Operating and Financial Review and Prospects
66
Ahold Annual Report 2003
Operating and Financial Review and Prospects
In the third quarter of 2003, we completed the
divestment of our operations in Malaysia and Indonesia.
For additional information on these divestments, please
see "Strategy - Restoring our Financial Health."
The results of our operations in Malaysia and Indonesia
are included in the Asia Pacific retail trade segment's
results until the date of their respective divestment.
We completed the divestment of our Thailand
operations in March 2004. With the completion of
this divestment, we have completed our withdrawal
from Asia Pacific.
2003
Net sales in the Asia Pacific retail trade segment
in 2003 amounted to EUR 364 million, a decrease
of 20.5% compared to 2002. This decrease was
primarily due to the disposal of our operations in
Malaysia and Indonesia completed in September 2003
and a decline in net sales in Thailand due to a currency
exchange rate impact of a lower exchange rate of the
Thai Baht compared to the Euro. Excluding the impact
of currency exchange rates, net sales in our Thailand
operations would have increased by EUR 21 million, or
7.1%, in 2003 compared to net sales in 2002, primarily
as a result of full-year sales of new stores, partially offset
by the closing of unprofitable stores.
The operating loss in the Asia Pacific retail trade
segment in 2003 amounted to EUR 62 million, an
increase of 87.9% compared to 2002. The increase
in operating loss was primarily due to a loss on
divestments of EUR 45 million related to the divestment
of our Malaysian operations in 2003. For additional
information about this loss on divestments, please see
"Significant Factors Affecting Results of Operations in
2003 and 2002 - Impact of Divestments."The increase
in operating loss in 2003 compared to 2002 was
partially offset by the divestments of our Malaysian and
Indonesian operations, both of which reported operating
losses in 2003, as well as by the performance
improvement in Thailand.
2002
Net sales in the Asia Pacific retail trade segment
increased by EUR 58 million, or 14.6%, to
EUR 458 million in 2002 compared to 2001. Economic
developments differed among countries in the Asia
Pacific retail trade segment, but, overall, development
was positive compared to the prior year. The net sales
growth in the Asia Pacific retail trade segment came
primarily from Thailand, which started wholesale
activities in the second half of 2001.
Retail activities in Thailand, which constituted
approximately 73% of our retail sales in the Asia Pacific
segment in 2002, experienced stagnation in terms of
net sales caused by strong competition in the Bangkok
area. Net sales in Thailand increased by EUR 51 million,
or 18.0%, to EUR 336 million in 2002 compared to
2001. In 2002, net sales in Malaysia decreased. Results
in Malaysia were affected by the closure of unprofitable
stores. Our Indonesian operations experienced strong
net sales growth due to new store openings and net
sales growth at identical stores, but due to the relatively
small size of these operations, they only had a limited
impact on our results.
Operating loss in the Asia Pacific retail trade
segment increased by EUR 13 million, or 65%, to EUR
33 million in 2002 compared to 2001. Gross profit, as a
percentage of net sales, decreased in 2002 compared to
2001, primarily due to the launch of wholesale activities
in Thailand. In addition, gross profit was negatively
affected by lowered prices in response to competitive
pressures in the region. Operating expenses increased
due to impairment charges with respect to other long-
lived assets in Thailand, Malaysia and Indonesia in the
aggregate amount of EUR 6 million. In Malaysia,
we experienced operating losses as a result of high
operating expenses, largely due to high labor costs and
high real estate costs. Additionally, we incurred costs
in Malaysia relating to the closure of unprofitable stores
and the cost of integrating acquisitions completed
in prior years. In Thailand, operating expenses were
affected by start-up costs relating to the opening of
wholesale activities. Indonesian operating expenses were
affected by miscellaneous losses on USD-denominated
loans and by a provision for retirement benefits.
Foodservice
Foodservice: U.S.
2003
Our foodservice segment in the U.S. is comprised
entirely of USF. Net sales at USF decreased by EUR 2.7
billion, or 14.7%, to EUR 15.8 billion in 2003 compared
to 2002. Excluding the impact of currency exchange
rates, net sales at USF would have increased by EUR
325 million, or 2.1%, in 2003 compared to 2002.
The acquisitions of Allen Foods and the acquisition of
certain assets of Lady Baltimore, which were
consolidated during the fourth quarter of 2002,
contributed more than half of this net sales growth.
The growth in net sales, excluding the impact of
currency exchange rates, was also partly due to the
increase in food price inflation. Net sales in 2003 were
negatively affected by a decline in chain sales as a result
of the loss of certain chain accounts. Chain sales are
typically sales to larger, multi-unit restaurant, healthcare
and catering companies. Net sales were lower in the first
quarter of 2003 than net sales in each of the
subsequent quarters of 2003.
Operating loss at USF in 2003 amounted to EUR
200 million compared to operating income of EUR 160
million in 2002. Excluding the impact of currency
exchange rates, operating loss at USF in 2003 would
have been decreased by EUR 332 million.
This operating loss was primarily caused by a lower
gross profit margin and higher operating expenses
in 2003 compared to 2002. USF's gross profit margin
as a percentage of net sales excluding the impact of
currency exchange rates in 2003 declined by 1.6%
compared to 2002. This significant decrease in gross
profit margin was primarily caused by a weakening of
