Video"We sell tomatoes. Let's keep it simple," is what Kimberly Ross often reminds colleagues at Ahold's office in Amsterdam. In 2001, she joined a sprawling, debt-laden global network of supermarket chains "with an uncanny ability to make things very complicated," the CFO recalls. The complications grew exponentially in 2003, when an accounting scandal brought the company to the brink of bankruptcy. Today, the €28 billion retailer is back on track — and, in many ways, thriving — thanks to major restructuring and rationalisation. Now operating mainly in the Netherlands and the northeast US, the company generates half the sales it did five years ago, but twice the profits. (See charts at the end of this article.) For a study in how to do more with less, there are few better examples.
Keeping the Boat Afloat
Reminiscing about how Ahold went from an acquisitive high-flyer to a scandal-ridden basket case to a lean, cash-making machine within a matter of years, Ross notes how rare it is for a finance executive to experience the "full cycle" at such a large company. When the 43-year-old American arrived at Ahold as assistant treasurer, the company was obsessed with continuous double-digit growth in earnings per share. She was charged with bolstering the treasury function to keep up with the rapid expansion across four continents. But as cracks in Ahold's business model began to emerge, "it went from trying to set up something for future growth to implosion," she says. Her priorities shifted quickly from coping with growth to "just keeping the boat afloat."
A new management team, featuring former Ikea CEO Anders Moberg and CFO Hannu Ryöppönen, steadied the boat, launching a top-to-bottom review of the company's portfolio. A raft of divestments, layoffs and asset sales followed. (See "Retail Therapy," April 2005.) Now Ross, promoted from chief treasury and tax officer to CFO last year, and John Rishton, who recently moved from CFO to the CEO's office, continue to pare the company's portfolio. Divestments last year — including the sale of wholesaler US Foodservice, where much of the accounting fraud was found — brought in €5.4 billion.
Shuffling the brands in Ahold's basket is now more a strategic, than desperate, exercise, Ross says. Consider the sale in April of Ahold's 73% stake in Schuitema, the second-largest food retailer in the Netherlands in terms of market share. (Ahold's Albert Heijn, with around 30% market share, is more than twice as large.) As part of the agreement with private equity house CVC, Ahold received €185m in cash and full control of 58 of Schuitema's 440 stores — worth around 2% of Dutch market share — which it will rebrand under its Albert Heijn brand. The "prune and grow" approach, as Ross explains, will guide Ahold over the next few years as it pursues small acquisitions while mainly focusing on organic growth.
Underpinned by the strength of Albert Heijn, Ahold as a group reached a number of milestones last year. These included regaining an investment-grade credit rating; paying a dividend for the first time in five years; cutting net debt by 70% over three years; and building up a €3.3 billion cash pile while managing to return €4 billion to shareholders through a reverse stock split and share buyback. Ahold's shares have outperformed the Dow Jones Stoxx Retail Index over the past year and a half, rising around 20% compared with the index's 20% drop. "We are delivering what we committed to the market," Ross says. "That makes life a lot easier."
The Shakeout
But there is still work to do. In addition to significant investments to revamp stores across its transatlantic portfolio, Ahold pledged in 2006 to cut costs at its corporate centre by 50% by the end of this year and slash overall operating costs by €500m by the end of 2009. For Ross, the key to achieving these savings is "focus," a word she uses often and in a wide range of contexts, to explain the company's direction.
The corporate-centre shakeout is ahead of schedule, with costs falling from €189m in 2005 to €106m last year. Given that the bulk of the savings come from the functions under Ross's control, she is particularly pleased with the progress.
Ahold's accounting scandal, the switch to IFRS and compliance with Sarbanes-Oxley — because of a secondary listing in New York — all helped to increase staff numbers at its headquarters, as well as its audit, legal and consultancy bills. In pruning mode, Ross has trimmed group-level headcount, streamlined processes and introduced new ways of working that, she hopes, will prevent the bloat from returning.
Delisting from New York last year will save compliance costs and reduce complexity, while divestments have already narrowed the scope of Ahold's audit — the company spent €20m on audit and related fees in 2005, but only €8m last year. What's more, notes Ross, "we showed every consultant the door." In addition to "reducing the number of PowerPoint slides significantly," she jokes, "we are pushing the organisation from being data-driven to information-driven." Too often, she recalls, "you would ask a question and get a pile of data in return to sift through to find the answer." Now, Ross and other senior executives are "big fans of the one-pager" for project proposals and the like, she says. "It eliminates a lot of work and simplifies things. It forces people to focus on the point they're trying to make."
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