Q3 2006 Earnings Release

 

 

 

 

 

Amsterdam, the Netherlands, December 1, 2006 - Ahold today published its interim financial report for the first three quarters of 2006. Anders Moberg, President and CEO of Ahold, said: "As we anticipated, the third quarter was more challenging than the second quarter for U.S. retail, reflecting increased competitor activity and weaker economic conditions, leading to margin pressure. We expect the fourth quarter to be equally challenging. Albert Heijn operating income showed sharp improvement as a result of increased net sales and cost containment. Overall we expect underlying retail net sales growth for the full year to exceed our 2.5 to 3% target, underlying retail operating margin to be at the lower end of 4 to 4.5% and U.S. Foodservice to reach its 1.7% operating margin target."

 

Net sales were €10.3 billion, up 0.7% from the same period last year. At constant exchange rates, net sales were up 3.7%.

 

Operating income increased by €915 million to €273 million. Excluding the €896 million impact of the provision for the securities class action settlement in 2005, the increase was €19 million or 7.5%. Retail operating income was up €12 million at €232 million, an operating margin of 3.4%, slightly better than last year. U.S. Foodservice operating income was up €24 million to €67 million, an operating margin of 1.9%, compared to 1.2% in the same period last year. Group Support Office costs - at €26 million - were down by €20 million compared to last year, excluding the class action settlement and the release of a €37 million legal provision in 2005.

 

Cash flow before financing was €205 million positive for the quarter but €111 million worse than last year, primarily due to a reduction in divestment proceeds; net debt was €5.1 billion (€25 million lower than at the end of the second quarter of 2006).

 

Net sales were €34.9 billion, up 3.6% from the same period last year. At constant exchange rates, net sales were up 2.6%. Operating income was €1.1 billion. Retail operating income was up €139 million at €1 billion, an operating margin of 4.3%, compared to 3.8% in the same period last year. U.S. Foodservice operating income was up €101 million to €195 million, an operating margin of 1.7%, compared to 0.8% in the same period last year. Group Support Office costs - at €85 million - were €928 million lower than last year. Cash flow before financing of €685 million positive was €968 million lower than last year, reflecting the class action settlement payment and a reduction in proceeds from divestments.

 

For the third quarter of 2006, net sales of $3.7 billion were up 2.1% compared with the same period last year; on an identical basis, net sales were down 1.3% at Stop & Shop (1.8% excluding gasoline net sales) and down 0.5% at Giant-Landover. Operating income was down $30 million at $165 million or 4.4% of net sales, primarily due to the impact of continued negative identical sales.

 

Year-to-date, net sales of $12.6 billion were up 0.7% compared to last year; on an identical basis, net sales were down 1.1% at Stop & Shop (1.9% excluding gasoline net sales) and down 1.5% at Giant-Landover. Operating income was up slightly to $677 million or 5.4% of net sales.

For the third quarter of 2006, net sales of $1.4 billion were up 0.3% on the same period last year; on an identical basis, net sales were up 4.8% at Giant-Carlisle (3% excluding gasoline net sales) but down 6.2% at Tops (7.3% excluding gasoline net sales). Operating income, up $38 million from the loss incurred a year ago, was $17 million or 1.2% of net sales. Excluding impairments and gains on assets, operating income was lower than last year, primarily due to increased competitive pressures at Tops, specifically in northeast Ohio.

 

Year-to-date, net sales of $4.6 billion were 3.4% down from last year; on an identical basis, net sales were up 4.1% at Giant-Carlisle (2.2% excluding gasoline net sales) but down 6.1% at Tops (7.2% excluding gasoline net sales). Operating income, up 47.1% on a year ago, was $125 million or 2.7% of net sales. We anticipate charges related to divestments of the northeast Ohio stores in the fourth quarter.

For the third quarter of 2006, Arena net sales of €1.6 billion were up 10.3% on the same period last year. On an identical basis, net sales increased at Albert Heijn by 9.2%. Arena operating income was €107 million or 6.7% of net sales - up €45 million from the prior year, as Albert Heijn benefited from increased sales leverage and cost reductions.

 

Year-to-date, Arena net sales of €5.4 billion were up 7.5% on the same period last year. On an identical basis, net sales increased at Albert Heijn by 6%. Arena operating income was €311 million or 5.8% of net sales - up 42% from the prior year.

For the third quarter of 2006, net sales decreased 2.5% to €423 million. At constant exchange rates and excluding the impact of a change in the accounting period from three months to 12 weeks, net sales increased 3.6%. On an identical basis, Arena net sales fell 6.1%. The Arena reported a combined operating loss of €31 million, including an impairment loss of €19 million, following the announcement on November 6, 2006 to divest the activities in Slovakia.

 

Year-to-date, net sales of €1.4 billion were up 12.1% on last year. On an identical basis, Arena net sales fell 6%. The three markets had a combined operating loss of €24 million.

For the third quarter of 2006, net sales grew 1.1% to €716 million - an increase predominantly due to identical sales, which were up 1.1%. Operating income, at €12 million or 1.7% of net sales, was down €15 million from the same period last year due to competitive pressures and a €5 million pension adjustment.

 

Year-to-date, net sales of €2.4 billion were up 2.1% on the same period last year; on an identical basis, net sales were up 1.8%. Operating income at €67 million or 2.8% of net sales was virtually unchanged from a year ago.

For the third quarter of 2006, net sales increased 5.0% to $4.5 billion; 4.3% at USF Broadline and 9.6% at North Star Foodservice. Net sales growth was negatively impacted by approximately 0.7% as a result of the Sofco disposition in the third quarter of 2005. Operating income was $85 million, and operating margin was 1.9%, compared to 1.2% in the same period last year. The improvement was primarily attributed to improved gross margin and continued operating efficiencies and cost reductions. A $15 million benefit from the sale of the Columbia Head Office and other assets was almost entirely offset by a step up in incentive-related accruals reflecting the strong underlying performance. USF Broadline operating income was $89 million, an operating margin of 2.3% compared to 1.6% in the same period last year. North Star Foodservice operating loss was $4 million. The operating margin of negative 0.6% compared to negative 1.3% in the same period last year.

 

Year to date net sales increased 3.7% to $14.8 billion; 3.4% at USF Broadline and 5.9% at North Star Foodservice. Net sales growth was negatively impacted by approximately 1% as a result of the Sofco disposition in the third quarter of 2005. Operating income for the first three quarters of 2006 was $244 million resulting in an operating margin of 1.7%, compared to 0.8% in the same period last year. USF Broadline operating income for the first three quarters of 2006 was $255 million, an operating margin of 2% compared to 1.1% in the same period last year. North Star Foodservice operating loss for the first three quarters of 2006 was $11 million, an operating margin of negative 0.5% compared to negative 0.7% in the same period last year.

For the third quarter of 2006, net sales increased 6.4% (6% at constant exchange rates). Ahold's share of net income increased 63% to €67 million, driven by ICA, where Ahold's share of net income increased €30 million to €58 million reflecting improved margins, strong net sales at ICA Sweden and the gain on the sale of ICA Meny.

Year-to-date, net sales increased 3.7% (3.9% at constant exchange rates). Ahold's share of net income increased 59% to €140 million, driven by ICA, where Ahold's share of net income increased €55 million to €120 million.

Ahold has received notification from Aegon Custody B.V. that it wishes to convert the cumulative preferred financing shares it holds into common shares. The exact number of shares is to be determined. However as agreed by the general meeting of shareholders on March 3, 2004, the maximum number of common shares resulting from this conversion will be 30,494,291.

Non-GAAP financial measures:

This earnings release should be read in conjunction with Ahold's interim financial report for the first three quarters of 2006, which is available on www.ahold.com. This release contains certain non-GAAP financial measures, including net debt, which are further discussed in the interim financial report. The data provided in this earnings release are unaudited and are accounted for in accordance with IFRS. In case of any discrepancy between the English version and the Dutch version of this release, the English version prevails. 

 

 

Certain statements in this earnings release are forward-looking statements within the meaning of the U.S. federal securities laws. These statements include, but are not limited to, statements as to expectations regarding challenges during the fourth quarter of 2006, including challenges regarding competition and economic conditions, and statements as to the expected underlying retail net sales growth, retail operating margins and U.S. Foodservice operating margin for the full year 2006. These forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from the future results expressed or implied by the forward-looking statements. Many of these risks and uncertainties relate to factors that are beyond Ahold's ability to control or estimate precisely, such as the effect of general economic or political conditions, fluctuations in exchange rates or interest rates, increases or changes in competition in the markets in which Ahold's subsidiaries and joint ventures operate, the actions of Ahold's competitors, joint venture partners, vendors, unions, contractors and other third parties, the actions of Ahold's customers, including their acceptance of Ahold's plans and strategies, Ahold's ability to implement and complete successfully its plans and strategies and to meet its targets, including its ability to reduce costs or realize cost savings, the benefits from and resources generated by Ahold's plans and strategies being less than or different from those anticipated, the costs or other results of pending or future investigations or legal proceedings, actions of courts, law enforcement agencies, government agencies and third parties, as well as Ahold's ability to defend itself in connection with such investigations or proceedings, Ahold's ability to complete planned divestments on terms that are acceptable to Ahold, changes in Ahold's liquidity needs, the actions of Ahold's shareholders, unanticipated disruptions to Ahold's operations, including disruptions due to labor strikes, work stoppages, or other similar interruptions, increases in the cost of healthcare, pensions or insurance, increases in energy costs and transportation costs, any slowdown in independent restaurant growth, rapid fluctuations in costs for not for resale products where such fluctuations cannot be passed along to Ahold's customers on a timely basis, Ahold's ability to recruit and retain key personnel and other factors discussed in Ahold's public filings. Many of these and other risk factors are detailed in Ahold's publicly filed reports. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this earnings release. Ahold does not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this earnings release, except as may be required by 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."

 

 

Please open the links below for the Interim Financial Report Q3 2006 and the Q3 2006 Earnings Release.