Notes to the consolidated financial statements
120
30 Financial risk management and financial instruments (continued)
Ahold at a glance
Business review
Governance
Financials
Ahold
Annual Report 2014
The total interest income recognized in the 2014 income statement amounted to €6 million (2013: €7 million) related mainly to variable rate money market fund investments and deposits. 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 of €3 million or a loss of €3 million, respectively (2013: gain of €9 million or a loss of €5 million). Due to the declining euro market interest rates, the 2013 assumption that the absolute value of the
reference interest could not decrease below 0%, has not been applied for 2014.
The cash flow hedge reserve would be impacted by interest rate movements through the JPY cross-currency swap which qualified for cash flow hedge accounting. The impact of interest rate movements related to the bond
and the swap's variable leg are not reflected, as they offset each other. The impact of a 25-basis-point increase (25-basis-point decrease) in euro interest rates related to the remaining fair value exposure on the swap's fixed leg
(caused by a shifted discount rate on the swap's fixed EUR leg) is a gain of €17 million or a loss of €18 million (2013: gain of €15 million or a loss of €15 million).
The above sensitivity analyses are for illustrative purposes only as, in practice, market rates rarely change in isolation from 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. The concentration of credit risk
with respect to receivables is limited, as the Company's customer base and vendor base are 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 December 28, 2014. For further discussion on Ahold's receivables, see Notes 15 and 17.
Derivative counterparties and cash transactions are limited to high-credit-quality financial institutions' products. Ahold invests in funds with a minimum rating of A- (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 exposure to 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 €311 million as of December 28, 2014 (December 29, 2013: €284 million). Netting agreements are in place
with the financial counterparties that reduces the credit exposure (as of December 28, 2014, net exposure of €60 million).
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. Ahold manages short-term liquidity based on projected cash flows over rolling periods of six months. As of December 28, 2014, Ahold
had €1.2 billion of committed undrawn bank facilities. The facilities can be drawn on for working capital and general corporate purposes and €1.9 billion of cash balances (including short-term deposits and similar instruments)
are available to manage the Company's liquidity. In the beginning of 2015, Ahold issued a request to our relationship banks to amend the facility by extending it through 2020 and reducing the amount from €1.2 billion down
to €1 billion. Ahold expects to close the process during the first quarter of 2015.