Koninklijke Ahold NV Earnings Call Insights: Pick-up Point Performance and Dutch Inflation

Koninklijke Ahold NV (OTC:AHONY) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Pick-up Point Performance

Marco Gulpers – ING: I’ve got three questions if I may. The first is on the performance of the pick-up points both in Etos and in the Netherlands. Could you update us on what the performance actually is in terms of identical sales growth? The second is, could you update us on what the performance is in the Netherlands region of Gall & Gall and also Etos franchise? And the third is basically what are you seeing in the U.S. in terms of price investments of some of your peers like Wal-Mart and ShopRite?

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Dick Boer – CEO: Your first question on the performance of pickup points, it’s hard of course to give identical numbers, because most of them are just opened for last year. So, not that many have already identical sales growth. So that’s first of all – if you look at the performance, certainly the ones we have opened in the Netherlands have a clear great track record from customers. We got yesterday a number that we already have 50,000 transactions over – I don’t think, five, six pickup points we have opened now. So that tells something; however – we started the first one was just before the Christmas period; sort of tells something how the customers really like these pickup points. In the U.S. a little bit different I would say. We have opened 19 now, but there, of course, they combined all with the stores. So, we’re reviewing at this moment our marketing campaigning around it, but it’s clearly and we have experienced that in the past already, which our Giant stores pickup points were already used. That is clearly also answering customer demand. On Gall and Etos, both of course are more in a market where you have more discretionary (spend) of customers. We had, of course, is (Gall & Gall), a firm increase of our excise taxes on the beginning of this year, where they’re still keeping up, gaining market share. In that market, they are clearly the number one in the liquor market but also expanding rapidly in wines, and I think their performance was outstanding last year, and although with the increase of tax, they still performed better than the market. Etos was clearly suffering a bit last year and the markets, first of all, I would say also from a commercial perspective not the right commercial activities in promotions at that moment. I think they reviewed (that a lot) and revised it back to a more aggressive promotions and also the change they have made on the computer systems. Because they were implementing new systems – it has now start helping them at least to manage that of their stores and also their stock level, so both I think are improved. Then your last question is on price investments. Yeah, I would tell you that’s not changed last year, this year or even next year I think. There is continuation, of course, in American market as it is in the Dutch market on price investment by competitors and we are answering that in the right way or at least with a different impact in our markets. As I mentioned, for instance, New York where ShopRite is a big competitor. We have clearly a very good performance and not only of course, for ShopRite but certainly also for the rest of the supermarket.

Dutch Inflation

Fernand De Boer – Petercam: It’s Fernand De Boer from Petercam. Two questions if I may. First, inflation on the Netherlands picked up to about 4%. What is actually driving that inflation and do you see that coming off in the coming months? And the second question is on the pension situation in the Netherlands then. Could you say something about the financial position of your pension fund in Netherlands, if it has such an impact on your equity of EUR800 million, what does it mean for the coverage ratio?

Dick Boer – CEO: I’ll leave the pension question to Jeff and answer on inflation. It depends a bit on how you look at inflation, if the consumer prices is quite high, but it’s also driven by CET increases and excise taxes adjustment, so the real inflation for us is clearly lower and that’s why you see a net sales growth for the Netherlands, a lower number, but let’s be honest, I think for the perception of customers, inflation is rather high, but as I said mainly driven or partly driven also by our tax increases, our excise tax and CET increases.

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Jeff Carr – Chief Financial Officer: On pensions, I think it’s important to distinguish between the (statutorial) obligations and the funding requirements of the pensions and the accounting changes. From a statutory funding perspective, the Dutch pension plan was, I believe the number was funded at about 119% level, which is in a fairly healthy state. As a consequence to that, our cash contributions into the Dutch plan were broadly in line with last year – will be broadly in line with last year – this year, so there is no increased cash contribution requirements. So, I think you have to distinguish that from what happened with the accounting changes and the accounting changes meant effectively with the elimination of the corridor method meant that balances previously held on the balance sheet were just written off directly to equities. So that’s a one-off change which we’ve taken into account and also the lower discount rates from an accounting perspective mean that the charge in the P&L has increased, and that’s a non-cash charge. But over time, I think, we will probably stick my neck out, likely to be able to say that 2012 was a low point in terms of discount rates. Already in the first quarter we have seen a slight increase in discount rates which would imply a lessening of that situation going forward in 2014 potentially.