Management's discussion & analysis

In this section we will discuss in particular the following:

• significant factors affecting our results of operations and financial position;
• our results of operations on a consolidated basis and then on a business segment basis;
• our liquidity and capital resources;
• our contractual obligations;
• our off-balance sheet arrangements;
• our critical accounting policies and estimates;
• future accounting changes; and
• our risk management and use of financial instruments and derivatives.

We are an international group of food retail and foodservice companies that operate in the U.S. and Europe. The following charts set forth information regarding our consolidated net sales by business area and by geographical area for 2005:

The following market factors and trends affect us and our competitors in the markets where we operate:

• Increased labor expense. The rate of increase for health care, pension and insurance costs in the U.S. is outpacing the rate of growth of food retail and foodservice industry sales.
• Competition. The food retail industry in the U.S. and Europe remained extremely competitive in 2005. Promotional activity by traditional supermarket competitors remained at high levels throughout the year while competition with alternative retail formats continued to intensify in our markets. The food retail industry has relatively low profit margins in general. Increased price competition is putting additional pressure on already low profit margins. Conventional supermarkets are experiencing erosion of their markets because of customers shifting to alternative retail formats, natural and organic food, "food-away-from-home" and, in the U.S., fewer customer visits per year and lower average sales per transaction. The foodservice industry in the U.S. is also competitive, as competitors continue to make significant investments in improving operating efficiencies. We expect that these markets will continue to be competitive.
• Foodservice industry growth. The foodservice market in the U.S. continues to experience a positive growth trend as consumer food purchases continue to shift toward "food-away-from-home." Foodservice industry growth, however, is skewed toward growth in the less profitable multi-unit customer segment.
• Pressure on foodservice profit margins. The rapid fluctuation of costs for foodservice resale products impacts profit margins when those fluctuations cannot be passed along to customers on a timely basis. In addition, increased pressure on pricing will continue from large customers and cooperative buying groups based upon their purchasing volume.
• Transportation cost increases. Profit margins and operating expenses are being pressured by increases in transportation costs, reflecting high fuel prices and increases in energy costs that exceed the rate of food price inflation. The increase in fuel costs has also eroded the purchasing power of consumers which has had a negative impact on sales of food.

Significant factors affecting our results of operations and financial position

Our results of operations and financial position have been impacted by the following significant factors relating specifically to our Company:

The agreements to settle the securities class action and litigation with the VEB

In November 2005, we entered into an agreement to settle the securities class action suits (the "Securities Class Action") arising out of the events announced on February 24, 2003. Under the terms of the agreement, the lead plaintiffs agree to settle all claims against Ahold for the sum of USD 1.1 billion (EUR 937 million). This amount includes USD 9 million (EUR 8 million) as compensation to the VEB for facilitating the global settlement. The settlement covers Ahold, its subsidiaries and affiliates, the individual defendants and the underwriters. As a result of the settlement, we recorded a charge in operating income in 2005 of EUR 803 million, which includes insurance proceeds.

In January 2006, the U.S. District Court for the District of Maryland granted preliminary approval of our agreement with the lead plaintiffs to settle the Securities Class Action. The court also granted certification of the settlement class. The settlement is conditioned on final approval of the same court. With this settlement we have dealt with the last outstanding material litigation with significant financial exposure arising out of the events of 2003.

We also reached an agreement to settle the litigation with the VEB, pursuant to which VEB has terminated certain legal proceedings relating to our annual financial statements for the years 1998 through 2002.

For a further discussion of these settlements, see Note 35 to our consolidated financial statements included in this annual report.

The events of 2003

In our 2002 annual report, we restated our financial position and results of operations for 2001 and 2000 as a result of the events we announced on February 24, 2003. In response to these events, governmental and regulatory authorities initiated civil and criminal investigations into Ahold and some of our subsidiaries and former officers. Numerous civil lawsuits and legal proceedings also were filed in the U.S. and in the Netherlands naming Ahold and certain of our current and former directors, officers and employees as defendants. For a further discussion of these investigations, legal proceedings and related settlement agreements, see Note 35 to our consolidated financial statements included in this annual report.

Additional factors affecting our results of operations and financial position

The additional week in 2004 also had a significant impact on our results of operations in 2005. Our 2005 results compared to 2004 were negatively affected by the fact that 2004 on a consolidated basis and for many of our operations consisted of 53 weeks, while 2005 consisted of 52 weeks. This is not applicable for Ahold's operations in the Central Europe Arena and the joint ventures and associates. The financial year for these entities corresponds to the calendar year. For a discussion of our financial years, including year-end dates, see "General information" in this annual report. For a reconciliation of net sales excluding week 53 of 2004, see "Reconciliation of non-GAAP financial measures" below. Our retail business generally experiences an increase in net sales in the fourth quarter of each year (which in 2004 included week 53), primarily as a result of the holiday season.

The following discussions include "forward-looking statements" that involve risks and uncertainties that are discussed more fully in "Risk factors" and "Forward-looking statements notice." Actual results could differ materially from future results expressed or implied by the forward-looking statements.

Road to Recovery 2003 - 2005

In 2003, we announced a three-year financing plan and strategy to restore the value of our Company. The plan and strategy focused on four key areas: (1) restoring our financial health; (2) re-engineering our retail business; (3) recovering the value of U.S. Foodservice; and (4) reinforcing accountability, controls and corporate governance.

Restoring our financial health

Since November 2003, we have taken numerous steps to strengthen our financial position and flexibility. We raised approximately EUR 2.9 billion in net equity proceeds, reduced gross debt by approximately EUR 5.8 billion, negotiated a new, unsecured syndicated EUR 2 billion credit facility with more favorable terms and conditions than the prior facility, completed divestments for cash consideration and assumed debt totaling EUR 3.1 billion. As a result of our efforts, we have improved our liquidity, strengthened our balance sheet and better positioned ourselves for the future by divesting non-core and under-performing assets.

Our overall financial recovery is on track. We closed 2005 with EUR 2.2 billion of total cash balances and we reduced gross debt by 22.7% (EUR 2.3 billion) during 2005. The lower average outstanding debt balances, lower average cost of debt and lower banking fees contributed to lower net interest expense in 2005 than 2004. Our financial health is steadily improving and we remain committed to meeting what we understand to be the criteria for investment grade rating from the two applicable rating agencies.

Improved liquidity and stronger balance sheet

The lower average outstanding debt balances, lower average cost of debt and lower banking fees contributed to lower net interest expense in 2005 than 2004. In June 2005, Ahold Finance USA redeemed its EUR 1.5 billion notes. In October 2005, we successfully closed solicitations to sell selected outstanding notes of Ahold which decreased our indebtedness by approximately EUR 1 billion equivalent, which will further reduce our annualized net interest expense going forward. We also made a voluntary funding of EUR 236 million to our pension program in the U.S. These transactions all utilized available cash balances. Our improved liquidity position and stronger balance sheet enabled us in February 2005 to terminate our three-year revolving December 2003 credit facility (the "December 2003 Credit Facility"). In May 2005, Ahold signed a new five-year EUR 2 billion unsecured syndicated multi-currency credit facility (the "May 2005 Credit Facility") with a syndicate of banks having more favorable terms and conditions than the December 2003 Credit Facility. The new credit facility is intended to be used for general corporate purposes and for the issuance of letters of credit and remained undrawn except for EUR 588 million (USD 696 million) utilized for letters of credit at the end of 2005. For further details and information, see Note 26 to our consolidated financial statements included in this annual report and "Liquidity and capital resources - Assessment of liquidity and capital resources."

Divestment program

In 2003, we announced our intention to generate at least EUR 2.5 billion of gross proceeds by divesting non-core businesses and under-performing assets by the end of 2005. For these purposes, "gross proceeds" means cash consideration and assumed debt. We have succeeded in our mission and by the end of 2005, the aggregate gross proceeds from the divestments amounted to EUR 3.1 billion. Of this amount, EUR 1.6 billion was generated in 2005, EUR 1.1 billion in 2004 and EUR 0.4 billion in 2003 resulting in net cash from the divestment of consolidated subsidiaries of EUR 1,058 million in 2005, EUR 978 million in 2004 and EUR 284 million in 2003. We applied the cash received from our divestments to reduce indebtedness and, in January 2006, to pay litigation claims. The tables below summarize the status of our divestment program through January 1, 2006.

Gross proceeds from divestment program 2003 through January 1, 2006:

We incurred a gain on divestments of EUR 172 million in 2005 and a gain on divestments of EUR 238 million in 2004. For additional information, see Note 12 to our consolidated financial statements included in this annual report. Our divestments of these non-core and under-performing assets will have, in the aggregate, a positive impact on our operating income as a percentage of net sales in subsequent years.

Other divestments

Outside the scope of the divestment program discussed above, we are also in the process of disposing of assets that no longer meet our criteria for investment. These divestments form part of our ordinary business and include the divestments of U.S. Foodservice's specialty distributor Sofco, 31 Tops stores located in eastern New York and the Adirondacks region, three shopping centers in Poland and the Czech Republic and two distribution facilities and one dairy processing plant in the U.S. For additional information, see Note 12 to our consolidated financial statements included in this annual report.

Re-engineering our retail business

Arena organizational structure

We have reorganized our food retail companies into arenas to integrate back office functions and gain synergies. In this way, we can achieve economies of scale while continuing to operate using local brands, pricing and product assortment. We have also reinvested in many of our stores to maintain and improve our market position.

The arena structure promotes effective management and harmonization. The arena structure also allows us to more effectively take advantage of opportunities in the areas of sourcing, information technology, supply chain, store operations and operational alignment and thereby streamlining our infrastructure. Our U.S. arenas have centralized certain common functions into integrated support service organizations. Each arena is headed by a CEO, who reports directly to the Ahold President and CEO.

Retail portfolio strategy

Our strategy for our food retail business is to focus on format, location and competitive position. We are focused on the supermarket format in Europe and the U.S. Our objective for our companies is for them to have or to be capable of achieving a sustainable and profitable number one or number two position in their respective markets within three to five years. If we own assets that do not fit our criteria for store format, geographic region, market position, profitability and adequate returns on capital invested, our strategy has been to evaluate divestment opportunities. Following the completion of our divestment program, our retail portfolio strategy is focused on integration and concentrated, smaller "add-on" or "fill-in" acquisitions.

On August 1, 2005 we announced our plans to grow our business in key markets through selective acquisitions. On the same day we announced the acquisition of up to 67 stores from Julius Meinl a.s. in the Czech Republic. As of March 28, 2006, we have acquired 59 of these stores.

Improving our competitive position

In November 2003, we launched a program of strategic business cost saving initiatives aimed at improving our competitiveness. These initiatives are expected to lower costs related to sourcing, information technology, supply chain and store operations. Our arenas and operating companies share responsibility for the initiatives together with our Business Support Office (the "BSO"). The BSO, which was established in connection with the launch of the cost savings program in 2003, facilitates the development of the various initiatives.

Through these initiatives, our goal is to achieve aggregate gross cost savings of approximately EUR 650 million by the end of 2006. We plan to reinvest a portion of these cost savings in strengthening our value and service proposition. We have incurred and will continue to incur significant one-time costs related to the 2003 cost savings program.

Recovering the value of U.S. Foodservice

We introduced a three-step program in 2003 to restore the value of U.S. Foodservice as part of our Road to Recovery strategy. The three steps are: (1) improving internal controls and corporate governance; (2) restoring profitability and cash flow; and (3) pursuing profitable sales growth. We have already made significant progress and have implemented a number of initiatives and changes at U.S. Foodservice to clarify accountability, improve our internal controls and strengthen our corporate governance. In 2004 we implemented a comprehensive plan focusing on organizational improvements, procurement enhancements, operational and system improvements at U.S. Foodservice in order to restore profitability and cash flow. In 2005, U.S. Foodservice continued to execute these initiatives which resulted in improved operating income, and in November of the same year announced a new long-term strategy, which is discussed below under "Overview of our U.S. Foodservice strategy."

Reinforcing accountability, controls and corporate governance

As part of our Road to Recovery strategy, we have implemented numerous initiatives and changes to clarify accountability, improve our internal controls and strengthen our corporate governance. We have concluded that as of the end of the period covered by this annual report, the two material weaknesses reported in our 2004 annual report no longer exist. For additional information, see "Corporate governance" and "Internal control" above.

2006 and onward

Overview of our retail strategy

We have defined a growth strategy for 2006 and onwards based on core values that our operating companies share and core capabilities that we are improving. Our core values are rooted in Ahold's heritage and reflect our ambitions for the future. Increasing the focus on our core capabilities will help us build upon what we do best and differentiate us from the competition.

Our business model

The strategies of our companies are based on one shared business model. It is designed to enable our group of companies to apply relentless efficiency and simplicity to everything we do. By working as one team we benefit from group synergies and innovation that serve to further reduce costs. Improving our efficiencies and lowering our cost base enable us to invest in providing our customers better value for money and an easier shopping experience.

The intention is to drive our sales volumes. We generate cash that can be invested in new stores, new stores and innovation. The cash we generate can be used for acquisitions in both the retail and foodservice businesses to enhance our position in certain markets. The overall goal is to make our offering more appealing for customers, improve our bottom line and create value for our shareholders.

Our value repositioning programs at Albert Heijn and ICA Sverige have been successful to date, which has increased our net sales and improved our ability to compete. The value repositioning program is based on our business model of lowering costs, investing the savings in value (including price and customer offering), creating cost leverage in order to sustain our price strategy over time and thereby driving our net sales volumes to generate cash proceeds which can be invested in our business. In order to support our value repositioning programs, we are continuing our strategic business cost savings initiatives to improve competitiveness and, ultimately, net sales and profitability. These initiatives are expected to lower costs related to sourcing, information technology, supply chain and store operations.

We plan to implement an arena-wide value improvement program at both Stop & Shop and Giant-Landover. Starting in 2006, this program will be implemented over the next three years in phases applying a product category-by-category approach. This program has similar objectives to the value repositioning program that we have successfully implemented at Albert Heijn and ICA. However, the starting points and competitive environments are different and we have designed the value improvement program specifically for the region and the market of the Stop & Shop/Giant-Landover Arena to help us compete effectively with the supermarkets and alternative outlets of our competitors.

Next generation sourcing

Sourcing and category management teams have been established to support two of our core capabilities and important focus areas for increasing our competitive strength in the future. The BSO and teams from Albert Heijn, the Central Europe Arena and ICA are working together to start "Next Generation Sourcing" for selected product categories. This initiative will enable us to critically analyze the whole value chain from raw materials to our store shelves, identify cost savings and find ways to optimize the value we deliver to our customers. Strategic sourcing methods will be integrated in day-to-day sourcing and the alignment between sourcing and category management teams will be improved. In 2006, we will start the initiative by creating a common organizational platform for central sourcing of selected private label products.

General merchandise

We plan to introduce a family-focused range of homewares in the first half of 2007 in our retail arenas. This range of non-food merchandise will initially include kitchen items and glassware, but will be extended gradually to include other general merchandise categories which will accompany our existing food offering. To support this initiative, a global sourcing structure will be developed. Our ambition is to expand our general merchandise sales within a multi-year period by developing a design-driven, affordable and profitable global range of such products selected investments will be made in our store portfolio to support an attractive offering of general merchandise to our customers.

IT outsourcing agreements

In November 2005, we signed several major IT outsourcing agreements, including a five-year contract for global IT enterprise outsourcing with EDS, including applications maintenance services in the U.S. We also signed five-year agreements with Atos Origin and NCR (both covering the Albert Heijn Arena) for applications maintenance and in-store IT-support, respectively. Expected total costs during the five-year term of the outsourcing agreements is approximately EUR 467 million based on expected levels of services. Subject to termination charges, we may terminate each of the agreements by giving our outsourcing partner six months notice. Approximately 450 Ahold employees located in the U.S. and the Netherlands are expected to transition to EDS. These IT outsourcing initiatives are expected to reduce overall IT costs by streamlining our infrastructure, improve support to the arenas and facilitate our ongoing harmonization initiative across the business. The transition costs related to these initiatives will almost completely be incurred in 2006.

Category management / Learning organization

Being highly skilled in category management and understanding our customers enables us to provide them with a more targeted range and assortment with products and services in a cost-efficient and convenient way. Our retail strategy is supported by our company-wide ambition to build a learning organization that encourages knowledge exchange to leverage our expertise wherever possible.

Initiatives including value repositioning, optimizing the supply chain, developing new store formats and improving private label penetration are supported by the execution of our business model in our retail arenas.

In 2005, competitive and operating cost pressures in our retail markets were greater than expected and the turnaround at certain of our businesses was slower than planned. The financial targets we originally set for retail in 2003 have become increasingly challenging. Based on the retail trends we have seen so far in 2006, we expect our retail net sales growth in 2006 to be between 2.5% and 3.0% (assuming constant currency exchange rates and excluding divestments made in 2005). In addition, we expect that our retail operating margin will be between 4.0% and 4.5% in 2006. Our overall priority remains to drive net sales growth and achieve a retail operating margin of 5%.

Our capital expenditure for the food retail arenas is expected to be approximately 4% of net retail sales for 2006 with a continued focus on the Stop & Shop/Giant-Landover Arena.

Overview of our U.S. Foodservice strategy

Pursuing profitable sales growth

In November 2005, we announced our strategic plan focused on pursuing profitable sales growth at U.S. Foodservice. The strategic plan includes the following initiatives:

Improving customer focus and organizational effectiveness by creating two separate operating companies

Starting in 2006, U.S. Foodservice was split into two separate operating companies, each of which serves a different customer segment:

• "Broadline" that serves independent restaurants, healthcare providers, hospitality customers, governmental entities, educational institutions and other foodservice customers.
• "Multi-Unit" that serves primarily national and regional casual dining and quick service restaurant chains.

The reorganization of U.S. Foodservice into these two operating companies is intended to drive greater focus on the specific needs of each of these different businesses and to provide stakeholders with greater transparency into U.S. Foodservice's progress in achieving its targets. Ahold will change its segment reporting to reflect these changes in financial reporting starting in the first quarter of 2006.

Broadline strategy

The Broadline strategy is based on four core initiatives that are intended to drive a balance of top-line net sales growth, bottom-line profit improvement and operational excellence:

• New private brands model. To accelerate the growth and increase the penetration of its private brands offered to Broadline customers, U.S. Foodservice is embracing a new business model by establishing a centralized, dedicated private brands organization. This new organization, named "Monarch Foods," is responsible for the entire private brands value chain, including product development, sourcing, quality assurance and marketing. As part of the new private brands growth strategy, the current portfolio of over 60 private brands will be consolidated into approximately 20 strong private brands, supported by an aggressive plan for new product introductions.
• Field sales investment. To drive profitable sales growth, U.S. Foodservice intends to increase the number of its Broadline sales representatives by 10% during the next two years with more significant increases in selected geographies. As of January 1, 2006, the number of sales representatives totaled 4,850. To increase the effectiveness of this field sales force, U.S. Foodservice is deploying new proprietary laptop-based sales tools and expanding its sales training capability, with particular focus on building field sales expertise in its private brands offering.
• Enhancing local position in selected geographies. To further improve its scale in certain geographical areas, U.S. Foodservice consolidated a number of its Broadline divisions and has targeted the acquisition of certain smaller scale distribution organizations.
• Operational Excellence program. U.S. Foodservice has made significant progress in improving the effectiveness and efficiency of many of its warehouse and transportation operations. As part of the U.S. Foodservice Advanced Service Technologies ("USFAST") initiative, a system integration project, U.S. Foodservice has installed new operating support systems in approximately half of its Broadline facilities, significantly improving customer order fulfillment accuracy and service performance as well as reducing warehouse and transportation costs. U.S. Foodservice will continue to install these support systems in the remaining facilities. These systems are the backbone of the field cost reduction to support profitability. To provide a focused framework for future improvement in every aspect of business performance, U.S. Foodservice has initiated a new multi-year Operational Excellence program aimed at improving end-to-end business processes.

Multi-Unit strategy

The Multi-Unit strategy is intended to make the Multi-Unit business profitable based on the following initiatives:

• Dedicated operating unit with focused management. Multi-Unit customers are now served by a separate business, which provides more focus on the needs of this segment.
• Efficiency focus. The improvement in the Multi-Unit business will be driven primarily from initiatives to mitigate operating cost pressures and to drive productivity improvements. U.S. Foodservice is working with its customers to reduce overall supply chain costs by optimizing inbound and outbound distribution logistics, reducing working capital and optimizing drop size and drop frequency. As part of the USFAST initiative, U.S. Foodservice has installed new support systems at approximately half of its Multi-Unit distribution centers and will continue to install these support systems at the remaining distribution centers.
• Operational Excellence program. The Multi-Unit business is participating in the Operational Excellence program to improve end-to-end business processes. The Multi-Unit business is also working with its customers to provide value-added services including integrated supply-chain management, non-food and equipment purchases and other services. U.S. Foodservice believes that a broader service offering is a key component of long-term success in the Multi-Unit business.

Administrative cost structure right-sizing program

U.S. Foodservice's significant operational integration programs, executed as part of the Road to Recovery strategy, have provided the foundation upon which additional administrative cost reductions can be achieved. U.S. Foodservice is implementing a plan to reduce total administrative costs by approximately USD 100 million, with more than half of these savings to be realized in 2006 and the balance in 2007 and 2008.

As part of this cost reduction plan, the Broadline field operations were consolidated from four regions to three. In addition, U.S. Foodservice is consolidating certain support office functions and locations and the previously announced headcount reductions involving nearly 700 positions.

We expect that U.S. Foodservice's operating margin in U.S. dollars before impairment of goodwill will exceed 1.7% no later than 2006.

Review of underperforming assets / Reduce corporate overhead

In 2006, our focus will be on a comprehensive review of underperforming assets and a reduction of corporate overhead.

Results of operations

The tables summarizing our consolidated results below are followed by discussions of the consolidated Company results and then the results of operations for each of our business segments. These discussions should be read in conjunction with our consolidated financial statements and the notes thereto, which are included in this annual report. The following discussions contain certain non-GAAP financial measures which are further discussed under "Reconciliation of non-GAAP financial measures."

Adoption of International Financial Reporting Standards

Beginning with 2005, we are required by a EU regulation to prepare our consolidated financial statements in accordance with International Financial Reporting Standards ("IFRS") as adopted by the EU. Under IFRS, net sales figures are adjusted to exclude discontinued operations, which we present separately from our continuing operations. As required under IFRS, the prior year net sales figures included as comparatives have been adjusted to exclude net sales from discontinued operations.

The impact of the adoption of IFRS is discussed in Note 36 to our consolidated financial statements included in this annual report.

Store count

Set forth in the tables below are:

• store count of our consolidated subsidiaries;
• changes in store count of our consolidated subsidiaries;
• store count of our joint ventures and associates; and
• changes in store count of our joint ventures and associates.

Store count of our consolidated subsidiaries:

Changes in store count of our consolidated subsidiaries:

Store count of our joint ventures and associates:

Changes in store count of our joint ventures and associates:

For additional information about the results of operations for each of our business segments, see "Business segment results."

Consolidated results summary

The following table sets forth a summary of our consolidated statements of operations for 2005 and 2004:

Total Company net sales

The following table sets forth our net sales by arena and other business segments for 2005 and 2004:

• Our consolidated net sales decreased in 2005 compared to 2004 primarily as a result of the positive impact of the additional week in 2004. Excluding week 53 of 2004, net sales in 2005 increased by 1.5%.
• Among the most significant factors affecting net sales in 2005 was the decision of U.S. Foodservice to exit certain businesses and the divestments of 198 Wilson Farms and SugarCreek convenience stores in the Giant-Carlisle/Tops Arena, which had a negative impact on our net sales in 2005 compared to 2004. Higher net sales in the Stop & Shop/Giant-Landover Arena and the Albert Heijn Arena had a positive impact on our 2005 net sales.
• Currency exchange rates had almost no impact on our net sales in 2005 compared to 2004. The average U.S. dollar to euro exchange rate for full year 2005 remained stable compared to full year 2004.

Total Company gross profit

The following table sets forth our gross profit and gross profit margins for 2005 and 2004:

• 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.

Total Company operating expenses

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.

Selling expenses

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.

General and administrative 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.

Impairment goodwill

Our impairment losses relating to goodwill increased by EUR 19 million in 2005 compared to 2004. In 2005, we recorded impairment losses of goodwill of EUR 14 million in the Giant-Carlisle/Tops Arena, EUR 3 million at Schuitema and EUR 2 million in the Albert Heijn Arena.

Impairment and amortization charges of non-current assets

Our impairments of non-current assets were EUR 87 million lower in 2005 compared to 2004. In 2005, we recorded the following material impairments of non-current assets:

• EUR 70 million in the Giant-Carlisle/Tops Arena due to impairments of Tops stores as a result of store closures, especially in the northeast Ohio region;
• EUR 17 million at U.S. Foodservice due to impairments of office locations and warehouses, included in the restructuring costs discussed above; and
• EUR 8 million in the Stop & Shop/Giant-Landover Arena due to impairments of property, plant and equipment.

In 2004, we recorded the following material impairments of non-current assets:

• EUR 74 million at Schuitema due to impairment of stores, capitalized commercial expenses and loan receivables;
• EUR 30 million in the Central Europe Arena due to impairments of the divested hypermarkets in Poland;
• EUR 29 million in the Stop & Shop/Giant-Landover Arena due to impairments of stores as a result of increased competitive pressure;
• EUR 26 million in the Giant-Carlisle/Tops Arena due to impairments of stores as a result of increased competitive pressure; and
• EUR 13 million in the Albert Heijn Arena due to impairments of stores as a result of increased competitive pressure.

Gain on disposal of non-current assets

We recorded a gain on the disposal of non-current assets of EUR 52 million in 2005, compared to a gain of EUR 15 million in 2004. In 2005, our gain on the disposal of non-current assets included a EUR 19 million gain on the disposal of the hypermarkets in Poland and a shopping center in the Central Europe Arena, a EUR 19 million gain on the disposal of stores in the Giant-Carlisle/Tops Arena and EUR 7 million in the Stop & Shop/Giant-Landover Arena. Our gain on the disposal of non-current assets in 2004 included a EUR 9 million gain on the sale of a shopping center in the Central Europe Arena.

Settlement securities class action

Our operating expenses and operating expenses as a percentage of net sales increased in 2005 compared to 2004, primarily because of the charge of EUR 803 million in operating income, which includes insurance proceeds, for the agreement to settle the Securities Class Action. Under the terms of the settlement agreement in the Securities Class Action, the lead plaintiffs agree to settle all claims in the Securities Class Action against Ahold, its subsidiaries, the individual defendants and the underwriters for the sum of USD 1.1 billion (EUR 937 million). This amount includes USD 9 million (EUR 8 million) as compensation to the VEB for facilitating the global settlement. The settlement is subject to final court approval. Excluding the impact of the settlement, net of the insurance proceeds, our operating expenses and operating expenses as a percentage of net sales decreased in 2005 compared to 2004. For more information on the settlement of the Securities Class Action, see Note 35 to our consolidated financial statements included in this annual report.

Total Company operating income

Our operating income decreased in 2005 compared to 2004 mainly due to impact of the settlement of the Securities Class Action of EUR 803 million, which includes insurance proceeds. Our operating income in 2005 compared to 2004 was also negatively affected by the impact of the restructuring charges at U.S. Foodservice, which negative impact was more than offset by lower impairments and integration expenses in 2005 compared to 2004 and higher gains on disposal of non-current assets in 2005 compared to 2004. In addition, our operating income in 2005 was positively impacted by improved operating income at U.S. Foodservice, Schuitema and in the Stop & Shop/Giant-Landover Arena, partially offset by lower operating income in the Giant-Carlisle/Tops Arena and the Albert Heijn Arena.Operating income in 2005 compared to 2004 was also negatively impacted by the fact that 2005 consisted of 52 weeks while 2004 consisted of 53 weeks.

Net financial expense

The following table sets forth our net financial expense for 2005 and 2004:

Our net financial expense increased in 2005 compared to 2004, primarily as a result of the 2004 net gain of EUR 379 million relating to the ICA put option transaction. In 2004 we acquired an additional 20% interest in ICA (10% of which we transferred to our joint venture partner) pursuant to the exercise of a put option by one of the ICA partners. Our net financial expense in 2005 also increased as a result of an additional one-time loss of EUR 53 million relating to a bond buy back transaction in October 2005 and as a result of the EUR 39 million gain in 2004 relating to a derivative hedge that no longer qualified for hedge accounting.

Our net interest expense decreased in 2005 compared to 2004. The decrease of net interest expense was mainly impacted by lower average outstanding debt balances as a result of debt repayments totaling EUR 2.3 billion during 2005 as well as the full year effect of debt repayments of EUR 1.5 billion in 2004. The increase in interest income was primarily a result of a higher return on average outstanding cash balances invested.

For further information about our borrowings, see Note 26 to our consolidated financial statements included in this annual report.

Income taxes

In 2005, our income tax benefit amounted to EUR 205 million, as compared to an income tax expense of EUR 147 million in 2004. Our effective tax rate, calculated as a percentage of income (loss) before income taxes, increased significantly in 2005 compared to 2004 and reached a level of 84.4% (2004: 18.8%). This high effective tax rate indicates that 84.4% of our loss before income taxes is offset by an income tax gain.

The main factor contributing to this increase in effective tax rate in 2005 compared to 2004 was the impact of the charge recorded at the Group Support Office relating to the settlement of the Securities Class Action, which significantly reduced our income before income taxes in 2005.

The effective tax rate in 2005 was positively affected by the application of IFRS. Under IFRS the share in income (loss) of our joint ventures and associates is required to be included in income before tax without a corresponding income tax expense effect. Because of our loss before income taxes in 2005, the application of IFRS contributed to the increase in our effective tax rate in 2005 compared to our 2004 income before income taxes, in which year the application of IFRS led to a reduction of our effective tax rate. Furthermore, a tax exempt capital gain of EUR 38 million with respect to the release of the D&S litigation provision had a positive impact on the effective tax rate in 2005, whereas additional valuation allowances related to loss carry-forwards in our Central Europe Arena had a negative impact on the effective tax rate in 2005.

The effective tax rate for 2004 was positively affected by a tax exempt gain on the ICA put option transaction of EUR 379 million and negatively affected by an impairment on loan receivables of EUR 47 million.

For a full discussion of our accounting treatment of income taxes, see Notes 3 and 11 to our consolidated financial statements included in this annual report.

Share in income of joint ventures and associates

ICA, Scandinavia

Our share in income of ICA decreased in 2005 despite the full-year effect of the increase in our interest in ICA from 50% to 60% in November 2004. The reporting currency of ICA is the Swedish krona ("SEK").

Net sales of our unconsolidated joint venture ICA amounted to SEK 71,663 million (EUR 7.7 billion) in 2005, a decrease of 2.3% compared to 2004 (SEK 73,334 million (EUR 8 billion)). The decrease was primarily a result of the de-consolidation of the Baltic operations and the sale of the Danish operations. Excluding the impacts of the de-consolidation of the Baltic operations and the sale of the Danish operations, net sales in SEK increased by 3.8% in 2005 compared to 2004. Net sales at ICA Sverige increased, primarily due to the successful value repositioning program. Net sales at ICA Norge decreased, primarily due to competition, divestments of stores and the conversion of company-operated stores to franchise stores.

Operating income of ICA in 2005 was positively impacted by higher net sales at ICA Sverige and ICA Meny, and also by higher volumes at ICA Banken as well as cost cuts at ICA Sverige and ICA Norge. Operating income in 2004 was positively impacted by the gain on the sale of ICA's 50% interest in Statoil Detaljhandel and ICA's share in income of Statoil Detaljhandel. Operating income in 2004 was, however, negatively impacted by the write-down to market value of the former Danish operations ISO-ICA A/S.

ICA Sverige reported a lower operating income in 2005 compared to 2004, primarily as a result of the value repositioning program, the negative impact of which primarily occurred in the first two quarters in 2005 due to the timing of savings and costs. ICA Norge reported increased operating income in 2005 primarily as a result of cost cuts and higher gains on property sales. As reported by ICA, ICA Meny and ICA's joint venture Rimi Baltic improved their operating income substantially in 2005 compared to 2004, primarily as a result of higher net sales.

On February 22, 2006, ICA announced its intention to sell ICA Meny.

JMR, Portugal

Our share in income of JMR in 2005 decreased slightly compared to 2004. Despite the continued strong competition and the weak economy in Portugal, JMR increased its net sales in 2005 compared to 2004, primarily as a result of higher identical sales and an increase in the number of its stores. Gross profit margin decreased in 2005 compared to 2004, mainly due to fierce price competition. Operating income increased in 2005 primarily as a result of higher net sales and lower operating costs. However, a higher effective tax rate resulted in a lower net income in 2005 compared to 2004.

Income from discontinued operations

Income from our discontinued operations, which consisted of operational results from discontinued operations and result on divestments, decreased in 2005 to EUR 197 million compared to EUR 265 million 2004, primarily as a result of higher gains on divestments in 2004.

In 2005, operational results of the discontinued operations of G. Barbosa, Paiz Ahold, Deli XL and BI-LO and Bruno's amounted to EUR 25 million mainly attributable to Paiz Ahold (part of our former "Other Retail" segment) and Deli XL, compared to an operational result in 2004 of EUR 27 million mainly relating to BI-LO and Bruno's. The decrease in operational results of the discontinued operations in 2005 compared to 2004 was primarily a result of the inclusion in income from our discontinued operations in 2004 of the full-year results of BI-LO and Bruno's, which we sold in January 2005. BI-LO and Bruno's operating income in 2004 was somewhat offset by operating losses related to certain under-performing assets that we sold in 2004.

In 2005, our result on divestments decreased compared to 2004. In 2005, we realized a gain of EUR 172 million on the divestments of Paiz Ahold, Deli XL, G. Barbosa, BI-LO and Bruno's, compared to a gain on divestments of EUR 238 million in 2004 relating to the divestments of Bompreço / Hipercard, Disco and our operations in Spain and Thailand.

For more information on discontinued operations, see Note 12 to our consolidated financial statements included in this annual report.

Net income attributable to common shareholders of Ahold

Net income attributable to common shareholders of Ahold in 2005 was EUR 133 million, a significant decrease compared to EUR 885 million in 2004. This decrease in 2005 was primarily a result of the impact of the settlement of the Securities Class Action and the positive impact of EUR 379 million net gain related to the ICA put option transaction in 2004. For more information on the settlement of the Securities Class Action, see "Total Company operating expenses - Settlement securities class action" above and Note 35 to our consolidated financial statements included in this annual report.

Adjustments to conform to US GAAP

Our consolidated financial statements have been prepared in accordance with IFRS, as adopted by the EU, which differs in certain significant respects from US GAAP. For 2005 and 2004, our net income under IFRS was EUR 159 million and EUR 898 million, respectively, compared to a net loss under US GAAP of EUR 9 million in 2005 and a net income under US GAAP of EUR 89 million in 2004. Under US GAAP, net loss per common share - basic was EUR (0.03) in 2005, compared to a net income per common share - basic of EUR 0.03 in 2004.

The most significant items in reconciling our net income (loss) under IFRS to net income (loss) under US GAAP in 2005 and 2004 are set forth below:

The most significant items in reconciling our shareholders' equity under IFRS to shareholders' equity under US GAAP in 2005 and 2004 are set forth below:

The testing methodology for impairments of goodwill under IFRS differs in certain aspects from the impairment testing methodology under US GAAP. With respect to non-current assets held for sale and discontinued operations, IFRS and US GAAP have different definitions of a discontinued operation, as well as differences in the carrying value of assets held for sale. We record our share of income (loss) of joint ventures and associates under both IFRS and US GAAP using the equity method of accounting, but the adjustment reflects various differences between IFRS and US GAAP. For more information about the significant items in reconciling IFRS and US GAAP, as they apply to us, see Note 37 to our consolidated financial statements included in this annual report.

During the process of addressing of our material weaknesses, which no longer exist, we identified certain unintentional errors that were made in the determination of net income (loss) and shareholders' equity under US GAAP for 2004.To correct these errors, we have restated the US GAAP information in the notes to our consolidated financial statements with the effect of lowering net income by EUR 21 million. Errors relating to years prior to 2004 amounting to EUR 21 million have been adjusted as a reduction in opening equity of financial year 2004. In addition, the cumulative preferred financing shares, which under US GAAP are considered equity instruments, have been reclassified to a separate class of equity, as required by EITF D-98. For more information about our restatement under US GAAP, see Note 37d to our consolidated financial statements included in this annual report.

Business segment results

The following is a discussion of the results of operations, including net sales and operating income, for our business segments other than the Group Support Office. Market share as used in this annual report, refers to data published by A.C. Nielsen and is calculated as an annual average.

Stop & Shop/Giant-Landover Arena results

Net sales

The following table sets forth net sales, store counts and sales area information for the Stop & Shop/Giant-Landover Arena in 2005 and 2004:

• The arena's net sales in U.S. dollars increased in 2005 compared to 2004, which was largely attributable to the opening of new stores and replacement stores.
• Net sales growth in 2005 was negatively affected by the inclusion of the additional week in 2004. Excluding week 53 of 2004, net sales increased by 3.5% in 2005.
• In 2005, identical sales at Stop & Shop, excluding net sales of gasoline, decreased by 0.4%. Gasoline prices experienced a higher rate of inflation than food prices in 2005. Net sales of gasoline had a positive effect on Stop & Shop's identical sales in 2005.
• Net sales per transaction at Stop & Shop increased by 3.6% in 2005 compared to 2004, primarily as a result of an increase in the average item value by 4.6%. The number of transactions at Stop & Shop decreased by 3.3% in 2005 compared to 2004, primarily as a result of a lower shopping frequency.
• Net sales per transaction at Giant-Landover increased by 0.7% in 2005 compared to 2004, primarily as a result of an increase in the average item value by 4.0%. The number of transactions at Giant-Landover decreased by 3.7% in 2005 compared to 2004, primarily as a result of a lower shopping frequency.
• Identical sales and comparable sales in 2005 were negatively impacted by pressure from new store openings by competitors and increased competitive activities in the form of major promotional campaigns. The arena also faced increased competition from alternative retail formats, including traditional discount stores and wholesale club outlets.
• Despite the increased competition, Stop & Shop was able to increase its market share to 24.5% in 2005 compared to 24.0% in 2004, while Giant-Landover's market share decreased to 30.6% compared to 31.2% in 2004.
• Net sales in 2005 included USD 108 million of net sales from our subsidiary the American Sales Company to BI-LO and Bruno's and Wilson Farms which, prior to their divestments in 2005, were eliminated as intercompany sales. The American Sales Company provides purchasing and distribution services to the U.S. arenas. Following January 1, 2006 no sales, have been made to BI-LO and Bruno's and Wilson Farms.
• The arena encountered strong competition from traditional supermarkets in the New England market, which intensified as a result of continuing consolidation, including Shaw's, which was bought by Albertsons, which in its turn has agreed to be acquired by Supervalu.
• At Peapod net sales in 2005 increased by 26.5% compared to 2004. Excluding week 53 of 2004, net sales increased by 28.6% in 2005. This increase was driven by higher customer counts, in part as a result of an increase in the market area served by Peapod, and higher net sales per transaction.
• During 2005, the arena added Staples, Inc. as a partner for collaboration on a Staples branded store-in-store section of school and office supplies in the arena's stores. These Staples sections were introduced at a majority of the arena's retail locations in 2005. During 2005, the arena also launched Nature's Promise, its organic foods line of private label products.

Operating income

The following table sets forth information relating to operating income for the Stop & Shop/Giant-Landover Arena in 2005 and 2004:

• Competitive pressure from new store openings and increased promotional activity resulted in a decrease in the gross profit margin in 2005. In addition, increased costs for perishable products, which were not fully passed on to customers, had a negative impact on gross profit margin in 2005. The arena was able to partially offset the impact of the increased promotional activities on the gross profit margin by reducing the cost of goods sold primarily as a result of vendor negotiations. The decrease in gross profit margin at Stop & Shop was greater than the decrease at Giant-Landover.
• Operating income increased in 2005 compared to 2004. However, excluding the impact of the USD 24 million restructuring charge in 2005 relating to the restructuring of the Giant-Landover supply chain, the conversion of eight Super-G stores to the Stop & Shop banner and the closing of four Super-G stores, as well as the increased insurance loss reserve totaling USD 45 million in 2004 and the USD 54 million integration expense in 2004, operating income decreased in 2005.
• Operating income in 2005 was negatively impacted by an increase in energy prices compared to 2004.
• Operating income was negatively impacted by non-current asset impairment of USD 10 million in 2005 compared to USD 48 million in 2004. In 2005, the arena recorded a USD 9 million real estate gain, compared to a USD 2 million gain in 2004, offset by a USD 9 million loss related to a lease termination in 2005.
• The arena's capital expenses for store development were lower in 2005 compared to 2004. The arena's capital expenses in 2006 are expected to remain comparable to 2005. Giant-Landover plans to replace or remodel 18 stores as part of its store upgrade program over the next two years. In addition, health care costs are expected to increase in 2006.

Giant-Carlisle/Tops Arena results

Net sales

The following table sets forth net sales, store counts and sales area information for the Giant-Carlisle/Tops Arena in 2005 and 2004:

• The decrease in net sales in U.S. dollars in 2005 for the arena was largely attributable to the divestment of 198 Wilson Farms and SugarCreek convenience stores in the second quarter of 2005. Net sales in 2005 were also negatively affected by the inclusion of the additional week in 2004. Excluding week 53 of 2004 and the divested convenience stores, net sales increased by 0.5%. Tops continued its portfolio rationalization program in order to focus on its core business to improve long-term success. As a result nine northeast Ohio supermarkets were closed and 10 of the 31 eastern New York stores planned for divestment were closed or sold in 2005.
• Identical and comparable sales at Giant-Carlisle increased primarily as a result of consistent growth in net sales per transaction, driven by successful customer loyalty programs, ongoing effective pricing and promotional activities. The number of transactions at identical Giant-Carlisle stores decreased by 3.3% in 2005 compared to 2004. This decrease was primarily a result of a lower shopping frequency because of a trend of increased trip consolidation. Furthermore the impact of net sales of gasoline had a favorable impact on identical sales because gasoline prices had a higher rate of inflation in 2005 than food prices. Excluding net sales of gasoline, identical sales increased by 2.6%.
• Identical and comparable sales at Tops decreased, primarily caused by a weak economic environment and strong competition in the northeast Ohio region. Net sales per transaction at Tops remained stable in 2005 compared to 2004.
• Market share for Giant-Carlisle increased to 29.5% in 2005 from 28.5% in 2004 mainly as a result of strong identical sales growth and store openings. Market share for Tops decreased to 23.8% in 2005 from 26.0% in 2004 mainly as a result of the portfolio rationalization program and an increase in competitive pressure.

Operating income

The following table sets forth information relating to operating income for the Giant-Carlisle/Tops Arena in 2005 and 2004:

• The arena's operating income decreased in 2005 compared to 2004, primarily as a result of higher impairment losses at Tops, especially in the northeast Ohio region. This decrease was partly offset by improved net sales at Giant-Carlisle.
• The arena's gross profit margin increased as a result of continued improvements of inventory shrinkage, product mix, merchandising and operational efficiencies.
• Operating expenses in 2005 included non-current asset impairments of USD 85 million, a goodwill impairment loss of USD 17 million and gains on the disposal of property, plant and equipment of USD 24 million. In 2004, the arena's operating expenses included an addition of USD 11 million to the loss reserve for self-insurance for the U.S. operations. In addition, 2004 included non-current asset impairments of USD 33 million and an intangible assets impairment loss ofUSD 5 million relating to software. Excluding these items, operating expenses as a percentage of net sales were higher in 2005 compared to 2004, mainly due to higher IT, consulting and utility costs, as well as lower net sales.
• The arena's operating income in 2005 compared to 2004 was negatively impacted by the additional week in 2004.
• In 2006, the arena expects to continue its portfolio rationalization program at Tops.

Albert Heijn Arena results

Net sales

The following table sets forth net sales, store counts and sales area information for the Albert Heijn Arena in 2005 and 2004:

• The increase in net sales for the arena was largely attributable to the strong increase in sales volume as a result of an increased number of transactions at Albert Heijn. The increase occurred despite the additional week in 2004. Excluding week 53 of 2004, the arena's net sales in 2005 increased by 4.6% to EUR 6.6 billion compared to 2004.
• The increase in the arena's net sales in 2005 was primarily driven by the success of Albert Heijn's value repositioning program, its strong promotional activities and increases in its total sales area in 2005, partly offset by lower prices.
• Net sales at the arena's Internet retail company, Albert, increased by 26.6% in 2005. Excluding week 53 of 2004, Albert's net sales increased by 28.1%.
• The arena closed four Albert Heijn stores in 2005. At the end of 2004, 12 convenience stores at gas stations were closed due to the expiration of the arena's contract with ESSO.
• The increases in identical and comparable sales at Albert Heijn in 2005 compared to 2004 were primarily driven by the value repositioning program and strong promotional activities. Albert Heijn had substantially higher net sales due to an increased number of transactions, while net sales per transaction slightly decreased as a result of the continuing food price deflation in the Dutch food retail market.
• In 2005, Albert Heijn continued its value repositioning program for its private label products, which resulted in an increase of net sales of such products.
• The market share of Albert Heijn increased to 26.4% compared to 25.3% in 2004.
• Net sales at Etos decreased by 3.5% to EUR 341 million in 2005. Excluding week 53 of 2004, net sales at Etos in 2005 decreased by 1.2% compared to 2004 mainly as result of lower prices and fierce competition. During the second part of 2005 Etos began to implement a renewed commercial strategy focused on competitive pricing and at the same time strengthening quality and service. The first positive effects of the strategy were seen during the 2005 holiday season.
• In 2006, Albert Heijn expects to continue the value repositioning program, to focus on adding new stores, to make bulk shopping, which is targeted at families with children, more attractive and to add next generation store prototypes.

Operating income

The following table sets forth information relating to operating income for the Albert Heijn Arena in 2005 and 2004:

• Operating income for the arena decreased in 2005 compared to 2004 primarily as a result of higher pension and other retirement costs, which increased by EUR 34 million compared to 2004, mainly due to pension plan amendments, changes in the key assumptions used to calculate benefit obligations and net periodic benefit costs, as well as new agreements with labor unions.
• The arena's operating income in 2005 compared to 2004 was negatively impacted by the additional week in 2004.
• The arena's operating income in 2005 was positively impacted by lower non-current asset impairment losses which decreased by EUR 12 million compared to 2004, partly offset by lower gains of EUR 3 million on the sale of real estate compared to 2004.
• Albert Heijn's ongoing value repositioning program combined with strong promotional activities resulted in fierce price competition in the Dutch food retail market and put pressure on gross profit margins, which decreased in 2005 compared to 2004.
• The ongoing cost reduction program at Albert Heijn is focused on lowering logistic and transportation expenses, other variable store expenses and administrative expenses as a percentage of net sales. As a result of these cost reductions and efficiency improvements, as well as the favorable impact of the increase in net sales, operating expenses as a percentage of net sales were lower in 2005 compared to 2004.
• Operating income at Etos was lower in 2005 compared to 2004, primarily as a result of lower net sales, lower prices and the start-up costs for its new commercial strategy initiated in the second half of 2005.
• Albert Heijn expects to continue its cost reduction program in 2006 and to focus on efficiency and optimization programs at the store level and throughout the supply chain.

Central Europe Arena results

Net sales

The following table sets forth net sales, store counts and sales area information for the Central Europe Arena in 2005 and 2004: