ROAD TO RECOVERY 2003-2005
In 2003, we announced a three-year financing plan and strategy to restore the value
of our company. The plan focused on four key areas: restoring our financial health;
re-engineering our food retail business; recovering the value of U.S. Foodservice; and
reinforcing accountability, controls and corporate governance.
Restoring our financial health
Re-engineering our retail business
Recovering the value of U.S. Foodservice
Reinforcing accountability, controls and corporate
governance
2006 AND ONWARD
Since November 2003, we have taken numerous steps to
strengthen our financial position and flexibility. We raised
approximately EUR 2.9 billion in net equity proceeds,
reduced gross debt by approximately EUR 5.8 billion,
negotiated a new, unsecured syndicated EUR 2 billion credit
facility with more favorable terms and conditions than the
prior facility, and completed divestments for cash
consideration and assumed debt totaling EUR 3.1 billion.
As a result of our efforts, we have improved our liquidity,
strengthened our balance sheet and better positioned
ourselves for the future by divesting non-core and under-
performing assets.
Our overall financial recovery is on track. We closed 2005
with EUR 2.2 billion total cash balances and we reduced
gross debt by 22.7% (EUR 2.3 billion) during 2005. The
lower average outstanding debt balances, lower average cost
of debt and lower banking fees contributed to lower net
interest expense in 2005. Our financial health is steadily
improving and we remain committed to meeting what we
understand to be the criteria for investment grade rating
from the two applicable rating agencies.
We have reorganized our food retail companies into arenas
to integrate back office functions. In this way, we can
achieve economies of scale while continuing to operate
using local brands, pricing and product assortment. We have
also reinvested in many of our stores to maintain and
improve our market position.
Our objective for our companies is for them to have or be
capable of achieving a sustainable and profitable number
one or number two position in their respective markets
within three to five years.
The three key steps we are taking to recover the value of
U.S. Foodservice are: improving internal controls and
corporate governance; restoring profitability and cash flow;
and pursuing profitable sales growth. We have made
significant progress and implemented a number of initiatives
and changes at U.S. Foodservice to clarify accountability,
improve our internal controls and strengthen our corporate
governance. In 2004, we implemented a plan focusing on
organizational, operational and system improvements as well
as procurement enhancements at U.S. Foodservice in order
to restore profitability and cash flow. In 2005, we continued
executing this plan, resulting in improved operating income
at U.S. Foodservice, and in November of the same year
announced a new long-term strategy.
As part of our Road to Recovery strategy we have
implemented many initiatives and changes to clarify
accountability, improve internal controls and strengthen
corporate governance. We have concluded that as of the end
of the period covered by this Annual Report, the two
material weaknesses reported in our 2004 Annual Report no
longer exist. For additional information, see "Corporate
governance" and "Internal control".
We have defined a growth strategy for 2006 and onward
based on core values that our operating companies share
and core capabilities that we are improving. Our core values
are rooted in Ahold's heritage and reflect our ambitions for
the future. Increasing the focus on our core capabilities will
help us build upon what we do best and differentiate us
from the competition.
We have launched a company-wide initiative to become a
'learning organization.' This will support the improvement of
our core capabilities and help us to work together as one
team. Our goal is not only to develop our skills, but also to
ensure we have the best processes, tools and innovative
solutions in place to run our business in the simplest and
most efficient manner possible.
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