Zaandam, The Netherlands, October 2, 2003
- Ahold today published its audited consolidated 2002 financial statements. Commenting on the announcement, Ahold President & CEO Anders Moberg said: "The publication of these results is a major milestone that draws a line under recent events and enables us to move forward."
Ahold also announced that the audited 2002 financial statements were delivered to its syndicate of banks as required under its Euro 2.65 billion credit facility negotiated in March 2003. As a result, Ahold has access to the unsecured tranche of USD 915 million. "Based on our current cashflow projections, we believe that we will not need access to the unsecured tranche," Hannu Ryöppönen, Chief Financial Officer said.
The findings of forensic and other internal investigations initiated by the company in 2003 required Ahold to restate its consolidated financial statements for 2001 and 2000. These restatements of prior years arose primarily from overstatements of vendor allowance income at U.S. Foodservice and the deconsolidation of joint ventures.
The 2002 financial statements reflect all material correcting adjustments that have been identified as a follow-up to the various investigations and the audit by independent auditors Deloitte & Touche.
Net income for 2001 and 2000 has been restated resulting in a reduction in the amount of Euro 363 million and Euro 196 million, respectively, of which 59% and 53%, respectively, related to improper accounting for vendor allowances. Correcting adjustments have also been made in the 2002 financial statements. A summary of accounting issues under Dutch GAAP is outlined later on in this release.
Net sales were reduced by Euro 12,380 million and Euro 10,709 million for 2001 and 2000, respectively, mainly as a result of the deconsolidation of joint ventures and some other smaller adjustments.
Commenting on the 2002 results, Mr Moberg said: "The underlying performance of our operating companies in the aggregate was good in a year of increased competition and a weak economy. We have some very solid operations and strong brands. However, in many ways, it's been a lost year, difficult and negative. With 2002 now behind us, it's time to move forward and rebuild value for our customers and our shareholders," he stated.
Highlights of the 2002 results follow below.
2002 results conference webcast
The 2002 results presentation for media will take place on October 2, 2003 at 10.30 CET at Ahold's offices in Zaandam, and will be simultaneously webcast on www.ahold.com. The 2002 results conference for analysts will take place on October 2, 2003, at 14.00 CET, also at Ahold offices in Zaandam, and will be simultaneously webcast on www.ahold.com. To access, please click on the link on the homepage.
Copies of the 2002 consolidated financial statements are available on the company's website at www.ahold.com. These financial statements do not completely fulfill the statutory filing requirements pursuant to The Netherlands Civil Code because an annual directors' report and parent company financial statements are not included. In that respect they precede a complete statutory annual report for Dutch law and an annual report on Form 20-F to be filed with the United States Securities and Exchange Commission in order to satisfy the current information needs of our stakeholders.
Highlights of the 2002 results
Set forth below are highlights of the results for 2002, 2001 and 2000. The results for 2001 and 2000 have been restated to reflect the correction of accounting irregularities and errors announced on February 24, 2003 and those found through the subsequent forensic investigations and external and internal audits.
The increase in net sales in 2002 was largely attributable to acquisitions, primarily those of Alliant, acquired in November 2001, and Bruno's, acquired in December 2001. In addition, the results of Ahold's subsidiaries Disco and Santa Isabel in South America were consolidated in the course of 2002. The increase in net sales excluding currency impact was 20.8%.
Operating income in 2002 amounted to Euro 239 million, a decrease of 87.5% compared to 2001. The decrease was primarily caused by Euro 1,287 million of impairment of goodwill and intangible assets, including Euro 898 million related to Ahold's operations in Spain, Euro 199 million related to the Argentine and Chilean operations, Euro 129 million related to Bruno's in the U.S. and Euro 54 million related to the Brazilian operations. The decrease was also caused by a Euro 372 million exceptional loss on related party default guarantee recorded in 2002 with respect to debt defaults by Velox Retail Holding, Ahold's joint venture partner in Disco Ahold International Holdings N.V. Operating income in 2002 also was adversely affected by a lower U.S. Dollar/Euro exchange rate.
Operating income before impairment and amortization of goodwill and exceptional loss in 2002 amounted to Euro 2,145 million, an increase of 4.0% compared to 2001. See table below and the supplemental disclosures to the statements of operations for a reconciliation of this non-GAAP measure.
The net loss incurred in 2002 was primarily caused by impairment of goodwill and other intangible assets of in total Euro 1,287 million, goodwill and intangible asset amortization of Euro 433 million and an exceptional loss on related party default guarantee of Euro 372 million.
Net sales increased in 2002 compared to 2001 both organically and as a result of the acquisition of Bruno's that took effect in December 2001. Comparable and identical U.S. retail sales growth totaled 1.6% and 0.9%, respectively (2001: 3.1% and 2.6%).
Operating income before impairment and amortization of goodwill increased in 2002 compared to 2001 as a result of strong operating performance at Stop & Shop, Giant-Landover and Giant-Carlisle.
The increase in net sales in 2002 compared to 2001 was due to the acquisition of Alliant in November 2001.
Operating income before impairment and amortization of goodwill in 2002 included a USD 28 million gain relating to excess reserve reversals, and in 2001 included a USD 94 million loss relating to restructuring charges at Alliant.
Operating income before impairment and amortization of goodwill as a percentage of net sales for 2002 was 1.7% and, as restated, 0.9% in 2001, a significant decline from the originally reported number for U.S. Foodservice for 2001, reflecting the substantial accounting adjustments related to U.S. Foodservice.
Identical sales growth at Albert Heijn was 4.5%. Within Other Europe, Schuitema's net sales increased by 4.5%. In Central Europe and Spain, the net sales increase was mainly attributed to store expansion.
In line with the sales growth, Albert Heijn improved its operating income before impairment and amortization of goodwill in 2002 by 6.9%. In Other Europe, the operating income before impairment and amortization of goodwill dropped from Euro 110 million to Euro 32 million, mainly due to the impairment of fixed assets in Other Europe and less favorable business performance in Spain due to integration challenges and start-up costs for newly-opened stores.
Net sales at Europe Foodservice declined slightly and operating income before impairment and amortization of goodwill declined as a result of increased pension costs.
Net sales in 2002 versus 2001 increased mainly due to the consolidation of Disco and Santa Isabel in the course of 2002. In Brazil, sales in local currency were higher mainly due to the acquisition of G. Barbosa in January 2002.
The operating loss before impairment and amortization of goodwill and exceptional loss in 2002 was primarily caused by the consolidation of Disco and Santa Isabel. Difficult trading circumstances impacted operating income before impairment and amortization of goodwill in Brazil in 2002, which was below 2001 levels in local currency.
Impairment and amortization of goodwill and intangible assets
Mainly as a result of the deteriorating economic conditions in Spain, Argentina and the Southeastern United States, goodwill impairment charges of in total Euro 1,281 million were recorded in 2002 (2001: Euro 0 million). Impairment charges relating to intangible assets amounted to Euro 6 million.
Goodwill amortization in 2002 amounted to Euro 253 million (2001: Euro 152 million). The increase is largely caused by the acquisition of Bruno's and Alliant. Amortization of other intangible assets amounted to Euro 180 million (2001: Euro 104 million).
Exceptional loss on related party default guarantee
An exceptional loss was incurred of Euro 372 million in 2002 relating to the fact that the purchase price of the additional shares in Disco Ahold International Holdings in July 2002 exceeded the fair value of the shares acquired by Euro 363 million and a loan to Velox of Euro 5 million had to be written off.
Interest expense in 2002 increased to Euro 1,003 million (2001: Euro 921 million), primarily caused by the new debt assumed or incurred in connection with acquisitions and an increase in cash dividends paid. This was partly offset by a favorable currency impact, especially of the U.S. Dollar.
Share in income (loss) of joint ventures and equity investees
The share in income (loss) of joint ventures and equity investees in 2002 amounted to a net loss of Euro 38 million compared to a net loss of Euro 192 million in 2001.
Cash flow statement
Net cash from operating activities in 2002 amounted to Euro 2,486 million (2001: Euro 1,961 million). Changes in working capital improved compared to the prior year, resulting in a cash inflow of Euro 107 million compared to a cash outflow of Euro 166 million in fiscal 2001.
Investments in tangible fixed and intangible assets in 2002 amounted to Euro 2,160 million (2001: Euro 2,459 million). Divestments of tangible fixed and intangible assets amounted to Euro 590 million (2001: Euro 1,134 million), in both years mainly related to sale and leaseback transactions in the U.S. and Europe. The cash outflow related to acquisitions of consolidated subsidiaries of Euro 977 million was primarily for the purchase of the remaining shares in Disco Ahold International Holdings.
Shareholders' equity
Shareholders' equity, expressed as a percentage of the balance sheet total, was 10.5% (at year-end 2001: 19.2%). Shareholders' equity at December 29, 2002, was Euro 2,609 million.
Long-term financial lease commitments amounted to Euro 2,224 million.
US GAAP reconciliation
The Annual Report on Form 20-F that will be filed with the U.S. Securities and Exchange Commission will contain a US GAAP reconciliation of net income and shareholders' equity which is in the process of being audited. The current unavailability of US GAAP figures has no impact on Ahold's credit agreement which required that it delivers audited consolidated financial statements under Dutch GAAP.
Under US GAAP, the net loss for 2002 will be significantly higher. In particular, goodwill impairment charges related to the adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets ("SFAS 142") on December 31, 2001, will contribute to a higher net loss under US GAAP. This primarily will be caused by an additional goodwill impairment charge of approximately Euro 3.2 billion (unaudited), of which Euro 2.7 billion relates to U.S. Foodservice.
Next steps
On September 4, 2003, President & CEO Anders Moberg announced the most important principles of Ahold's strategy going forward. Ahold is now focusing on two key strategic operating priorities: its leading food retail formats in the United States and Europe, and restoring the value of U.S. Foodservice. More details on the new Ahold strategy, together with the company's view on its future financing, are expected to be announced mid-October.
Definitions
- Identical sales compare sales from exactly the same stores.
- Comparable sales are identical sales plus sales from replacement stores.
- Currency impact is the impact of using different exchange rates to translate the financial figures of our subsidiaries to Euros. Where specifically indicated, the financial figures of the previous year are adjusted using the current year exchange rates.
Summary of restatements of and reclassifications to the consolidated financial position and results for 2001 and 2000 under Dutch GAAP
The internal investigations resulted in significant restatements of the 2001 and 2000 comparable financial information. These investigations also revealed the necessity to strengthen Ahold's internal controls, resulting in a company-wide process being led by a special task force. Among other changes introduced, Ahold's Internal Audit function will now report directly to the CEO and the Audit Committee.
The effect of the restatements on net income for 2001 and 2000 is set forth in the table below. Restatements of Euro 45 million relating to periods prior to 2000 were recorded in opening retained earnings as of January 1, 2000.
Vendor allowances:
The internal investigations uncovered significant accounting irregularities and errors in relation to vendor allowances over the past three years, mainly at U.S. Foodservice. The correcting adjustments had a negative effect on Ahold's net income of Euro 215 million for 2001 and Euro 103 million for 2000.
Deconsolidation of joint ventures:
Ahold has deconsolidated joint ventures where it concluded the company did not have effective control, being ICA, Jerónimo Martins Retail, DAIH, Paiz Ahold and Bompreço. Ahold has changed to the equity method for these ventures for the relevant periods using the equity method. This change reduced consolidated net sales by Euro 12.2 billion for 2001 and Euro 10.6 billion for 2000. Restatements of restructuring provisions of deconsolidated joint ventures had a negative effect on net income of Euro 5 million for 2001 and Euro 10 million for 2000.
Acquisition accounting:
Ahold has made downward fair value adjustments to real estate acquired in connection with the acquisition of its 50% interest in ICA in April 2000 and of Superdiplo in December 2000. This produced corresponding effects on goodwill, amortization and gains on asset sales and resulted in a negative effect on net income of Euro 36 million for 2001 and Euro 8 million for 2000.
Reserves, allowances and provisions:
Ahold made changes where entries were inadequately documented, producing a negative impact on net income of Euro 33 million in 2001 and Euro 38 million in 2000.
Real estate transactions:
Ahold has corrected the accounting treatment on 46 leveraged lease transactions that took place in 2001. The net gain from 39 transactions now has been recognized in income at the transaction date instead of being deferred over the remaining lease terms ranging from 20-25 years, while seven lease transactions have been reclassified from operational to financial leases that must be capitalized. These changes have a positive effect on net income for 2001 of Euro 2 million and a negative effect of Euro 26 million for 2000.
Other accounting issues in 2002
Put option
: Put options held by ICA's joint venture partners are disclosed in Ahold's 2002 financial statements as a contingent liability under Dutch GAAP. In the event that these options are exercised, Ahold expects that it would have to pay at least an amount of Euro 1.3 billion for all of the ICA shares held by the ICA partners.
Impairment of goodwill and tangible fixed assets:
Mainly as a result of the deteriorating economic conditions in Spain, Argentina and the Southeastern United States, goodwill impairment charges of in total Euro 1,281 million were recorded in 2002. Furthermore, tangible fixed asset impairment of Euro 137 million was recorded in 2002.
Vendor invoices:
Various matters raised by the U.S. Foodservice ("USF") investigation were further reviewed to determine their impact, if any, on Ahold's financial statements. One such matter relates to certain USF vendor invoicing practices. These practices resulted in overbillings by various USF local branches to various vendors with respect to vendor allowances of approximately USD 5 million in 2002, USD 7 million in 2001, USD 6 million in 2000 and USD 13 million in 1999 and prior periods. Ahold has recorded an accrual to cover any refunds that Ahold or USF expects to be required to pay to vendors for these overbillings, and has restated its financial statements for 2001 and 2000 with respect to these overbillings. Other billing practices also were identified at USF that could result in other potential overbilling claims by vendors in an amount totalling approximately USD 60 million. Ahold believes that USF may have defenses to this category of claims. Accordingly, no liability has been accrued for this amount. Ahold is implementing measures designed to prevent improper and questionable vendor invoicing practices. Additionally, a further review will be done to determine other appropriate actions to be taken, including personnel changes. Certain employees at various USF branches have been suspended and final decisions regarding their employment status will be made once the investigation is completed.
Please note the Dutch version of this press release will follow as soon as possible.
Please open the attachment for the full press release including tables.
Ahold Corporate Communications:
+31.75.659.5720
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Certain statements in this press release are "forward-looking statements" within the meaning of U.S. federal securities laws. The company intends that these statements be covered by the safe harbors created under these laws. These forward-looking statements include, but are not limited to, expectations as to Ahold's lack of need for access to the unsecured tranche of the credit facility, expectations as to the higher net loss under US GAAP, including the estimate as to goodwill impairment for U.S. Foodservice, statements as to the timing of the filing of Ahold's 2002 Annual Report on Form 20-F and statements as to the timing of certain upcoming announcements regarding
Ahold's strategic operating priorities and future financing. These forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by the forward-looking statements. Important factors that could cause actual results to differ materially from the information set forth in these forward-looking statements include, but are not limited to, the effect of general economic conditions, the ability of Ahold to implement successfully its strategy including debt reduction and divestments, the ability of Ahold to comply with the terms of the credit facility, Ahold's liquidity needs exceeding expected levels and amounts available under the secured tranche of the credit facility and generated by operations, unexpected delays in the completion of the audit of the US GAAP reconciliation and determination of net income, shareholders' equity and impairment charges under US GAAP and changes required as a result of such auditing process, unexpected delays in the filing of the Form 20-F and in the announcement of our strategy and future financing plans and other factors discussed in the company's public filings. Many of these factors are beyond the company's ability to control or predict. Given these uncertainties, readers are cautioned not to place undue reliance on the forward-looking statements, which only speak as of the date of this press release. The company does not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events, except as may be required under applicable securities laws. Outside The Netherlands Koninklijke Ahold N.V., being its registered name, presents itself under the name of "Royal Ahold" or simply "Ahold".
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