Friday, October 29, 1999
Today in the Netherlands, Royal Ahold President & CEO, Cees van der Hoeven, outlined the company's current position and strategy going forward to a large group of Dutch private investors. For the next five years, Van der Hoeven predicts a doubling of the group's sales as a result of a growth strategy that consists of:
- continued, strong autonomous growth with gains in market share and increasing margins;
- small, fill-in acquisitions of existing regional chains;
- acquisitions or joint ventures with regional market leaders USD 1 to 5 billion in size.
A fourth element of growth, a major acquisition or merger of a company with sales in excess of USD 15 billion is not necessary for Ahold to meet its objectives and become one of the top players in global food retailing. Van der Hoeven estimates that the possibility for such a transaction to take place over the next three years is about 50%. In the case of a major acquisition or merger, Van der Hoeven stated that "[a]bsolutely essential is that the cultures of the companies involved seamlessly connect with each other and that both parties, for the benefit of all stakeholders... can increase each other's value." Van der Hoeven also told investors that it is not Ahold's aim to be the biggest, but to be the best and most successful.
On the third element of the growth strategy, Cees van der Hoeven mentioned that Ahold sees 10 candidates. "The total sales of these candidates is roughly equal to the current sales of Ahold ? some USD35 billion. Three companies on this list are in the United States, three in South America and four in Europe. What is significant is that eight of the ten are family businesses, which, with their culture and structure will fit well with us. Owners of the family companies see consolidation processing and realize they don't want to be sidelined. With most of the candidates, discussions have taken place and with some, have now entered the serious phase. It would surprise us if at least one such transaction would not materialize next year."
Van der Hoeven confirmed that Ahold will not access the capital markets during the remainder of this year, but reemphasized that "Ahold is on the road toward doubling its sales in the next 5 years and realizing at least 15% earnings-per-share growth, excluding currency fluctuations. This year the earnings-per-share growth, as mentioned earlier, will be around 20%, excluding currency fluctuations."
Cees van der Hoeven also commented on Ahold's financing of its expected growth. He added that in general, acquisitions are financed with 50% equity and 50% debt. The third element of our growth strategy may lead Ahold to make an appeal to the capital markets next year. He stated that Ahold would never pursue an acquisition that would dilute earnings-per-share and dismissed fears of negative effects of an offering as "totally groundless."
Additional comments outlined for attendees customer trends in food retailing which are shaping the sector. "Food safety and food quality will be at the top of our customer's agendas," said Van der Hoeven. "People are more likely to look at the depth of the assortment rather than the width, while price will always be an important but certainly not the all-determining factor." To keep up with changing demands, Ahold is pursuing a number of initiatives, including improvements in the supply chain and expansion in the offerings of convenience foods.
Customers are also expected to receive benefits from the advantages of scale which companies the size of Ahold can pass on from better relationships with global suppliers, particularly with regards to non-food items. According to Van der Hoeven, "Our great strength is that we make optimal use of the advantages of scale, exchange knowledge effectively and still manage to appreciate and improve the local identity. That makes us the preferred party in the consolidation process that is currently changing the face of the market."
Royal Ahold operates nearly 4,000 supermarkets in the U.S., Europe, Latin America and Asia, with annualized sales of about USD 35 billion. The company employs approximately 300,000 associates worldwide.