Levarht's bankruptcy in 2022 was unexpected. The company, founded in 1933, had never been in the red. Yet the trustees' investigations suggest that it was not entirely unexpected that Levarht went bankrupt. In a new bankruptcy report, the trustees point to a confluence of circumstances and stress that the directors are not being blamed for any wrongful acts.
Gross margins at the major vegetable business had been falling for some time, so an "extremely bad year" in 2021 cost the company its head. Levarht himself did not see the danger until it was too late, partly because a new ERP system had been implemented. By September 2021, when the board had a good grasp of the financial situation, it was already too late.
The implementation of the new ERP system did not go entirely well, but the trustees do not blame the board. An external party had been hired for it. Blaming the board would imply, according to the trustees, that things should have been done differently, and they believe, after the investigation, that this is not the case here.
Centralisation Aldi procurement policy
A negative result before tax of -€9.7 million was realized for 2021. That is over €11 million worse than in 2020 when a limited profit of €1.3 million was realized. The root cause analysis reveals that Levarht suffered from, among other things, a falling volume of overseas trade, a changing product mix due to the coronavirus pandemic, and the centralization of Aldi's purchasing policies.
Levarht was active in the European market and overseas markets such as Asia, North America, and the Middle East, and also supplied Aldi for the Netherlands, Belgium, and Germany. The company operated in a "high volume, low margin" market. This is reflected in the relatively low but fairly stable gross margins over the years 2017-2020, which were between about 9% and 10%.
The highest margins were achieved in overseas trade, ranging from 4.2% for Asia in 2020 to 7% in the Middle East in the same year. The coronavirus pandemic limited tourism and also air cargo capacity. As a result, overseas trade declined.
Margins in Europe were much smaller, against much higher volumes. In 2020, the margin dropped below zero: -0.5%, where it was 0.2% in 2019 and -1.3% in 2018. Volume growth in Europe could not offset the more lucrative overseas trade.
The story of low margins has similarities with another major bankruptcy in the AGF trade, from 2019 when Quality Queen went bankrupt. Here, the trustee at the time noted that the trading company was in a "stifling squeeze between growers and supermarkets".
Extra costs due to logistics
The product mix at Levarht changed not only because of the coronavirus but also due to the receivers' note based on the financial investigation. Whereas Levarht previously supplied mainly Aldi Netherlands and Aldi Belgium at "acceptable gross margins," centralization meant the company also had to supply Aldi Germany. Its logistics were not geared for that. Deliveries to Aldi Germany required the use of external transport services, where sometimes trucks were only partially loaded. Levarht also had to compete with German companies that were able to fully load their trucks.
Quality problems
Two other reasons for Levarht's financial difficulties were quality problems with three product groups in 2021: melons, grapes, and peppers. It is common for the quality of a product group to disappoint in a single year, but the disappointing quality of three product groups in one year is above average. This also meant that there were more sales credits, and the tipping tonne was high.
Failure costs
Another factor that negatively impacted the gross margin was failure costs in the supply chain. The purchasing, sales, production, and logistics departments were not well aligned. Inefficient inventory management and poor coordination between departments, for instance, led to Levarht having to opt for expensive last-minute transport options or split deliveries to get products to customers on time. These rushed and/or split deliveries resulted in additional costs. Another example is when the commerce department took on an order that the logistics department could not fulfill without incurring additional costs beyond the price agreements with the customer.
Lack of cooperation and experience
Gross margin fell, and staff costs rose. This had been the case since at least 2017, and in 2021 costs rose further, mainly due to the introduction of a new ERP system. This system required additional staff, resulting in increased costs.
Stakeholders were also interviewed for the study. Among other things, the departure of an experienced employee in the pepper product group was mentioned as an additional challenge within the company, where people further struggled with consistent cost-price calculations. It happened that melons or cucumbers, for example, were purchased without accurate calculations of margin, among other things. This led to some products being loss-making, despite significant sales volumes. Levarht also had limited insight into daily price fluctuations, especially for products that relied heavily on international markets and exchange rate fluctuations. To help with this, they engaged external advisers, among other things.
Payment of creditors
In the regular bankruptcy report, the trustees reflect on the further handling of the Levarht bankruptcy. Levarht Dubai is virtually dissolved. Work is still ongoing to collect money from the last debtors. A settlement has been reached with one debtor, and a payment arrangement has been made with another. USD 650,000 is expected in the short term. This would largely complete the debtor collection.
Over EUR 1 million was paid out to preferential creditors, including former employees, at the end of last year. The trustees aim to settle Levarht's bankruptcy as soon as possible. However, this will depend on how quickly the last debtors' claims can be settled. If agreements with debtors are met, the trustees expect to start preparing for the final settlement of the bankruptcy in the second quarter of 2025.
Mr M.R. van Zanten and Mr M.N. de Groot from Amsterdam have been appointed as trustees. The bankruptcy, pronounced on 28 February 2022, is registered under reference: 13. ams.22.43.F.1306.1.22.
