Koninklijke Ahold Delhaize NV (OTCQX:ADRNY) Q4 2017 Earnings Conference Call February 28, 2018 3:00 AM ET
Henk Jan ten Brinke - SVP, IR
Dick Boer - President, CEO & Chairman
Jeffrey Carr - CFO
James Anstead - Barclays Bank PLC
Cedric Lecasble - Raymond James
Fabienne Caron - Kepler Cheuvreux
Andrew Porteous - HSBC
Sreedhar Mahamkali - Macquarie Research
Fernand de Boer - Banque Degroof Petercam S.A.
Borja Olcese - JPMorgan Chase & Co.
Daniel Ekstein - UBS Investment Bank
Rob Joyce - Goldman Sachs
James Tracey - Redburn
Bruno Monteyne - Sanford C. Bernstein & Co.
Nick Coulter - Citigroup
Andrew Gwynn - Exane BNP Paribas
Ladies and gentlemen, good morning, and welcome to the analyst conference call on the fourth quarter and full year 2017 results of Ahold Delhaize. Please note that this call is being webcast and recorded.
Please note that in today's call, forward-looking statements may be made. All statements other than statements of historical facts may be forward-looking statements. Such statements may involve known and unknown risk and uncertainties that could cause results, performance or events to differ materially from those included in the statements. Such risk and uncertainties are discussed in a summary report of fourth quarter and full year 2017 and also in Ahold Delhaize public filings and other disclosures. Ahold Delhaize disclosures are available on aholddelhaize.com.
Forward-looking statements reflect the current views of Ahold Delhaize management, and assumptions based on the information currently available to Ahold Delhaize management. Forward-looking statements speak only as of the day they are made, and Ahold Delhaize does not assume any obligation to update such statements except as required by law.
The introduction will be followed by a Q&A session. Any views expressed by those asking questions are not necessarily the views of Ahold Delhaize.
At this time, I would like to hand over the call to Mr. Henk Jan ten Brinke, Senior Vice President, Investor Relations. Please go ahead.
Henk Jan ten Brinke
Thank you, Operator. Ladies and gentlemen, welcome to Ahold Delhaize's Fourth Quarter 2017 Results Conference Call, and welcome to those following the webcast. Dick Boer, our CEO; and Jeff Carr, our CFO, will give a short presentation on our numbers and the highlights of the business. After which, we will open the floor for questions. So with that, over to you, Dick.
Thank you, Henk. Ladies and gentlemen, good morning. 2017 was the first full year as Ahold Delhaize, and it was a successful one. We grew sales, maintained or increased market share in almost all our markets. And we substantially completed the integration. We delivered synergies ahead of schedule and continued to show margin expansion, and particularly, in the United States. And that's in a dynamic environment, with strong competitors and rapidly changing consumer behavior.
We are pleased to report a strong set of fourth quarter results today, with a solid sales performance and an increase in underlying operating margin, driven by synergies. Free cash flow was very strong, over €900 million for the quarter and at a record for the year at more than €1.9 billion. And Jeff will say more about it. We proposed a dividend of €0.63, which is an increase of more than 10% compared to last year. This reflects our ambition for a sustainable growth in dividends to our shareholders.
We're looking back at a successful first full year as Ahold Delhaize and feel confident about the outlook for 2018.
Now let me hand over to Jeff to give you more detail and color on our numbers.
Good morning, ladies and gentlemen, and thank you, Dick. So the fourth quarter sales at €15.8 billion were up 2.5% at constant exchange rates. It's a good sales performance and a strong holiday period for many of our great local brands. EBITDA grew almost 5% to a margin of 6.9%, up 20 basis points from the fourth quarter last year. And for the full year, EBITDA was up 30 basis points, clearly driven by the synergies being the main reason for the improvement. Underlying operating income was €631 million, up 5.2% versus last year, with a margin of 4%. And we finished the year with underlying operating income of €2,456,000,000, up 8.4%, with a margin of just over 3%, up 20 basis points versus last year.
Now looking at the full year only. You can see our one-time restructuring costs, which were largely merger-related, were significantly down versus last year. Hence, operating income at €2.2 billion was up 13.3%. Net financial expenses were lower than last year, and that included €243 million related to the buyback and cancellation of the Japanese yen notes last year. And excluding this, net financial expenses were broadly in line with last year. The net tax reform in the U.S. and Belgium will result in an ongoing benefit in our effective tax rate for 2018 and onwards. However, in 2017, there was a one-off noncash benefit of €407 million due to the recalculation of the company's deferred tax position at the new lower rates. And therefore, as you can see, income from continuing operations was up almost 70% to €1.8 billion.
Now obviously in calculating our dividend, we consider underlying earnings per share excluding the large one-time items. And in doing so, you can see our underlying earnings per share grew 8.5% to €1.27. And as Dick has mentioned, we are proposing to increase our dividend per share to €0.63, up over 10% versus last year. This results in a payout of 47% of pro forma underlying income from continuing operations and reflects our ambition for a sustainable growth in dividend per share. Now before we get into the segment reviews, I'd like to step back for a moment and look at the bigger picture.
I think we should therefore just reflect on a two-year performance, which we're very proud of, and I'd like to thank all of the Ahold Delhaize associates for their contribution. Starting with net sales. We've see an increase in 2016 and '17. And at constant rates, we're seeing growth of 2.1% to 1.7%, respectively, a good performance during the integration period and significant external competitive challenges, and during one of the longest periods of USA deflation. During that time, as Dick mentioned, we've improved our market share in our major markets in the U.S. and in the Netherlands. Underlying operating margins have improved from 3.5% in 2015 to 3.7% in 2016 and 3.9% in 2017, an impressive performance, especially at a time when many of our peers have experienced margin contraction. And clearly, as I mentioned, the driver of the margin growth has been the delivery of the net synergies to the bottom line. And I'll give a fuller reconciliation of the net synergy at change later in the presentation, but the trend is clear, an evidence of our Better Together strategy.
Now cash flow is a true litmus test of success, and I'm proud of our best-in-class cash generation, resulting in a free cash flow yield superior to many of our U.S. and European peers, and is the strength and consistency of our cash generation which provides the flexibility to invest in growth, reduce debt and increase return to shareholders. And finally on this chart, and most importantly, we continued to increase our capital investments, our investments in our stores, e-commerce and digital development.
And as you can see, capital expenditure has been in line with our European and U.S. peers in 2016 and '17. And we expect a significant increase capital expenditure in 2018 by around €200 million to €1.9 billion or 3.1% of sales.
Now let's move on to address the fourth quarter and looking at the segments. At constant exchange rates, Ahold USA net sales were up 1.1% and comparable sales were up 0.6%. However, taking into account the effect of the timing of New Year and significant pharmacy deflation, our food volumes were roughly flat and market share was stable in the quarter. Retail inflation at Ahold USA continued in line with the prior quarters at around 1.1%.
We continued to focus not just on our synergy program, but also on our initiatives to save for our customer. And as a result, operating income in the quarter is €234 million, 7.2% ahead of last year, and the operating margin at 4.2% was 20 basis points ahead of last year. At Delhaize America, we continued to see a strong performance. Comparable sales grew 1.5%, with price inflation at 0.7%. Volumes were positive. And we saw market share gains at Hannaford and Food Lion, where the Easy, Fresh and Affordable program continues to deliver excellent results. In addition to gaining market share, underlying operating margins was strongly up by 40 basis points. And again, the margin improvement being driven by the synergy program and our save for our customer.
Now moving to the Netherlands. Again, a strong performance, with net sales up 6.4% to €3.7 billion. This follows a strong holiday season and a strong sales from ah.nl and bol.com. Now bol, by the way, delivered for the year comparable sales - sorry, excluding bol.com, comparable sales are Albert Heijn grew by 4.1%, and Albert Heijn continued to grow market share. So in the year 2017 bol.com, consumer sales grew to €1.6 billion, with an EBITDA at breakeven. In the quarter, underlying operating income was up 2.4% to €174 million. And excluding bol.com, margins were flat at 5.4%, despite higher noncash pension charges.
In Belgium, 2017 was obviously a challenging year. Underlying operating income for the year was €110 million, up 2.2%. And in the quarter, you can see margins were just 1%, partly due to increased holiday promotions and a weaker operating performance. Although comparable sales were flat in the quarter, we had a good holiday season when taken into account the effect of two less sales days in the quarter compared to last year.
Overall, the sales trends are starting to show positive signs in Belgium. And with the new leadership team in place, we're confident of making progress in 2018. In CSE, net sales grew by 2.3% at constant exchange rates, while comparable sales were up 0.3%. Again, a strong performance in Czech, Serbia and Romania was offset by tougher conditions in Greece. During the quarter, we operated 69 more stores in Romania compared to last year, as we continued to expand out of our Bucharest space into new regions in Romania. So with underlying operating income for the full year at €242 million and margins at 4.2%, CSE continues to develop as an important region for the group, with attractive margins and significant growth potential.
Now let me move on to discuss our synergy delivery. At the end of 2017, we delivered a total of €268 million of net synergies, that's €246 million incremental in the year. The majority of the net synergies have been delivered to the bottom line. And in addition to the net synergies, incremental growth synergies, along with our save for our customer program, has been reinvested back into our customer proposition through price investments or quality investments.
For 2018, we continued to target cumulative net synergies of €420 million, which is equivalent to an incremental €152 million for delivery in 2018. Finally on this chart, our integration and restructuring costs, combined with €315 million by the end of 2017, and we remain on target for a total of €450 million by the completion of the integration.
Now I promised during 2017 that we'd be transparent on where the net synergies went. As you can see here, the major part of our synergies - net synergies fell to the bottom line. However, at the beginning of the year, we explained that €21 million would be absorbed due to Dutch pension cost increases and the €17 million would be absorbed due to year-on-year purchase price allocation depreciation increases. Additionally, as we mentioned in May, we've seen U.S. deflation impact the flowthrough of net synergies by around €25 million. And finally, as a result of base business margin erosion in Belgium, we see an impact of €41 million.
That means we have expanded our margin by 30 basis points compared to our base year. Or said differently, 2/3 of the net synergies have come through to margin expansion, which is something we feel very proud of achieving. That's at a time when many of our peers have seen margin contraction in a tough trading environment, but we've been able to deliver the net synergies, expand margins, and while maintaining competitive market positions and showing good market share development.
Now let's move on to review the impact of tax reform in the U.S. and in Belgium. First, with respect to the fourth quarter. As I mentioned earlier, we get a significant noncash P&L gain of €407 million. And as I mentioned, this is simply the effect of the revaluation of our deferred tax position. And it means our effective tax rate in 2017 goes from 28.6% to 7.6%. Just to be clear, this is one-time impact, and there is no cash impact in 2017.
Now going forward, in 2018, we will see substantially lower cash tax payments and a lower effective tax rate. We expect cash tax to be lower by around €200 million, and the effective tax rate to be in the low 20% range. Lower cash taxes add to the strength of our business and add to our ability to reinvest in our brands, our people, and we will do so where we see the need in order to maintain our great local brands as winners in each of these markets.
Now we've already talked about our free cash flow, our free cash flow yield being best-in-class, and on this page, we see the breakdown of our €1.9 billion delivery of free cash flow in 2017. I'm very pleased with the progress we've made on working capital. If you recall, we set a target to deliver a €175 million improvement in 2018 compared to 2016, and we're well on the way to delivering this. In 2018, capital expenditure will increase to around €1.9 billion. However, I'm confident we can still maintain free cash flow at a similar level in 2018 to 2017.
Now a few very brief but important comments on our capital structure. With net debt being reduced to €2.5 billion and our lease adjusted net debt-to-EBITDA ratio being maintained at around 2x, we maintain a very strong balance sheet. And this gives us the flexibility, as I mentioned, to invest in growth and provide superior returns to shareholders. It's the strength and sustainability of our free cash flow which underpins that flexibility.
Now our business is changing, and we're moving from integration of the business to business as usual, and therefore, in 2018, there's going to be some changes to how we do our reporting. For example, we'll drop the pro forma reporting, and we'll also adjust our segment reporting to reflect how we manage our brands going forward. As our online business is becoming more important, and more substantial and growing fast, we'll report online sales per segment for the next quarter for the segments where that's applicable.
And now finally from me, our outlook for 2018. We confirm we'll continue to deliver our net synergies, realizing €420 million in 2018. And I'll repeat, incremental to the net synergies, our growth synergies and our save for our customer savings will be reinvested into our customer proposition.
In 2018, we'll maintain a strong free cash flow and deliver on our working capital target, while increasing our capital expenditure by €200 million to €1.9 billion for 2018. Thank you. And now I'll hand back to Dick.
Thank you very much, Jeff. As I said, the integration is well on track and substantially completed. Retail Business Services has now being implemented and is up and running. Our U.S. brand-centric organization will be in place by the end of the first quarter. So it has been a huge task, and I will say a bit more about it. But I also want to make clear that we have been working very hard to ensure a great shopping experience for our customers every day. And I'd like to share some exciting example with you in the next slides.
RBS is now fully operational, providing back office functions for all our U.S. brands, and building and providing expertise for interest in our own brands on digital and supply chain. They are key aspects for our business where we can benefit from scale and capabilities. Setting up business services and strengthening the brands has been a huge task, with thousands of people transferred into new roles, and ultimately, resulting in a substantial overhead reduction. Today, 85% of our brand-centric organization has already been implemented. All branch will be working in a similar way, but focus on what is best for their customers and their competitive environment. And as you will have read, all of these under the leadership of Kevin Holt.
Let me also spend a few words on our Belgium business. It has been a difficult year, and particularly for the owned store business, and the fourth quarter was not an exception, as you saw in Jeff's presentation. But I'm pleased to see that the new leadership is now in place in Belgium and developing a new strategy that we will share with you soon at a later date. On slide, you can see a few elements where the team is focusing on. And we have confidence that we will see improvements in topline growth and in profitability in the coming years.
Our industry is changing fast, and innovative technologies are changing the way people shop. For instance, frictionless payments, so paying without going to a check out makes shopping more convenient and much easier. Stop and Shop will stop their scanners and go solution in the next upcoming weeks. Scan and go is there already for years, but we are adding now that you also can do your payment automatically when they pass through a check out shop, without any sort of [indiscernible]. Another example of this is Albert Heijn to go. They're already live with the first store where you can pay without a checkout, tap and go, as we call it. Let's have a look at a brief video of this.
So we expected it's a nice example, where we expect to roll out this technology to all our Albert Heijn to go stores in the course of this year. Let's go to e-commerce. Our leading e-commerce business grew by more than 20% in 2017, reported €2.8 billion of online consumer sales, of which €1.2 billion is in food. We had a record of 100,000 household delivering during the Christmas with the holiday period at Albert Heijn.
Let me also give a couple a few other highlights. People saw their operational performance and customer satisfaction further improved this quarter and expanded in-store marketing campaigns, as stop and shop and giant to promote customers to order online. ah.nl now covers close to 90% of the Netherlands, offering more than 27,000 products. And with the additional capacity, warehouse capacity, we were able, as I said just before, 100,000 households in the week before Christmas, an all-time high. And also, bol.com benefited from the investments in the fulfillment capacity, where they have now over 1 million products available for same-day delivery. Give an example, on Black Friday, they sold 79 per second during the busiest hours.
We continue to invest in digital solutions, providing better service to our customers. Throughout the business, we are running successfully customer loyalty programs in all our businesses. Last year, 80% of sales was touched by loyalty cards, and we expect that to be around 90% in 2018. During 2017, we sent out close to 2.5 billion of personalized offers to our customers, a number we expect to significantly increase this year.
On this slide, what you see, you see a lot of a nice examples of what we are doing in this field, also learning from each other and exchanging best practice around the globe. We also want to help our customers making healthier choices, something we do across all our businesses. We provide our customers with convenient solutions, advocate on a healthier lifestyle, and continued to reduce sugar and flat and salt in our own products. And we keep in investing in in-store freshly made grab and go meals, either to eat in the store or to take it home. But at Hannaford and at in Romania, as you can see on this slide.
Building great own brands is a key element of our strategy, and we see this as a great opportunity to differentiate our brands for today's value-focused customers. Healthy own brand sales increased to 46% of total own brand sales in 2017, and we raised the 2020 target to 50% of own brand sales. Also here, a few highlights.
In the U.S., natures products and natures place brands combined passed the €1 billion goal and will be combined into one brand, nature promise, for all our U.S. businesses. In Europe, Delhaize And Albert Heijn continued to share knowledge, expertise, but also are introducing identical but locally branded products. For instance, the recent mostly you can see on this slide. Etos products already brought to the U.S. customers in 2016 and have now also been introduced in our stores in Belgium, Romania, Greece and Czech Republic.
Our brands are at the forefront of sustainable retailing, and I already talked about healthy products. We also focus on reducing food waste. In 2017, we recycled close to 70% of food waste in our stores and warehouses, well under way to get 90% in 2020. We do not only want to be a better place to shop, be a better neighbor, but also want to play a better place to work. And I'm proud that 78% of our associates gave us high marks on this in our Annual Associate Engagement survey. Our efforts on sustainable retailing is also recognized externally, as we are ranked amongst the leaders in our sector on the Dow Jones Sustainability Index.
Now before I wrap up, let me briefly also give you an update on continued Ahold Delhaize or in short. As you may have read in the communication for the upcoming AGM or in the Annual Report both published earlier this morning, the option agreement with expires in December 2018. We have started the issue of discussions on a possible extension with the board, extension of the current option agreements at the discretion of the management board, and to be approved by the Supervisory Board. To put possible extension on the agenda of the AGM for information purpose, we'll take a decision on this before December 2018.
So let me wrap up. We saw a stable or increasing market shares in our major markets and continued to see strong growth in our online business. The integration is now substantially completed, with synergies coming in ahead of plan, leading to margin expansion. Cash flow was very strong, and we are pleased to propose an increase in dividend of more than 10% to €0.63 next to our €2 billion share buyback program this year. This clearly illustrates our ambition of sustainable growth of the dividend per share. And as I started with, while looking back at a successful first full year as Ahold Delhaize and feel confident about the outlook for 2018.
Now Jeff and I are happy to take your questions.
[Operator Instructions]. The first question is coming from Mr. James Anstead, Barclays.
Asking a boring technical question, first of all. But I just had one question on tax. You talked about the P&L tax rate benefit being from mid-20s to low 20s, which is clearly helpful. But I'm a bit surprised why the cash benefit is as much as €200 million, when I think with your cash flow statement, you only paid €480 million cash tax in total last year. So €200 million of €480 million is clearly almost 40% reduction in your cash tax, whereas the benefits on the P&L is certainly very helpful, but not of that magnitude. So can you just explain to me the difference in magnitude between P&L and cash flow? And whether the €200 million is something that is slightly unusually high for 2018, or where do you think that continues at that level going forward?
No, I think we'll continue to see, going forward, a significant reduction in cash tax. As you said, it is higher than the reduction in effective tax rate, which was already at a lower level. And I think the ability to - it's largely driven by the ability to accelerate the depreciation on property, and I think this really gives a benefit to the cash tax rate more disproportionately to the effective tax rate on the P&L. In fact, if you look at the 2017 report, you see our effective tax rate was heading to around about 28%, excluding the impact of the adjustment in the deferred tax liability in 2017. So actually, the effective tax rate has come down. We had been guiding to mid-20s, but we'd seen pressure that the tax rate was increasing, certainly up until the mid to the higher '20s. And therefore, the effective tax rate reduction is a bit more than what you mentioned, which will be down into the low 20s. But I think it's mostly related to the property depreciation, we'll able to see the cash tax rates benefit slightly more than the effective tax rate in the P&L.
And just to follow up very quickly on that. You've seen the - I think your cash taxes had been lower than your P&L tax for some time from, perhaps because of this accelerated depreciation. Are you likely to see that reverse any time in the near future? Or you think that's something can be sustained for some time yet?
We've seen cash taxes increasing. If you look at the trend over the last few years, cash taxes were increasing and probably projected to continue to increase. Obviously, this will help that. And I think you can keep the around €200 million as a go-forward rate. I think that will be a good proxy for estimating any models.
The next question comes from Mr. Cedric Lecasble of Raymond James.
I have three actually, two for the U.S. and one on Belgium. Looking at the U.S., could you maybe update us on the main competitive challenges in the U.S., the main forces you've seen, the main inflection positive or negative you've seen in recent months? And the second question is on your online click and collect initiatives. Where do you stand today versus a year ago? And where do you stand versus where you want to go in competition? And the last one is in Belgium. I understand that you will elaborate further in the medium term. But could you just maybe tell us what was the first measure or the first measures in Belgium from the new management?
I'll take the last one. Clearly, land as well in September, and of course, looked at and made his first steps already in improving the operational performance of the business. We all know that one of the issues we face was also logistical performance in Belgium, and we stepped in on that. We - he looked clearly also on the promotional side, how we can make commercially better, attractive Delhaize business. We made some changes with him and the team. He's working closely with Waldo here in the Netherlands, he is running Benelux now, and also building on the expertise in both sides of both businesses. So I'm really pleased what the team is doing, how the cooperation is and also what the focus has been of in first instance to improve operational performance of Delhaize itself. So that we at least start having the right products on the shelf. As we mentioned also, we will come back in the first half of the year also with us outlining where his commercial plans and what he wants to do with the business, but I'm really pleased to see his first action back into Delhaize, because, as you know, was working for us in the Romania, and I'm pleased to see his clear focus on delivering best value for our customers. That's one.
The other question was about the U.S. and competitive environment. Personally, I don't think we have seen big changes over the last quarters. It has been, as always, very promotional and price-driven market. On the other hand also, you see that, for instance, our own brand penetration goes up, customer are more and more focused on what quality we can deliver with our own brands. Price, of course, is an important aspect in the market, but that's for every industry, but also every retail business all over the world nowadays. And as Jeff said, volumes stable in the fourth quarter, certainly at Ahold USA business, and some growth in Food Lion and Hannaford. So quite pleased with the performance on the quarter in the U.S. also. And that's in a year of integration, having had substantially completed the integration of the U.S., new leadership, new structure, and also more ownership of the brands, and that's going to help us going forward also to build stronger relationships with our local brands in the U.S. market.
I think your other question was about the online. We have been building continuously on the Hannaford To Go concept, where I think we're close to 50 stores now where we offer Click and Collect. Of course, the pickup points of old Ahold USA. We're working with some models in Food Lion, also to do some delivery models, but also Click and Collect with an Instacard test. But first and foremost, is, of course, our people business. And as I said in my intro, we did €1.2 billion online foods sales last year. The majority have come from the U.S. and the Netherlands, so that has been a significant portion of our online business in the U.S. If you combine it - if you look at the percentages, it's already more than 2% of our business or close to 2% of our business in the U.S. So it's a market which continue to grow and give us also opportunities for the future.
The next question comes from Ms. Fabienne Caron, Kepler.
Three questions for me. First, to continue on the U.S. Can you tell us what was the sales boost of over the year? And I know there was some management change. Do you still now have a new CEO? And can you tell us how you see Amazon developing in the Northeast with Whole Food? The second questions would be on the Dutch market. Your margin excluding bol was flat despite strong like-for-like, hinting at the fact that the market is more promotional. How do you see the Dutch market developing next year? And the last question is regarding the discussions you have with the Dutch Foundation. I'm a bit surprised to see that it's at the discretion of the management board and supervisory board only and not - doesn't need to be discussed which shareholders. I'm just wondering what is the logical - why do you plan to recontract this option?
Thank you, Fabienne. Let me take the questions. Jeff, you might take the Netherlands today. I will take the U.S. on the changes there. Kevin Holt has been appointed now. Kevin was our CEO already for our Ahold Delhaize - Delhaize group before the merger, then he took over Ahold USA. Now we have created one organization, with all the balance reporting to Kevin, with one shared service organization the service. So that's the next step. And as you know, that is a big step for the completion of our integration now in U.S. with the clear direction also of the company going forward. I think you mentioned also a question about the environment, I think in the U.S., but I think I answered that already before. And then before I go back to the, I think, Jeff, maybe you could talk about the Netherlands.
Yes. Well, just picking up on a couple of the questions on people growth. We don't disclose people separately. However, we will be disclosing e-commerce growth by segment in 2018. So I think until we get into that position, I will just repeat the 20%-plus growth rate that we had in our total e-commerce business in the group.
Amazon, you mentioned, to be honest, we don't see a huge impact from Amazon in the Northeast at this point. I'm not discounting Amazon. I do expect them to be a serious player in food. But at the moment, we don't see a significant impact from Amazon in the Northeast. I think if you look at the Dutch development into 2018, we continued - we've seen two very strong years in the Netherlands. We saw a strong growth, over 6% of comparable sale - around 6% comparable growth in the fourth quarter. I do expect the first quarter of 2018 to be less strong in terms of growth, purely because we had such strong comps in the first quarter 2017. So I think we'll continue to do well in the Netherlands. Albert Heijn is fantastically placed to continue to grow market share. Bol is continuing to grow very quickly. So we're optimistic about how we will continue to develop in the Netherlands, albeit the first quarter growth rates I think will be a little bit lower than what we've seen in 2017.
Jeff, can I jump in there? The fact that you had no operating leverage will suggests you had strong growth, but you had to do as well a lot of promotions because the market is more promotional. Do you see this promotional market to continue into 2018?
Well, I'm not sure if it's more promotion. Part of the impact of the reason that the margins were flat is that we did see increased pension costs, which I mentioned in the beginning of the year, the pension charge coming through from the - is a consequence of lower interest rates, increased the service costs into the pension plan in the Netherlands. And I think, operationally, the promotional - I'll defer to Dick time on this, but I think the promotional levels were similar in the fourth quarter to the prior year. So I don't think there was a significant increase in terms of promotional spend. So I think the people cost, Social Security increases and pension increases were the main reason why you didn't see a marginal improvement in terms of the Netherlands in the fourth quarter.
I had a question on the, maybe good to get back to you, Fabienne. We announced it this morning that it's a discretion of the management board with support of supervisory board to work again on the extension of the agreement with existing continuity at Ahold Delhaize. That's where, let's say, the initiated the first discussions. It has been in place for Ahold, as you know, over the last 30 years, and it has to be renewed this year, and discussions are ongoing.
Okay. So why do you want to renew this? Why can't you just let it expire in December '18?
As I said, we are in discussions in this moment, and we'll update you according to that.
Our next question comes from Mr. Andrew Porteous, HSBC.
A few for me, if I could, please. Starting on working capital. You've held the guidance, but could you just comment on whether this year's out turn was ahead of where you're expecting to be on that front? And therefore, whether there's perhaps a little bit of room to outperform next year. And then, secondly, just in terms of the synergy number. I know you've given us a lot of detail around the net synergies, but you've also held the guidance on gross versus net. Could you just comment about how much the - where you are on the trajectory of gross synergies and how much of that €250 million that you've talked about reinvesting has been reinvested today, and whether there is more to go on that?
Yes, okay. Thanks for your question, Andrew. Yes, we are very pleased with the development of working capital. I think we were cautious at the time of the merger purely because the team led by Pierre and Frans had done a great job at Delhaize over the years preceding the merger. But as I see it now, we're learning from each other. We see opportunities to further improve. We saw an improvement of €131 million. We gave a commitment from 2016 to '18 to improve working capital by €175 million. I'm not in the mood to increase the guidance on that, but we feel optimistic that we will certainly deliver the remaining balance of €44 million in 2018. And clearly, we will look to improve on that when we see those opportunities.
I think in terms of the gross synergies, we reinvested roughly just under €100 million in 2017 of the gross synergies, so there is still some room to go. And they're running pretty much on track to the full €750 million number. So we're confident in basically delivering the €750 million. And as I said, in '17, we saw just under €100 million of gross synergies which were reinvested incremental to the net synergies.
The next question comes from Mr. Andrew Gwynn, Exane.
Let's get the three questions, if I can. So the first one, you alluded a little during the prepared remarks. But some of your peers obviously talking about recycling the wage - sorry, the tax cut into wages. So is this something that's on your agenda? The second, again, on tax, unfortunately. But would you be a little bit more precise? Obviously, low 20s is sort of helpful, but we're talking 21, 23. And then the third question, on free cash flow again. I think at the Q4 trading stage, you flagged to few temporary components to the very good performance in 2017, which obviously, by definition, reverse out in 2018. So could you just quantify how much that might be? Appreciate the you've given the overall guidance for the year.
Okay. I think what we said on tax, very clearly, that the cash tax benefits are taken into account when we look at the amount of capital we're going to be reinvesting in 2018. So I don't think we've specifically allocated the tax benefits to specific capital programs, but we had a good estimate going into our planning cycle of what saw the benefits would be. And that's taken into account when we increased our capital expenditure by about €200 million in 2018. So we will be investing more, €200 million more into our store remodelings, into e-commerce and digital. And that's obviously helped by the reduction in the cash tax. I'm not going to get more specific than the low 20s because it's still - so I think if you - I'm not going to get more specific than that. That's the guidance that we've given.
And then on the free cash flow, I think the €1.7 billion - the €1.9 billion delivered this year, we had some issues in quarter 3, but the €1.9 billion delivered this year is pretty much something which we feel is sustainable going forward, and that's why we've given a similar guidance for 2018. There were some one-off, smallish one-off factors in 2017. So for example, we got more income from our joint ventures than we normally do. I think that was in the region - and excuse me if I'm just estimating this number, but that was in the region of €45 million, and that was due to a couple of one-time cash benefits. We had higher cash coming in from divestitures than normal. But taking that into account, we still feel that we can deliver around €1.9 billion in 2018.
So I think if you look at the history premerger and post-merger, we feel one of the things that stands Ahold Delhaize out from some of our peers is the sustainability and the consistency of the free cash flow. It's not patchy like we see high numbers one year, low numbers the next. And we have been delivering on a sustainable rate, and we think that will be sustainable going forward, albeit that leaves open the opportunity for one-time big cash events which could occur going forward. But I think that sustainability is very much something that we work on, and we're very confident that we've been able to replicate.
And sorry, can we just come back to the wages very quickly. It's been a feature of the U.S. market for a while, this wage inflation. Have you noticed anything say over the last few months that has been a material change in the wage settlements?
No. Clearly, not just wage settlements, but the increases in the minimum wage mean that wage inflation is certainly increasing quite significantly ahead of our shelf price inflation. And we mentioned 1.1% for A USA of shelf price inflation, and 0.7% at DA. Wage inflation is certainly increasing ahead of that. We have to make sure we have the programs in place to be able to offset that and maintain margins, and that's what we do, not least looking at the changes to the checkout process that Dick was mentioning, but we have a lot of programs in place under our save for our customer banner, which allow us to offset those type of inflationary pressures and maintain our baseline margin. That's what we target. There's been no specific change over the last few months that I'm aware of. I think you're right to point out that inflationary pressure on wages has been there for a little while in the U.S. market.
No. I fully agree with Jeff comment on wages. You will continue, of course, see pressure on minimum wage. And we are an employer where we have been always at the forefront on how we remunerate our association really well. So as you know, that's our responsibility as a good employer.
The next question comes from Sreedhar Mahamkali, Macquarie.
A couple of questions as well, please. First one, just to go back for a moment on the Netherlands. Clearly, there have been some pressure stock sales going backwards at Albert Heijn. Jeff, you flagged the question of comps, which I understand. But I suppose comps remain or actually get tough, tougher through the year. So just wondering if it's just a question of comps, or do you see anything changing in terms of your competitive position following the price cuts that your competitors in Q4? That's the first question. Secondly, you - I think in Q3, you've invested in prices in Ahold USA. That probably carried on in Q4. I'm just wondering what response you see to your price actions in the second half of '17, and if that should continue into Q1, Q2, actually that cycles those price investments. And finally, if there is anything you can share with us in terms of top line, current trading in the U.S., please.
Thank you very much. Of the Netherlands, of course, Albert Heijn has been on a great trajectory over the last couple of years and continue growing sales and increasing market share. The quarter start of this year might have been a bit less. And it certainly what clearly was mentioned by Jeff by the, let's say, savings campaigns we do and the first saving campaign this year was the third one in a row, so three years in a row, we had great savings campaign, we have saved for stamps and then you can use and buy pans, et cetera. And this one is clearly a bit less attractive for the customers, so I wouldn't read too much out of this. Albert Heijn is well positioned in the markets, and that's our focus on a quarter by quarter only on performance.
This clearly is a start of the year what was let's as I mentioned in the media a bit as a slow start for Albert Heijn. If you look at the competitive position, Albert Heijn has been improving over the years, their positioning to the major competitors. We are well priced. For instance, the introduction of the low price alternative for our customers, 700 what we call food hope is down on in discounts in the Dutch market for price and quality. So the situation of Albert Heijn, I think, is very strong in the Dutch market, and there is also no, let's say, change in consumer behavior. So that's the Dutch market.
On the U.S., yes, we invested last year. Second half, we start investing again. The price campaign, by the way, we did it over the last four years, as you know, with the thunder roll out. And we invested, in this case, a lot on produce. We continued to invest, continued to follow that same investment we started at the middle of last year, also this year, because that's where our customers are focusing on, value proposition, our prices in produce should be good and should be on the spot for competition. The market, as such, I don't think had really big changes over seen over the quarters, over the last quarters and also the start of the year in U.S. I don't think we've seen major changes in competitive environment.
Sorry, Dick, just to try and understand, if you think the price investments you've made, are they giving you the uplifts you are expecting to see? What's your customer feedback like?
Like lower prices, as always. And I think what you see, in every market, by the way, when you lower your prices, there is an initial customer reaction, they like it. You continue have to reemphasize and reinforce your price positioning, and that will never stop as a retailer, as you know. So this is, let's say, what is continuous going on. We are currently working on our brand positioning, as you know, in U.S., so the teams are in the new structure, also brand positioning stop and shop in their local market, what giant doing in their local market. And so clearly, we also see more tailored maybe campaigns coming in during the course of the year because of that brand let structure we have.
The next question comes from Fernand de Boer, Petercam.
Fernand de Boer
Fernand de Boer, Petercam. Actually, three questions, if I may. It's one on the U.S. you said integration now more or less completed. If I also remember correctly that Frans Muller was also working on new plans for a further savings, et cetera. So could you give a little bit of comments on that one? And the second question I had is on Belgium. In Belgium, you said, okay, there, we are more promotional. We made some changes to our promotions. But is that also in response to other players in the market? Or do you take the lead in the way you are go to the market? And that were actually my questions.
Okay. Fernand, thank you for - I will take the second question and Jeff the first one. On Belgium, of course, we have seen and also noticed when we merged two companies that the promotion level in Belgium was from Delhaize point of view rather low percentage-wise. But also, the impactful promotions, for instance, what we did in the Netherlands with our campaigns, with the saving campaign, has not been, let's say, used actively enough to our opinion. So that's what Delhaize is currently applying more, more the lessons also out of our businesses around the globe, but certainly also in the Netherlands, how you position your campaigns better and create also the excitement for your customers. So want to lead on promotions and much more to be known for better promotions in the Belgium market, and that's certainly where the team is working on under the great leadership of . So we clearly see that there's an opportunity of differentiating ourselves more in the Belgium market.
I think, on costs, Fernand, we've been consistent in our messaging on costs. Cost management, efficiency improvement is not something which is we just start and stop. It's been a program which is rolling continuous improvement program. I talked, I think, in the third quarter about targeting something like 0.5% or 0.75 percentage points per annum in our save for our customer program. That program has been ongoing regardless of the fact that we've also been delivering on our synergies. And obviously, as we transition from integration into business as usual, we need to continue to focus and put more focus on to our cost programs, because the competitive position, as you all know, doesn't get any easier. We are not the only ones managing - reducing prices in the U.S. We've seen obviously led by Walmart with the discounters that we expect there will continue to be price pressure in the U.S., and we need to make sure that we have the save for our customer programs not just for 2018 and 2019, but ongoing, save for our customer programs which will allow us to continue to manage and be competitive on price to manage our margins. So yes, we are working on save for our customer with friends across all of our brands, and I'm optimistic that we'll be able to do that and deliver on significant cost reductions and efficiency improvements going forward.
Fernand de Boer
If I may, one other question on the outlook you get from building blocks. I think, last year, you also gave some comfort on the margins for the consensus that they were more or less about right. Do you have any feeling about the consensus margin this year?
Yes, we're reasonably comfortable with consensus for 2018. So there are no issues in terms of consensus, which I think shows another margin improvement in 2018, and we're comfortable with that consensus.
The next question comes from Mr. Borja Olcese, JPMorgan.
Just a couple from me. If I look at Slide 14, where you kindly shared the bridge of the senior yield flowthrough, I can see a number of elements that might be one-off, at least not recurring to the same amount, so if you can just walk us through the building blocks, that would be much appreciated. And I'm just trying to square my commentary of seeing a similar flowthrough this year versus last year, if I trust some of those one BS has been is the [indiscernible] go into price, which seems sensible. And in that context, and is it wishful thinking to expect the blend that like-for-like in the U.S. to trend a point higher throughout the year?
No, it's a very good question. So thank you. Yes, the flowthrough that you see for 2017 was partly - we explained at the beginning of the year. What we've also seen is the impact of price of U.S. deflation and also the deterioration in the base margin in Belgium. Those effects means, effectively, we get 2/3 of the net synergies coming through in terms of margin expansion. I think, rightly, we are pleased with that performance relative to what's happened over the last two years relative to our peer group margin development. And what we said in 2018, which is in line with consensus, if you look at the consensus, the market - the average of the analyst projections is we'd see a similar sort of flow-through level in 2018, which gets you to around about another 20 basis points of margin improvement from 2017 to 2018.
We're comfortable with that. And you're right to point out, some of those factors there just one-time 2017 issues. So why do we see a similar level of flow-through in 2018? And the reality is, we're in an extremely competitive market, and we have to be realistic about the pricing pressure, especially in the U.S. We've seen numbers recently from some of our peers, Walmart included, of significant margin contraction, so showing a 20 basis points margin increase, I think, is a very strong performance, but the reality is some of the net synergies will therefore be eroded in terms of base margin related to pricing and then more pricing, but also a little bit to do with the labor inflation that we talked about earlier.
The next question comes from Mr. Dan Ekstein, UBS.
Three questions, please. The first, you've talked about the reinvestments you made in 2017, both of the additional growth synergies and also some of the net synergies into pricing in your U.S. business. What has that actually achieved in terms of your relative price point versus, say Walmart, for your key banners? Has it improved that? Or is it just the case of keeping pace, given the high levels of competition at the moment? Secondly, you referenced Food Lion market share gains. Clearly, there's a lot going on in their local markets at the moment. Are you seeing any benefits from the financial difficulties that some of your local competitors are getting into there? And then thirdly is on the potential impact of tax reform in the U.S. Could you give us a guide on what sort of percentage of sales in your U.S. business are driven by snap?
Snap, depends also per region and per banner. So I don't have the numbers clear in my head. But clearly, Food Lion has the highest net penetration, for instance, than stop and shop. So that where you see if there is a snap change, that was more impactful for the Food Lion business than, for instance, for a stop and shop, for any stop and shop you high penetration like in New York.
On the your second question, which you asked about Food Lion and the market share development. Clearly, Food Lion has, of course, continues by the Easy, Fresh and Affordable remodeling program, created great opportunities for them to reposition them, make their position stronger. And that's clearly seen back in growth, in identical sales growth, as you could see over the last couple of years. But secondly, also in their local market position, couple of the weaker players. You mentioned that they are there, and that's clearly also benefiting also Food Lion as an opportunity to grow and to continue to be able to outperform versus - and certainly, with the investments we did, I think that that's a great benefit for the current market we are in.
And on your investment, and gross and net. Look, the market is, as Jeff already said, is very promotional, but also very sensitive in the U.S. There's a lot happening. And clearly, the investments has been helping us to continue to position ourselves versus the major competitors, at least in the same way, and sometimes, also to weaker players, to improve ourselves. So what you see the stronger and - are keeping up with all our investments, but certainly, the weaker are sometime lagging behind with the investment we do and price positioning, and that's the situation of the U.S. market today, I would say.
Okay. Just one easy question on Affordable. I think you have this level of granularity to hand. But is that helping you to win new shoppers and footfall do you think? Or is it more a case of getting your existing shoppers to spend more when they're in-store, so it's more of a mixed benefit?
It's really both. You see more shoppers in the stores and a higher basket. So you see really the aim of Easy, Fresh and Affordable is to have both, more customers back, so attracting new customers coming into your stores, and at the same time, increasing basket.
The next question comes from Mr. Rob Joyce, Goldman Sachs.
A couple of questions from me. First one, just, Jeff, on your earlier comments on save for our customer. Can you just confirm that, that means you're sort of getting a $200 million to $300 million run rate savings from save for our customer and that's getting reinvested in the business? And whether you think that is sustainable? Should we think that's an ongoing annual saving? First one. And the second one is just quickly on the discounters. Sorry if I missed it, but could you comment on any changes you are seeing in the strategy in terms of pricing or rollout from both Ahold and in your core markets.
Well, let's start with the save for our customer. We specifically didn't give a target for the savings for 2017 and '18, because we were - we wanted the markets to focus on the next synergy delivery. And I think to jump into additional targets would be a little, more difficult and take away the focus from the net synergies. But what I have said is we target around 0.5% to 0.75% on a continuous improvement of save for our customer. And we used that to reinvest perhaps in wages, for example, but reinvest primarily in price and quality. A lot of the investments that we've made in the last few years in the Netherlands haven't actually been in price. They've been in quality. And I think it's those quality investments which have allowed us to generate such strong sales performance in the Netherlands. So I do think that's a continuous improvement program. As I said, it's not something that we'll just start and stop. And I think as we roll out of the integration and really start talking about the business as usual, that save for our customer program will continue to be important.
And those percentages are on group sales, yes?
Yes. And I think you mean in the U.S., in this case. Clearly, I've seen and I think you all have seen that yourself and notice that a continued expansion of have been there for 40 years, and you see that going on. But on the legal side, we've seen certainly a slowdown in the expansion plans. And clearly, also, our, let's say, fighting back of every brand in the U.S. has been clearly helped at this moment to continue to outperform ourselves where they have opened, and I think that's good news, have been able really to offset the impact on their openings or at least I counted them good. So that's I think a good news also for us that we have been able to - with the learnings we had from the European side, to know also how to counter their proposition in the U.S. market.
The next question comes from Mr. James Tracey, Redburn.
Three questions from me. First question is on, could you comment on your price gap with Walmart in the USA? Previously, you said that Ahold USA was around 10% more expensive than Food Lion, I was wondering if that's still the case? And the second question is it look like you're guiding to around 15 to 20 basis points of group margin expansion in 2018. Could you give a bit of color on the regions? Is it a uniform increase across the regions? And the final question is on succession planning. There's been some press articles out saying, Dick, that you might be moving on shortly. Are you happy in the role? Do you have any plans for going?
Maybe, Jeff, you can start with the first question on the price positioning.
I think on the price positioning, what I'd say is the U.S. is a competitive market at the moment. Many people are investing in price. Certainly, as Dick said, the stronger players are investing in price. And certainly, Walmart has been investing in price. And I'd say we've maintained, pretty much maintained - certainly, Walmart has been investing in price, but it depends not in all of our geographies. And certainly, if you hit more in the south of the markets, we see more investments in price. And I'd say we've been maintaining our price gap to Walmart. And certainly, that's our target is we'll continue to seek to maintain those price gaps to the discounters, including Walmart, and relative to our supermarket peers, if they're not - in some areas, we've seen our price positioning improve versus our supermarket peers. But to the discounters and to Walmart, we've been certainly looking to maintain those price gaps.
I think on the - you're right, we are forecasting to something to the region of 15% to 20% basis points margin improvement, again, in 2018, which, if you go back from the chart that I showed, the progression from 2015, '16, '17, will be a very strong performance over a four-year period. I wouldn't get into specific geographies. We do see synergies coming in strongly in Europe and in the USA. So I won't get into a specific guidance as to where that's coming from, but it's relatively - from a planning perspective, I'd consider it to be relatively smooth across the geographies, obviously, not impacting CSE as much as Benelux and the U.S.
Yes. And your last question was...
Dick, Dick, would you like to address the last question?
Well, I was also reading the speculations this week, so well, as you can see, nothing in the news today, and I'm sitting here today and serving our customers every day and our associates with great pleasure. So I think we should leave at that for now.
And I can certainly verify you're very happy in the role.
The next question comes from Mr. Bruno Monteyne, Bernstein.
Three for me. CapEx excluding the divestments has gone €100 million below now two years in a row. Is there anything explaining that, sort of a lack of ability to invest in proposition? And why certainly be able to step up on the CapEx? The second one, is interest rates and yields have been rising. And wouldn't that give you the reversal benefit in your P&L in the year coming, therefore, a low pension costs? And the third question is, there was a discussion in the press about Alibaba potentially doing a deal with Kroger in the U.S. That seems quite a change of the landscape if it happened. Sort of two questions, how do you - if such a deal were to happen and technology giants partner up with your U.S. grocery peers, how does that change your thinking about how fast to grow people? And is it really worth doing this renewal of the poison pill in the light of how the landscape may change in the U.S.? Doesn't that limit your options of how to respond?
On interest and CapEx, no, we don't yet see an improvement in the position of European interest rates. As you know, for the pension plan, that's set once a year, and already set at 1st of January, and we see the service costs into the Dutch pension plan as being pretty flat 2018 compared to 2017. Obviously, when we do see interest rates picking up, that will start giving a benefit through the P&L in terms of the Netherlands. And if you go back over the last few years, you can see there's been quite an increasing cost from 2012 to - 2017, we saw quite some costs coming through the P&L and that will start unwinding, but not yet in 2018.
On CapEx, Bruno, I think your question was we've delivered - we've spent less than guidance in the last couple of years, so we spent slightly less than guidance. We set a target internally, and we set a target €1.9 billion for 2018. I certainly hope our businesses spend that money investing in our brands, investing in e-commerce and digital. But sometimes, the plans don't always work out, so there are some specific areas where we intended to, for example, open a warehouse, the planning permissions being delayed, and therefore, it hasn't happened in 2017. But basically, there is no underlying reason except that sometimes getting the permission for newbuilds and extensions and new warehouses takes longer than we forecast, but I certainly hope that we can spend to the full €1.9 billion in 2018, and we have plans to do that. And some quite exciting plans, especially in terms of remodeling and new store expansion, as well as on the e-commerce side.
So on the Alibaba and our competitor in the U.S., for me, not really clear on what the real cooperation would be. I can imagine that for Alibaba, it's important to with the ban on imports from China, that you're trying to see some connection in the U.S. I don't think we should too much read in it today. What we do, for instance, in Netherlands with bol.com, using bol the opportunity for our customers to pick up the products in the stores is something we might - they might think about. I don't know exactly what they were working on. And on technology, for us, of course, it's important to continue to invest in our technology in the U.S. We just launched a loyalty card systems, fully digital for Hannaford. We continued to invest in the digitalization and the technology for people to make it really a seamless experience for our customers. So you can - we can guarantee you our investments are also continuing to step up in technology in the United States.
And on your last question, look, for Ahold Delhaize, the most important thing we do is to deliver performance for our shareholders. And if you have been looking back over the last seven years, I think that's first and foremost where we, as a company, show to our shareholders our commitment, and that is the first and foremost own responsibility, but also the way we can accelerate our company. We just merged two companies to bring shareholder value for our shareholders over the last seven years. And we clearly see the possible opportunity we currently are working on as something separate from that. First of all, it's for us to work on a good share of performance and to create the right performance for our company.
And the last question comes from Mr. Nick Coulter, Citi.
Three quick ones for me, if I may. Firstly, please could you update on the format or remodeling trials, particularly in stop and shop? It sounds like there's a lot of work going on there. And I guess how that ties into the additional CapEx? And then secondly, but just to understand the difference, so between the P&L tax benefit of €200 million cash benefit, obviously, the regulations have changed, but what has changed here? Is it that you're allowed tax capital allowances off the revalued capital base? I'm just trying to get a sense of what has moved, because I guess the two should converge at some point. And then lastly, would it be possible to give a sense of your expectations for the group net interest charge for 2018?
Okay. Maybe I can start with the first question on stop and shop. First of all, we are working with stop and shop and the team. And as I said before, the brand led organization, which is now established also for the Ahold USA brand, is to just start building up the structure. We are 85% completed, as I mentioned, so most of the teams are now in place. And they are working on a new format. They are working on complete plan, which will be outlined later this year. And we will certainly start also testing later this year some of the clear ideas we will implement in stop and shop. It's too early to say what the impact will be on our CapEx for the years to come. For this year, it's part of our current CapEx plan of €1.9 billion, so everything is included already there. But clearly, if the success of the former renewal of stop and shop makes sense and will make sense, and I'm sure it will do, then that will be embedded in our view on the years to come. But the total CapEx should absorb that in principle, of course, in a normal way. And we are looking forward on an exciting journey, I think also for stop and shop. I've seen some new stores. Milford was just done. I was there a couple of weeks ago. So they're clearly testing a lot of new ideas in the stores where we can create more excitement for our customers.
So some of these ideas are out there in the moment in the new stores?
First task where we focus more on the fresh side, so improve there a lot on health and on easy eating and eating and dining for home. So a lot of new innovation is there. But it's just retesting in different markets with different ideas at this moment. The ideas later this year, but it's too early to disclose that, that we want to do a smaller market to test to full swing of all ideas we have for the stop and shop brand.
And I think on the net interest charge, we haven't given specific guidance, but I'd say, excluding one-off items, I'd expect the net interest charge to remain relatively stable year-on-year. I think in terms of going back to the tax, we've been pretty clear in terms of the guidance for '18. I'm not going to get too far into the longer-term in terms of the convergence, but I think you will see more convergence as we get into sort of midterm projections into 4, 5 years out. But clearly, we said that P&L charge would be in the low 20s, and it was heading towards the high 20s. So we see a good 6% sort of reduction in the effective tax rate, which isn't that far off as sort of cash tax number that we've said in terms of the around €200 million cash tax savings. And yes, I mean you may see that converge as you get out beyond the next 3 or 4 years.
Just on the interest charge, what you see as the underlying for this year for 2017? I know you gave some commentary, but just the clarity.
I don't think there was any specific one-offs in 2017. So I mean we're - if you go back to '16, there was some specific one-off items in there. So I'd say 2017 is a pretty clean number.
Ladies and gentlemen, this concludes this conference call and webcast. Thank you for joining come, and have a great day.
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