Accounting & Tax

Strict Regimen for Troubled Food Giant

Royal Ahold, still hurting after its accounting scandal, resolves to trim away debt and toughen internal controls.
Dave CookApril 16, 2004

Dutch grocery group Royal Ahold NV, the world’s third-largest food retailer by sales, will repay debt and reorganize its finance function as it continues to recover from its billion-dollar accounting blow-up.

Figuring prominently in the scandal was Ahold’s institutional-catering division U.S. Foodservice, which overstated profits by $880 million over a three-year period. When news of accounting irregularities first broke, in February 2003, Ahold’s share price quickly plunged by more than two-thirds, and Standard & Poor’s cut Ahold’s long-term corporate credit rating to a junk rating of BB-plus. Both chief executive officer Cees van der Hoeven and chief financial officer Michael Meurs resigned.

Last August, the company announced an end to an internal probe, revealing a wider $1.12 billion discrepancy on the books — including inflated profits at two other subsidiaries. Eventually, the accounting irregularities stretched to $1.27 billion.

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In yesterday’s announcements, Ahold said that on or about June 2 it will redeem $1.1 billion of 4 percent convertible subordinated notes due to mature in 2005. The early redemption will send a “strong signal to the market” that Ahold is recovering financial strength, a person close to the company told the Financial Times.

Ahold added that the move stays in step with its three-year “road to recovery” strategy, announced in November. That strategy — which has already seen a $3.6 billion rights issue, according to the FT, — will put $3 billion of non-core assets on the block and intends to return the company to an investment-grade credit rating by the end of 2005.

Chief financial officer Hannu Ryopponen, in a statement, also announced finance appointments that will “support Ahold’s overall strategic ambitions” and that will “ensure reliable and transparent financial reporting.”

Ahold appointed Brian Hotarek, chief financial officer for U.S. retail operations, to the position of chief business controlling officer. His responsibilities for a new role — “business control for retail” — will be to “support and challenge the retail arenas in reviews and analysis of actual performance as well as of future plans,” according to a statement.

The corporate accounting and control department, added Ahold, will be renamed “accounting and reporting” to reflect “its increased responsibility for all aspects of accounting and reporting within Ahold” as well as the creation of a separate business-control function, the company also stated. Joost Sliepenbeek, senior vice president controller, has been named chief accounting officer with responsibility for the renamed department.

Both appointments are effective immediately.

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