Management's discussion and analysis
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-
Net sales
In 2006, consolidated net sales increased 2 percent
compared to 2005, and at constant exchange rates were
up 2.7 percent. Net sales growth was negatively impacted
by divestments, including the sale of Wilson Farms and
SugarCreek convenience stores in the Giant-Carlisle/Tops
Arena and U.S. Foodservice's Sofco business in 2005 and
the sale and closure of Tops stores in the Adirondacks and
Northeast Ohio areas in 2006 and 2005. Excluding the
impact of currency exchange rates and these divestments,
consolidated net sales in 2006 were 4.1 percent higher
than last year primarily due to improved net sales at
Giant-Carlisle, Albert Heijn and U.S. Foodservice, including
the impact of stores acquired from Clemens Markets,
Konmar and Julius Meinl.
In 2005, consolidated net sales were almost unchanged
from the prior year; however, excluding the effects of
week 53 of 2004 net sales increased 1.6 percent. Net sales
growth was primarily due to improved net sales at Stop
Shop and Albert Heijn; the divestments in the Giant-Carlisle/
Tops Arena and U.S. Foodservice were a partial offset.
Gross profit
In 2006, gross profit increased EUR 225 million primarily
due to improved net sales at Giant-Carlisle, Albert Heijn
and U.S. Foodservice. Gross profit increased in 2006 to
20.8 percent of net sales primarily due to higher margins at
U.S. Foodservice; retail gross profit margin was relatively flat
year-over-year.
Gross profit margin was stable in 2005 compared to 2004
with higher gross profit margin at U.S. Foodservice partially
offset by lower margins in retail.
Operating expenses
In 2006, operating expenses decreased EUR 815 million
from 2005 primarily due to the one-time charge of
EUR 803 million for the settlement of the Securities Class
Action in 2005. Excluding the settlement charge, operating
expenses decreased from 18.3 percent of net sales in 2005
to 17.9 percent in 2006.
In 2005, operating expenses increased EUR 704 million
compared to 2004 primarily due to the one-time charge
for the settlement of the Securities Class Action of
EUR 803 million. Excluding the settlement charge,
operating expenses decreased from 18.5 percent of net
sales in 2004 to 18.3 percent in 2005.
Selling expenses
In 2006, selling expenses of EUR 6.5 billion decreased
as a percentage of net sales from 14.7 percent in 2005 to
14.5 percent. The improvement was primarily the result
of cost reductions and efficiency improvements within the
Albert Heijn Arena and U.S. Foodservice.
In 2005, selling expenses of EUR 6.5 billion increased
as a percentage of net sales from 14.5 percent in 2004 to
14.7 percent. The increase was primarily due to higher
expenses in the Company's retail operations.
General and administrative expenses
In 2006, general and administrative expenses of
EUR 1.6 billion decreased as a percentage of net sales from
3.6 percent in 2005 to 3.5 percent in 2006. The decrease
was primarily attributable improved efficiency and cost
reductions at the Albert Heijn Arena, U.S. Foodservice
and Group Support Office; costs of EUR 91 million related
to an exit of Tops from the Northeast Ohio market was
a partial offset.
In 2005, general and administrative expenses of
EUR 1.6 billion decreased as a percentage of net sales from
4 percent in 2004 to 3.6 percent in 2005. The decrease was
in part attributable to reductions in restructuring and related
charges and impairment of assets, and an increase in gains
on the sale of assets, as further discussed below.
Restructuring and other related charges
In 2006, restructuring and other related charges of
EUR 107 million were incurred and related primarily to the
closure of a distribution facility in the Stop Shop/Giant-
Landover Arena and Tops' exit from the Northeast Ohio market.
In 2005, restructuring and other related charges of
EUR 18 million were incurred in the Stop Shop/Giant-
Landover Arena and related primarily to the restructuring
of the Giant-Landover supply chain and the closing of four
Super-G stores, and EUR 51 million at U.S. Foodservice
primarily related to the closure and consolidation of
operating and support office facilities.
In 2004, restructuring and other related charges of
EUR 44 million were incurred and related primarily to the
integration of Giant-Landover, Stop Shop and U.S. retail
support services.
Impairment of assets
The Company recorded the following impairments and
reversals of impairments of non-current assets in 2006,
2005 and 2004:
EUR in millions
2006
2005
2004
Stop Shop/Giant-Landover Arena
5
8
39
Giant-Carlisle/Tops Arena
5
84
30
Albert Heijn Arena
10
6
17
Central Europe Arena
37
2
11
Schuitema
4
5
74
Total Retail
61
105
171
U.S. Foodservice
(7)
18
Group Support Office
1
46
Total
54
124
217
In 2006, the majority of impairment of assets consisted
of impairments for underperforming stores in the Central
Europe Arena.
In 2005, the most significant impairments were at the Giant-
Carlisle/Tops Arena due to a weak economic environment
and strong competition, particularly in Northeast Ohio and
eastern New York, and at U.S. Foodservice related to office
locations and warehouses as part of the administrative
restructuring discussed above.
44 Ahold Annual Report 2006
