Notes to the
consolidated
financial statements
continued
30 Financial risk management and financial instruments continued
Overview
Business review
Governance
Financials
Investors
Ahold Delhaize Annual Report 2016
The total interest income recognized in the 2016 income statement amounted to €15 million (2015: €5 million), mainly related 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 have resulted in a gain of €5 million
or a loss of €5 million, respectively (2015: gain of €4 million or a loss of €4 million).
Credit risk
Ahold Delhaize 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 January 1, 2017. For further discussion on
Ahold Delhaize’s receivables, see Notes 15 and 17
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 Delhaize’s financial position and results.
Financial transactions are predominantly entered into with investment grade financial institutions. The Company requires a minimum short-term
rating of A1/P1 and a minimum long-term rating of A3/A- for its deposit and investment products. The Company may deviate from this requirement
from time to time for operational reasons. 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 (ISDA). Ahold Delhaize has policies that limit the amount of
counterparty credit exposure to any single financial institution or investment vehicle and actively monitors these exposures.
Counterparty risk is measured by adding nominal value of cash, short-term deposits and marketable securities, and the mark-to-market of
derivative instruments, netted with the collateral posted, if any. As a result, the highest exposure to a single financial counterparty on January 1,
2017, amounted to €299 million (January 3, 2016: €338 million).
Offsetting of financial instruments
The Group has several financial assets and financial liabilities that are subject to offsetting or enforceable master netting arrangements and
similar agreements.
Cash pool
The Company has implemented a cash pool system, allowing a more efficient management of the daily working capital needs of the participating
operating entities. The settlement mechanism of the cash pool is provided by an external financial counterparty. The cash pool system provides
that the Company is exposed to a single net amount with that financial counterparty rather than the gross amount of several current accounts
and bank overdraft balances with multiple financial counterparties. From an operational perspective the balances in the cash pool are netted.
However, in accordance with the guidance of IAS 32 regarding the offsetting of debit and credit balances for financial reporting purposes, these
balances have to be presented on a gross basis on the balance sheet (see Notes 19 and 26).
ISDA Master Agreements for Derivatives
The Company has several ISDA agreements in connection with its derivative transactions. In general, under such agreements the amounts owed by
each counterparty on a single day in respect of all outstanding transactions in the same currency are aggregated into a single net amount that is
payable by one party to the other.
Under certain circumstances, e.g., when a credit event such as default occurs, all outstanding transactions under the agreement are terminated,
the termination value is assessed and only a single net amount is payable in settlement of all transactions.
