How we manage risk
31 www.ahold.com/reports2008
Governance
AHOLD ANNUAL REPORT 2008 26
Strategic risks
Ahold may not be able to successfully implement its strategy or
achieve the anticipated benefits due to adverse macroeconomic
conditions and competitive pressures
Ahold's strategy for profitable and sustainable growth has
several main areas of focus. We have realigned our portfolio
to focus on our core retail businesses in the United States
and Europe. We are building our individual retail banners
into powerful local brands. We have put in place a continental
organization aimed at ensuring that management decisions
are made at the most appropriate level and that economies
of scale and best practices can be effectively leveraged to
support our local operating companies. Other elements of
our strategy include meeting our financial targets (including
a EUR 500 million cost reduction program), and bringing a
more focused and coordinated approach to our corporate
responsibility program. For additional information on our
strategy, see Our Strategy in this Annual Report. However,
Ahold is subject to a number of risks, mainly macroeconomic
and competitive, that may impair our ability to effectively
implement our strategy or realize the anticipated benefits.
The current global economic downturn is impacting all
of the economies and markets in which we operate. Rising
unemployment is increasing pressure on consumer confidence
and disposable incomes and, in conjunction with underlying
food and fuel price volatility, may negatively impact customer
demand despite the price investments we have made through
our value improvement programs. The liquidity crisis is
restricting the availability of credit, which may negatively impact
customer demand or cause the failure of key suppliers or
otherwise disrupt our supply chains, impacting the cost and
availability of goods. The increased pressure on retail margins
being experienced in the current economic climate may also
result in our competitors taking aggressive competitive actions.
Any of these factors or other unforeseen effects of the current
macroeconomic climate could impair the effectiveness of our
strategy. This could reduce the anticipated benefits of our price
repositioning and cost savings programs or our other strategic
initiatives and may have a material adverse effect on Ahold's
financial position, results of operations and liquidity.
Operational risks
Ahold might not be able to negotiate future collective
bargaining agreements on acceptable terms, which could
result in work stoppages
A significant portion of Ahold's employees are represented by
unions and are covered by collective bargaining agreements.
As the collective bargaining agreements with those unions
expire, Ahold might not be able to negotiate extensions or
replacements on terms acceptable to the Company. Although
we consider our relations with the relevant trade unions to be
stable, any failure of our operating companies to effectively
renegotiate these agreements could result in work stoppages
or other labor actions. Ahold may not be able to resolve any
issues in a timely manner and its contingency plans may not
be sufficient to avoid an impact on the business. The failure
of one or more of its operating companies to renegotiate
collective bargaining agreement on acceptable terms could
have a material adverse effect on Ahold's financial position,
results of operations and liquidity.
Ahold faces risks related to IT outsourcing
Ahold outsources various IT services in the United States
and the Netherlands and is dependent on its outsourcing
service provider for these services. We may encounter
unforeseen technical or service level delivery difficulties with
our outsourced IT services. We may be unable to resolve such
issues or resolving them may lead to cost increases and distract
management attention. Although Ahold has a right to conduct
audits to determine the functionality of these outsourced
services, it may face disruptions to its IT applications and
infrastructure if outsourced IT systems fail to perform as
specified or if the parties that provide these services do not
fulfill their obligations. Any failures could potentially have a
material adverse effect on Ahold's financial position, results
of operations and liquidity. In addition, IT outsourcing might
not achieve the expected benefits and cost savings or fail to
achieve them as quickly as expected.
Ahold faces risks related to information security
Ahold's business operations generate and maintain confidential
commercial information and personal information concerning
customers and employees. Ahold has an information security
policy to ensure the confidentiality, integrity and availability
of this kind of information. We have tools in place to support
compliance with this policy and to monitor compliance.
However, disclosure of confidential commercial or personal
information may negatively impact Ahold's competitive position
and corporate reputation, result in litigation or regulatory action
and have a material adverse effect on Ahold's financial position,
results of operations and liquidity.
