Ahold, the global food retailer and foodservice operator, has today [Thursday] reported a net loss of €197.5m (US$194.84m) for its Q2 2002 ended 14 July, compared to a net profit of €323.8m year on year.
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The company stressed that the results include exceptional charges of €490m, of which €410m relates to the default of Velox Retail Holdings (VRH), Ahold’s former joint venture partner in Latin America, and €80m relates to goodwill impairment for Argentina.
President and CEO Cees van der Hoeven said, however: “”This quarter Ahold reports its first loss in many years. That hurts because we are a proud company, always striving for excellence towards all stakeholders. Fortunately the cause is incidental and not structural.”
Ahold’s consolidated sales during the quarter rose 7.3% to €17.3bn and operating earnings were up 11.9% to €777.8m.
“Almost everywhere in the world, the trading environment is challenging,” said van der Hoeven: “It is difficult to grow sales and the outlook is not as yet improving. In these circumstances our performance is very solid, as we are able to grow market share and operating margins at the same time.”
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By GlobalDataEarnings per share (EPS), excluding goodwill amortization, exceptional items and currency impact, amount to €0.39, unchanged from last year. The average number of common shares increased primarily due to the issue of 80.5 million new common shares through the equity offering in September 2001. The proceeds from the equity offering were used to finance the acquisitions of Bruno’s Supermarkets and Alliant in December 2001.
Cash flow from operating activities amounted to €950.5m (2001: €514.4m). Investments in tangible and intangible fixed assets amounted to €568.7m (2001: €723.3m).
US retail and foodservice
In the US, retail sales rose both organically and as a result of the consolidation of Bruno’s Supermarkets with effect from December 2001. All retail operating companies contributed to sales growth. Organic retail sales growth amounted to 5.6% (2001: 8.5%). Comparable retail sales growth was 2.1% (2001: 5.5%) and identical retail sales growth totalled 1.4% (2001: 5.1%). Lower fuel prices depressed identical sales by about 0.3%.
Operating earnings rose as a result of strong improvements at most operating companies and due to the aforementioned consolidation of Bruno’s Supermarkets. In particular, performance at Stop & Shop, Giant (Landover) and Giant (Carlisle) was excellent. BI-LO’s operating earnings are improving but still lower than last year. Internet grocer Peapod – where sales rose 19% – reduced its operating loss to US$7.6m (2001: loss of US$11.3m).
US foodservice sales grew mainly due to the consolidation of Alliant with effect from December 2001. Organic foodservice sales decline was 1.7%, primarily as a result of the exit from unprofitable business at Alliant. Voluntary market exits reduced organic sales growth by 2.6%. The integration of Alliant is ahead of schedule. US Foodservice expects to have completed the major part of the integration process by year-end 2002.
Foodservice operating earnings in the US were significantly higher primarily as a result of the consolidation of Alliant, purchasing synergies and cost reductions. Results at US Foodservice were strong.
Europe
In Europe, organic sales growth, excluding currency impact, amounted to 3.2% (2001: 9.2%). All retail operations in the Netherlands, Scandinavia, Spain and Central Europe contributed to the sales rise. Sales in Portugal were lower as a result of the exit from unprofitable product categories.
Operating earnings at Albert Heijn, ICA Ahold and Portugal showed considerable improvement. Spain, although profitable, came in lower than last year mostly as a result of increased integration costs. In Central Europe, operating results in the Czech Republic reached break-even point, partly offset by higher operating expenses related to the entry into the Slovakian market. Operations in Poland are still loss making.
Latin America
In Latin America, sales were lower as a result of the devaluation of several currencies, mainly the Argentine Peso and the Brazilian Real as well as the deconsolidation of La Fragua. Organic sales growth, excluding currency impact, amounted to 3% (2001: 2%). In local currencies, Santa Isabel in Chile, Peru and Paraguay generated higher sales. Sales at Disco in Argentina in local currency were higher than last year partly as a result of strongly increased inflation. In Brazil sales in local currency were much higher mainly due to the acquisition of G. Barbosa in January of this year.
The devaluation of the Brazilian Real and Argentine Peso as well as the deconsolidation of La Fragua also led to lower operating earnings in Latin America. Operating earnings in local currency in Brazil were higher than last year and include the acquisition of G. Barbosa. Operating earnings in local currency at Santa Isabel and Disco were slightly lower.
Central America
In Central America – Guatemala, Costa Rica, Honduras, Nicaragua and El Salvador – the joint venture Paiz Ahold, owner of La Fragua, formed a new regional joint venture with CSU named CARHCO, effective 1 January 2002. Since that date, La Fragua has been deconsolidated. CARHCO’s results are reported as income from unconsolidated subsidiaries and affiliates. Sales in the Q2 amounted to €382m.
Operating earnings in the Q2 in Central America increased to €12m (2001: €6.9m), mainly attributable to the formation of the new joint venture. The net income from CARHCO, reported as income from unconsolidated subsidiaries and affiliates, amounted to €2.4m.
In Asia, sales rose 13.3% to €109.6m. In local currencies, sales in Thailand and Indonesia were higher than last year. Sales in Malaysia were in line with last year. Organic sales growth, excluding currency impact, amounted to 15.3%, mainly as a result of store openings. Operating losses in Asia amounted to €5.6m (2001: loss of €4.6m).
Retaining consumers
“After a difficult first half year,” van der Hoeven concluded: “Our company is in good shape, but there is one thing I would like to bring to your attention. The statue depicting a customer in front of our corporate headquarters bears the legend “Let’s not forget for whom we work”.
“Here is the real plan: we will continue to do what we do best: provide our customers with value for money, convenience, variety, quality and service, every moment of every day. We will continue to stick to the fundamentals and we’ll be innovative and pleasantly surprising at the same time. With our incredibly talented and diverse group of associates we are best positioned to attract and retain the people that matter most: our customers.”
Interim dividend
The board has decided to declare an interim dividend per common share outstanding of €0.22
in cash or as a pay-out of 1% in shares per outstanding common share (2001: €0.22 or 1% in common shares). The interim dividend is payable as of 13 September 2002. Also payable from that date is the interim dividend on cumulative preferred financing shares.
Outlook for full-year 2002
Ahold reconfirms its 2002 EPS growth, excluding currency impact, goodwill amortization and exceptional items, at between 5-8%. The outlook was revised due to the impact of the prolonged integration process in Spain, real estate gains coming in at the lower end of the range and rising interest rates in Ahold’s Latin American markets.
Organic operating earnings growth, excluding currency impact, will amount to about 15%. Including the acquisitions of Alliant and Bruno’s Supermarkets, but excluding currency impact, operating earnings are expected to increase by about 20%. Operating earnings are expected to grow faster in the H2 2002 than in the H1, mainly reflecting completion of the integration of Alliant into US Foodservice.
