Monday 17 June 2019

Share Watch: Dutch-Belgian food retailer Ahold can be comeback kid


The headquarters of the merged supermarket group Ahold Delhaize in Zaandam. Photo: AFP/Getty Images
The headquarters of the merged supermarket group Ahold Delhaize in Zaandam. Photo: AFP/Getty Images

John Lynch

Shopping used to be simple. However these days even Euclid would have a problem understanding the puzzling complexities of a business that still hasn't quite worked out what change the internet has created for it.

It worries too about what technology challenges await. Grocers in these islands have tried to deal with the Continental discounters like a nervous jockey taking on Becher's Brook and investors have suffered an almost daily recitation of woes as dividend payments come under threat.

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This week's firm has had its troubles but it also has emerged as a considerable competitor in the US/European grocery market. So it may be an exception to prove the rule. It is Kohinkiijke Ahold Delhaize, best known simply as Ahold, a Belgian/Dutch company whose main operation is retail food stores and ecommerce.

The Amsterdam-listed supermarket giant has a record of success in the cut-throat US grocery business which has so long been a graveyard for European retailers including Tesco and Carrefour.

Today it has more than 50 million customers a week, 6,800 stores with 370,000 staff, 21 local brands and is valued at €24bn. Its portfolio includes supermarkets, hypermarkets, convenient stores and drugs and liquor stores.

The US is its most important market, accounting for 60pc of group sales and operating profits. Its operations include the 475 supermarket chain, Stop and Shop, the market leader in the New England states. It also owns the grocery chain Food Lion stores, and an online operation Peapod.

The company's original markets of Belgian and Netherlands with its 3,000 stores now contribute 30pc to group sales/profits and its central European operations in Serbia, Romanian, Czech Republic together with its joint ventures in Portugal and Greece account for 10pc of group sales, double that of a decade ago.

Recently Ahold ran into a spot of bother with its workers at the Stop and Shop chain. CEO Franz Muller planned to trim some perks including employer contributions to the pension scheme. This inflamed employees; shoppers refused to cross the picket line and presidential hopefuls Joe Biden and Elizabeth Warren backed the workers. This was not anticipated - nor did Muller foresee a 10-day stoppage would cost $100m. Muller backed off and agreed a deal.

Walking into trouble is not new to Ahold. At the beginning of the millennium the company was the third-largest supermarket chain in the world after Wal-Mart and Carrefour and even obtained the Royal seal of approval from the Dutch Queen Beatrix.

However, in 2003 the roof fell in. The company was found to have accounting irregularities in a US subsidiary. The share price plunged, senior executives resigned, rating agencies downgraded it and the SEC fined it $8m. It was also forced to pony up more than $1bn to settle a class action from shareholders.

The shakeup that followed was considerable. It hived off its Scandinavian operation and exited the South American and Asian markets.

However, Ahold has a brave capacity to come back from adversity and after years of speculation it finally merged with the Belgian supermarket leader, Delhaize mid 2016.

In the last five years the group's results have rocketed. Sales, number of stores, free cash flow and market value all doubled and net income trebled. The group is also attracting investment attention and late last March its shares hit an all-time high of €24 but has since slipped back. The group is in a healthy financial state and net sales last year were €63bn, a small decrease over the previous year, but online sales rose 25pc to €3.5bn. Net income of €1.8bn showed a small decline but dividends went up. The group also completed its €2bn share buyback and launched a new €1bn programme. If you must invest in the retail sector, Ahold is a better bet than UK-quoted retailers worried by Brexit and its consequences. In addition there is no exchange risk.

Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.

Irish Independent

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