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Notes to the consolidated financial statements
30 Financial risk management and financial instruments - continued
Financials
Foreign currency sensitivity analysis
Approximately 64 percent of Ahold's net sales is generated by subsidiaries whose activities are conducted in a currency other than the
euro (2008: 65 percent), mainly in the U.S. dollar. Assuming the euro had strengthened (weakened) by 10 percent against the U.S. dollar
in 2009, with all other variables held constant, the hypothetical result on income before income taxes would be a decrease (increase) of
€53 million (2008: €38 million).
Interest rate risk
Ahold's interest rate risk arises primarily from its debt. To manage interest rate risk, Ahold has an interest rate management policy aimed
at reducing volatility in its interest expense and maintaining a target percentage of its debt in fixed rate instruments. Ahold's financial
position is largely fixed by long-term debt issues and the use of derivative financial instruments such as interest rate swaps and cross-
currency interest rate swaps. As of January 3, 2010, after taking into account the effect of interest rate swaps and cross-currency swaps,
approximately 96 percent of Ahold's long-term borrowings are at fixed rates of interest (2008: 96 percent).
Interest rate sensitivity analysis
The total interest expense recognized in the 2009 income statement related to the variable rates of long-term debt, net of swaps, amounts
to €13 million (2008: €28 million). The Company estimates that with a possible increase (decrease) of euro and U.S. dollar market
interest rates of 25 basis points with all other variables (including foreign exchange rates) held constant, this would result in a hypothetical
effect on income before income taxes of a loss (gain) of nil (2008: €1 million). In addition, a hypothetical result relating to fair value
movements of derivative hedges that do not qualify for hedge accounting would have been a loss of €4 million or a gain of €5 million,
respectively (2008: a loss of €5 million or a gain of €5 million, respectively). In performing this analysis, the effect was limited to a point
where the absolute value of the reference interest would not decrease below 0 percent.
The total interest income recognized in the 2009 income statement related to variable rate money market fund investments and deposits
amounts to €27 million (2008: €95 million). The Company estimates that with a possible increase (decrease) of euro and U.S. dollar
market interest rates of 25 basis points with all other variables (including foreign exchange rates) held constant this would result in a
hypothetical effect on income before income taxes of a gain (loss) of €5 million (2008: a gain of €6 million or a loss of €5 million,
respectively). In performing this analysis, the effect was limited to a point where the absolute value of the reference interest would not
decrease below 0 percent.
The above sensitivity analyses are for illustrative purposes only as, in practice, market rates rarely change in isolation of other factors that
also affect Ahold's financial position and results.
Credit risk
Ahold has no significant concentrations of credit risk. Sales to retail customers are made in cash, checks, and debit cards or via major
credit cards. Sales to franchisees are done on credit. Derivative counterparties and cash transactions are limited to high-credit-quality
financial institutions' products. Ahold invests in funds with a rating of AAA (Standard Poor's). With respect to credit risk, derivative
contracts with counterparties are entered into primarily under the standard terms and conditions of the International Swap and Derivatives
Association. The counterparties have 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 continually monitors these exposures.
The maximum exposure to credit risk is represented by the carrying amounts of the financial assets on the balance sheet (refer to the
table on fair values of financial instruments below in this Note). The maximum net amount of a credit risk loss that Ahold would incur
if financial institutions that are parties to the derivative instruments completely failed to perform according to the terms of the contracts
is €211 million as of January 3, 2010 (December 28, 2008: €158 million).
The majority of Ahold's past due but not impaired financial assets as of January 3, 2010 consists of receivables and is past due in less
than three months. The concentration of credit risk with respect to receivables is limited as the Company's customer and vendor base is
large and unrelated. As a result, management believes there is no further credit risk provision required in excess of the normal individual
and collective impairment, based on an aging analysis, performed as of January 3, 2010. For further discussion on Ahold's receivables,
see Notes 15 and 17.
Liquidity risk
Ahold manages its liquidity risk on a consolidated basis with cash provided from operating activities being the primary source of liquidity
in addition to debt and equity issuances in the capital markets, committed and uncommitted credit facilities, letters of credit under credit
facilities, and available cash including net cash from divestments. Ahold manages short-term liquidity based on projected cash flows over
rolling periods of six months. As of January 3, 2010, Ahold had €0.9 billion of committed undrawn bank facilities, which can be drawn
on for working capital and general corporate purposes, €2.7 billion of cash balances and €0.3 billion of short-term deposits available to
manage its liquidity.
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, dividends and scheduled debt
repayment requirements for the next 12 months and the foreseeable future.
Ahold Annual Report 2009 97
