Ahold losses deepen under US rules

Related tags Ahold Generally accepted accounting principles

Already burdened with losses of €1bn under Dutch accounting rules,
retailer Ahold has today reported that the US accounting system has
effectively pushed it even further into the red - some €4.3bn to be
precise. And there is little prospect of any improvement this year,

When Dutch retailer Ahold​ reported losses of around €1 billion for 2002 earlier this month, it warned that the figure would almost certainly fall deeper into the red when calculated according to US accounting rules.

Under US GAAP standards, the company has to include a goodwill impairment charge of €3.5 billion, most of which (€2.6 billion) relates to the much publicised accounting fraud at the US Foodservice division there.

This means that net losses for 2002 under US GAAP plummeted to €4.3 billion, according to the official figures released today by the company. The company has also taken the opportunity to clarify a number of other issues, and to comment on its likely prospects for 2003.

Ahold is currently in discussion over the possible takeover of the ICA retail chain in Sweden, and the company today confirmed that it would have to gain 70 per cent of the firm in order to effectively control it according to the terms of an agreement between the three main shareholders. Ahold currently has a 50 per cent stake in ICA (which recently dropped the Ahold name), while Canica holds 20 per cent and ICA Forbundet the remaining 30 per cent.

Ahold originally estimated that it would have to pay at least €1.3 billion to acquire the 50 per cent stake held by its ICA partners, but new information has forced it to revise this estimate to €1.8 billion. However, even this current estimate is by no means definitive as the valuation procedure for the ICA shares is not likely to be completed before the second quarter of 2004.

As for the company's likely performance in 2003, Ahold said that the revelation of widespread fraud at US Foodservice (and elsewhere) back in February would clearly have a negative impact on business.

"We expect that 2003 consolidated net sales will be negatively affected by the weak global economy and strong competition in the markets where we operate,"​ the company said in a statement.

"Ahold's 2003 net sales will also be reduced by the divestment of some businesses. Operating expenses, excluding the impact of currency exchange rates, goodwill impairment charges and the 2002 exceptional loss related to the Velox default, will be significantly higher in 2003 than in 2002.

"Ahold expects that net financial expenses, excluding the impact of currency exchange rates, will also be higher than in 2002. Professional fees of lawyers and accountants, together with refinancing costs, will have a significant impact on 2003 income."

So little cause for cheer in 2003 either for the once-mighty Dutch retailer which was second only to Carrefour in the European grocery trade. What investors need to see now is a clear strategy from the company designed to pull it out of the mire and set it back on the path to growth - although new CEO Anders Moberg has already delayed the announcement of this strategy until at least mid-November.

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