Ahold reshuffle brings extra Q4 charges and job cuts

By Anita Awbi

- Last updated on GMT

Related tags Catering

Dutch retailing giant Ahold will axe 700 jobs from its US
operations as restructuring costs see more than $50 million in
charges added to fourth quarter results.

The world's fourth largest food retail and food service group will reduce its US Foodservice subsidiary workforce by around 2.4 per cent, as the company recovers from a major accounting scandal that continues to consume profits.

The job cuts at its US-based headquarters and distribution centre in Columbia are thought to be part of a broader effort to fix the ailing company, after Ahold agreed last month to pay $1.1 billion to settle a lawsuit stemming from a 2003 profit overstatement.

The 2005 Q4 charges are expected to range between $50m and $60m and are a direct result of the American reorganisation, the company claims.

Expenses associated with the job losses, asset impairments, lease expenses, termination of contractual obligations and other miscellaneous costs will bolster the charge.

Ahold's streamlining and restructuring will eventually produce two separate Foodservice divisions: Broadline, which makes up 85 per cent of US sales, and Multi Unit, which provides food to large chain restaurants.

The company claims the moves will drive annual net sales growth to at least five per cent over the next three years, and achieve an operating margin about three per cent by 2008.

Currently more than 70 per cent of the company's sales are generated in the US, with the Foodservice division bringing in $52m in third-quarter operating profits - up nearly 86 per cent from the same period a year ago.

As the company strives to correct its accounts after financial scandal, an efficiency drive is seen as the most effective way to battle against rising fuel and production costs, while maintaining its competitiveness.

Multi Unit will be given its own brand identity, and should be brought into profitability within the next two years the company claims, causing some speculators to presume this will produce an acquisition target - but only in the long-term.

"After the disposal of non-core activities Ahold has evolved into a changed company, with comfortable balance sheet ratios,"​ Rabo Securities said in a research note.

"However the bulk of Ahold's operations are in the midst of restructuring, making it likely that 2006 will be another transition year."

The $1.1bn legal pay out will settle a US lawsuit with shareholders, compensating them for an overstating of profits two years ago.

The remuneration will be paid to shareholders who purchased stock between July 1999 and February 2003 just before the scandal broke.

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