On the money: Ahold looks to M&A for shareholder returns

By Michelle Russell | 1 March 2013

Dutch retail giant Ahold said the firm has the strength in its balance sheet to consider acquisition opportunities as one way of driving shareholder returns in 2013.

Ahold, which this week booked mixed profit figures for 2012, with pension charges and IT costs hitting reported earnings but improving underlying results, admitted on its earnings call yesterday (28 February) that it was operating in a "tough" environment.

Despite this, CEO Dick Boer said the group's "strong cash position" allowed it to continue to invest in offering its customers value and offer "attractive returns to shareholders".

"Our business is solid and we have shown with our performance in 2012 we have the right strategy in place and we will continue to double store count in Belgium, continue to roll out our pick up points in Netherlands and the US, and continue to reduce costs in the business to invest back in the business."

Boer said he was "confident" in the success of Ahold's cost reduction programme announced in 2011, which aims to reap EUR600m in savings, which will allow the company to invest in growth and return money to shareholders.

Aside from shareholder returns, however, Boer told analysts that Ahold would look to make acquisitions if the right opportunity arose.

"We continue to look to expand our geographic reach. We showed this in the last year when we acquired in the Netherlands and the Philadelphia stores. We continually get questions from your side and shareholders and we keep our eyes and ears open to follow what is happening around us in the market and keep that flexibility.

"It is a balanced approach looking where and how to invest. It should add value and create value for shareholder and value for our business by growing the business in current markets where you can use your scale or in adjacent markets to grow scale. So we continue to focus on opportunities around this."

CFO Jeff Carr reiterated Boer's comments and said the company would look to invest in opportunities where they presented themselves.

"The moves we made with 15 stores in Philadelphia show that we will continue to invest in our own portfolio in terms of capital expenditures. In 2012 we invested in acquisitions where we saw the right opportunities and returned significant funds to shareholders. We are committed to a strong capital discipline and for growth. We have the strength in the balance sheet to be able to have options and we will continue to look at our options and act in the best interest of our shareholders."

Last month saw co-owner Hakon Invest purchase Ahold's 60% stake in ICA in a SEK20bn (US$1.96bn) cash deal. Ahold had revealed a new growth strategy for the group in 2011 and the group again reiterated at the time of the sale its aims to focus the execution of this strategy on "businesses it controls in order to create value".

Carr declined to directly say where the money from the deal would be spent.

"We've talked in last year and a half quite significantly about strategy of investing in growth and if you look back at what we said [last year], you get a view of what our options are. But it's too early to talk about specifics."

Shore Capital analysts applauded Ahold's approach, strategy and delivery in its operations.

"In tough consumer markets it has diligently and quite quietly gone about its business," said Darren Shirley. "As such, we see once dysfunctional Ahold as a reformed corporate character and a now a good role model for some of its larger corporate brethren, including Tesco.

"The business has concentrated on productivity and simplification but kept a sound balance with respect to proposition. It has [a] robust track record for shareholder focus has been generated with management clearly concentrated upon and referencing free cash flow."

Sectors: Financials, Retail

Companies: Ahold, Tesco

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