Koninklijke Ahold N.V.

Transcription

1 First three quarters November 21, Koninklijke Ahold N.V. First three quarters

2 First three quarters Contents Condensed consolidated interim financial statements Consolidated interim statements of operations 3 Consolidated interim statements of recognized income and expense 4 Consolidated interim balance sheets 5 Consolidated interim statements of cash flows 7 Notes to the condensed consolidated interim financial statements 8 Other financial and operating information 18 Forward-looking statements notice 23 2

3 Condensed consolidated interim financial statements First three quarters Consolidated interim statements of operations (unaudited) (Euros in millions, except per share data) Note Net sales 3 21,539 21,225 6,315 6,247 Cost of sales 6 (15,957) (15,539) (4,696) (4,616) Gross profit 5,582 5,686 1,619 1,631 Selling expenses (4,024) (4,085) (1,178) (1,205) General and administrative expenses 4,5 (677) (740) (186) (215) Total operating expenses 6 (4,701) (4,825) (1,364) (1,420) Operating income Interest income Interest expense (348) (394) (104) (115) Other financial income (expense) (10) (11) 17 - Net financial expense (258) (361) (29) (99) Income before income taxes Income taxes (143) (102) (44) 5 Share in income of joint ventures Income from continuing operations Income from discontinued operations 8 2, (21) 33 Net income 2, Attributable to: Common shareholders 2, Minority interests Net income 2, Net income per share attributable to common shareholders basic diluted Weighted average number of common shares outstanding (x 1,000) 9 basic 1,526,005 1,555,429 1,400,713 1,555,522 diluted 1,533,599 1,556,512 1,455,110 1,647,767 Average USD exchange rate (euro per U.S. dollar)

4 Condensed consolidated interim financial statements First three quarters Consolidated interim statements of recognized income and expense (unaudited) Net income 2, Exchange rate differences in foreign interests (188) (318) Cumulative exchange rate differences related to divestments (111) - Gains (losses) on cash flow hedges net Income (expense) recognized directly in equity (282) (305) Total recognized income and expense 2, Attributable to: Common shareholders 2, Minority interests Total recognized income and expense 2,

5 Condensed consolidated interim financial statements First three quarters Consolidated interim balance sheets (unaudited) Note October 7, December 31, pro forma December 31, Assets Property, plant and equipment 5,584 6,153 6,925 Investment property Goodwill ,184 Other intangible assets Investments in joint ventures Deferred tax assets Other non-current assets Total non-current assets 8,260 8,894 11,786 Assets held for sale 569 5, Inventories 1,228 1,399 2,056 Income taxes receivable Receivables ,938 Other current assets Cash and cash equivalents 11 3,750 1,725 1,844 Total current assets 6,493 9,548 6,656 Total assets 14,753 18,442 18,442 End of period USD exchange rate (euro per U.S. dollar) The December 31, pro forma column presents the balance sheet as if U.S. Foodservice was held for sale at that date. 5

6 Condensed consolidated interim financial statements First three quarters Consolidated interim balance sheets continued (unaudited) Note October 7, December 31, pro forma December 31, Group equity and liabilities Equity attributable to common shareholders 9 4,142 5,030 5,030 Cumulative preferred financing shares Minority interests Group equity 4,220 5,270 5,270 Pensions and other post-employment benefits Deferred tax liabilities Provisions Loans 2,876 4,162 4,170 Other non-current financial liabilities 1,712 1,883 1,905 Other non-current liabilities Total non-current liabilities 5,407 7,131 7,351 Liabilities related to assets held for sale 281 1, Provisions Income taxes payable Accounts payable 1,934 2,193 2,955 Other current financial liabilities 1, Other current liabilities 931 1,331 1,532 Total current liabilities 5,126 6,041 5,821 Total group equity and liabilities 14,753 18,442 18,442 End of period USD exchange rate (euro per U.S. dollar) The December 31, pro forma column presents the balance sheet as if U.S. Foodservice was held for sale at that date. 6

7 Condensed consolidated interim financial statements First three quarters Consolidated interim statements of cash flows (unaudited) Note Cash generated from operations Income taxes (paid) received - net (2) Operating cash flows from continuing operations 1, Operating cash flows from discontinued operations Net cash from operating activities 1,265 1, Purchase of non-current assets (603) (693) (168) (214) Divestments of assets / disposal groups held for sale Acquisition of businesses, net of cash acquired (34) (6) (8) (5) Divestment of businesses, net of cash divested 8 5, Dividends from joint ventures Interest received Other Investing cash flows from continuing operations 4,861 (417) (71) (186) Investing cash flows from discontinued operations (81) 25 - (22) Net cash from investing activities 4,780 (392) (71) (208) Interest paid (339) (356) (80) (81) Proceeds from loans Repayments of loans (203) (48) (29) (10) Changes in derivatives (26) (23) (11) (13) Changes in short-term borrowings (2) 12 2 (61) Capital repayment 9 (2,995) - (2,995) - Purchase of treasury shares 9 (522) - (522) - Proceeds from issuance of shares Other (44) (46) (11) (12) Financing cash flows from continuing operations (4,072) (426) (3,612) (153) Financing cash flows from discontinued operations (17) (493) (5) (2) Net cash from financing activities (4,089) (919) (3,617) (155) Net cash from operating, investing and financing activities 11 1,956 (234) (3,248) 50 Average USD exchange rate (euro per U.S. dollar) For the reconciliation between net cash from operating, investing and financing activities and cash and cash equivalents as presented in the balance sheets, see note 11. 7

8 Condensed consolidated interim financial statements First three quarters Notes to the condensed consolidated interim financial statements (Euros in millions, unless otherwise stated) 1 The Company and its operations The principal activities of Koninklijke Ahold N.V. ( Ahold or the Company ), a public limited liability company with its registered seat in Zaandam, the Netherlands and its head office in Amsterdam, the Netherlands, are the operation through subsidiaries and joint ventures of retail trade supermarkets in the United States and Europe. In addition, some subsidiaries finance, develop and manage store sites and shopping centers primarily to support retail operations. The activities of Ahold are to some extent subject to seasonal influences. Ahold s retail business generally experiences an increase in net sales in the fourth quarter of each year, resulting mainly from holiday sales. The information in these condensed consolidated interim financial statements (hereafter interim financial statements ) is unaudited. 2 Accounting policies Basis of preparation These interim financial statements have been prepared in accordance with IAS 34 ing. The accounting policies applied in these interim financial statements are consistent with those applied in Ahold s financial statements. Ahold s reporting calendar is based on 13 periods of four weeks, with and comprising 40 and 12 weeks, respectively, and ending on October 7, ( and : 40 and 12 weeks, respectively, ending on October 8, ). The financial year of Ahold s unconsolidated joint venture ICA AB ( ICA ) corresponds to the calendar year. Any significant transactions and/or events between ICA s quarter-end and Ahold s quarter-end are taken into account in the preparation of Ahold s interim financial statements. Euro equivalents of foreign currency amounts stated in the notes to these interim financial statements are determined using historical rates for settled items and closing rates for items to be settled as of October 7,. Change in classification Until, Ahold presented its share in income of joint ventures as part of income before income taxes. Since these results represent the Company s share in the results after income taxes of joint ventures, they are presented below the income tax line as of. 3 Segment reporting Ahold s operations are presented in six business segments. In addition, Ahold s Corporate Center and certain unallocated costs are presented separately. Segment Significant operations in the segment Stop & Shop / Giant-Landover Stop & Shop, Giant-Landover and Peapod Giant-Carlisle Giant-Carlisle and Tops 1 Albert Heijn Albert Heijn, Etos, Gall & Gall and Ahold Coffee Company Albert / Hypernova Czech Republic, Poland 2 and Slovakia Schuitema Schuitema (73.2%) Other retail Unconsolidated joint ventures ICA (60%) and JMR (49%) 1 Corporate Center Corporate staff (the Netherlands, Switzerland and the United States) 1. Classified as held for sale and discontinued operation. 2. Sold in the second quarter of. 8

9 Condensed consolidated interim financial statements First three quarters Net sales Net sales per segment are as follows: % change % change Stop & Shop / Giant-Landover 9,492 10,114 (6.1%) 2,717 2,932 (7.3%) Giant-Carlisle 2,433 2, % % U.S. retail 11,925 12,410 (3.9%) 3,426 3,610 (5.1%) Albert Heijn 5,997 5, % 1,806 1, % Albert / Hypernova 1,131 1, % % Schuitema 2,486 2, % % Europe retail 9,614 8, % 2,889 2, % Ahold Group 21,539 21, % 6,315 6, % Net sales of Ahold s U.S. segments in U.S. dollars are as follows: (U.S. dollars in millions) % change % change Stop & Shop / Giant-Landover 12,772 12, % 3,747 3, % Giant-Carlisle 3,274 2, % % Net sales of U.S. segments in USD 16,046 15, % 4,724 4, % Average USD exchange rate (7.5%) (7.6%) Net sales of U.S. segments in EUR 11,925 12,410 (3.9%) 3,426 3,610 (5.1%) Net sales of Ahold s unconsolidated joint venture ICA amounted to EUR 6,515 and EUR 5,332 for and, respectively ( and : EUR 2,234 and EUR 1,844, respectively). The increase primarily reflects ICA s acquisition of the remaining stake in the previously unconsolidated joint venture Rimi Baltic AB in December. Operating income Operating income (loss) per segment is as follows: % change % change Stop & Shop / Giant-Landover (26.3%) (16.2%) Giant-Carlisle % % U.S. retail (21.2%) (12.8%) Albert Heijn % % Albert / Hypernova (5) (40) 87.5% (5) (26) 80.8% Schuitema (13.4%) % Europe retail % % Corporate Center (77) (97) 20.6% (23) (29) 20.7% Unallocated (20) (31) 35.5% (4) (9) 55.6% Ahold Group % % 9

10 Condensed consolidated interim financial statements First three quarters Operating income of Ahold s U.S. segments in U.S. dollars is as follows: (U.S. dollars in millions) % change % change Stop & Shop / Giant-Landover (20.4%) (9.1%) Giant-Carlisle % % Operating income U.S. segments in USD (14.8%) (5.1%) Average USD exchange rate (7.5%) (7.6%) Operating income U.S. segments in EUR (21.2%) (12.8%) Stop & Shop / Giant-Landover Operating income in Q2 included restructuring charges of USD 26 (EUR 19), mainly resulting from the closure of ten stores in the southern New Jersey market area. Operating income in Q2 also included expenses of USD 9 (EUR 6) related to an adjustment of payroll tax accruals related to prior years. Furthermore, gains of USD 13 (EUR 11) were realized on the sale of assets in Q2, primarily a distribution facility. Operating income in Q1 included restructuring charges of USD 9 (EUR 7) consisting primarily of severance charges and impairment losses. In Q1, operating income was positively affected by a one-time benefit of USD 27 (EUR 23) due to a negotiated plan amendment in other post-employment benefits. Furthermore, operating income in Q1 included a gain of USD 23 (EUR 19) on the sale of real estate, primarily two distribution facilities, partially offset by restructuring and severance charges of USD 20 (EUR 17) related primarily to the closure of one of these facilities. Albert Heijn Albert Heijn recognized gains on the sale of assets of EUR 3 in ( : EUR 19). The sale of some of these stores was required by the Netherlands competition authority, NMa, following the approval of the acquisition of Konmar stores from Laurus in. Albert / Hypernova Operating income in included an impairment loss of EUR 19 related to the Company s activities in Slovakia. Schuitema Operating income in included expenses of EUR 5 related to an adjustment of the pension liability resulting from an omission in the actuarial calculation that originated prior to Corporate Center Operating income in includes gains of EUR 11 resulting from the settlement of legal proceedings, as further disclosed in Note 12. Furthermore, operating income includes impairment charges of EUR 5. Operating income in Q2 included a gain of EUR 7 resulting from a settlement of litigation with a vendor related to services provided in the past. Furthermore, operating income in Q2 included restructuring charges of EUR 4. Operating income in Q2 included a release of a legal provision of EUR 7. Unallocated Unallocated costs include various general and administrative expenses that prior to the qualification of Tops and Poland as held for sale and discontinued operations were allocated to those entities within their respective segments. These costs are not allocable to Tops and Poland as costs from discontinued operations. Classification of these costs as unallocated ceases as of divestment date. Included in operating income are impairments and gains and losses on the sale of assets and disposal groups held for sale. For an overview per segment, see notes 4 and 5 below. 10

11 Condensed consolidated interim financial statements First three quarters 4 Impairment of assets General and administrative expenses include the following impairments and reversals of impairments of non-current assets and disposal groups held for sale: Stop & Shop / Giant-Landover (5) (11) (1) - Giant-Carlisle (1) U.S. retail (6) (11) (1) - Albert Heijn (4) (3) - - Albert / Hypernova - (19) - (19) Schuitema (4) (2) - (2) Europe retail (8) (24) - (21) Corporate Center (5) - (5) - Ahold Group (19) (35) (6) (21) For a discussion of significant impairments, see note 3. 5 Gains and losses on the sale of assets General and administrative expenses include the following gains and losses on the sale of non-current assets and disposal groups held for sale: Stop & Shop / Giant-Landover Giant-Carlisle U.S. retail Albert Heijn Albert / Hypernova Schuitema Europe retail Corporate Center Ahold Group For a discussion of significant gains and losses on the sale of assets and disposal groups held for sale, see note 3. 11

12 Condensed consolidated interim financial statements First three quarters 6 Expenses by nature The aggregate of cost of sales and operating expenses can be specified by nature as follows: Cost of product 15,202 14,787 4,472 4,378 Employee benefit expenses 2,890 2, Other store expenses 1,226 1, Depreciation, amortization and impairments Rent expenses Other expenses Total 20,658 20,364 6,060 6,036 7 Share in income of joint ventures The Company s share in income of joint ventures is net of income taxes and can be specified as follows: ICA Other Total Ahold s share in ICA s net income includes gains on the sale of assets of EUR 16. Ahold s share in ICA s net income included a gain on the sale of ICA Meny of EUR Discontinued operations On November 6,, Ahold announced its intention to divest U.S. Foodservice, its retail activities in Poland and Slovakia, the remaining Tops operations in New York and Pennsylvania and its 49% stake in JMR. Ahold completed the sale of its Polish retail operation to an affiliate of French retailer Carrefour on July 2,. The transaction is valued at EUR 375, and consists of a cash consideration and assumed debt. The final purchase price is subject to customary price adjustments. On May 2,, Ahold reached an agreement on the sale of U.S. Foodservice to Clayton, Dubilier & Rice ( CD&R ) and Kohlberg Kravis Roberts ( KKR ) for a purchase price of USD 7.1 billion (EUR 5.2 billion). Shareholder approval for the transaction was obtained at an Extraordinary General Meeting held on June 19, and the transaction closed on July 3,. On October 11,, Ahold reached an agreement on the sale of Tops Markets, LLC to Morgan Stanley Private Equity in a transaction valued at USD 310 (EUR 219). The final purchase price is subject to customary price adjustments. Closing of the transaction is expected in the fourth quarter of this year subject to the fulfillment of customary closing conditions, including receipt of regulatory approvals and a financing condition. At year-end, Poland and JMR qualified as held for sale and discontinued operations. Tops and U.S. Foodservice qualified as held for sale and discontinued operations during Q1 and Q2, respectively. On November 21,, the Company announced that it would continue to operate in Slovakia. 12

13 Condensed consolidated interim financial statements First three quarters Income from discontinued operations, consisting of results from discontinued operations and result on divestments, can be specified as follows: Segments Discontinued operations Giant-Carlisle Tops (9) Albert / Hypernova Poland (1) Other retail JMR U.S. Foodservice U.S. Foodservice (6) 34 Results from discontinued operations Albert / Hypernova Poland U.S. Foodservice U.S. Foodservice 1,732 - (22) - Various Various (5) (6) (1) 1 Result on divestments 1,980 (6) (23) 1 Income from discontinued operations net of income taxes 2, (21) 33 Tops results in include USD 39 (EUR 29) restructuring and related charges, of which USD 2 (EUR 1) was recognized in. As a result of JMR s classification as held for sale and discontinued operation, JMR is no longer accounted for using the equity method as of. JMR s result for represents dividends and fees received. The result of Poland in Q1 included a gain on the sale of two shopping centers of EUR 39. The result on divestments in can be summarized as follows: Cash received (net of cash divested of EUR 281) 5,244 Cash repayable (11) Net assets divested (3,322) Collection of receivable (remaining 15% of Disco shares) (37) Cumulative exchange rate differences transferred from equity 111 Income taxes (5) Result on divestments 1,980 9 Equity attributable to common shareholders Capital repayment and reverse stock split On June 19,, a capital repayment and reverse stock split, as proposed on May 23,, was approved at an Extraordinary General Meeting of Shareholders. On August 22,, after close of New York Stock Exchange trading hours, the reverse stock split took place. Every five existing shares with a nominal value of EUR 0.24 each were consolidated into four new shares with a nominal value of EUR 0.30 each. The capital repayment of EUR 1.89 per existing share, EUR 3 billion in the aggregate, took place on August 28,. The reverse stock split reduced the number of common shares outstanding by 20% with a corresponding reduction in cash resources. Consequently, the overall effect was a share buyback at fair value and therefore the weighted average number of shares outstanding in the earnings per share calculation is adjusted for the reduction in the number of shares as of August 23, and comparative information is not restated. Share buyback On August 30,, Ahold announced its decision to return EUR 1 billion to its shareholders by way of a share buyback program. Under this program, the Company has repurchased 53,655,465 of its own common shares in the 13

14 Condensed consolidated interim financial statements First three quarters period from September 4, up to and including October 5,. Shares were repurchased at an average price of EUR per share for a total amount of EUR 557. The number of outstanding common shares at October 7, was 1,218,340,782 (December 31, : 1,555,677,562). 10 Cumulative preferred financing shares On January 2,, 100,802,061 cumulative preferred financing shares with a par value of EUR 169 were converted into 22,419,051 common shares; such conversion being effected by (i) conversion of 22,419,051 cumulative preferred financing shares into 22,419,051 common shares and (ii) the acquisition for no consideration of 78,383,010 cumulative preferred financing shares by Ahold. From the date Ahold received irrevocable notification of the conversion to common shares (November 30, ) until the conversion date, the preferred financing shares that have been converted were classified as a separate class of equity. On July 10,, the 78,383,010 cumulative preferred financing shares acquired by the Company were cancelled. 11 Cash flow The following table presents the reconciliation between net income and cash generated from operations: Net income 2, Adjustments for: Depreciation, amortization and impairments Gain on the sale of assets and disposal groups held for sale (39) (28) (6) (2) Net financial expense Share in income of joint ventures (107) (122) (53) (60) Income taxes (5) Income from discontinued operations (2,096) (155) 21 (33) Other Operating cash flow before changes in working capital 1,449 1, Changes in working capital: Inventories (9) (24) Receivables and other current assets (14) Payables and other current liabilities (134) (180) (36) (19) Changes in non-current assets and liabilities (166) (49) (108) 5 Class action settlement (284) (536) - - Cash generated from operations The change in non-current assets and liabilities in includes a contribution of USD 139 (EUR 101) to one of the Company s U.S. pension plans. 14

15 Condensed consolidated interim financial statements First three quarters The following table presents the changes in cash and cash equivalent balances for the first three quarters of and : Cash and cash equivalents of continuing operations beginning of the year 1,844 2,228 Restricted cash (23) (23) Cash and cash equivalents related to discontinued operations 23 - Cash and cash equivalents beginning of the year, including discontinued operations and excluding restricted cash 1,844 2,205 Net cash from operating, investing and financing activities 1,956 (234) Effect of exchange rate differences on cash and cash equivalents (52) (64) Restricted cash Cash and cash equivalents related to discontinued operations (21) - Cash and cash equivalents of continuing operations end of the quarter 3,750 1, Commitments and contingencies Legal proceedings Dutch and U.S. proceedings regarding terminations In December 2003, Ahold s former Chief Executive Officer Cees van der Hoeven ( Van der Hoeven ) and former Chief Financial Officer A. Michiel Meurs ( Meurs ) initiated arbitration proceedings against Ahold in relation to the determination of their alleged severance package as a result of their separation from the Company in February On October 5,, Ahold announced that it had entered into settlements with Van der Hoeven and Meurs. The settlement with Van der Hoeven and Meurs comprised two elements: (i) Van der Hoeven and Meurs have unconditionally waived all claims which they had made in the arbitration proceedings in amounts of, respectively, more than EUR 4.5 and more than EUR 2 and (ii) Van der Hoeven will pay an amount of EUR 5 to Ahold and Meurs will pay an amount of EUR 0.6 to Ahold. The arbitration proceedings referred to above have been terminated. In the litigation against Ahold and others started in February 2004 by James L. Miller ( Miller ), former Chief Executive Officer of U.S. Foodservice, before the U.S. District Court for the District of Maryland, Northern Division (the Federal Court ), Mr. Miller asserted various causes of action in connection with U.S. Foodservice s termination of his employment as of October 1, 2003 and he is seeking compensatory damages of USD 10 (EUR 7) and other relief, which is described in more detail in Ahold s Annual Report. The Federal Court has scheduled a trial beginning on November 26,. Director & Officer liability insurance On February 24, 2003 Ahold announced that it would be restating its financial position and results for the years 2001 and 2000 as a result of certain accounting irregularities at U.S. Foodservice, the improper consolidation of certain of Ahold s joint-venture subsidiaries and certain other accounting-related matters (the February 24 Announcement ). Following the February 24 Announcement, a number of insurance coverage disputes arose between Ahold and its D&O insurers, some of which led to litigation or arbitration. In 2004, 2005 and, Ahold reached settlements with all but two of its excess D&O insurers. In August and September respectively, Ahold settled with the two remaining excess D&O insurers, resulting in Ahold receiving USD 10.6 (EUR 7.7) in total of insurance proceeds. As a result, the corresponding litigation before the District Court of Haarlem, the Netherlands, has been terminated. Uruguayan and Argentine litigation Ahold, together with Disco S.A. ( Disco ) and Disco Ahold International Holdings N.V. ( DAIH ), is a party to certain legal proceedings in Uruguay and Argentina related to Ahold s acquisition of Velox Retail Holdings shares in the capital of DAIH in The plaintiffs, alleged creditors of certain Uruguayan and other banks which were associated with the family that controlled Velox Retail Holdings, obtained provisional remedies in Uruguay, which were executed in Argentina and prevented the sale and transfer of the remaining 15 percent of the outstanding shares of Disco (the Remaining Shares ) to Cencosud S.A. ( Cencosud ). 15

16 Condensed consolidated interim financial statements First three quarters On September 20, Disco and DAIH obtained a favorable court ruling in Argentina in the only remaining legal proceeding that affected the transfer of the Remaining Shares. As a consequence on October 5,, Ahold received from escrow the purchase amount for the Remaining Shares and on October 19,, the Remaining Shares were transferred to Cencosud. As a result, the sale of Disco to Cencosud, as announced on March 5, 2004, and November 1, 2004, has been finalized. The ruling in Argentina, which provided relief from the provisional remedies, does not directly affect the trials on the merits of these proceedings, which are expected to continue and are still in their initial stages. The damages alleged by the plaintiffs in the remaining proceedings amount to approximately USD 72 (EUR 51) plus interest and costs. As part of the sale of Disco to Cencosud in 2004, Ahold has indemnified Cencosud and Disco against the outcome of these legal proceedings. Ahold continues to believe that these legal proceedings are without merit and will continue to vigorously oppose the plaintiffs claims. D&S c.s. litigation On August 22,, the Joint Court of Appeals of the Netherlands Antilles and Aruba upheld the judgment of the Court of First Instance in the Netherlands Antilles of September 5, 2005, in which all claims initially filed in 2003 by Distribucion y Servicio D&S S.A. ( D&S ) and Servicios Profesionales y de Comercializacion S.A. (together with D&S, D&S c.s. ) against DAIH were dismissed. D&S c.s. sought payment of approximately USD 47 (EUR 36) plus interest in connection with Disco s acquisition in 2000 of Supermercados Ekono S.A. ( Ekono ), which owned supermarkets in Argentina. Since D&S c.s. has not appealed with the Dutch Supreme Court within the set term, this judgment is now firm. On April 26, 2005, D&S initiated legal proceedings in relation to the aforementioned claim against Ahold before the District Court of Haarlem in the Netherlands, seeking a similar amount in damages. On May 30,, the District Court of Haarlem in its judgment decided against D&S and dismissed its claim against Ahold. According to a notice received on August 29,, D&S has appealed against this judgment with the Court of Appeals in Amsterdam. D&S has taken initial steps to start arbitration proceedings against Disco in Argentina, but has to date not substantiated its claim against Disco. An arbitration panel has not been appointed yet. Disco believes it has meritorious defenses in these proceedings. As part of the sale of Disco to Cencosud in 2004, Ahold has indemnified Cencosud and Disco against this claim from D&S. Waterbury litigation In October, a putative class action was filed against U.S. Foodservice by Waterbury Hospital, Cason, Inc., and Frankie's Franchise Systems Inc. in relation to certain U.S. Foodservice pricing practices (the "Waterbury Litigation"). As previously disclosed, two additional putative class actions were filed in August by customers of U.S. Foodservice, Catholic Healthcare West and Thomas & King, Inc., in the U.S. District Courts for the Northern District of California and the Southern District of Illinois, respectively. These two new actions involve the same pricing practices as those in the Waterbury Litigation. The new actions also name Ahold and two individuals as defendants. The new actions have been stayed pending a ruling by the Judicial Panel on Multidistrict Litigation on whether to consolidate such actions with the Waterbury litigation. Commitments and contingent liabilities Sale of U.S. Foodservice Indemnifications In connection with the sale of U.S. Foodservice, which closed on July 3, (the Completion ), Ahold indemnified U.S. Foodservice against damages incurred after the Completion relating to matters including (i) the putative class actions filed in October and August and referred to above under Waterbury litigation and any actions that might be brought by any current or former U.S. Foodservice customers that concern the pricing practices at issue in such litigation for sales made by U.S. Foodservice prior to the Completion and (ii) the previously disclosed investigation commenced by the Civil Division of the U.S. Department of Justice into U.S. Foodservice s pricing practices for sales made to the U.S. Government prior to the Completion. Rent commitments The aggregate amount of Ahold s minimum rental commitments to third parties (net of sublease income) under noncancelable operating lease contracts was EUR 6,064 as of December 31,. Of this amount, EUR 289 related to U.S. Foodservice. 16

17 Condensed consolidated interim financial statements First three quarters Multi-employer pension plans Ahold s estimated proportionate share of the total unfunded liabilities of the multi-employer pension plans it participates in amounted to EUR 614 as of January 1, 2005 (the latest date as of which reliable information is available). Of this amount, EUR 100 related to U.S. Foodservice. ICA tax claim The Swedish Tax Agency has denied interest deductions claimed by ICA for interest on borrowings to an Irish subsidiary of nearly SEK 1.8 billion (EUR 195) for the period The Swedish Tax Agency s claim amounts to SEK 705 million (EUR 77), including penalties and interest. The Irish subsidiary s operations were wound up in ICA believes that the deductions were in compliance with tax rules. ICA is contesting the claim and penalties and has appealed the decision to the County Administrative Court. The Swedish Tax Agency has also conducted an audit of the restructuring of the ICA Group s finance operations in July The Swedish Tax Agency has issued a statement to the County Administrative Court that ICA should be denied interest deductions of SEK 1.7 billion (EUR 185) claimed in ICA believes that the deductions were made in compliance with tax rules and has contested the Swedish Tax Agency s claim. The Swedish Tax Agency has also informed ICA that it intends to issue a statement to the County Administrative Court regarding, where the interest deductions in question amounted to SEK 1.1 billion (EUR 119). The total contingent liability, consisting of taxes, penalties and interest, amounts to SEK 1.5 billion (EUR 167). A complete overview of commitments and contingencies as of December 31, is included in Note 34 to Ahold s consolidated financial statements. 13 Subsequent events Sale of Tops Markets On October 11,, Ahold announced it had reached an agreement on the sale of Tops Markets, LLC to Morgan Stanley Private Equity in a transaction valued at USD 310 (EUR 219). The final purchase price is subject to customary price adjustments. Closing of the transaction is expected in the fourth quarter of this year subject to the fulfillment of customary closing conditions, including receipt of regulatory approvals and a financing condition. Lease obligations will remain with Tops although Ahold will retain contingent liability for the majority of these obligations. Store remodeling program Giant-Landover On October 25,, Ahold announced a major three-year investment plan to remodel or replace approximately 100 Giant Food supermarkets in Delaware, Maryland, Virginia and Washington DC. Appointment John Rishton as President and CEO and Kimberly Ross as CFO On November 16,, Ahold announced the appointment of John Rishton as President and CEO and Kimberly Ross as CFO. Share buyback program On November 20, Ahold completed the EUR 1 billion share buyback program, announced on August 30,. Reinstatement of annual dividend On November 21,, Ahold announced its intention to reinstate an annual dividend on its common shares. The proposed dividend for the financial year will be announced with the Company s full-year results on March 6, Retail activities in Slovakia On November 21,, Ahold announced that it would continue to operate in Slovakia. 17

18 Other financial and operating information First three quarters Identical 1 / comparable 2 sales growth (% year over year) identical comparable identical comparable Stop & Shop 0.8% 1.3% 1.2% 1.7% Giant-Landover (1.3%) (1.1%) (1.8%) (1.6%) Giant-Carlisle 3.3% 4.9% 2.5% 3.7% Albert Heijn 3 7.5% 7.3% Albert / Hypernova 5.5% 7.4% Schuitema 1.1% 0.4% 1. Net sales from exactly the same stores in local currency. 2. Identical sales plus net sales from replacement stores in local currency. Comparable sales are only reported for Ahold s US retail companies. 3. Identical sales represent the identical sales of Albert Heijn supermarkets. Operating margin Operating margin is defined as operating income as a percentage of net sales. For a discussion of operating income, see note 3 to the interim financial statements included in this report. Stop & Shop / Giant-Landover 4.2% 5.4% 4.0% 4.4% Giant-Carlisle 4.6% 4.6% 3.9% 3.8% Albert Heijn 6.9% 5.8% 7.3% 6.7% Albert / Hypernova (0.4%) (3.9%) (1.4%) (8.3%) Schuitema 2.3% 2.8% 2.6% 1.7% Total retail 4.5% 4.7% 4.5% 4.0% Store portfolio 1 openings closings End of Stop & Shop / Giant-Landover 9 (22) 562 Giant-Carlisle Albert Heijn 2 45 (22) 1,734 Albert / Hypernova - (2) 319 Schuitema 6 (16) 448 Total retail 61 (62) 3, Including franchise stores and associated stores, excluding discontinued operations. 2. Number of stores at the end of the quarter includes 989 specialty stores (Etos and Gall & Gall). 18

19 Other financial and operating information First three quarters EBITDA EBITDA is defined as net income before net financial expense, income taxes, depreciation and amortization. EBITDA does not exclude impairments. Impairments per segment are disclosed in note 4 to the interim financial statements included in this report. YTD YTD % change % change Stop & Shop / Giant-Landover (19.2%) (12.0%) Giant-Carlisle % % U.S. retail 882 1,039 (15.1%) (9.6%) Albert Heijn % % Albert / Hypernova % 6 (12) 150.0% Schuitema (5.5%) % Europe retail % % Corporate Center (75) (95) 21.1% (22) (28) 21.4% Unallocated (20) (31) 35.5% (4) (9) 55.6% 1,446 1, % % Share in income of joint ventures (12.3%) (11.7%) Income from discontinued operations 2, n/m (21) 33 (163.6%) Total EBITDA 3,649 1, % (4.2%) Net debt October 7, July 15, % change Loans 2,876 2,908 (1.1%) Finance lease liabilities 1,039 1,055 (1.5%) Cumulative preferred financing shares Non-current portion of long-term debt 4,412 4,460 (1.1%) Loans, short-term borrowings and finance lease liabilities current portion 1,482 1,502 (1.3%) Gross debt 5,894 5,962 (1.1%) Less: cash and cash equivalents 1 3,750 7,040 (46.7%) Net debt 2,144 (1,078) n/m 1. Book overdrafts, representing the excess of total issued checks over available cash balances within the Group cash concentration structure, are classified in accounts payable and do not form part of net debt. Net cash book overdrafts amounted to EUR 128 and EUR 131 as of October 7, and July 15,, respectively. 19

20 Other financial and operating information First three quarters Use of non-gaap financial measures The reconciliation from EBITDA to net income for Ahold consolidated and to operating income per segment is as follows for the first three quarters of and, respectively: EBITDA Depreciation and amortization Operating income Net financial expense Income taxes Net income Stop & Shop / Giant-Landover 703 (302) 401 Giant-Carlisle 179 (67) 112 U.S. retail 882 (369) 513 Albert Heijn 524 (112) 412 Albert / Hypernova 32 (37) (5) Schuitema 103 (45) 58 Europe retail 659 (194) 465 Corporate Center (75) (2) (77) Unallocated (20) - (20) 1,446 (565) 881 (258) (143) 480 Share in income of joint ventures Income from discontinued operations 2,096 2,096 Ahold Group 3,649 (565) (258) (143) 2,683 EBITDA Depreciation and amortization Operating income Net financial expense Income taxes Net income Stop & Shop / Giant-Landover 870 (326) 544 Giant-Carlisle 169 (62) 107 U.S. retail 1,039 (388) 651 Albert Heijn 415 (104) 311 Albert / Hypernova 5 (45) (40) Schuitema 109 (42) 67 Europe retail 529 (191) 338 Corporate Center (95) (2) (97) Unallocated (31) - (31) 1,442 (581) 861 (361) (102) 398 Share in income of joint ventures Income from discontinued operations Ahold Group 1,719 (581) (361) (102)

21 Other financial and operating information First three quarters The reconciliation from EBITDA to net income for Ahold consolidated and to operating income per segment is as follows for the third quarter of and, respectively: EBITDA Depreciation and amortization Operating income Net financial expense Income taxes Net income Stop & Shop / Giant-Landover 198 (89) 109 Giant-Carlisle 46 (19) 27 U.S. retail 244 (108) 136 Albert Heijn 167 (35) 132 Albert / Hypernova 6 (11) (5) Schuitema 33 (14) 19 Europe retail 206 (60) 146 Corporate Center (22) (1) (23) Unallocated (4) - (4) 424 (169) 255 (29) (44) 182 Share in income of joint ventures Income from discontinued operations (21) (21) Ahold Group 456 (169) (29) (44) 214 EBITDA Depreciation and amortization Operating income Net financial expense Income taxes Net income Stop & Shop / Giant-Landover 225 (95) 130 Giant-Carlisle 45 (19) 26 U.S. retail 270 (114) 156 Albert Heijn 137 (30) 107 Albert / Hypernova (12) (14) (26) Schuitema 25 (13) 12 Europe retail 150 (57) 93 Corporate Center (28) (1) (29) Unallocated (9) - (9) 383 (172) 211 (99) Share in income of joint ventures Income from discontinued operations Ahold Group 476 (172) (99)

22 Other financial and operating information First three quarters This interim financial report includes the following non-gaap financial measures: 1. Identical sales. Identical sales are net sales from exactly the same stores in local currency for the comparable period. Management believes that by excluding the impact of newly opened stores and currency fluctuations, this measure provides a meaningful insight for investors into the operating performance of Ahold s retail companies. 2. Comparable sales. Comparable sales are identical sales plus net sales from replacement stores in local currency for the comparable period. Management believes that comparable sales is a useful measure for investors. It is management s view that by excluding the impact of newly opened stores (except for replacement stores) and currency fluctuations, this measure provides useful additional information for investors on the operating performance of Ahold s U.S. retail companies. 3. EBITDA. EBITDA is net income before net financial expense, income taxes, depreciation and amortization. Management believes that EBITDA is a useful performance measure for investors. EBITDA is commonly used by investors to analyze profitability between companies and industries by eliminating the effects of financing (i.e., net financial expense) and capital investments (i.e., depreciation and amortization). 4. Net debt. Net debt is the difference between (i) the sum of long-term debt and short-term debt (i.e., gross debt) and (ii) cash and cash equivalents. Management believes that net debt is a useful measure for investors. In management s view, because cash and cash equivalents can be used, among other things, to repay indebtedness, netting this against gross debt is a useful measure of Ahold s leverage. Net debt may include certain cash items that are not readily available for repaying debt. Management believes that these non-gaap financial measures allow for a better understanding of Ahold s operating and financial performance. These non-gaap financial measures should be considered in addition to, but not as substitutes for, the most directly comparable IFRS measures. 22

23 First three quarters Forward-looking statements notice Certain statements in this interim financial report are forward-looking statements within the meaning of the U.S. federal securities laws. Ahold intends that these forward-looking statements be covered by the safe harbors created under such laws. These forward-looking statements include, but are not limited to, statements as to Ahold s intention to divest its stake in JMR, plans to continue retail activities in Slovakia, the expected timing of the completion of the sale of Tops, the expected increase in net sales in the fourth quarter of each year and the reasons therefore, the expected timing of the remodeling program of Giant stores, the expected number and location of Giant stores involved in the remodeling program, the expected reinstatement of an annual dividend and the expected date of announcement of the proposed dividend for. These forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from the future results expressed or implied by the forward-looking statements. Many of these risks and uncertainties relate to factors that are beyond Ahold s ability to control or estimate precisely, such as Ahold s ability to complete planned divestments on terms acceptable to Ahold, the ability to satisfy, or delays in satisfying, closing conditions to such divestments, the actions of Ahold s customers, competitors, courts and other third parties, Ahold s liquidity needs exceeding expected levels, the effect of general economic or political conditions, fluctuations in exchange rates or interest rates, increases or changes in competition, Ahold s ability to implement and complete successfully its plans and strategies and to meet its targets, the benefits from Ahold s plans and strategies being less than those anticipated, the costs or other results of legal proceedings and other factors discussed in Ahold s public filings. Many of these and other risk factors are detailed in Ahold s publicly filed reports. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this interim financial report. Ahold does not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this interim financial report, except as may be required by applicable securities laws. Outside the Netherlands, Koninklijke Ahold N.V., being its registered name, presents itself under the name of Royal Ahold or simply Ahold. 23