Ahold Profit Up 46%, But Warns of Continuing Market Challenges
Income from continuing operations decreased by 1.9% to € 252 million, reflecting higher income taxes, partially offset by increases in operating income and our share in income of joint ventures.
Jun 3 2010 --- Retailer Ahold has published its interim report for the first quarter 2010. CEO John Rishton said: “Our repositioning actions in recent years and our customer focus have enabled us to increase volumes and improve market share in the Netherlands and the United States and deliver another quarter of solid performance. The market continues to be challenging with customers focused on value and high levels of promotional activity. Despite these conditions, we remain confident in our ability to balance sales and margins and to continue providing value to our customers."
Net sales were € 8.7 billion, up 1.0%, positively impacted by the business acquisitions in the quarter. At constant exchange rates, net sales increased by 3.4%. Operating income was € 409 million, up 3.3%. Retail operating income was € 429 million and retail operating margin was 4.9% compared to 4.8% in Q1 2009. Underlying retail operating margin was 4.9%, unchanged from last year. Corporate Center costs were € 20 million for the quarter, up € 2 million. Excluding the impact of the Company’s insurance activities, Corporate Center costs were € 24 million, € 1 million higher.
Income from continuing operations decreased by 1.9% to € 252 million, reflecting higher income taxes, partially offset by increases in operating income and our share in income of joint ventures. Income taxes included € 15 million of one-time charges, mainly arising from true-ups of deferred tax balances, compared to € 15 million of tax benefits in the first quarter of 2009.
Net income was € 274 million, up € 86 million, caused primarily by year over year changes in Ahold's estimate of its net provision for losses under lease guarantees to its former subsidiaries BI-LO and Bruno's. During Q1 2010 income from discontinued operations reflects a decrease in the estimate of these losses of € 25 million in contrast to Q1 2009 when Ahold's initial estimate of losses under these guarantees resulted in a net charge of € 66 million.
Free cash flow was € 356 million, € 218 million better than last year, mainly due to higher operating cash flows from continuing operations of € 126 million and higher dividends from joint ventures of € 84 million. Net debt increased by € 173 million during the quarter to € 890 million. The positive free cash flow of € 356 million was more than offset by business acquisitions of € 158 million, the purchase of existing term loans of BI-LO of € 190 million (these were subsequently repaid in the second quarter), additional finance leases of € 61 million resulting from acquisitions, and currency impact.
Net sales fpr Ahold USA were $ 7.1 billion, up 4.2%, partly due to business acquisitions, mainly Ukrop’s ($ 99 million). Identical sales were up 1.7% (down 0.1% excluding gasoline). Operating income was $ 295 million (or 4.2% of net sales), down $ 18 million. Price investments and higher operating costs related to acquisitions and reorganization negatively impacted the operating margin. Specifically, operating income included losses in the quarter of $ 12 million relating to the newly acquired Ukrop’s stores (including conversion costs), a $ 12 million charge resulting from the alignment of inventory valuation across the newly formed U.S. divisions and $ 5 million of IT integration costs. Operating income last year included a non-recurring rent charge of $ 15 million. Underlying operating margin was 4.2% compared to 4.6% last year.
Net sales in The Netherlands increased 3.7% to € 3.1 billion. Identical sales were up 2.8%. Operating income of € 214 million (or 6.9% of net sales) was up € 25 million compared to last year. Operating income included an € 8 million benefit arising from accrual reversals. Underlying operating margin was 6.9% compared to 6.2% last year.
