How we manage risk (continued)
Financial risks
Ahold Annual Report 2012 56
Ahold at a glance
Our strategy
Our performance
Governance
Financials
Investors
Risks related to food, non-food safety and social compliance
The growing internationalization of the supply chain; the increasing
sale of own-brand products in Ahold's stores, which include vegetables
and other non-branded products; along with increased regulation,
continue to make food and non-food safety and social compliance
important business risks. We have food and non-food product safety
and social compliance policies and practices in place for our
own-brand products, including regular reporting and auditing of
continental performance and third-party certification. However, Ahold
may face product safety or social compliance problems, including
disruptions to the supply chain caused by food-borne illnesses and
negative consumer reaction to incidents, which may have a material
adverse effect on the Company's reputation, results of operations and
financial position.
Risks related to responsible retailing
Increased regulatory demands, stakeholder awareness and the
growing sentiment that large retailers must address sustainability
issues across the entire supply chain mean that Ahold's brands and
reputation may suffer if it does not adequately address relevant
corporate responsibility issues affecting the food retail industry.
Furthermore, if we fail to effectively increase the fuel and energy
efficiency of our operations or fail to reduce waste, our operational
and cost competitiveness may be adversely affected. We continue to
develop a broad range of coordinated and focused programs, as an
integrated part of our reshaping retail strategy, to address issues such
as climate change, energy efficiency, waste reduction, social
accountability, healthy living, community engagement and corporate
responsibility reporting. If these programs are not successful or are
otherwise inadequate, the reputation and competitive position of
Ahold and the Ahold brands could suffer. See Ahold's Responsible
Retailing Report 2012 for additional information about our policies
and programs in this area.
Risk related to social media
Social media may be used by individuals or groups to recommend or
to comment on our company or products. The use of social media
amplifies and speeds up the dissemination of news and information.
This can enable individuals and groups to generate public support for
issues, campaigns or boycotts more quickly and on a much larger
scale. At the same time, online communications are becoming more
important for our business and social media is increasingly being used
to support our customer loyalty initiatives. We have prepared social
media guidelines and are monitoring social media activity relating to
the Company's banners and products.
Risks associated with insurance programs
Ahold manages its insurable risks through a combination of self-
insurance and commercial insurance coverage. Our U.S. operations
are self-insured for workers' compensation, general liability, vehicle
accident and certain health care-related claims. Self-insurance
liabilities are estimated based on actuarial valuations. While we
believe that the actuarial estimates are reasonable, they are subject to
changes caused by claim reporting patterns, claim settlement patterns,
regulatory economic conditions and adverse litigation results. It is
possible that the final resolution of some claims may require us to
make significant expenditures in excess of our existing reserves. In
addition, third-party insurance companies that provide the fronting
insurance that is part of our self-insurance programs require us to
provide certain collateral. We take measures to assess and monitor
the financial strength and credit-worthiness of the commercial insurers
from which we purchase insurance. However, we remain exposed
to a degree of counterparty credit risk with respect to such insurers.
If conditions of economic distress were to cause the liquidity or
solvency of our counterparties to deteriorate, we may not be able
to recover collateral funds or be indemnified from the insurer in
accordance with the terms and conditions of our policies.
Risks related to health care and pension funding
requirements
Ahold has a number of defined benefit pension plans covering a large
number of its employees in the Netherlands and in the United States.
A decrease in equity returns or interest rates may negatively affect the
funding ratios of Ahold's pension funds, which could lead to higher
pension charges and contributions payable. In addition, a significant
number of union employees in the United States are covered by
multi-employer plans. The unfunded portion of the liabilities of these
plans may result in increased future payments by Ahold and the other
participating employers. Ahold's risk of such increased contributions
may be greater if any of the participating employers in an underfunded
multi-employer plan withdraws from the plan due to insolvency and is
not able to contribute an amount sufficient to fund the unfunded
liabilities associated with its participants of the plan. For additional
information, see Note 23 to the consolidated financial statements.
If Ahold is unable at any time to meet any required funding obligations
for some of its U.S. pension plans, or if the Pension Benefit Guaranty
Corporation (the PBGC), as the insurer of certain U.S. plan benefits,
concludes that its risk may increase unreasonably if the plans continue,
the PBGC could terminate the plans and place liens on material
amounts of the Company's assets, under the U.S. Employee
Retirement Income Security Act of 1974 (ERISA).
Ahold's pension plans covering its Dutch operations are regulated by
Dutch pension law. The pension fund is under the supervision of the
Dutch Central Bank (De Nederlandsche Bank or DNB) and the Dutch
Authority for the Financial Markets (Autoriteit Financiële Markten or
AFM). According to the law and or contractually agreed funding
arrangements, Ahold may be required to make additional
contributions to its pension plans in case minimum funding
requirements are not met.
