Ahold was originated in Zaandam, Holland 1887 Albert Heijn Store Count reached to 23 1897 Presence in different parts

rts of Holland.

1911

Albert Heijn Branded products were launched.

1948 Albert Heijn was listed on Amsterdam stock Exchange 1955 Opened first self service supermarket chain Heijn Family established Ahold with Albert Heijn as its subsidiary. 1973 Entered into specialty retailing with Alberto and Etos

AHOLD

Feb 24, 2003 announced overstated profits by 1 bn euros b/w Jan 2000 and Sep 2002

Nov 2005 - Compensation to shareholders worth $1.1 bn. Dutch Investors Association(VEB) were convinced. In 2003 rescued by banks in liquidity crunch. In 2004 new mgt. embarked revival program Road to Recovery.

AHOLD

1951 to 1980- Holland based Van Amerongen Store Chain, BI-LO Supermarket Chain in US, Giant Food Stores(Carlisle, Pennsylvania). 1982 to 1992- Finast based in Ohio, Mana (wholly owned supermarket chain) renamed Albert, Acquired Tops market, JV with Jeronimo Martins to form JMR. 1994 to 1998- 55 Red food Stores, Mayfair and Stop & Shop, Entered Other countries, JV with Velox Retail Holdings, Major stake in Disco Supermarket (Argentina) and Santa Isabel (Chile, Peru and Paraguay) 1999 & Onwards- Partnered with La Frugua, JV with ICA Group. Acquired US Foodservices and 150 Supermarkets in Spain.

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

Borrowed 12 million euros for the expansion Ahold got the recognition of the worlds 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

Spain 623 stores Supersol, HiperDino, Netto, HiperSol, Cash Diplc Denmark 12 stores ISO Norway 1,104 stores Rimi, ICA, Maxi

Slovakia 2 stores Hypernova

Portugal 198 stores Pingo Doce, Feira Nova

Czech Republic 203 stores Albert, Hypernova

Poland 165 stores Albert, Mega, Hypernova Lithuania 38 stores Rimi, Eko

Netherlands 2,333 stores Albert Heijn, Etos, De Tuinen, Jasmin, Gall&Gall, C1000, Ter Huurne

Sweden 1,846 stores Rimi, ICA, Maxi

Estonia 3 stores Rimi

Latvia 26 stores Rimi, Maxi

Before the acquisition of USF, Ahold was mainly involved in retail activities in the US
U.S. Foodservice is the second-largest food distributor in the United States. Ahold bought U.S. Foodservice in April 2000 for $3.6 billion. It accounts for 47 percent of Ahold's U.S. operations and 34 percent of its total sales. U.S. Foodservice markets and distributes a wide range of national and private label items to over 143,000 foodservice customers, including restaurants, hotels, healthcare facilities, cafeterias and schools.

US Foodservice Executives Colluding With Employees At Sara Lee Corporation. US Foodservice Was Given Rebates By Sara Lee For Selling Their Products Accused Employees Overstated The Rebates And Took Bonus From The Company.

OVERSTATED NET SALES AND OPERATING INCOME

YEAR/PARAMETER 1999 (BN EURO) 4.8 2000 (BN EURO) 10.6 2001 (BN EURO) 12.2 NET SALES

OPERATING INCOME

222

448

485

Executives At Sara Lee And Other Companies Who Are Involved In The Scandal Misled The Auditors Regarding The Value Of Rebate US Foodservice Included The Overstated Rebates In Its Annual Accounts Which Inflated Their Earnings Its Auditors (D&T) Warned AHOLD About The Inappropriateness Of The Accounting Practice, But Continued To Approve Its Accounts

In 2003 Ahold Announced That Its Earnings For 2002 Was Overstated And Financial Statement For The Year 2000 And 2001 Did Not Reflect The True Accounts Ahold Shareholders Filed A Suit Against The Company For Compensation The News Of Overstatement Of Accounts, News Of Fraud At Some Of AHOLDS Other Operating Companies Also Came To Light

Promotional Allowances USFs 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

Improper consolidation of Joint Ventures Showed fully consolidated several JVs 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

Neutral rating on Aholds stock. Beginning of the End. Paid fine of euro 8mn according to Dutch Law. Found three former executives guilty of Royal Ahold. Lawsuit by share Holders. Resignation from executives. SEC filed fraud charged against former executives of US Foodservice. Long term debt downgraded to BB+. Share price went to below US$ 5. SEC charged two KPMG Auditors for improper record of allowances. Filed enforcement against several individuals for signing wrong confirmations.

New CEO Anders C. Moberg who launched Road TO Recovery on Nov 7 2003 Included financial planning and for profitability. To mobilized resources by selling Non-core Assets.

AGM on Nov 26, 2003

Dutch lawyer WAKKIE appointed as Aholds chief corporate governance counsel to oversee the business practice of the group. Shareholder approved for Rights Issue and restated financial statement of 2002.

Under debt of euro 12 bn.

High salary to Moberg. How to Raise a fund.

Two options: sold US foodservice or rights issue.

Check for sound Management principles. Primarily Focused on Two areas: financial mismanagement at US food Service and inappropriate consolidation in the account of Ahold. Two other issues: Aholds Discretion in acquiring US foodservice. Control over the Operating companies. On Nov 28,2005, Worldwide settlement with shareholders.

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

Ahold relied on acquisitions to achieve 15% target Dutch Gaap Goodwill purchased was immediately charged gainst stockholders 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

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

Aholds auditors suspended 2002 year audit pending the completion of investigations
Aholds stock price fell 60% in a single day AND S&P too downgraded Aholds credit rating from BBB to junk.

Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation (or company) is directed, administered or controlled The principal stakeholders are the shareholders, the board of directors, employees, customers, creditors, suppliers, and the community at large Key elements of good corporate governance principles include honesty, trust and integrity, openness, performance orientation, responsibility and accountability, mutual respect, and commitment to the organization After the scams of WorldCom, Enron and recently Satyam Corporate governance became an important part of every organization

Absence of any mechanism for centralization or decentralization of operations and management Failure of reward system
Failure of strategic planning process

Inefficient internal controls

Correcting responsibility structure

Loss of credibility & trust tarnishes an image of the company

Ahold though managed to pull itself from the brink of bankruptcy We dont see any difference between political scandals and their counterparts in private offices For us maintaining ethical standards is critical for development of any society and that is the ultimate profit which any society can cherish