5. Implementing company-wide EUR 500 million
cost reduction program
To support its value repositioning programs, Ahold is
reducing operating costs by EUR 500 million by the end
of 2009. It is achieving these cost reductions by focusing
on simplification and efficiency across all of the retail
businesses, including store operations, shrink, logistics,
energy usage and local overhead. Ahold is also taking a
more disciplined and rigorous approach to dealing with
underperforming stores. Due to the nature of these plans,
the savings will accelerate over time.
6. Supplementing growth with additional store
openings and targeted fill-in expansions
Ahold will continue to reach new customers in areas where
the Company can achieve an attractive return. It will open
stores with new format concepts and upgrade existing stores.
Ahold will also continue to look at targeted fill-in acquisitions
to provide the Company with opportunities to reach
new customers.
III. Leveraging organizational structure
Ahold's difference is its people and the way that they work
together. The Company will develop and attract the best
people in the food retail industry, equipped with and
empowered by a common set of core values, operating
principles and capabilities.
The most effective structure to execute the Company's
strategy is one that balances local, continental and global
decision-making. Ahold's new organizational approach is
designed to facilitate this while adding strong management
focus on and accountability for the execution of its plans.
The backbone of Ahold's competitive strength has been
and will continue to be its consumer-focused local
organizations. In the near term, Ahold believes that it has an
unrealized opportunity to leverage its continental capabilities
and scale more effectively in support of the Company's
local organizations.
Ahold's global scale provides it with immediate opportunities
to transfer knowledge and expertise across the continents,
to leverage core corporate activities, and to attract, develop
and energize talent and capabilities across all of its markets.
1. Reorganizing into two continentally-based organizations
In order to improve its customer-focus while also driving
company-wide initiatives across all of its banners, Ahold
is reorganizing its arena structure into two continental
platforms, based in the United States and Europe.
Continental teams are responsible for the oversight of local
operating companies, as well as the implementation of
company-wide growth initiatives.
2. Appointment of European Chief Operating Officer
and U.S. Chief Operating Officer
Two Chief Operating Officers have been appointed, both
reporting to Ahold President and CEO Anders Moberg,
to lead the continental teams.
They are responsible for the direct oversight of local banners
and also responsible for identifying and implementing
synergies among its businesses.
In addition, Ahold has put company-wide oversight of retail
marketing strategies in the hands of the European COO.
3. Reduction of Corporate Center costs by 50 percent
Ahold is streamlining its Corporate Center, reducing core
costs by 50 percent by the end of 2008. The savings
are being achieved by staff reductions and substantial
cuts in discretionary spend. The core costs in 2005 were
EUR 189 million. The core responsibilities of the Corporate
Center in the future will include Corporate Finance,
Corporate Strategy, Internal Audit, Legal, Human Resources,
Information Management and Communications.
In addition, Ahold's General Merchandise initiatives, which
are highly dependent on global sourcing, are continuing
to be coordinated centrally by the Corporate Center.
Certain Corporate Center activities where Ahold sees the
most opportunity to leverage continental capabilities
and scale will now be performed at the continental level.
Other Corporate Center costs that have been incurred
directly in support of the operating companies will be
reviewed, and charged directly to the respective operations.
IV. Financial targets
As part of its new plans, Ahold is reaffirming its primary
targets. However, based on its repositioning experience
at Albert Heijn and ICA, Ahold anticipates that margins
and sales growth will initially decline before recovering.
In addition, there will be non-recurring gains and losses
related to the disposal and repositioning of companies.
Net sales growth: Ahold reaffirms its target to achieve a
sustainable retail net sales growth of 5 percent. Following
the implementation of the Company's repositioning plans,
Ahold expects that this net sales growth will come mainly
from identical sales growth.
Return on net sales: Ahold reaffirms its target to achieve
a sustainable retail operating margin of 5 percent on
average for the retained retail banners.
Investment grade: Ahold reaffirms its target to achieve
investment grade.
This reorganization is creating the foundation for further
expansion and is facilitating integration.
Ahold Annual Report 2006
9
