ZAANDAM, The Netherlands, May 7, 2002 (PRIMEZONE) -- Ahold (NYSE:AHO):
Ladies and gentlemen,
Welcome to our annual stockholders meeting. I am happy to see so many of you with us today. A full auditorium gives us the same good feeling as a busy store. It is an indication of interest, loyalty and bonding with your company, and that is the basis of our success.
That success translates not only into lasting relationships with our stakeholders, but also into the healthy growth of our companies. In 2001, our sales totaled Euro 66.6 billion, an increase of 29% on 2000. Net earnings before goodwill amortization and exceptional charges, including the impact of the devaluation of the Argentine Peso, increased by 36% to Euro 1.5 billion. After the aggregate impact of Euro 411 million for goodwill amortization and exceptional charges, including the impact of the Peso, net earnings amounted to Euro 1.11 billion. Earnings per share therefore totaled Euro 1.25. Organic sales growth amounted to 6.1%, and organic operating earnings growth (EBITA) at 20% proved to be stronger than most of our competitors.
Our results were heavily influenced in 2001 by exceptional charges, largely reflecting the situation in Argentina. Local economic conditions were particularly challenging, compelling us to take effective measures. We have yet to see any signs of recovery in the region, so Argentina will make its mark again this year. We do, however, maintain a positive long-term vision for the Latin American region.
It is worth mentioning that our five most prominent companies - U.S. Foodservice, Stop & Shop, Albert Heijn, Giant-Landover and ICA - showed considerable sales and earnings growth. They continue to form a strong base for further corporate growth.
In the U.S., where the economy suffered a telling blow as a result of the September 11 events, both our food retail and foodservice operations have been able to improve their performance. All supermarket chains contributed to the earnings increase. Sales growth in foodservice in excess of 100% was mostly due to the full-year consolidation of U.S. Foodservice and PYA/Monarch, the latter acquired at the end of 2000.
At year-end 2001, we acquired Alliant, the third-largest foodservice operator in the United States with a robust position in the health care sector. U.S. Foodservice is currently forging ahead with the integration process and we expect this to generate considerable synergies and cost savings.
Our companies in Asia are not yet profitable, but a slight improvement was realized.
In Europe, sales increased by more than 31%, mainly reflecting the acquisition of Superdiplo in December 2000 and the full-year consolidation of ICA in Scandinavia. All of our European companies generated higher sales.
As you can see, our company is built on solid foundations, both in Europe and the United States. There are of course parts of our company that leave room for improvement. Our supermarket chain BI-LO in the U.S. had a difficult year, especially in the second half. On the Spanish mainland, a major effort is under way to integrate various supermarket companies acquired during the last few years, including Superdiplo. In Portugal, sales increased but earnings were disappointing. Given the measures now in place, we expect these companies to make a greater contribution to corporate results, especially in the second half of the year.
In The Netherlands, Albert Heijn, Deli XL and the specialty stores generated substantial organic sales growth. To cater to changing customer needs, Albert Heijn introduced a number of new formats during the past year. On the way here, you may have seen an AH to go, Albert Heijn's convenience store format at gas stations, train stations and in busy shopping streets. Our stockholders from Arnhem have possibly been to AH XL and some of you may even have ordered from Albert.nl.
The traditional Albert Heijn store to which you have become accustomed over the years is by far our biggest format in The Netherlands, but you have witnessed an important transition process this past year. In one weekend, all Albert Heijn stores were remodeled and rationalized in terms of routing and range. This successful operation has resulted in a demonstrable improvement in both sales and margin.
Transparency
You are also familiar with the efforts we take to be transparent, both in terms of our strategy and the numbers we present to you. We can imagine there was some confusion when our stock price fluctuated so severely in the wake of the publication of the annual report. I would like to take this opportunity to once again explain what happened.
On March 7, we announced our earnings statement to the media, followed by a thorough briefing for the investment community on March 8. The published results were based on Dutch GAAP, the Dutch accountancy rules. A few weeks later, on April 4, we published our annual report. As we are also listed in New York, we presented a reconciliation of our numbers according to US GAAP, the American accounting principles. This reconciliation was made after publication of our results based on Dutch GAAP. Differences between these two accounting systems gave rise to a large variance between our earnings under Dutch GAAP and under US GAAP. In real terms, this meant that net earnings under Dutch GAAP amounted to Euro 1.1 billion, and under U.S. GAAP to Euro 120 million. That difference is largely due to the treatment of goodwill, gains from derivative transactions and real estate gains.
The most important difference regards the amortization of goodwill. This item represents a decrease in earnings under U.S. GAAP of Euro 728 million, and was primarily caused by an impairment of goodwill of our share in our Argentine operations. This impairment is directly related to the economic crisis in that country and the Peso devaluation.
Another important adjustment under U.S. GAAP is related to the treatment of derivative transactions. Like most international companies, Ahold uses derivatives to limit currency and interest risks. Last year a new and complex standard, SFAS 133, was introduced under U.S. GAAP. This new standard led to a negative pre-tax earnings adjustment under U.S. GAAP of Euro 133 million.
And finally, an adjustment of Euro 137 million was made under U.S. GAAP for gains from the sale of real estate. This is not our core business, but an ongoing corporate activity. We are frequently involved in the development of shopping centers where one of our stores serves as the anchor tenant. We sell these real estate properties once a stable situation has been achieved and the market is favorable. Our gains from this activity vary from year to year, and in 2001 they were higher than usual: Euro 159 million compared to an average of Euro 50 to 100 million formerly.
The way the 2001 earnings statement and annual report came to market hardly merits a prize. The confusion caused is clearly out of line with our policy of transparency. We have a reputation to uphold in this regard, and it is a matter of compelling importance that we regain our credibility on that score.
As of the first quarter, we will advise you of any significant differences between Dutch GAAP and U.S. GAAP. By the way, we are the only prominent food retailer in the world that reports according to two accounting principles. We hope, however, that this quarterly disclosure will help you see us as one of the most transparent, if not the most transparent, company in our sector. Despite all the commotion on numbers and the increasing demand for deeper insight, let there be no doubt: your company is performing excellently, our associates are motivated and it is high time that stockholders once again get their share.
Corporate Social Responsibility
I would like to broach one more topic. As you know, it is one close to our hearts. A leading company such as ours should also take the lead in the field of corporate social responsibility, or CSR. This is something to which many companies pay lip service, but I want you to know that we are intent on making it happen. Not only are we convinced of the need for corporate social responsibility, but we are also in a position to make a difference. The volume of product we source worldwide gives us a certain leverage with suppliers. Our internal and external networks give us access to key specialists around the world. We use these assets judiciously to shape, focus and drive our CSR projects.
Permit me to give you an example. We regard food safety as a fundamental corporate responsibility. Ahold took the lead in bringing together the chief executives of the world's largest supermarket companies in 2000 to establish the Global Food Safety Initiative. This platform is solely aimed at shaping and safeguarding effective food safety systems. So far, almost 40 retailers have joined us, all key players in their markets representing the vast majority of our sector's sales around the world.
I would also like to give you an example of how Ahold companies team up to achieve their objectives. The Low Energy Super Store project at our U.S. retail company, Stop & Shop, came about through our internal knowledge transfer initiative known as Networking. This project brought together specialists from our companies in Argentina, Brazil, The Netherlands and the United States.
Together, they developed new store technology for cooling, lighting and climate control. This partnership led to a store concept that requires 30% less energy to operate than a traditional store. The range of innovative techniques developed in this project is now at the disposal of our other stores around the world.
If you are interested in our CSR initiatives, we warmly welcome you to our web site at www.ahold.com where you will find a wealth of information on this and other topics. A summary in Dutch of our recently published status report on corporate social responsibility at Ahold is available at the information desk after the meeting.
Our Associates
We play an important role in society as an employer. Globally, we have 450,000 associates who are ready each day to be of service to you, both as customer and stockholder. I would like to thank them for their enthusiasm and their contribution to the results we put before you today.
This is also the time to introduce two new executives to you in person. Seated behind the table are Bill Grize, member of the Corporate Executive Board responsible for Ahold USA Retail Operations, and Jim Miller, also a Board member and responsible for U.S. Foodservice. The two executives take the places of Allan Noddle, who has retired, and Bob Tobin, appointed to the Supervisory Board last year.
Strategy
I would like to summarize where our company now stands and how we view the future. Ahold wants to be the world's best and most successful food provider. Our strategy to achieve this mission is transparent and consistent, driven by different distribution channels and store formats under various brand names. This approach enables us to focus on local markets and needs, and allows us to truly serve our local customers whenever, wherever and however they require.
Simultaneously, our companies cooperate closely behind the scenes at an international level. This enables us to benefit from economies of scale, to generate synergies and to share the knowledge we gather throughout our trade areas. The result? The whole is greater than the sum of its parts. We form a closely-knit family of companies serving more than 40 million customers on a weekly basis.
This strategy optimally positions us for further growth, fueled by organic sales and earnings development and the positive impact of recent acquisitions. Under the current circumstances we project a decrease in acquisition activity and we will not be tapping the capital markets this year to finance our growth.
Outlook for 2002
I would like to make the following observations with regard to our 2002 outlook. Ahold companies, particularly the prominent ones, continue to perform well. There are however two factors that could potentially impact the growth performance of the company as a whole.
The integration of Ahold Spain and Superdiplo on the Spanish mainland is taking longer than anticipated. As a consequence, earnings from our Spanish operations will fall short of our target.
In addition, the situation in Argentina is highly uncertain. The severe economic slow-down may impact operating earnings growth at Disco. The sustained weakness in the exchange rate will increase the cost of Disco's debts, denominated in U.S. Dollars, and may affect net earnings at Disco yet further. Disco is held through a partnership, Disco Ahold International Holdings. Ahold no longer adjusts the negative net income in Disco Ahold International Holdings for minority interests, thereby increasing the negative impact of the currency devaluation on Ahold's net earnings.
The Executive Board expects consolidated sales in 2002 to increase organically by 6 - 8% and that operating earnings will increase organically by approximately 15%. The implied strong margin expansion is derived from significant additional economies of scale, synergies and operational enhancements. Including the acquisitions of Alliant and Bruno's, but excluding currency impact, operating earnings are expected to increase by approximately 20%.
Ahold's net earnings per share growth target of 15%, excluding currency impact and goodwill amortization, is ambitious. Yet it is justified by current operational performance. It needs to be said, however, that achieving the earnings per share growth target depends on developments in Spain and Argentina as well as the level of gains from the sale of real estate.
We expect earnings to grow significantly faster in the second half of the year than in the first half. This backloading reflects the integration of Alliant into U.S. Foodservice and anticipated improved results in the second half at BI-LO as well as in Spain and Portugal.
Earnings per share growth for first quarter 2002, excluding currency impact and goodwill amortization, is expected to be almost identical to first quarter 2001. On a fully-comparable basis, excluding one-time gains and losses, earnings per share are expected to rise by 5-7%. We publish first quarter results (16 weeks) on June 6, 2002 at 8.00 a.m. (CET).
Per year-end 2002, Ahold will reconcile net earnings under Dutch GAAP to U.S. GAAP. The Executive Board expects the revaluation of goodwill of certain assets acquired in the past may cause an impairment charge to earnings under U.S. GAAP.
First-quarter sales
I would like to conclude by presenting to you the sales numbers for the first 16 weeks of this year. Consolidated sales increased by 22.0% to Euro 22.2 billion. Organic sales growth, excluding currency impact, amounted to 5.4%.
In the U.S., retail sales increased by 16.2% to USD 7.9 billion and foodservice sales rose 56.9% to USD 5.4 billion, mainly reflecting the consolidation of Alliant.
In Europe, sales increased by 6.4% to Euro 6.1 billion.
In Latin America, sales amounted to Euro 1.2 billion.
And in Asia, sales amounted to Euro 121 million, a rise of 19.7%.
Ladies and gentlemen, you know us as a company of bold ambition. Sailing strongly before the wind we have held a course of steady growth over the years. The past year has shown that our company has the capacity to stay on course even during less favorable economic circumstances. We embrace the challenge. You can count on an unwavering commitment from us and all our associates. We face the year ahead with renewed vigor to ensure that our stakeholders will enjoy the fruits of our success. We are glad to have you onboard!
Thank you very much for being with us today and for your attention.
Attachments: Speech
Certain statements in this speech are "forward-looking statements" within the meaning of U.S. federal securities laws and are intended to be covered by the safe harbors created thereby. Those statements include, but are not limited to, statements as to expected increases in net sales, operating results and certain expenses, in respect of certain of Ahold's operations, as well as estimates and financial targets in respect of net earnings growth and earnings per share. These forward-looking statements are subject to risks, uncertainties and other factors beyond the company's control that could cause actual results to differ materially from those expressed in these forward-looking statements. Such factors include, but are not limited to, the effect of general economic conditions in the countries in which the company operates, particularly in Argentina, increased competition in the markets in which the company operates, difficulties encountered in the integration of new acquisitions, and the actions of government regulators. Fluctuation in exchange rates between the Euro and the other currencies in which the company's assets, liabilities or results are denominated, in particular the U.S. dollar and the Argentine Peso, can also influence the actual results as can other factors discussed in the company's public filings. Many of these factors are beyond the company's ability to control or estimate precisely. Readers are cautioned not to place undue reliance on such forward-looking statements, which only speak as of the date of this speech. For a more detailed discussion of such risks and other factors, see Ahold's Annual Report on Form 20-F for its most recent fiscal year. The company does not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this speech or to reflect the occurrence of unanticipated events, except as may be required under applicable securities laws.