How we manage risk (continued)
Operational risks
Ahold Annual Report 2012 55
Ahold at a glance
Our strategy
Our performance
Governance
Financials
Investors
Risks related to macro-economic circumstances
The challenging global economic circumstances in recent years have
impacted all of the economies and markets in which we operate -
and a recovery is slow to materialize. High unemployment, reduced
consumer confidence and disposable incomes, and food and fuel
price volatility can negatively affect customer demand. The economic
conditions, including the euro crisis, have restricted the availability
of credit in our markets and are limiting governments' abilities to
implement further fiscal stimuli. This may result in sustained sluggish
growth in customer demand as shoppers remain price sensitive,
and could cause the failure of key suppliers, or otherwise disrupt
our supply chains, impacting the cost and availability of goods.
Inflationary forces impacting cost of goods sold might be difficult
to pass on to consumers.
A collapse of the European banking system as a result of a euro
break-up could disrupt our ability to channel liquidity to our employees
and suppliers. We established a project group that has analyzed the
potential effects of the euro crisis for Ahold and defined mitigating
actions to manage the risks associated.
As a result of the current economic climate, our competitors continue
to take aggressive actions. The competitive landscape is changing as a
result of the entry of new competitors into our markets; consolidation,
as weaker competitors are acquired by stronger players; and the
emergence of new business models. These factors or other unforeseen
effects of the current economic climate could impair the effectiveness
of Ahold's strategy and reduce the anticipated benefits of its price
repositioning and cost savings programs or other strategic initiatives,
and may have a material adverse effect on the Company's financial
position, results of operations and liquidity.
Risk related to large strategic projects
In order to achieve Ahold's strategic agenda and as a result of the
way the Company is currently organized, activities are increasingly
undertaken in the form of projects. The progress of the projects is
monitored closely. If Ahold is not able to deliver on the objectives of
its underlying strategic projects, the realization of key elements of its
strategy may be at risk. This could have a material adverse effect
on Ahold's financial position, results of operations and liquidity.
Risk related to collective bargaining
A significant portion of the employees of Ahold's businesses are
represented by unions under collective bargaining agreements.
As these collective bargaining agreements expire, Ahold's businesses
might not be able to negotiate extensions or replacements on
acceptable terms. Although we consider the relations between Ahold's
businesses and the relevant trade unions to be stable and our
businesses have human resource functions to support such union
relations and collective bargaining negotiations, any failure to
effectively renegotiate these agreements could result in work
stoppages or other organized labor actions. Ahold's businesses may
not be able to resolve any issues in a timely manner and contingency
plans may not be sufficient to avoid an impact on the business. A work
stoppage due to the failure of one or more of Ahold's businesses to
renegotiate a collective bargaining agreement, or otherwise, could
have a material adverse effect on the Company's results of operations
and financial position.
Risks related to information security
Ahold's business operations generate and maintain confidential
commercial and personal information concerning customers,
employees, suppliers and the Company. Our information security
policy mandates that we implement and maintain controls, processes
and tools that ensure confidentiality, privacy and integrity of
confidential and sensitive information. We also manage and monitor
compliance with our policy and with the various legal and regulatory
requirements. In 2012, we updated both our strategic guidelines for
global information security and our global information security policy.
However, disclosure of confidential information to unintended third
parties may negatively impact Ahold's corporate reputation and
competitive position or result in litigation or regulatory action. This
could have a material adverse effect on Ahold's financial position.
Risks related to business and IT continuity
A number 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, key personnel, outsourcing
providers and other key suppliers for which limited or no comparable
back-up is available. If any of these critical business processes or
functions suffer a severe disruption that renders such facilities, critical IT
systems or infrastructure, key suppliers or key personnel unavailable,
Ahold could experience disruption to its supply chain, store and
administrative operations. We continue to maintain and invest in
business continuity management plans and security initiatives for
those facilities and technology systems that support 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 Ahold's revenues, customer perception and reputation.
