Zaandam, The Netherlands, November 7, 2003
- Ahold today published its 2003 half-year and second-quarter results. Commenting on the results, Ahold CFO Hannu Ryöppönen said: "We are very pleased that following the filing of our 2002 audited Annual Accounts we are now able to resume the reporting of 2003 results starting with the half-year numbers and on November 26, 2003 the third-quarter results. We expect that this will further improve the communication with everyone who takes a keen interest in the development of Ahold and we see it as a very important step towards returning to a normal and predictable reporting calendar. The results in the first half-year of 2003 were disappointing and impacted by the diversion of our management as a result of the events surrounding the announcements on February 24, 2003, and the related investigations.
I am confident, however, that the new strategy which is also announced in more detail today will help us to 'turn the corner' and restore the profitability of the group in future years."
Net sales in the first half-year of 2003 amounted to Euro 30.3 billion, a decrease of 11.8% compared to the same period last year. The decrease in net sales was largely attributable to lower currency exchange rates of in particular the US Dollar. The average US Dollar to Euro exchange rate decreased approximately 18% in the first half-year of 2003 compared to the same period last year. Net sales excluding currency impact increased by 3.6% primarily due to a 3.2% increase in net sales at U.S. retail and a 1.7% increase at Europe retail. Net sales at U.S. Foodservice declined by 0.7%. Net sales were positively impacted by the consolidation of Ahold's subsidiaries Disco and Santa Isabel in South America in April and July of 2002, respectively, as well as the acquisition of Lady Baltimore and Allen Foods in September and December of 2002, respectively. These consolidations and acquisitions combined contributed approximately 2% of the net sales growth in the first half-year of 2003 excluding currency impact.
Operating income in the first half-year of 2003 amounted to Euro 587 million, a decrease of 17.2% compared to the same period last year. The decrease was primarily caused by lower operating income in all business segments including U.S. retail where operating income in US Dollars was only marginally lower. Operating income in the first half-year of 2002 included a Euro 372 million exceptional loss on related party default guarantee with respect to debt defaults by Velox Retail Holding, Ahold's joint venture partner in Disco Ahold International Holdings N.V. Goodwill amortization totaled Euro 90 million in the first half-year of 2003 compared to Euro 144 million in the same period last year. Goodwill amortization decreased compared to the same period last year due to lower goodwill balances resulting from the goodwill impairment charges recorded in 2002. The goodwill impairment charge of Euro 88 million recorded in the first half-year of 2002 related to the purchase of the remaining shares in Disco Ahold International Holdings N.V. in July and August 2002.
Operating income before goodwill and exceptional items in the first half-year of 2003 amounted to Euro 677 million, a decrease of 48.4% compared to the same period last year. See table below for a reconciliation of operating income before goodwill and exceptional items to operating income.
Operating income before goodwill and exceptional items in the first half-year of 2003 was also adversely affected by a lower US Dollar to Euro exchange rate. Excluding currency impact the decrease of operating income before goodwill and exceptional items was 38.6% primarily caused by lower operating income at U.S. Foodservice, Europe retail, South America and Asia as well as higher audit, legal and consultancy fees.
Net sales increased in the first half-year of 2003 compared to the same period last year through organic development at same stores and replacement stores and new store openings. Comparable sales growth totaled 0.9% and identical sales remained at the same level.
Operating income before goodwill and exceptional items decreased in the first half-year of 2003 compared to the same period last year as a result of lower income at Tops, Bruno's and Giant-Landover. Operating performance at Stop & Shop and Giant-Carlisle continued to be very strong in the first half-year of 2003.
Net sales at Albert Heijn declined in the first half-year of 2003 but this was off-set by strong sales growth at Schuitema and an increase in net sales in Spain and Central Europe. Identical sales at Albert Heijn declined by 2.5%. In Central Europe and Spain, net sales increased due to the opening of new stores.
Albert Heijn sustained lower operating income before goodwill and exceptional items in the first half-year of 2003 compared to the same period last year mainly as a result of lower sales and gross margins partly off-set by lower operating expenses due to the start-up of cost reduction programs. Schuitema improved its operating income before goodwill and exceptional items mainly due to the higher sales level.
Operating loss before goodwill and exceptional items in Central Europe decreased due to increased operating expenses for new stores and a lack of spending power of customers as a result of a weak economy leading to a pressure on net sales.
Operating loss before goodwill and exceptional items in Spain decreased due to lower gross margins as a result of lower selling prices in order to become more competitive in the market. Furthermore, operating costs in Spain increased due to costs associated with the closing of a number of stores.
Net sales of U.S. Foodservice in the first half-year of 2003 were negatively impacted by the events surrounding the discovery of accounting irregularities at U.S. Foodservice as announced on February 24, 2003. The acquisition of Lady Baltimore and Allen Foods in September and December of 2002, respectively, contributed approximately 1.5% of the net sales growth in the first half-year of 2003.
U.S. Foodservice's operating income before goodwill and exceptional items in the first half-year of 2003 was also negatively impacted by the events surrounding the discovery of the accounting irregularities resulting in substantial pressure on gross margins, especially in the first quarter of 2003, and increased operating costs. The run rate of the first half of this exceptional year will be a fair reflection of the performance of U.S. Foodservice for 2003.
In South America, net sales increased mainly due to the consolidation of Disco and Santa Isabel in April and July of 2002, respectively. Net sales were adversely impacted by lower currency exchange rates of in particular the Brazilian Real and the Chilean Peso. The average exchange rate of the Brazilian Real and the Chilean Peso to the Euro decreased by 27% and 23%, respectively, in the first half-year of 2003 compared to the same period last year. Net sales in Brazil increased in local currency partly due to new store openings at Bompreço.
Operating loss before goodwill and exceptional items in South America was Euro 8 million in the first half-year of 2003 compared to an operating income of Euro 32 million in the same period last year. The decline was primarily a result of the consolidation of Disco and Santa Isabel in April and July of 2002, respectively, both of which had operating losses. Operating income before goodwill and exceptional items in Brazil in the first half-year of 2003 was below the level for the same period of last year in local currency as a result of higher labor costs. The operating results before goodwill and exceptional items of the Other segment decreased by Euro 86 million in the first half-year of 2003 compared to the same period last year. This partially reflected higher corporate costs of in total Euro 55 million as a result of higher legal, audit and other advisory expenses. Furthermore, insurance costs increased compared to last year due to the release of an excess loss provision in the first half-year of 2002. Real estate gains in the first half-year of 2003 were also below the level realized in the first half-year of 2002.
Goodwill amortization
Goodwill amortization in the first half-year of 2003 amounted to Euro 90 million (same period last year: Euro 144 million). Lower goodwill balances at year-end 2002 resulting from the goodwill impairment charges recorded in 2002 and the lower average currency exchange rate of the US Dollar to the Euro largely caused the decrease.
Goodwill impairment
No goodwill impairment charges were recorded in the first half-year of 2003 (same period last year: Euro 88 million). The goodwill impairment charge recorded in the first half-year of 2002 related to Disco Ahold International Holdings N.V.
Exceptional items
No exceptional items were recorded in the first half-year of 2003. In the same period last year an exceptional loss of Euro 372 million was incurred relating to the purchase of the additional shares in Disco Ahold International Holdings N.V. in July and August 2002 at a price that exceeded the fair value of the shares acquired by Euro 367 million and the write-off of a loan to Velox of Euro 5 million.
Net financial expense
Net interest expense in the first half-year of 2003 increased by 5.8% to Euro 533 million (same period last year: Euro 504 million), primarily caused by banking fees and interest expenses related to the new facility signed on March 3, 2003, new debt assumed or incurred in connection with acquisitions in the course of 2002 and an increase in cash dividends paid in 2002. This was partly offset by a favorable currency impact, especially of the US Dollar to the Euro. Net interest expense excluding currency impact increased by 23%.
The gain on foreign exchange in the first half-year of 2003 amounted to Euro 20 million and mainly related to the positive impact of the revaluation of the Argentine Peso on US Dollar denominated debt in Argentina. In the same period of 2002, there was a foreign exchange loss of Euro 71 million related to the devaluation of the Argentine Peso and inflation adjustment losses related to Argentina.
Income taxes
The income tax rate, adjusted for the impact of goodwill and exceptional items, increased to 42% in the first half-year of 2003 compared to 29% in the same period last year. The main factor contributing to this increase of the tax rate was a different mix of earnings from each country, and higher losses in areas where no tax credit could be recorded.
Share in income (loss) of joint ventures and equity investees
The share in income (loss) of joint ventures and equity investees in the first half-year of 2003 amounted to an income of Euro 51 million compared to a net loss of Euro 69 million in the same period last year.
The loss of DAIH of Euro 126 million in the first half-year of 2002 was mainly caused by the negative impact of the devaluation of the Argentine Peso on US Dollar denominated debt as well as inflation adjustment losses on third-party Argentine Peso debt in Argentina. DAIH, including Disco and Santa Isabel, was fully consolidated in the first half-year of 2003.
Cash flow statement
Net cash from operating activities in the first half-year of 2003 amounted to Euro 678 million (same period last year: Euro 1,316 million). Changes in working capital resulted in a cash outflow of Euro 102 million partly due to shorter payment terms imposed by certain suppliers to
U.S. Foodservice as a consequence of the discovery of accounting irregularities as originally announced on February 24, 2003.
Investments in tangible fixed and intangible assets in the first half-year of 2003 amounted to Euro 612 million (same period last year: Euro 1,094 million). Divestments of tangible fixed and intangible assets amounted to Euro 260 million (same period last year: Euro 110 million), in both periods mainly as a result of sale and leaseback transactions in the U.S. and Europe.
Shareholders' equity
Shareholders' equity, expressed as a percentage of the balance sheet total, was 9.9% (at year-end 2002: 10.5%). Shareholders' equity at July 13, 2003, was Euro 2,319 million.
Debt position
The rolling interest coverage ratio at the end of the first half-year of 2003 amounted to 1.5 compared to 2.6 at the end of the same period last year. The rolling net debt / EBITDA ratio amounted to 3.9 at the end of the first-half year of 2003 compared to 2.9 at the end of the same period last year.
US GAAP reconciliation
The audited 2002 Annual Report on Form 20-F filed with the US Securities and Exchange Commission contains a US GAAP reconciliation of net income (loss) for 2002 and shareholders' equity as at year-end 2002. Ahold will not provide a US GAAP reconciliation on a quarterly basis in 2003 but will do so in 2004.
In November 2002, the Emerging Issues Task Force ("EITF") of the Financial Accounting Standards Board reached consensus on Issue No. 02-16, Accounting for Consideration Received from a Vendor by a Customer (Including a Reseller of the Vendor's Products) ("EITF 02-16"). Under the consensus, cash considerations received from a vendor should be considered an adjustment to the price of the vendor's products or services and, therefore, characterized as a reduction of cost of sales when sold unless (1) the cash consideration represents a reimbursement of a specific, incremental, identifiable cost incurred in selling the vendor's products and therefore characterized as a reduction of those costs or (2) the cash consideration represents a payment for assets or services delivered to the vendor and therefore characterized as revenue.
The Company will adopt the provisions of EITF 02-16 for Dutch GAAP, as permitted by the Guidelines for Annual Reporting in The Netherlands, in 2003. The Company has not yet determined the effect on the consolidated financial statements as a result of the adoption of
EITF 02-16.
Accounting principles
The accounting principles supplied have not changed compared to the accounting principles as stated in the Ahold 2002 Annual Report, which was published in English last month. The Dutch version of the annual report is available as of today and has been posted on the Ahold website (www.ahold.nl).
The data included in this press release are unaudited except for the balance sheet items as per December 29, 2002.
Definitions
- 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.
- The interest coverage ratio is calculated as operating income excluding goodwill and exceptional items, divided by the net interest expenses.
Net debt includes long and short-term interest bearing debt, netted with loans receivable and cash and cash equivalents, divided by EBITDA excluding exceptional items.
For the full press release including tables, please open the attachment.
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Certain statements in this press release are "forward-looking statements" within the meaning of U.S. federal securities laws. Ahold intends that these statements be covered by the safe harbors created under these laws. These forward-looking statements include, but are not limited to, statements relating to Ahold's future profitability and statements as to the timing of changes in Ahold's Dutch and US GAAP reporting. 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, difficulties in complying with new accountancy pronouncements and other factors discussed in Ahold's public filings. Many of these factors are beyond Ahold'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. Ahold 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 or circumstances, 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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