Currency Risk
Translation exposure
Transaction exposure
Credit and Counterparty Risks
Pension Plan Risk
Delhaize Group Annual Report 2014 67
"Reference Interest Rates" (Euribor 3 months
and Libor 3 months) during the year, within a
95% confidence interval.
Delhaize Group's foreign currency risk man
agement objectives are to minimize the impact
of currency fluctuations on the Group's income
statement, cash flows and balance sheet,
using foreign exchange contracts, includ
ing derivative financial instruments such as
currency swaps and forward instruments (see
Note 19 "Derivative Financial Instruments and
Hedging" in the Financial Statements).
Delhaize Group's consolidated financial state
ments are presented in euros. The results of
operations and the financial position of each
of Delhaize Group's entities whose functional
currency is not the euro must be translated
into euros at the applicable foreign currency
exchange rate for inclusion in the Group's
consolidated financial statements (see also
Note 2.3 "Summary of Significant Accounting
Policies" in the Financial Statements with
respect to translation of foreign currencies).
Delhaize Group does not hedge this "trans
lation exposure". However, the Group aims
to minimize this exposure by funding the
operations of Delhaize Group's entities in their
functional currency, wherever feasible.
If the average U.S. dollar exchange rate
had been 1 cent higher/lower and all other
variables were held constant, the Group's net
profit would have increased/decreased by
€2 million in 2014 (€1 million in 2013 and €2
million in 2012), solely due to the translation of
the financial statements denominated in U.S.
dollars. The effect from the translation of the
functional currency to the reporting currency
of the Group does not affect the cash flows in
local currencies.
In 2014, 77% of the Group's EBITDA was gener
ated in U.S. dollars (64% and 63% in 2013 and
2012, respectively). At December 31, 2014, 66%
of the Group's financial debt after cross-cur
rency swaps was denominated in U.S. dollars
(69% and 65% in 2013 and 2012, respectively).
The Group's exposure to fluctuations in foreign
currency in its business operations is limited
as operating companies' purchases and sales
are primarily denominated in their functional
currency.
The Group is exposed to foreign currency 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 foreign currency, financial
assets classified as available for sale, deriva
tives, financial instruments not designated as
hedge relationships and borrowings denomi
nated in a foreign currency. If at December 31,
2014, the U.S. dollar had strengthened/weak
ened by 12% (estimate based on the standard
deviation of daily volatilities of the Euro/U.S.
dollar exchange rate during 2014 using a 95%
confidence interval), the Group's net profit (all
other variables held constant) would have been
€5 million higher/lower (2013 and 2012: also
€4 million higher/lower with a rate shift of 14%
and 17%, respectively).
Credit risk is the risk that one party to an
agreement will cause a financial loss to
another party by failing to discharge its obliga
tion. Credit risk covers trade receivables, cash
and cash equivalents, short term deposits and
derivative instruments.
In order to reduce its counterparty risk,
Delhaize Group enters from time to time
into netting agreements with counterparties
whereby the amounts owed by the parties can
and will be offset if certain conditions are met
(see Note 10.2 "Offsetting of Financial Instru
ments" in the Financial Statements).
The credit risk on trade receivables relates
mainly to the wholesale activity in Belgium.
Although the company covers part of this
risk by entering into credit insurance policies
with external insurers, most of the exposure
is self-insured. In connection with the cash
and cash equivalents, short term deposits,
and derivative instruments, Delhaize Group
requires a minimum credit quality for its
financial investments (see Notes 11 "Invest
ments in Securities" and 14 "Receivables" in the
Financial Statements for further details).
Delhaize Group requires a minimum short
term rating of A1/P1 and a minimum long term
rating of A2/A for its deposit and investment
transactions. Delhaize Group may deviate
from this requirement from time to time for
operational reasons.
The Group's exposure to changes in credit
ratings of its counterparties is continuously
monitored and the aggregate value of
transactions concluded is spread amongst
approved counterparties. Counterparty risk is
always assessed with reference to the aggre
gate exposure to a single counterparty or
group of related parties to minimize concen
tration of risk.
Most operating companies of Delhaize Group
have pension plans, the structures and bene
fits of which vary with conditions and practices
in the countries where these companies
operate. Pension benefits may be provided
through defined contribution plans or defined
benefit plans.
A defined contribution plan is a post-employ
ment benefit plan under which Delhaize Group
and/or the associate pays fixed contributions
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 retire
ment benefits are determined by the value
of the contributions paid and the subsequent
performance of investments made with these
funds. In Belgium, the defined contribution
plans include a minimum guaranteed return,
which is substantially guaranteed by an
external insurance company that receives
and manages the contributions. These plans
have some defined benefit plan features (as
discussed further below) which may result
in a limited level of underfunding due to the
declining return of long-term low risk invest
ments. Delhaize Group monitors to which
extent a potential liability can arise from these
plans and recognizes material exposures in its
balance sheet, if any.
