Ahold's loss pared to $896 million last year

U.S. Foodservice scandal is source of continuing financial fallout

April 20, 2004|By Paul Adams | Paul Adams,SUN STAFF

Dutch retailer Royal Ahold NV narrowed its loss in 2003 despite continued financial fallout from an accounting scandal at its Columbia-based U.S. Foodservice division and intense competition from big-box grocers such as Wal-Mart.

The company, which also owns the Giant Food and Stop & Shop grocery chains, said yesterday that it lost 747 million euros, or about $896 million, compared with a loss of 4.3 billion euros in 2002.

Foreign currency moves contributed to an 11 percent decline in sales to 56.1 billion euros, or about $67.4 million, as the company continued to sell assets to reduce debt.

Ahold has been restructuring since being forced to restate its 2000 to 2002 earnings by more than $1 billion, mostly attributed to accounting irregularities revealed in February 2003 at U.S. Foodservice.

The subsidiary, which sells bulk-food products to prisons, hospitals, schools and other institutional buyers, remains under investigation by the Securities and Exchange Commission and by the Justice Department.

"Months of ongoing effort resulted in a number of achievements, specifically defining a new strategy and creating the financial platform to move forward," Anders Moberg, Ahold's chief executive, said in a statement. "At the end of last year we indicated that 2003 in many respects had been a lost year, but today's announcement also shows that Ahold is on track with its `Road to Recovery' program."

Under Dutch accounting rules, Ahold reported a fourth-quarter profit of 12 million euros ($14.4 million), compared with a loss of 1.23 billion euros in 2002. It didn't report fourth-quarter results under more restrictive U.S. accounting rules.

Profitability fell sharply at U.S. Foodservice despite a $402 million, or 2.3 percent, increase in sales compared with 2002. The division reported an operating loss of $74 million before amortization of goodwill and other one-time items, which included fees paid to lawyers and forensic accountants brought in to sort out the accounting irregularities.

That compares with income of $292 million in 2002, the company said.

Loss of leverage

Part of U.S. Foodservice's troubles can be attributed to a loss of leverage with vendors, who raised prices and shortened payment terms in the wake of last year's scandal, the company said.

Net sales may fall this year at U.S. Foodservice, the company said, and higher fuel costs and food commodity prices could combine to hurt profits. But Ahold said the division should have positive operating results this year, excluding the effects of amortization of goodwill and other unusual items.

The company continues to restructure its U.S. operations to cut costs. Last week, it named a new chief financial officer and several other executives at U.S. Foodservice as it reshuffled the management team there. A new chief executive was named earlier.

An undetermined number of administrative positions are to be cut at Giant Food as part of a plan to consolidate its headquarters with the Stop & Shop Supermarket Co. in Quincy, Mass.

The move will mean significant changes at Giant's Landover offices.

Ahold also plans to sell its BI-LO and Bruno's grocery store chains as part of continuing efforts to raise cash. Ahold reduced debt by 4.8 billion euros, or $5.7 billion, last year and pledged to cut more in the current year.

Modest expectations

The company expects only modest growth in its U.S. grocery sales this year as it struggles against big-box retailers and specialty stores, which are taking an increasingly large cut of the market.

Costs related to the integration of the Giant and Stop & Shop headquarters will hurt profits this year, but turn positive in 2005, the company said.

U.S. shares of Ahold closed yesterday at $8.48, down 4 cents.

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