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ZAANDAM, The Netherlands -- At its shareholders meeting this week, Ahold c.e.o. Anders Moberg told shareholders substantial progress is being made on the company's "Road to Recovery" plan implemented to remedy mounting losses in the wake of a large accounting scandal that erupted two years ago.
Noting that the Dutch retailer plans to invest $2.1 billion on store-remodeling projects in 2005 to spur sales growth and achieve ambitious 2006 profit goals, Moberg said the underpinnings of the next leg of the turnaround plan is based on a two-tiered approach of cost cutting and store improvements -- including both new ground-up and replacement units.
As previously reported, Ahold's 2006 targets include a 5 percent operating earnings margin, 5 percent annual sales growth for retail activities, and a return on assets of 14 percent. "We have made solid progress along this road," said Moberg. "We are moving closer to our customers. We are better differentiating our offering to meet our customers' needs. We believe all of these things are critical to our long-term success in an increasingly competitive sector."
In reviewing Ahold's efforts during 2004, Moberg identified divestments, strengthened corporate governance, and building a foundation for future growth as the company's three main challenges.
Expanding the range and improving the quality of its general merchandise throughout the company is a significant growth opportunity going forward, according to Moberg. "We want to help customers make the best [choices]. And if we get that right -- which we will -- our ambition is to double nonfood sales in the next five years, from 5.5 to 11 percent."
Private label was identified as another key in Ahold's forward strategy, according to Moberg, who said quality signature brands, "provide good value to our customers," who can in turn better "distinguish us from the competition. [Private label] will give us negotiation power and flexibility."
For Ahold to be successful, Moberg called on strong supplier partners "to see how we can cooperate to create value for our customers. We both have the same interest -- providing customers with the product and service they demand and deserve. Since the cost of goods sold is the highest single expense line, we will put a lot of effort into this area and see how we can best manage this with our partners in the interest of our customers. We both need to work on improving the value chain. For this, we need to challenge each other."
Other critical drivers of Ahold's near-term strategy are strategic sourcing and supply chain, said Moberg. "This means having a better understanding of the value chain -- from farm to fork. We need to work to lower cost and to stimulate innovation. Again, continuously improving value for the customer. Knowing that what is good today is not good enough tomorrow."
Moberg said it would be a mistake to divest Ahold's Columbia, Md.-based U.S. Foodservice division, from which the company's corporate accounting scandal emanated. "We believe we can create more value by keeping U.S. Foodservice within the Ahold Group. U.S. Foodservice will stay…as we continue to improve the value of the company." The c.e.o. said the company intends to bring U.S. Foodservice to above 2002 profitability levels by 2006.
In other Ahold news, the international retailer signed a new $2.57 billion, five-year credit facility with 15 banks at a lower 75 basis-point spread than a facility taken up when debts were higher.
The unsecured, syndicated multicurrency facility will be used for general corporate purposes and for the issuance of letters of credit. Commenting on the new credit facility, Ahold c.f.o. Hannu Ryopponen said: "This is an important day for Ahold and our Road to Recovery program. This new facility is another achievement in our return to strong financial health and shows the financial community is increasingly regarding Ahold as a creditworthy company."
Ahold announced on Feb. 15 that it had terminated the three-year revolving December 2003 credit facility and was in discussions with financial institutions to establish a new credit facility at more favorable terms and conditions.
Ahold's shareholders also voted to appoint new members to its supervisory board. The four new members replace the last batch of nonexecutive directors who were in place in February 2003 when the accounting scandal broke, which in turn led to the resignation of its then c.e.o. and c.f.o.
The new directors are Derk Doijer, who was an executive board member at trading group SHV Holdings NV, former Mars, Inc. c.e.o. Benno Hoogendoorn, Harvard Business School professor Myra Hart, and former Ernst & Young accountant Stephanie Shern.