Ahold faced with 14 % profit drop

Ahold faced with 14 % profit drop

Dutch Ahold has maintained a fairly stable turnover in 2013, but its operational and net profit dropped. Last year started well thanks to Albert Heijn, but its fourth quarter was a huge disappointment.

Disappointing profit result

The sale of ICA brought in a one-time benefit of 1.751 billion euro, but excluding that particular item, net profit stranded at 786 million euro, 14 % lower than 2012’s net profit of 915 million euro. It is a disappointing result for Ahold, as also its yearly turnover (32.6 billion euro) was below 2012’s. Operational profit was 2.3 % lower at 1.38 billion euro, while the operational margin also fell slightly - from 4.3 % to 4.2 %.

 

Poor fourth quarter impacted the yearly results, because net turnover dropped 4.2 % - mainly because of dropping sales at Ahold USA (- 2.1 %), while the like-for-like growth in the Netherlands dropped 1 % in that same quarter. That is mainly because the average spend of the Albert Heijn customer was under pressure.

 

Lower figures everywhere

Operational quarterly profit dropped from 355 million euro in 2012’s fourth quarter to 320 million euro in 2013, a nearly 10 % drop. Ahold blames these numbers mostly on considerably increased pension fund costs and a weak American dollar. Excluding exchange rate fluctuations, profit level would still be 7.5 % lower than what it managed in 2012’s fourth quarter.

 

Net quarterly profit also dropped 10.4 % (8.2 % at equal exchange rates) compared to 2012, from 240 million euro to 215 million euro. Especially the ICA sale hurt, as the former Scandinavian joint-venture subsidiary contributed 59 million euro to 2012’s fourth quarter net profit.

 

Costs and benefits considered

Ahold will still focus on ‘simplicity’ in 2014, just as it did in 2013, with cost-cutting measures meant to lower costs 600 million euro. Ever since the company introduced “Reshaping Retail @ Ahold”, that vision has become a strategic pillar, with already 485 out of the 600 million euro saved: vital to keeping up the operation margin in harsh times.

 

In a bid to increase profits, Ahold will invest in the Belgian Albert Heijn expansion, alongside a larger ‘online supply chain’. This underlines Ahold’s transition into an omni-channel future, as Peapod, bol.com and AH.nl already managed a 1.1 billion euro turnover in 2013, which is a 17 % like-for-like turnover growth.

 

Omni-channel is crucial to Ahold

The ‘online supply chain’ will mainly be a focus in the United States, where Ahold wants to expand its number of pick-up points from 100 to over 200 by the end of the year. Its brand new and fully automated distribution centre for ‘e-fulfilment’ in New Jersey will also become operational this year in an attempt to service the entire New York region and to garner knowledge Ahold can use in Europe.

 

Shareholders are appeased with a 7 % increase in dividends and the continued share buyback program, but to keep the shareholders en stakeholders satisfied in the future, Ahold is banking on the success of its omnichannel strategy.

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