“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.”