Topics: Board of directors, Corporate governance, Foodservice Pages: 5 (1472 words) Published: January 5, 2015
Ahold: Royal Dutch Disaster Session 7 Management Accounting & Controls

Date 24-Feb-03
Issue:$500 million fraud
Global food retailer with over 9,000 stores and 278,000 employees in 4 continents 2002 Sales -72 billion Euros up from 66 billion in 2001
Current outstanding loans of 13 billion euros due to 7 years of acquisitions People:
Cees Van der Hoeven – CEO since 1993 (joined Ahold’s executive boar as CFO in 1985) Michiel Muers 1997 – CFO graduated in business studies and economics Jim Miller – USF CEO
Company: Royal (Koninklijke) Ahold
Holland – publicly traded company
Started as a supermarket chain of stores
1973 Abhold NV was formed and open the first chain of liquor stores 1970’2 they started to invest abroad – Spain and the US (Bi Lo) Last family member retired in 1985 – new CEO Pierre Everaert 1990’s expanded into the Czech and Portugal – joint venture 1993 Evereart steps down and Cees Van der Hoeven (VDR) takes over VDR started on the board in 1985 was disappointed when he did not get the job in 1985 Was awarded job as CFO

VDR had a very limited knowledge of accounting
Kept both roles as CEO and CFO till 1997
1997 Michiel Meurs (MM) appointed to CFO role (his background was in economics, business development and as a banker) VDR’s right hand man. 1992 – US 5 supermarket chains in eastern states generated 50% of total turnover an 57% of operating profit for the entire company. 1993 results disappointing

Ahold listed on the NYSE in 1993 in order to fund future expansion in US US supermarket industry was very fragmented compared to Europe. Top 10 companies only had 40% of US market share Walmart and Kmart were becoming a threat

Expansion Plans:
1994 VDR announced expansion plans sales and net profits to double every 5 years 2/3’s of growth from expansion (financed by cash flow) and 1/3 from acquisition (external sources) EPS target growth 10% per year

1996 to 2001 spent over 20 billion euros on acquisitions
Large deal of autonomy in these acquisitions they tried to gain some economies of scale through central purchasing, technology, knowledge transfer and loyalty cards 2002 investors were questioning whether Ahold could be a true global force with a relatively weak position in Europe. Major competitors (Carrefour and Promotes) merged to become Europe’s largest food retailer Ahold ranked 18th in Europe. Ahold broke away from its policies of organic growth in Europe and made several acquisitions in Norway, Sweden and Spain buying 50% of ICA group Operations in China and Singapore were failing and they decided to divest US share price suffered as Kroger’s and Albertson’s were performing below expectations after some large expansions 1999 regulators refused a deal for Ahold to purchase Pathmark in the US Ahold decided to get into food service industry (supplying food to restaurants and institutions) an extremely fragmented industry (top 2 companies hold less than 20% of market share) Bought 2nd largest food supply company US Foodservice (USF) for $3.6 billion $160 billion industry

Justified purchase based on forecasting savings from purchasing power and combined back-office CFO of USF remained and made $32 million on the sale. Became board member on Ahold board Expansion continued over the next 18 months in US, Spain, South America Not all of the operations were successful and required more funds to continue to operate 2000

Results posted a 48% rise in Net Earnings over 1999 and a 56% increase in sales Stock prices started to rise
Series of bad events:
Brazil and Argentina currency devaluation
9/11 attack hit the food services industry badly in the US
USF Fraud (2003)
Times were tough at USF
Management stressed earnings targets must be met
Significant link to bonuses
Vendors allowances made up $1.455 billion in 2002 or 43% of gross profit and 184% of operating profit Vendor allowances doubled each year from 2000 to 2002
Vendor allowances were overstated by $493 million in...
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