Speech by Cees van der Hoeven, President Royal Ahold

Thursday, September 07, 2000

Michael Meurs will discuss the results with you in more detail and therefore at this stage I would only like to repeat our projection for the full year. Sales and operating results in all regions will increase further, autonomously as well as through acquisitions, net earnings will be substantially higher than in 1999 and earnings per share, excluding currency fluctuations, are expected to grow by 17-20%.

First, I would like to update you on our vision and strategy, although it has not changed since our last meeting in March. We are pleased with the development of our multi-channel strategy which we unveiled then. As you know, we have broadened our mission to become the best and most successful food provider in the world. Supporting this mission is our strategy to meet our customers' needs through different channels, i.e. retail, food service and e-commerce.

Our core business is food and food related products and services. In this core business we like to capture as much customer demand as possible. Therefore earlier this year we have decided to enter the food service business in a major way. The background to this move has been that out-of-home food consumption has grown consistently faster than food consumption inside the home. Furthermore we have found substantial synergies between food retail and food service. Since food retail in itself is not a fast growing business, it seemed natural to pursue this opportunity. With the help of our strong retail chains in the US we are confident that this will be a new and exciting growth path for Ahold. So far everything that we have seen confirms this point of view. U.S. Foodservice is right on target to deliver to our expectations and the retail chains are set to benefit from their new sister company.

Therefore, when the opportunity arose to buy PYA/Monarch it was logical for us to pursue this vigorously. PYA/Monarch fits hand in glove with U.S. Foodservice, for historical, geographical and cultural reasons. Together they will be a very strong number 2 food service company in the US with projected sales of US$ 12 billion next year. The synergies between these two companies will come on top of the earlier synergies we projected at the time of the acquisition of U.S. Foodservice.

We are also strengthening our e-commerce activities both in business-to-consumer as well as in business-to-business. In business-to-consumer we have made substantial steps forward with the alignment of Peapod and our retail companies. Action has been taken to start internet home shopping under our brand names, provided by Peapod. This activity will be further strengthened by the acquisition this week of important operating assets from Streamline.com, including two warehouses in Chicago and Washington D.C., as well as a substantial customer base. In the business-to-business sector, the Worldwide Retail Exchange is now operational. We expect considerable benefits through lower transaction costs and more efficient cooperation with suppliers and vendors. Ahold has already held its first live auctions on this virtual marketplace and we anticipate substantial savings in due course.

The beauty of the multi-channel strategy lies in our ability to serve the same customer from a future common database and generate significant synergies within and among the channels. This will make us a better company all round with greater resistance to unexpected movements between the channels. In practice we find there are substantial purchasing advantages and many other economies by leveraging logistics and systems. There are also some exciting new business opportunities now that the retail companies are starting to use the know-how of the other channels and vice versa. Therefore it will come as no surprise to you that we intend to pursue our new strategy vigorously.

Our principles for growth have not changed. All of our companies are expected, autonomously, to grow faster than the market. To achieve this, the cash flow generated internally is available to reinvest in the business. Overall, autonomous growth at Ahold is approximately 7-8% on sales and close to 15% on operating earnings. These numbers differ by company but they are all derived from a strategy to drive sales per ft, expand square footage, improve category management, in-store merchandising and leverage our cost base and brand names.

We continue to pursue in-market acquisitions and in retail we are expanding our horizon to new formats. We are particularly pleased with the development of our new hypermarkets, our plans for substantial investment in minihypers in several countries and also our recent acquisitions in convenience stores and gasoline stations. This is all part of our strategy to increase our share of consumer spending. In services we are especially interested in growing our gasoline business, introducing more and sophisticated financial services, as well as newly designed activities to leverage our brands. We do not see this as a diversification of core business but rather as intensifying a close customer relationship.

You all know by now that our ambition is to build a stable of thoroughbreds. This applies to all three channels of trade. The companies that form part of Ahold's global support network have to be the best brand names in the market: consumer products and services companies that provide top value for money, superior customer service and are renowned for their quality orientation and innovation. It is with this vision in mind that we continue to vigorously pursue improvements in our existing markets as well as new acquisitions and joint ventures. We will not compromise our strict acquisition criteria.

We had another example today when we announced the proposed acquisition of Superdiplo in Spain. Superdiplo is a young but extremely well run supermarket and hypermarket company on the Spanish mainland and on the Canary Islands. The company is an amalgamation of recent acquisitions as well as many recently built stores. In many ways it mirrors our own growth strategy. We have seen, with growing admiration, how the management has put together a new powerhouse in Spanish food retailing. Not only is the existing store base in excellent shape, there are also many new locations on the shelf. In partnership with Ahold Espaa, Superdiplo will no doubt also become the acquirer of choice for the many remaining independent Spanish operators. Today, it is more realistic than ever before to expect we will be a major force in Spain in the future. The economics of the transaction are sound and we will already see accretion to earnings per share next year. We are also pleased that a majority of shareholders have already agreed to accept payment in Ahold stock.

We were also recently able to acquire the remaining stake in another thoroughbred, Bompreo in Brazil. This proves that our strategy to enter into joint ventures with strong regional companies is very successful and can ultimately lead to full control.

In search of other thoroughbreds around the world, we have found a lot of opportunities out there. These are in the United States, Europe and Latin America, and you will not be surprised to hear that we continue to pursue them as and when appropriate. We feel particularly good about our ability to preserve the cultural heritage of these companies and their strong brand names, and to retain management. Our record of generating synergies, exchanging best practices and sharing knowledge speaks for itself and we

have never failed to deliver on our promises in this regard.

I have mentioned to you before that we rate our chances of a major acquisition or merger in Europe to be 50% in the next 1-2 years. There is nothing new to report in this respect. We are convinced the sector will continue to consolidate further and that a higher level of concentration is almost inevitable. But you have also seen that our company is able to grow very fast without concluding such a major transaction.

Behind the scenes we continue to strengthen the support network in the United States. We have taken further steps to develop a common infrastructure in which certain activities and services are shared. Ahold USA has been beefed up, not as a regional headoffice but rather as a competence center. We stay clear of divisional or regional structures. The same is true for Europe where the European Competence Center is taking shape and is now well placed to support the operating companies in the region.

Today we have also announced several changes in the structure and management of ICA/Ahold. These will lead to a more focused, result-oriented line-up of people and business processes.

In addition, the global Ahold knowledge network is highly appreciated and is now part of everyday life for almost 5,000 key associates. This intranet enables us to substantially step up our benchmarking capability and to exchange best practice.

So with all this, what are our limitations to growth? Management-wise, we are in excellent shape. Our global management development systems and programs are running very well. Recently we have been able to attract many talented people straight from college as well as from our competitors. It is gratifying to note that these new hires see Ahold as a fun and exciting company to work for. At the same time, however, it has become more difficult to attract new associates in our stores and distribution centers and this has impacted some of our operations recently. We will address this issue structurally by reviewing our ways of working, terms of contract and benefit programs.

Money-wise, the company has a strongly increased capability to generate cash flow. We also continue to rely on external funds to finance new acquisitions and joint ventures. As a stated policy we have a requirement to maintain a minimum interest coverage of 3 and a maximum net debt to EBITDA of approximately 2. As and when feasible we will try to acquire new companies and set up joint ventures in exchange for shares, an example of which you have seen today. We have also indicated that we intend to issue in the fall preferred shares in the Netherlands. The amount thereof still needs to be determined. We have no current plans for a new issue of common stock. We have also announced that we may consider adopting international accounting standards for goodwill amortization with effect from January 1, 2000. The final decision will depend upon a number of factors that are currently still pending. We should have more clarity on this situation within 2-3 months time.

So, having said all this, the limiting factors to growth are very manageable. We have previously indicated to you our ambitious goal to double the 1999 size of our company expressed in Euro sales in 2002. This now looks very doable, even somewhat conservative. Therefore, as a representative of almost 400,000 Ahold associates, I can say that we take pride in our accomplishments and that we look forward to the future with great excitement.

Thank you.