The following is a letter from Cees van der Hoeven, President & CEO of Royal Ahold:
Annual General Meeting of Stockholders of Royal Ahold The Hague, Tuesday, May 15, 2001
Address by Cees van der Hoeven, President & CEO Royal Ahold
Ladies and gentlemen,
I would like to welcome you warmly to our Annual General Meeting. It gives me great pleasure to see so many of our valued shareholders here today, because it shows your commitment to the company. We’re in line for not only an informative, but also an enjoyable afternoon.
For Ahold, the year 2000 was the 13th consecutive year in which our net earnings showed strong growth. During this period, Ahold has always met its earnings objectives. Last year, sales rose 56%, operating results surged 61%, net earnings climbed 48% and earnings per share increased by 32%. Even if we discount the favorable currency impact, earnings per share last year rose by 19%, fully in line with our projection. Ahold was again one of the best performers in our sector.
I remember that our meeting last year was right in the middle of the dot.com era. At the time, many companies were characterized and written off as ‘old economy’. Today you can see that quality shines through. It’s all about providing service to the customer and doing that satisfactorily and profitably.
This has been our strategy for years, and has paid off in more than one respect for both Ahold and you as shareholder. Permit me to mention a few numbers that are perhaps not widely known. During the last decade, our sales grew sixfold, our net earnings ninefold and our market capitalization 15 times. You probably recall that in 1995 we sounded very ambitious when we set the goal of reaching sales of 50 billion guilders and net earnings of one billion guilders for the year 2000. We met that goal last year – not in guilders, but in Euros!
Over the last five years, sales have risen from Euro 16.5 billion to Euro 52.5 billion. Operating margin over this period rose from 3.4% to 4.3%. Operating results increased from Euro 564 million to Euro 2.3 billion. Net earnings grew from Euro 287 million to Euro 1.1 billion and earnings per share from Euro 0.61 to Euro 1.51.
Your company still has ambitious but doable targets, and is headed for a fine future. So allow me to sketch the situation in our sector and then talk about our vision and strategy. Almost everywhere, the share of food expenditure as a percentage of gross national product is dropping. At the same time, food inflation is lower than general price inflation. But consider this: food expenditure outside the home is increasing twice as fast as spending for food in the home. This actually does not sound very encouraging, especially in a climate of declining economic growth. And yet this is exactly why we see strong future prospects for Ahold.
In the first place, this can be attributed to our multi-channel strategy – `selling through various channels’, as we’d say in simple English. This approach enables us to reach the consumer at just about every eating occasion: at home, in a restaurant, at work, in a hospital or simply anywhere en route.
Our food retail and foodservice activities offer unprecedented opportunities for growing our market share, both organically and externally. Competition is intensifying and it is clear that many companies see themselves better off teaming up with a strong, well-organized partner such as Ahold instead of remaining independent in the long-term.
Ahold has the advantage here because we have an excellent record in successfully integrating companies. We retain the brand name of the acquired company, its culture and management and at the same time also provide what is needed for faster earnings growth.
Looking ahead, we feel very comfortable with the multi-channel, multi-format strategy we have chosen to distribute our products and services. We consider this to be the only proper way to approach our customers – wherever, whenever and however they want. We offer customized products and services with a generous array of meal choices and solutions.
This line of thinking enables to fully accommodate the individual customer, whose needs are constantly changing. We anticipate and adapt to this trend as flexibly as possible. By broadening our strategy to incorporate foodservice operations, we have created a considerable growth path for the future.
The foodservice market is growing rapidly, both in the United States and in Europe. Compare how often your parents dined out with how often you go out to eat today. Compare also how much time your parents spent preparing the daily meal, and how little time you yourself spend. We listen to our customers and that’s why we are so interested in the rapidly-growing foodservice sector.
Last year we were able to acquire U.S. Foodservice, a truly first-class company with sales this year exceeding USD 12 billion. We’re working hard on developing synergy between U.S. Foodservice and our American supermarket chains. They are now sourcing an increasing number of products collectively. U.S. Foodservice also supplies salad bar ingredients for over 60 Stop & SHOP and Giant-Landover stores.
And this is just the beginning. Transfering know-how and exchanging best practice is now an ongoing phenomenon, not only in the United States, but also among U.S. Foodservice, Deli XL in The Netherlands and ICA Menu in Scandinavia.
The number of Ahold stores in the United States is also growing in leaps and bounds. Last year 340 stores were added, partly reflecting the acquisition of the Golden Gallon and Sugar Creek convenience chains. Ahold expects to open almost 200 new or remodeled stores in the U.S. this year.
These numbers do not include the 65 stores we were able to acquire earlier this year when Grand Union went bankrupt. These are currently being converted to the Stop & Shop and Tops formats. Today, we’re already more than three-quarters of the way there. At the end of this year, Ahold will operate over 1,400 modern stores in the United States, where some 15 million customers shop every week.
In Europe, we’re also gaining ground quickly. I introduced you to our Scandinavian partner ICA at last year’s meeting. This Scandinavian market leader is doing very well indeed. For ICA, the year 2000 was one of the best in its long history. Last month, we introduced a new business model in Scandinavia which will further strengthen ICA’s purchasing power and market position.
Today I’d like to take you to Spain and its sunny Canary Islands, home to our successful Spanish supermarket chain Superdiplo acquired in the second half of last year. Superdiplo has over 300 stores and sales of approximately Euro 1.5 billion. This prominent chain grew swiftly by opening new stores and acquiring supermarkets and hypermarkets. Superdiplo has many new sites. All our Spanish supermarkets will trade under the Supersol brand name.
Ahold is flourishing in Latin America as well. We have become a prominent player with sales of more than Euro 5 billion. That makes us the number 2 on the continent, but we’re not done yet. Last year, we were able to acquire the remaining 50% of the voting rights of our Brazilian joint venture partner Bompreco – a classic example of how a partnership can develop into a wholly-owned operation. Bompreco’s sales rose a good 30% to Euro 1.5 billion last year.
Our activities on this continent are thriving and La Fragua in Central America goes from strength to strength. The retail trade is highly developed and offers the consumer a range of services, including internet shopping and home delivery, as at our Argentine supermarket chain Disco.
Our activities in Asia are still modest in scope, but we are consolidating our position there because these markets have enormous growth potential in the long term. Last year our Asian stores succeeded in halving operating losses, and Thailand showed positive operating results over the entire year. For this year, further improvement in results is projected.
In The Netherlands, Albert Heijn put in a fine performance, especially in view of increasing price competition and the labor shortage, particularly visible in the large cities. Albert Heijn is one of the strongest brands in The Netherlands, something of which we can all be proud. But a business cannot live on pride alone. This is why the country’s leading supermarket company is constantly asking itself how it can create even more brand value. The answer is simple: you’re worth what you’re worth! Consequently, Albert Heijn intends to deepen its relationship with its almost six million customers and we feel this will keep us more than a step ahead of the pace.
Albert Heijn is gearing its store portfolio more closely to the wishes of the individual customer. It is offering a wider variety of formats under the Albert Heijn brand – from convenience store to mega-supermarket, also with non-food articles. We are also offering financial services, of which the successful AH Savings Account is the first. Some 150,000 customers are already saving under the scheme, which only kicked off in February. You can expect more initiatives from Albert Heijn this year.
Ladies and gentlemen, a food specialist stands at the heart of society. We know that earnings growth and adding value are important to corporate continuity, but we are also well aware of our social responsibility.
This awareness is a fundamental cornerstone of our company policy. In this area, we are preparing a series of new activities. We are working together with the University of Groningen in the northern Netherlands to develop a dynamic management model for socially responsible business practice. We believe this will help us make the impact of this effort more measureable. We are also developing food distribution activities in regions with insufficient economic basis, but where people are hungry. We expect to be able to report on progress later this year.
I’m not able to touch on everything going on in our company in this review. But in your presence, I would like to extend a heartfelt thank you to our over 400,000 associates. They are the ones who serve the customer, day after day, and make our stores and foodservice companies what they are today.
I would like to specifically mention Roelof Nelissen, who is retiring from the Supervisory Board after 20 years, the last few as Deputy Chairman. Few of you would have thought it possible, but Roelof Nelissen is a banker who actually came to love the retail business. Thanks Roelof!
I would also like to put the spotlight on one of our senior executives, Bob Tobin, a fellow Corporate Executive Board member. He will shortly be taking leave of the Executive Board and is proposed as a new member of the Supervisory Board. Bob, under your watch, not only did our U.S. stores generate considerable earnings growth but we took the giant step into foodservice. All of us at Ahold have much to thank you for; not just as a colleague and competent manager but as a person and a friend. On behalf of us all, Bob, many thanks!
Ladies and Gentlemen, your company is in great shape and the future is looking good. I have said on previous occasions that we were planning to double company sales between 1999 and 2002. It appears that this is already the case this year. Sales for this year are expected to amount to approximately Euro 65 billion, excluding further acquisitions and, of course, depending on exchange rate fluctations.
The Corporate Executive Board expects sales and operating results for 2001 will continue to grow in all trade areas reflecting healthy organic growth and the contribution of recent acquisitions. Net earnings are expected to grow strongly. Earnings per share, excluding currency impact, extraordinary items and goodwill amortization, are expected to rise 15%.
Finally, I would like to disclose our sales for the first 16 weeks of the current year.
Consolidated sales surged 65.8% to Euro 18.2 billion. Organic sales grew 7.4%.
In the United States, sales increased 60.0% to USD 10.2 billion. All U.S. retail operations generated higher sales.
In Europe, sales soared by 77.5% to Euro 5.7 billion.
In Latin America, sales climbed to Euro 1.2 billion, some 8.8% above the first quarter of last year.
In Asia, sales amounted to Euro 101 million.
Thank you very much for your attention.