At Albert Heijn, in particular, lower consumer spending is negatively affecting net sales and our market share in fiscal
2003. Additionally, since the summer of fiscal 2002, there has been a negative market sentiment towards Albert Heijn
due to its perceived high price level. As a result, at Albert Heijn, we will be evaluating our pricing strategy, our cost
structure and promotional activities. As announced on September 3, 2003, in order to improve efficiency and remain
competitive in the market, we are restructuring the head office and logistics functions of Albert Heijn, including by
reducing 440 staff jobs. As a result, we anticipate that restructuring costs will negatively impact the operating income
of Albert Heijn in fiscal 2003.
In our other Europe retail trade operations, we have made strong efforts to improve net sales, despite the weakened
economy. We are focusing on margin management through common sourcing and product mix, as well as cost reduction
programs. The effectiveness of these programs, however, will not counteract the overall pressure on net sales and our gross
profit margin and we foresee lower operating income for fiscal 2003 compared to fiscal 2002 for our other Europe retail
trade operations.
In September 2002, we announced that, as part of our arena strategy, the administrative functions and management of
our operations in the three Central European countries of Poland, the Czech Republic and Slovakia, would be integrated
into one organization in order to realize synergies. To further this objective, we expect to create a new legal entity called
Ahold Central Europe, which is expected to be located in the Czech Republic. During fiscal 2003, we have been focusing
on integrating the administrative functions and management of these three operations. In Spain, we continue to integrate
the administrative functions of the businesses that we acquired, as well as further reducing the number of legal entities we
have in Spain. However, the integration process in Spain is taking much longer than we had expected. We also anticipate
taking initial steps toward cooperation between our operations in Spain and our equity investment in JMR in Portugal,
focusing on sourcing.
We completed in May 2003 the sale of De Tuinen, our wholly-owned subsidiary that operated a chain of 65 natural
product stores in The Netherlands, to NBTY's British subsidiary, Holland Barrett Europe Ltd., and, during the second
quarter of fiscal 2003, the sale of our Dutch confectionery store chain, Jamin, through a management buy-out.
Additionally, in September 2003, we sold our Dutch restaurant, De Walvis.
Retail trade in Latin America: fiscal 2003
In July 2003, we sold our 99.6% interest in the Chilean operations of Santa Isabel. In September 2003, we sold 100% of
the shares of the Paraguayan operations, formerly part of Santa Isabel. Additionally, we announced our intention to divest
our remaining subsidiaries in South America.
In Latin America, a slowdown in the economy and the economic crisis in Brazil and Argentina have affected and are
expected to continue to affect our retail trade net sales in those markets in fiscal 2003. We expect to continue to
experience gross profit margin pressures in fiscal 2003 as a result of the new pricing strategies we implemented in
Brazil and Argentina in fiscal 2002 and the announcements of our intended divestments.
Retail trade in Asia Pacific: fiscal 2003
In September 2003, we completed the sale of 22 stores and two distribution centers in Indonesia, and 33 stores and
a grocery distribution center in Malaysia. These transactions are in line with our objective of withdrawing from the Asia
Pacific region. As a result of the divestment program in Asia in fiscal 2003, we have incurred restructuring charges,
including store closure costs, severance payments and asset write-offs.
In our Asia Pacific segment, we have experienced a decline in retail trade net sales and gross profit margin as a result of
the sale of our stores in Malaysia and Indonesia, which have negatively affected our results of operations. In addition, we
expect a decline in net sales in Thailand due to strong competition.
Food service in the United States: fiscal 2003
In the United States, as a result of the issues that we announced on February 24, 2003, the related internal and external
investigations and events, combined with the resignation or termination of a significant portion of the senior management
of USF, our focus and the focus of Ahold's and USF's existing senior management in fiscal 2003 has been diverted from
USF's operations and customer service to a focus on resolving these issues and rebuilding our USF management team. On
October 14, our Corporate Executive Board appointed Lawrence S. Benjamin as Chief Executive Officer at USF, effective
November 1, 2003. For more information regarding the appointment, please see "Restatements, Adjustments and
Remedial Actions - Remedial Actions."
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