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Ahold: U.S. Foodservice Continues Recovery

Its American subsidiary based in Columbia, MD, the second largest foodservice distributorship in the U.S., which accounts for 30% of Ahold's sales, reported operating income of 43 million euros ($53 million), up from 39 million euros ($48.4 million) a year earlier, Ahold reported, according to European and American news agencies.

Chief Executive Anders Moberg said this showed progress for restructuring at the troubled foodservice distribution network.

In 2003, Ahold disclosed that it had overstated its earnings by more than $1 billion between 2000 and 2002, mainly at U.S. Foodservice. The scandal drove the company to the brink of bankruptcy. Ahold has since recovered by selling operations, cutting debt and tightening financial controls.

Ahold has maintained that it is "optimistic" about U.S. Foodservice's future and does not plan to sell the unit. Ahold said at today's meeting it would announce a strategic plan for the unit's future in November. Ahold said in 2003 that it would take 18 to 24 months to get U.S. Foodservice's finances in order and see significant performance improvements.

Net sales at U.S. Foodservice, in U.S. dollars, fell by about 2.7%, officials said. The decision to exit some business segments, such as its Sofco distributor of janitorial, health care, industrial packaging and paper products, affected sales by about 3%, the company said.

U.S. Foodservice's gross margin for the first half of 2005 has risen by a percentage point from full year 2003, officials said. Ahold said it expects adjusted operating margins at the distributorship would exceed 1.7% by no later than 2006.

Ahold simultaneously projected that it would have trouble reaching its corporate growth targets for next year while analysts expressed disappointment with its current results.

Ahold reported profits of 130 million euros (US$162 million) for the second quarter of this year, compared with a loss of 28 million euros (US$34.8 million) in the same period last year. Net sales fell nearly 1% to 10.4 billion euros (US$13 billion), mainly due to the declining dollar.

Moberg explained the decline in sales by calling the American retail environment "very challenging," especially amid competition from Wal-Mart Stores, Inc. Ahold reportedly acquires about 70% of its annual revenue from America, where the company is losing customers to price-cutting rivals.

"We're working hard to deliver our targets but the recent events in the U.S. will have an impact on the economy and impact on consumer behavior," Moberg observed. "And sometimes there are things that happen in the outside world that we cannot influence."

The latest Ahold report also said debt was reduced by 400 million euros (US$496.7 million) to 6.1 billion euros (US$7.6 billion) at the end of the second quarter.

Moberg said the company has chosen a successor to Hannu Ryopponen, cfo, but declined to reveal the name for two weeks.

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