RISK FACTORS
Foreign currency risk on finan
cial instruments is the risk that the
fair value or future cash flows of
a financial instrument will fluctu
ate because of future changes in
foreign currency exchange rates.
From an accounting perspective,
the Group is exposed to foreign cur
rency risks only on monetary items
not denominated in the functional
currency of the respective reporting
entities, such as trade receivables
and payables denominated in a for
eign currency, financial assets clas
sified as available for sale, deriva
tives, financial instruments not
designated as for hedge relation
ships and borrowings denominated
in a foreign currency. If at Decem
ber 31, 2012, the U.S. Dollar had
weakened/strengthened by 17%
(estimate based on the standard
deviation of daily volatilities of the
rate during 2011 using a 95%
confidence interval), the Group's
net profit (all other variables held
constant) would have been €3.7
million lower/higher (2011: €3.8 mil
lion higher/lower with a rate shift of
22%, 2010: €1.4 million higher/lower
with a rate shift of 20%). Due to the
financing structure of the Group,
such a change in exchange rate
would have no impact on the equity
of Delhaize Group.
Transaction exposure
The Group's exposure to fluctua
tions in foreign currency move
ments in its business operations is
limited as Operating Companies'
purchases and sales are primarily
denominated in local currency.
Credit Risk/Counterparty Risk
Credit risk is the risk that one party
to an agreement will cause a finan
cial loss to another party by failing to
discharge its obligation. Credit risk
covers trade receivables, cash and
cash equivalents, short term depos
its and derivative instruments.
The credit risk on trade receivables
relates mainly to the wholesale activ
ity in Belgium. The Group covers this
risk by entering into credit insurance
policies with external insurers. The
contracts contain stop-loss clauses
and maximum liability amounts that
provide sufficient cover against possi
ble annual credit losses. In connection
with the cash and cash equivalents,
short term deposits and derivative
instruments Delhaize Group requires
a minimum credit quality for its finan
cial investments (see Notes 11 "Invest
ments in Securities" and 14 "Receiva
bles" in the Financial Statements for
further details).
The Group's policy is to require
short-term investments to have a
short-term credit rating of at least A1
(Standard Poor's) P1 (Moody's).
Delhaize Group's long-term invest
ment policy requires a minimum
long-term credit rating of A-/A3 for
its financial investments. See Note
11 "Investments in Securities" in con
nection with the credit quality of
the Group's investments. Deposits
should be maintained with banks
having a minimum long-term credit
rating of A-/A3, although the Group
might deviate from this policy from
time to time for operational reasons.
The Group's exposure to changes
in credit ratings of its counterpar
ties is continuously monitored and
the aggregate value of transac
tions concluded is spread amongst
approved counterparties. Counter
party risk is always assessed with
reference to the aggregate expo
sure to a single counterparty or
group of related parties to avoid or
minimize concentration risk.
Share-Based Incentive Plans Risk
The Group offers various equity-set
tled incentive plans (Stock Options,
U.S. warrants, and Restricted Stock
Units). Delhaize Group hedges the
risk arising from those plans by
occasionally buying treasury shares
and/or derivatives.
The Group's exposure to share-
based incentive plans is reviewed
at least on a quarterly basis and at
inception of any new plan. For fur
ther information about share-based
incentive plans, refer to Note 21.3
Share-Based Compensation in the
Financial Statements.
Pension Plan Risk
Most operating companies of
Delhaize Group have pension
plans, the structures and benefits
of which vary with conditions and
practices in the countries concerned.
Pension benefits may be provided
through defined contribution plans
or defined benefit plans.
A defined contribution plan is a
post-employment benefit plan
under which Delhaize Group and/
or the associate pays fixed contri
butions usually to a separate entity.
Under such a plan, there are no
legal or constructive obligations to
pay further contributions, regardless
of the performance of the funds held
to satisfy future benefit payments.
The actual retirement benefits are
determined by the value of the con
tributions paid and the subsequent
performance of investments made
with these funds.
A defined benefit plan is a post-
employment benefit plan which nor
mally defines an amount of benefit
that an employee will receive upon
retirement, usually dependent on
one or more factors such as age,
years of service, compensation and/
or guaranteed returns on contribu
tions made.
Delhaize Group operates defined
benefit plans at several of its entities
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