Ahold Annual Report 2003
Operating and Financial Review and Prospects
87
Foreign exchange risk management
(in EUR millions)
Nominal amount
Fair value
Foreign exchange sensitivity1
Fair value
-10% FX rates +10% FX rates
Liabilities
Long-term debt including financial lease commitments2
(9,842)
(10,097)
(9,664)
(10,538)
Derivative financial instruments
Foreign exchange derivatives
110
(6)
(9)
(3)
Interest rate derivatives
1,242
36
32
40
Cross-currency interest rate swaps
3,338
517
647
387
Total derivative financial instruments
4,690
547
670
424
The foreign exchange sensitivity excludes foreign exchange derivatives in Brazil CDisThe GDIs are excluded because sensitivity valuations for these instruments cannot be
compared with the other derivative sensitivity valuationsAs of December 28, 2003, we held nominal amounts of EUR 52 million of GDIs.
Including the current portion.
Interest rate risk
We have an exposure to interest rate risk and are most
vulnerable to changes in Euro and US dollar interest rates.
To manage interest rate risk, we have an interest rate
management policy aimed at reducing volatility in our
interest expense. Our financial position is largely fixed by
long-term debt issues and derivative financial instruments
such as interest rate swaps, which allow us to maintain a
target range of floating debt. The following analysis sets out
the sensitivity of the fair value of our financial instruments
to selected changes in interest rates. Fair value represents
the present value of forecasted future cash flows at market
rates. The table below shows the effects of a positive and a
negative shift of 1% in the interest rate on the fair value of
these instruments.
Interest rate risk management
(in EUR millions)
Liabilities
Long-term debt including financial lease commitments2
Foreign exchange sensitivity1
Nominal amount Fair value Fair value
-100 bps +100 bps
(9,842) (10,097) (10,471) (9,731)
Derivative financial instruments
Foreign exchange derivatives 110 (6) (10) (2)
Interest rate derivatives 1,242 36 90 (18)
Cross-currency interest rate swaps 3,338 517 485 549
Total derivative financial instruments 4,690 547 565 529
1 The interest rate sensitivity excludes AROs and GDIs. The AROs and GDIs are excluded because the sensitivity valuation for these instruments cannot be compared with the other
derivative sensitivity valuation. As of December 28, 2003, Ahold held nominal amounts of EUR 52 million of GDIs.
2 Including the current portion.
Commodity price risk
Ahold uses commodity forwards and futures to hedge
against fuel price risk in our U.S. operations. Some
commodity contracts are closed out and cash settled at
maturity, while physical delivery is used for others. As of
year-end 2003, Ahold had two contracts outstanding
that are cash settled for an outstanding notional amount
of 4 million gallons and a fair value of EUR 1 million.
Other derivative instruments
In countries where the local currency is subject to large
fluctuations, we often enter into lease agreements
denominated in currencies that differ from the local
currency (historically, this included the US dollar and
currencies subsequently replaced by the Euro). As a
result, we had embedded foreign exchange derivatives
in certain lease contracts in the Czech Republic,
Slovakia and Poland. Under Dutch GAAP these
embedded derivatives are not accounted for
separately. However, to the extent that the currency
in which the lease payments are made is not the
functional currency of us or the lease counterparty,
these embedded derivatives are required to be
separately accounted for at fair value on the balance
sheet under SFAS No. 133 hedge accounting rules.
The fair value of these embedded derivatives was
EUR (44) million and EUR (17) million as at year-
end 2003 and 2002, respectively.
