Remarks by President & CEO Cees van der Hoeven

Thursday, September 02, 1999

As you have seen from the press release, our second quarter net earnings were more than 40% higher than last year. Earnings per share grew by 27% and excluding currency impact by 20%, our new and increased target number for the year. Most increases in the second quarter were higher than in the first and overall, we can look back at an excellent first half 99.

There is no doubt that our US companies, which now represent almost 60% of sales and 70% of operating results, are having a very good year. Although all companies are showing improvements, it is particularly rewarding to note that the two largest, Stop & Shop and Giant-Landover, are leading the way. We are more than pleased with the progress that is being made at Giant Landover, where sales and results clearly exceed our expectations due to increased promotional activity and cost savings. Overall, in Ahold USA the many initiatives to extract benefits from economies of scale, best practice exchanges and other cost-saving efforts are bearing fruit.

In The Netherlands, market share at Albert Heijn is somewhat under pressure, but we regard this as a temporary phenomenon. In the meantime, we have succeeded in keeping overall Dutch earnings including those of Albert Heijn on target. We are particularly pleased with the improvements shown at Schuitema and Institutional Sales, which now also incorporates Gastronoom. There has been some weakness in our production and meat processing operations, but we are addressing this in a structural manner.

Elsewhere in Europe, the Portuguese results again were excellent. Despite a recent start in Spain, we are already close to break-even. Progress has been made in the Czech Republic, where we had a successful start of our two hypermarkets. In Poland, because of a lack of critical mass, we are still incurring losses.

In Latin America, the impact of the Real devaluation has stabilized so that the currency losses of the first quarter have not reappeared. Bompreos sales have been relatively strong throughout the period, but we have invested some money into lower prices. Discos earnings in Argentina are holding up quite well, despite the recessionary economic environment. At Santa Isabel in Chile, we are finally seeing some real improvements taking hold.

In Asia, we see some early signs of economic recovery, though te region is not yet fully back on track. We continue to target break-even by the end of next year, but that will continue to require restructuring of current operations.

As is customary, I would like to take this opportunity to update you on the global food retail environment and its consequences for our strategy.

We are still very much committed to our mission to become the best and most successful food retailer in the world. As you know, our vision is to succeed in this mission by building a mutually beneficial global network of best-of-breed regional companies. Our roadmap is clear as we continue to improve and grow our existing operations, whilst at the same time targeting top-notch food retailers in the US, Europe and Latin America for acquisition or joint-venture. As you know there is still one thoroughbred, Pathmark, waiting on the sidelines to join our stable. We are working with the FTC to expedite its review of this transaction.

You have recently seen that we apply stringent financial criteria to acquisitions, when in a limited auction for Hannaford in the USA we were not the highest bidder. It is our stated objective to only pursue acquisitions when we are convinced that we can add significant value over and above the purchase price. In the meantime, we continue to see significant further growth potential on the US East Coast, autonomously as well as through acquisitions.

In Europe, the predicted consolidation process has started. We are positioning our company to be ready to take an important next step as and when the right opportunity arises. As always, it takes two to tango and remember that our criteria remain unchanged and strict. But, let me assure you that we have not lost out on any one of our preferred candidates.

The food retail environment in Latin America is rapidly changing, and we have seen a few of our colleagues arriving on the scene. We are extremely happy to be associated with the best-of-breed in the Latin American industry and continue to look for expansion where possible.

When I spoke about our vision earlier I mentioned a mutually beneficial global network of superior brand names. With the words mutually beneficial we mean in particular economies of scale, benchmarking, best practice exchange and knowledge transfer. We strongly believe that these are the cornerstones of our global strategy to add value for our customers locally. As an example, during the last press conference I mentioned to you our internal initiative to build an Ahold intranet to facilitate the process of extracting benefits such as cost savings on a global scale. I can now report that we have made great progress. It is particularly exciting to find that this initiative dovetails seamlessly with the regional synergy efforts that have become so successful in recent years. With the help of some advanced technical tools and the right mindset, we are able to raise the bar in all of our companies. However, I would like to point out that these global initiatives are not intended to produce a one-size-fits-all for our customers. On the contrary, we are investing heavily in differentiating ourselves according to local needs and tastes. Local and micro merchandising is a critical success factor and we believe that our philosophy of multiple formats is particularly suited for this approach. Moreover, all these efforts are intended to generate savings, which are ultimately to the benefit of both our customers as well as our shareholders.

I reported to you earlier that we were going to implement a world-wide Management Development program. This is now fully operational and it is exciting to note that recently we have been able to attract some of the best people in the industry to our company. We support management development by extensive training programs throughout the ranks. Earlier this year, we started the Ahold Retail Academy and based on its initial success we intend to roll out further programs for more people in the organization. It is our clear ambition to be a preferred employer and to provide a rewarding and exciting work environment everywhere we operate.

We have also taken a number of very interesting other initiatives which are either global or regional in nature. The global product sourcing framework is now in place and we expect early results in the latter half of this year. Many opportunities have been identified, which range from perishable products buying to private labels and branded goods. Our global construction group has been very successful in significantly reducing the costs of building and equipping new stores. The IT specialists around the world have defined a limited set of applications which will be strongly enforced. Many of our companies participate in a cross-border initiative to improve their non-food offering. We have substantially upgraded our ability to build and operate hypermarkets, particularly in developing areas. Several companies have contributed to a project to step up our E-commerce activities. We have studied in great depth opportunities to expand services to our customers, including for example, financial services. Several of the US companies are building and operating gas stations on their parking lots. And these are just a few examples. It is absolutely terrific to see how many people from very different backgrounds and nationalities work together to bring these projects to fruition.

At the same time, we invest a lot in food safety and environmentally friendly products. We have strengthened our controls throughout the supply chain and expanded our communication to customers about food quality and safety.

In conclusion, we are looking towards the future with great confidence and excitement. We are working from a strong financial base with a highly motivated workforce. There is ample scope for growth and still many opportunities for improvement in existing operations. Our company is often regarded as a consolidator of choice and therefore we expect to see further acquisitions coming to fruition. For the rest of the year we foresee no major surprises and hence our outlook in the press release that for full year 1999 we see our earnings per share, excluding currency fluctuations, grow by approximately 20%. Net earnings will therefore grow by a significantly higher percentage because of a greater number of shares outstanding than last year.