Ahold President & CEO Cees van der Hoeven: "Let's not forget for whom we work"

Zaandam, The Netherlands, August 29, 2002 - Ahold President & CEO Cees van der Hoeven gave the following customer-focused speech at a press conference today at corporate headquarters, in which he elaborated on the second-quarter and first-half 2002 results issued at 8:00 a.m. CET:

 

Thank you for your interest in our company and your attendance at our second quarter results press conference.

 

This morning, we reported the first quarterly loss in many years. As I mentioned in the press release, reporting a loss hurts for a company that is used to deliver consistently strong results and proud to be an excellent partner for its stakeholders.

 

Fortunately the reasons are entirely incidental and largely unrelated to operational performance. The earlier announced exceptional charge with respect to the default of our Argentine partner Velox Retail Holdings of € 410 million and the additional impairment of goodwill in Disco Ahold International Holdings of € 80 million explain most of the difference.

 

When Michael Meurs walks you through the numbers later, you will also notice there are some other non-operational issues that worked against us compared to last year. These include increased goodwill amortization and higher currency differences in financial expenses. Lower gains on real estate sales also had a negative impact. Once you take out these factors, the fundamentals of the business are really quite robust, as you can see in the pro forma earnings statement attached to the press release.

 

In the current trading environment, where most markets have experienced a slowdown in the second quarter, it is hard to grow sales at an acceptable level. In these circumstances, we are very pleased that most Ahold companies have gained market share in their trade areas. This is the clear result of strong business fundamentals and the many special efforts our companies have made. Despite that, organic sales growth for this quarter was only 2.9%. This growth is obviously very low compared to previous quarters.

 

It is largely explained by U.S. Foodservice, however, where we have shed quite a lot of unprofitable business. We also lost sales due to the restructuring that took place at U.S. Foodservice as Alliant was being integrated. The integration process itself is ahead of schedule and we already see significant bottom-line benefits. This is evidenced by the increase in operating margin of our foodservice activities. The purchasing synergies and cost reductions we've put in place have helped significantly and that bodes well for the future. As yet, we see no uptake in the foodservice market in general and our sales are expected to remain relatively soft through the rest of the year.

 

The retail activities in the US performed very well, particularly at Stop & Shop, Giant-Landover and Giant-Carlisle. Consumer demand was lackluster in this sector but we managed to do quite well under the circumstances. Margins continued to improve as a consequence of cost reductions and other synergies. There are lots of new initiatives to improve performance even further. Competition in U.S. food retail markets continues unabated but collectively our companies form a strong group able to increase market share and operating margins at the same time. We are seeing further improvements at BI-LO but there is still some way to go. Bruno's continues to deliver on plan and losses are being reduced at Peapod.

 

In Europe, we saw improvements from the first quarter. Spain, although profitable, came in lower than last year but we see the early signs of integration efforts bearing fruit. Portugal improved its earnings over last year, although sales were impacted by the discontinuation of loss-making business. In the Netherlands, Albert Heijn did very well, as did ICA in Sweden. The Norwegian operations are also much improved over last year. In Central Europe, we saw the cost impact of our entry into Slovakia and continued losses in Poland. The Czech Republic managed to break even in the traditionally low season. In Europe, real estate gains were much lower than last year.

 

Latin America was evidently impacted by lower exchange rates. In the very challenging environment, our companies performed well when measured in local currencies. Our two latest additions, Barbosa in Brazil and CARHCO in Central America, turned in excellent results. Performance in Asia continues to be impacted by a lack of critical mass. Michael will mention the other elements of our results, such as the factors that impacted financial expenses, the tax rate and the improved working capital.

 

Ladies and Gentleman, despite the fact that we have dealt with the main concerns in Argentina and that the fundamentals of the business are really quite good, the rest of this year will continue to be challenging. The retail market is likely to remain depressed and we are putting a lot of hard work into driving sales, reducing costs and increasing other synergies. Fortunately we are blessed with an extremely motivated and dedicated group of Ahold associates determined to rise to the challenge and work collectively to keep our business strong for all our stakeholders. We reconfirm the revised earnings outlook we gave on July 17th. It does require a good performance in the second half of 2002 and we are confident that we can deliver.

 

In the meantime, Ahold is working on a solid plan for 2003 and we felt it important for you to know the qualitative parameters. They give you a flavor of the direction the company is taking. The focus is on the fundamentals of organic sales and earnings growth. For reasons of prudence, we target low organic growth, but we do foresee continued margin expansion. Together with greater capital efficiency, this roadmap will lead to higher returns on capital employed, free cash flow generation and respectable earnings per share growth. No major acquisitions are expected and therefore no additional equity funding is projected. However, the plan does include smaller acquisitions and potential divestments. We will not give any quantification before March 5th, 2003 when we have the annual 2002 earnings release. In the current financial and trading environment, we feel this plan is not only realistic, but also the most beneficial to our stakeholders.

 

Ladies and Gentlemen, after a difficult first half year, our company is in good shape, but there is one thing I would like to bring to your attention. The statue depicting a customer in front of our corporate headquarters bears the legend "Let's not forget for whom we work", courtesy of my legendary predecessor Albert Heijn. And yes, when you read through the press release, when you listen to our story and most particularly when you try to understand such complexities as an Argentine partnership, you may think it has little to do with our customers anymore.

 

This is what some commentators forget: we are a real company, made up of real people working real hard everyday to service real customers in order to make real money for shareholders. Customer satisfaction, as I have said before, is our only reason for being in business, and we will never forget that.

 

So here is the real plan: we will continue to do what we do best: provide our customers with value for money, convenience, variety, quality and service, every moment of every day. We will continue to stick to the fundamentals and we'll be innovative and pleasantly surprising at the same time. With our incredibly talented and diverse group of associates we are best positioned to attract and retain the people that matter most: our customers.

 

Thank you for your attention and your support.