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    Royal Ahold

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    gayatrichaudhary
    Royal Ahold started as a grocery store in 1887 in the Netherlands and expanded aggressively through acquisitions across Europe and North America throughout the 1990s and early 2000s. However, the company engaged in fraudulent accounting practices including overstating promotional allowances from suppliers and improperly consolidating joint ventures. When the fraud was uncovered in 2003, Ahold had to restate financials for 2000-2001, eliminating billions in reported profits. The company's stock price plummeted 60% and its credit rating was downgraded to junk status as it faced major fallout from the accounting scandal.

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    Royal Ahold

    Uploaded by

    gayatrichaudhary
    140 views13 pages
    Royal Ahold started as a grocery store in 1887 in the Netherlands and expanded aggressively through acquisitions across Europe and North America throughout the 1990s and early 2000s. However, the company engaged in fraudulent accounting practices including overstating promotional allowances from suppliers and improperly consolidating joint ventures. When the fraud was uncovered in 2003, Ahold had to restate financials for 2000-2001, eliminating billions in reported profits. The company's stock price plummeted 60% and its credit rating was downgraded to junk status as it faced major fallout from the accounting scandal.

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    Royal Ahold started as a grocery store in 1887 in the Netherlands and expanded aggressively through acquisitions across Europe and North America throughout the 1990s and early 2000s. However, the company engaged in fraudulent accounting practices including overstating promotional allowances from suppliers and improperly consolidating joint ventures. When the fraud was uncovered in 2003, Ahold had to restate financials for 2000-2001, eliminating billions in reported profits. The company's stock price plummeted 60% and its credit rating was downgraded to junk status as it faced major fallout from the accounting scandal.

    Copyright:

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    140 views13 pages

    Royal Ahold

    Uploaded by

    gayatrichaudhary
    Royal Ahold started as a grocery store in 1887 in the Netherlands and expanded aggressively through acquisitions across Europe and North America throughout the 1990s and early 2000s. However, the company engaged in fraudulent accounting practices including overstating promotional allowances from suppliers and improperly consolidating joint ventures. When the fraud was uncovered in 2003, Ahold had to restate financials for 2000-2001, eliminating billions in reported profits. The company's stock price plummeted 60% and its credit rating was downgraded to junk status as it faced major fallout from the accounting scandal.

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    ROYAL AHOLD

    Presented By:
    • Ankita Bora - 410

    • Vinod Morya - 451

    • Smriti Gupta - 428

    • Sheetal Chaudhary - 412

    • Swaty Sharma

    • Binay Tiwari

    • Shankar Votavat
    COMPANY BACKGROUND
     In 1887, Albert Heijn started a grocery store in Zaamdam,
    Netherlands
     Ahold was listed in Amsterdam Stock Exchange in 1974
     Started a Self-Service Super market in Rotterdam 1955
     Known for quality & value for money
     Ahold operates in two market sectors- Food retail & Food
    service
     Operations in 27 countries throughout Europe & North
    America, South America, & Asia
     It employs 4,50,000 people in 9000 stores with a customer
    base of 40 million
    EXPANSION
     Aggressive international expansion plan
     Aimed to achieve 15% annual growth
     Ahold acquired Spanish super market & Bi-lo Chain in
    1976
     Joint ventures with 3000 stores across Northern Europe
     1150 stores across Southern & Central Europe
     Largest operation in Spain with 600 stores
     From 1993-2002 they spent 19 billion euros to buy 50
    companies
    EXPANSION
     Borrowed 12 million euros for the expansion
     Ahold got the recognition of the world’s 3rd largest
    retailer
     Ahold operated in US with 1600 stores
     By 1996 bought American giant “Stop & Shop” chain
     Diversified by acquiring US food service for 2.6 billion
    dollars & PYA/Monarch for 1.6 billion dollars
     It was the largest food provider in Netherlands & one of
    the largest in US
    AHOLD AQUISITIONS
    ISSUES
     Promotional Allowances
     They are rebates that vendors pay to companies like USF for

    committing to purchase a given volume


     USF’s executives provided false information to Deloitte

    auditors by persuading suppliers to confirm to overstated


    rebates in letters.
     These discounts are supposed to be deducted as COGS from

    P&L
     Company:
     included discount rebates as profits
     entered larger discounts than had been agreed with suppliers
     incorporated the discounts at the wrong time period
     forced suppliers to inflate profit through market dominance
    ISSUES
     Improper consolidation of Joint Ventures
     Showed fully consolidated several JV’s though the

    ownership was not > 50% of voting shares


     It never had the management control to allow full

    consolidation
     Company gave side letters to independent auditors to

    show full control on JV


     Retraction of side letters after execution
    ISSUES
    OVERSTATED NET SALES AND OPERATING
    INCOME
    YEAR/PARAMET 1999 2000 2001
    ER (BN EURO) (BN EURO) (BN EURO)

    NET SALES 4.8 10.6 12.2

    OPERATING 222 448 485


    IMCOME
    PARTIES INVOLVED
     CEO- Cees Van Der Hoeven
    - Acquired non-core and low profitable business
    - Influenced the suppliers to fudge the accounts
     CFO- Michiel Meurs
    - Improper consolidation of Joint Ventures
     Suppliers- assisted in inflating profit figures
     Purchasing Executives- Timothy Lee and William Carter who
    manipulated and accelerated income
     CMO – Mark P Kaiser facilitated use of promotional allowances
     CEO of Argentina retail chain – Eduardo Oreu
     Finance Director – Jose Sanchez
    EARNING DISCREPANCIES
     Ahold relied on acquisitions to achieve 15% target
     Dutch Gaap – Goodwill purchased was immediately charged
    gainst stockholder’s equity
     US Gaap – Goodwill was capitalized and amortized over a
    period of time impacting earnings
     Ahold paid more relative to the book value of companies
     This led to a significant increase in gap between US and
    DUTCH GAAP
     It reported 16% growth in Dutch Gaap while 17% decline in US
    gaap
     As majority of the shareholders were Dutch, these gaps
    remained unexplained
    IMPACT
     When the fraud came to light Ahold had to restate the
    financials for the year 2000 and 2001
     Earnings in 2000 went down to 442 million euro from 1.115
    billion euro
     Similarly in 2001, earnings dropped from 1.113 billion profit
    to 254 million loss
     Ahold’s auditors suspended 2002 year audit pending the
    completion of investigations
     Ahold’s stock price fell 60% in a single day
     S&P too downgraded Ahold’s credit rating from BBB to junk.
    STOCK PRICE PERFORMANCE
    AHOLD’S CONSOLIDATED STATEMENTS

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