International food retailer and foodservice operator Ahold has announced that it anticipates earnings per share (EPS) growth for FY 2002 at 5-8%, excluding currency impact, goodwill amortisation/impairment charges and a €350-450m (US$) charge related to the Veox Retail Holdings (VRH) default.
Go deeper with GlobalData
Organic operating earnings growth is confirmed at about 15%, excluding currency impact. The implied strong margin expansion is derived from significant additional economies of scale, synergies and operational enhancements. Including the acquisitions of Alliant and Bruno’s, but excluding currency impact, operating earnings are expected to increase by about 20%. Earnings are expected to grow faster in the H2 2002 than in the H1, mainly reflecting completion of the integration of Alliant into US Foodservice.
Ahold, being contingently liable with respect to certain indebtedness owed by VRH, also received notice on 16 July that VRH has defaulted on certain bank debts secured by its shares in Disco Ahold International Holdings (DAIH), Ahold’s Latin American JV. Ahold will be required to take over loans and purchase substantially all of VRH’s shares in DAIH for a total consideration of around US$490m.
In a statement, Ahold acknowledged that the target of 15% EPS growth was ambitious. It has said on several occasions that reaching this EPS growth target this year could be impacted by a continuing deterioration of the situation in Argentina, by developments in Spain and by the level of gains from the sale of real estate. Mid-way through 2002, a better assessment can be made of the size of the impact of these specific factors on FY EPS, as it is becoming apparent that Q2 EPS growth for the company as a whole is expected to be flat. Ahold also projects somewhat higher 2002 interest expenses than originally forecast.
Deteriorating situation in Argentina
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataIn 2002, the economic situation in Argentina has continued to deteriorate, with the ongoing devaluation of the Argentine Peso. Ahold has continuously stated its potential exposure in Argentina should VRH default under its bank indebtedness.
Towards the end of the Q2 2002, ended 14 July, it became more apparent that VRH would default on bank debts secured by its shares in DAIH. These defaults constitute a default under VRH’s other credit agreements secured by VRH’s shares in DAIH.
Ahold will be required to take over loans and purchase substantially all of the remaining shares held by VRH in DAIH for a total consideration of about US$490m. Such payments are expected to be made in the Q3. About 60% of this investment will be financed from available funds. The rest will be financed by utilising credit facilities specifically arranged for this purpose. It is expected that net interest expenses will increase by about €10-12m in 2002. Ahold intends to terminate its shareholders’ agreement with VRH.
The takeover of loans and purchase of VRH’s shares in DAIH will generate a substantial charge in the Q2 2002 under Dutch and US GAAP estimated at €350-450m, as the amount paid will exceed the fair value of the DAIH shares.
Furthermore, as anticipated, the situation in Argentina continues to be uncertain and the economic slow-down is expected to impact Ahold’s net earnings for FY 2002 by €38-47m, largely because of the higher interest expenses resulting from USD denominated debt, based on current exchange rates.
Prolonged integration of Spanish activities
The integration of Ahold Spain and Superdiplo on the Spanish mainland, as earlier communicated, is a complicated endeavor that is taking longer than anticipated to execute.
Operating earnings in Spain for FY 2002 are expected to total about €70m, some €30m short of Ahold’s original target.
Real estate gains at lower end of the range
The level of gains from the sale of real estate in 2002 is now projected at between €55-65m, which is €30-40m lower than anticipated.
Breakdown of impact
€10-12m: DAIH (interest expenses resulting from purchase of VRH’s shares in DAIH)
€38-47m: Argentina (impact of decreased net earnings; mainly interest expense)
€30m: Spain (underperformance against original plan)
€30-40m: Real estate gains (at lower end of projected range)
€8-10m: Interest rates (in local Latin American markets)
€20-25m: Interest expenses
Comment by president & CEO
“In light of the unfolding developments, we feel it is necessary to revise our outlook for FY 2002 EPS growth to the mid single-digits,” said president and CEO Cees van der Hoeven: “The executive board has made every effort to be as transparent as possible in outlining the specific circumstances that can potentially impact our results.
“Preliminary results for the Q2 2002, which ended on 14 July, indicate that, compared to last year, no EPS growth should be expected, largely because of non-operating factors. However, we are encouraged by the underlying strength of our core business and are fortunate that most Ahold companies are performing according to or better than expectation.’
‘Performance continues to be particularly solid at US Foodservice, Stop & Shop, Albert Heijn, Giant-Landover and ICA-Sweden. Operating earnings at these five companies are according to plan and all are expected to sustain their performance throughout the year. Significant organic growth and margin expansion are being driven by Ahold’s customer focus, operational strength and economies of scale, and we are pleased with the way our operations are embracing EVA principles.”
