Liquidity and capital resources
Assessment of liquidity and capital resources
Ahold relies on cash provided by operating activities as
a primary source of liquidity in addition to debt and equity
issuances in the capital markets, letters of credit under
credit facilities, the U.S. Foodservice accounts receivable
securitization program and available cash, including
net cash from divestments. The Company's continuous
attention to further improving its financial health has
focused on reducing gross debt level, improving working
capital management, being selective with capital
expenditures, reducing Group Support Office costs, and
raising funds through divestment of non-core businesses
and underperforming assets.
Based on the current operating performance and liquidity
position, the Company believes that cash provided by
operating activities and available cash balances will be
sufficient for working capital, capital expenditures, interest
payments, litigation settlement and scheduled debt
repayment requirements for the next 12 months and the
foreseeable future. Ahold believes its cash resources
anticipated to be provided by the new retail strategy will
be sufficient for the Company's goal to return value to
shareholders and further reduce debt following divestments.
Ahold will continue to assess its liquidity position and
potential sources of supplemental liquidity in view of
its operating performance and planned program of
divestments. The Company has certain off-balance sheet
commitments and contingencies that may have significant
future cash requirements. For additional information about
the Company's commitments and contingent liabilities,
see the discussion in "Contractual obligations" and
"Off-balance sheet arrangements" below and in Note 34
to the consolidated financial statements included in this
Annual Report.
Credit ratings
Ahold's credit ratings are periodically reviewed by credit
rating agencies and communicated to financial markets and
investors. The Company's Road to Recovery strategy and
progress over the past years have positively impacted the
ratings assigned to Ahold by Moody's and S&P. Improving
these ratings is an important part of the Company's new
retail strategy as the credit ratings serve to lower the cost
of funds and to facilitate access to a variety of lenders
and markets.
The following table sets forth Ahold's credit ratings as
of December 31, 2006 and January 1, 2006:
December 31,
2006
January 1,
2006
Moody's
Long-term rating (corporate family rating) Ba1
Outlook Positive
Standard Poor's
Long-term rating (local and foreign issuer) BB+
Outlook Positive
Ba2
Positive
BB+
Stable
On August 5, 2005 S&P raised Ahold's long-term corporate
credit ratings to 'BB+' from 'BB' and assigned a stable
outlook. At the same time, S&P raised the ratings of
Ahold's senior unsecured notes to 'BB' from 'BB-' and
affirmed the Company's 'B' short-term credit rating.
On December 20, 2006 S&P revised its outlook on Ahold
to positive from stable and at the same time affirmed the
'BB+' long-term corporate credit rating and 'B' short-term
credit rating.
On January 16, 2006, Moody's upgraded the Company's
corporate family rating and senior unsecured debt term
rating to Ba1 from Ba2 and maintained a positive outlook.
Cash flows
The Company's successful execution of the Road to
Recovery strategy, resulting in substantial cash generation
primarily from the divestment of non-core businesses and
underperforming assets as well as raising equity in 2003,
enabled a significant reduction of gross debt. Through the
execution of its new retail strategy, the Company believes
that its continued focus on cash flow generation will allow
it to pursue cost reduction opportunities and working capital
efficiencies as well as building a solid profitable retail
platform for funding organic and strategic growth. Cash
proceeds from the divestments planned as a result of the
Company's 2006 strategic review will further strengthen
the Company's balance sheet by reducing gross debt and
creating shareholder value by returning part of the proceeds
to shareholders.
For a further discussion on cash flows, see Note 31 to
the consolidated financial statements included in this
Annual Report.
Net cash from operating activities
In 2006, cash flow from operating activities was
EUR 1.8 billion, a decrease of EUR 46 million compared
to last year due to net payments made in 2006 of
EUR 536 million under the Securities Class Action
settlement. Improved cash generation from operations,
in part attributable to lower working capital requirements,
provided a partial offset.
In 2005, cash flow from operating activities was
EUR 1.9 billion, a decrease of EUR 307 million compared
to 2004 primarily due to a cash contribution of
EUR 236 million that was made in 2005 to the
U.S. pension plans.
Net cash from investing activities
In 2006, net cash used in investing activities was
EUR 790 million, a EUR 983 million higher outflow than last
year primarily due to 2006 acquisitions of EUR 176 million,
mainly related to the acquisition of stores from Konmar
and Clemens Markets, and a EUR 943 million reduction
in divestment proceeds, as compared to 2005.
In 2005, net cash from investing activities was
EUR 193 million, EUR 331 million higher cash inflow than
2004, primarily due to the 2004 acquisition of an additional
stake in ICA, a portion of which was offset by the receipt
of an extraordinary dividend.
Ahold Annual Report 2006 49
