2 www.ahold.com/reports2008
How we manage risk
Governance
AHOLD ANNUAL REPORT 2008 27
Ahold faces business continuity risks in relation to its
dependence on a limited number of centralized facilities,
IT systems and key personnel to support its critical business
processes and functions
Several of Ahold's critical business processes and functions are
concentrated in a limited number of centralized facilities and/or
are dependent on IT systems and infrastructure and key
personnel for which Ahold has limited or no comparable back-up
available. If any of Ahold's critical business processes or
functions or those of key strategic suppliers are interrupted by
catastrophic events (such as natural disasters, pandemic illness,
IT or outsourcing failures), which render facilities, critical IT
systems or infrastructure or key personnel unavailable, Ahold
could experience disruption to its supply chain, store and
administrative operations. We continue to invest in disaster-
recovery plans and security initiatives to protect our facilities
and the technology systems supporting our critical business
processes and take steps to mitigate the dependency risks
associated with our key strategic suppliers. However, these
measures cannot fully prevent business interruptions that could
have a material adverse effect on our financial position, results
of operations and liquidity.
Ahold faces risks related to food and product safety
The growing internationalization of our supply chain, the
increased penetration of Ahold's own brand products in its
assortment and increasing levels of regulatory and consumer
focus continue to render food and product safety one of
Ahold's most significant business risks. Although Ahold's
food and product safety policies and practices address the
complete supply chain, from farm and production level to
Ahold's own operations, we may still face food and product
safety problems, including disruptions to the supply chain
caused by food-borne illnesses, which may have a material
adverse effect on Ahold's reputation, sales, financial position,
results of operations and liquidity.
Ahold faces risks related to corporate responsibility
Increasing transparency, regulatory demands and stakeholder
awareness, and the growing sentiment that large retailers need
to address environmental and sustainability issues across the
entire supply chain, mean that Ahold's brand and reputation
may suffer if it does not adequately manage the range of
corporate responsibility issues affecting the food retail industry.
Furthermore, our operational and cost competitiveness may be
adversely affected if we fail to effectively increase the fuel and
energy efficiency of our operations and reduce waste. Ahold
continues to develop a broad range of coordinated and focused
programs to address issues such as climate change, energy
efficiency, waste reduction, labor standards in the supply chain,
sustainability, healthy living, community engagement and
corporate responsibility reporting. If these programs are not
successful or are otherwise inadequate, Ahold's reputation
and competitive position could be adversely affected. See
Ahold's Corporate Responsibility Report 2008 for additional
information about Ahold's policies and programs in the area
of corporate responsibility.
Financial risks
Currency translation risks and currency transaction risks
Ahold is exposed to foreign currency translation risks and
currency transaction risks relating to cash flows, including lease
payment obligations, dividends and firm purchase commitments
and assets and liabilities denominated in foreign currencies.
A substantial portion of our assets, liabilities and results of
operations are denominated in foreign currencies, primarily
the U.S. dollar. Ahold is therefore subject to foreign currency
exchange risks due to exchange rate movements as a result of
translating the financial results of our foreign subsidiaries into
euros for inclusion in its consolidated financial statements.
Although we manage our foreign currency exchange exposure
by borrowing in local currency and entering into forward
contracts and currency swaps, we cannot fully eliminate
currency exchange rate risk. Currency exchange rate volatility
and movement could therefore have an adverse effect on our
financial position, results of operations and liquidity. For
additional information concerning Ahold's use of financial
instruments and derivatives, see Note 29 to the consolidated
financial statements.
Ahold faces credit risk with respect to certain financial
instruments
Ahold is exposed to credit risk related to its cash and cash
equivalents (which are primarily invested in money market
funds) and derivative financial instruments. Cash and cash
equivalents amounted to EUR 2.9 billion and total derivative
financial assets amounted to EUR 267 million as of December
28, 2008. Derivative contracts are entered into primarily under
standard terms and conditions of the International Swap and
Derivatives Association. Counterparties for cash and derivative
transactions are limited to high credit-quality financial
institutions with an externally validated investment-grade credit
rating. Ahold has policies that limit the amount of counterparty
credit exposure to any single financial institution or investment
vehicle and these exposures are continually monitored. However,
there is no guarantee that all third parties will be able to honor
their obligations to us in full, and any default could have a
material adverse effect on our financial position, results of
operations, and liquidity. The maximum exposure to credit risk
is represented by the carrying amounts of the financial assets in
the consolidated balance sheet. For further information, see
Note 29 to the consolidated financial statements.
