Management's discussion analysis
TOTAL COMPANY OPERATING EXPENSES
Selling expenses
General and administrative expenses
-
-
Our gross profit margin was stable in 2005 compared to
2004. This was mainly due to a higher gross profit margin
at U.S. Foodservice, offset by slightly lower gross profit
margins in some of our retail arenas.
The improved gross profit margin at U.S. Foodservice was
primarily a result of its systematic category review
process, which included negotiating better supply terms
and rationalizing its product portfolio.
The gross profit margin in the Giant-Carlisle/Tops Arena
increased slightly, mainly as a result of improvements in
inventory shrinkage, product mix, merchandising and
operational efficiencies in perishable products.
The gross profit margin at Schuitema also increased
slightly, mainly as a result of reduced logistics costs.
In addition, our gross profit margin was slightly positively
impacted by an increase in the gross profit margin in the
Central Europe Arena, mainly as a result of more
centralized sourcing and the divestment of the Polish
hypermarkets.
These increases in gross profit margin were offset by a
decrease in the gross profit margin in the Stop Shop/
Giant-Landover Arena as a result of competitive pressure
from new store openings and increased promotional
activity, and at Albert Heijn where the ongoing value
repositioning program put pressure on the gross profit
margin.
The following table sets forth our operating expenses by
category for 2005 and 2004:
Our operating expenses and operating expenses as a
percentage of net sales increased in 2005 compared to
2004, primarily because of the charge for the settlement of
the Securities Class Action.
Our selling expenses and selling expenses as a percentage
of net sales increased slightly in 2005 compared to 2004
because of increased selling expenses of in some of our
arenas, particularly selling expenses as a percentage of net
sales in the Central Europe Arena and at Schuitema. The
increase in the Central Europe Arena was primarily a result
of higher net sales, various project costs and a write-off of
supplier receivables and inventories related to stock-taking
differences. This increase was partially offset by a decrease
in selling expenses as a percentage of net sales in the Albert
Heijn Arena, primarily as a result of cost reductions and
efficiency improvements with respect to logistic and
transportation expenses.
Our general and administrative expenses decreased in 2005
compared to 2004 primarily because of the one-time costs
of USD 54 million (EUR 44 million) in 2004 related to the
integration of Giant-Landover, Stop Shop and the U.S.
retail support service. Our net payments to AIG Europe (the
Netherlands) N.V. in connection with the settlement of
insurance coverage litigation with respect to a director's and
officer's liability insurance policy issued by AIG for Ahold
and U.S. Foodservice were USD 31.5 million
(EUR 25.5 million), both in 2005 and 2004.
In 2005, general and administrative expenses included
restructuring and other one-time costs at U.S. Foodservice
of USD 61 million (EUR 51 million) primarily related to the
restructuring as announced on November 29, 2005.
Included in the restructuring and other one-time costs at
U.S. Foodservice are costs to close and consolidate
operating facilities of USD 19 million, costs to close and
consolidate support office locations of USD 14 million,
severance and other costs associated with the announced
reduction of the workforce by approximately 700 positions
of USD 14 million. Other charges included in the
restructuring and other one-time costs, such as non-current
assets disposals, one-time costs associated with exiting
certain businesses and the asset impairment charge for a
distribution facility (which is still operated by U.S.
Foodservice) amounted to USD 14 million. In 2005, general
and administrative expenses also included start-up costs for
an accounting center in the Central Europe Arena. Salaries
and wages, as well as rent and depreciation expenses,
remained stable in 2005 compared to 2004.
Intangible asset amortization
Our amortization of intangible assets decreased
by EUR 24 million in 2005 compared to 2004 primarily
as a result of lower amortization in the Stop Shop/Giant-
Landover Arena.
2005
2004
Euros in
millions,
except
percentages
(52
weeks)
of
net sales
(53
weeks)
of
net sales
Selling
expenses
(6,545)
14.7
(6,475)
14.5
General and
administrative
expenses
(1,610)
3.6
(1,814)
4.1
Settlement
securities class
action
(803)
1.8
Total operating
expenses
(8,958)
20.1
(8,289)
18.6
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