multiple UN Sustainable Development Goals the diversity in our local communities, as well are not only helping us make the customer through our sustainability efforts. as bring diverse thinking and experience in experience even more personal and relevant our leadership. Companies who do both are The fourth driver is portfolio and scale but also operate more efficiently and manage more successful. Therefore, we are committed efficiencies. This is about investing in profitable labor shortages in our markets. This includes to making further progress in this area, and growth – both organically and inorganically – exciting new collaborations in artificial I recognize that there is room for improvement to expand our strong local brands, extend intelligence and robotics. in our top leadership team. our customer reach and deepen our footprint. At the same time, it’s about capturing the benefits of our scale through our Save for our Customers program and by sharing best practices. Who we are Business review Governance Performance: Financial Performance: Sustainability Investors Ahold Delhaize Annual Report 2018 05 Message fromcontinued our CEO In October,