No sell off for US Foodservice
recovering some of its lost reputation - has been dismissed by
Ahold's new chief executive Anders Moberg. But what exactly he
plans to do to redress the comapny is also still far from clear.
US Foodservice, the unit at the centre of the accounting fraud which has severely tarnished the reputation of Dutch retailer Ahold will not be sold off to help the group make up the €1 billion shortfall in its accounts, shareholders were told yesterday.
The shareholders meeting, called despite the fact the company has still not published its audited accounts for 2002 as a result of the accounting fraud, was otherwise fairly light on information regarding the company's strategy, leaving analysts and investors alike frustrated by the continued delay.
Ahold chairman Henny de Ruiter told shareholders that there were 750 specific items being reviewed as a result of the company's investigation into its accounts, highlighting the extent of the potential fraud, although he said that the new 30 September deadline for publishing the 2002 audited results was likely to be met.
Anders Moberg, Ahold's new chief executive, said that selling US Foodservice at the moment would lead to "massive destruction of shareholder value" and that it could take up to two years before the company was in a position to decide on the future of the troubled US business.
Moberg faces an extremely difficult task to restore confidence in what just 18 months ago was still considered one of Europe's leading retail businesses.
"We are out of focus," he told shareholders. "We have tried to be everything to everybody, and that is expensive. For example, we are in hypermarkets, compact hypers, supermarkets, convenience stores and even in discount. In addition, we run production facilities and own specialty stores and pharmacies.
This lack of focus has a drastic impact on our cost base. Our logistical infrastructure needs to be able to deliver large quantities in the cheapest possible way and, at the same time, service smaller and more frequent deliveries. Our supply chain needs to accommodate highly perishable products, as well as white and brown goods. This means that we're into areas that require the handling of after-sales support and the handling of guarantees."
He said that the company's rapid expansion had pushed up debt levels to unmanageable levels (around €11 billion) and that integrating new businesses had been slow and costly. "Solving these problems is an urgent priority, but will take time," he said.
Moberg explained that US Foodservice - the second largest operator in the $160 billion US market with an 11 per cent share - would be managed as a single business operating separately from food retail with a new management team but only limited investment. "The company has grown too fast through acquisitions with insufficient integration. We believe that the ingredients are all there. We will have to put them together," he said.
As far as food retail is concerned, Moberg said that the best way to achieve growth was to tighten the focus. "We will focus on markets where we already have or can achieve a leading position within a reasonable time," he said. "We are already engaged in divesting our non-strategic assets and are well on our way to withdrawing from two continents: South America and Asia. We are also already divesting a number of non-core assets, the most recent being Golden Gallon in the United States, announced last week. This will continue."
He said that a number of businesses were being scrutinised with a view to disposal, although with Ahold's traditional reticence, he declined to say which units were slated for sale. He did, however, stress that the supermarket format would be the focus of the group's activity, so larger - and smaller - stores are likely to be sold off.
Plenty of rhetoric and very little in the way of actual detail, then, from the new management team at Ahold, and shareholders expressed their continued lack of confidence in the leadership by threatening to veto Moberg's election as chief executive. While they did eventually agree to his appointment, Moberg is clearly there on sufferance and will have to come up with some more concrete proposals soon if he is to supervise the recovery of one of Europe's biggest food retailers.
