Food Lion 2008 Annual Report Download - page 63
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Delhaize Group Our Strategy
Our Activities in 2008
Corporate Governance
Risk Factors
Financial Statements Shareholder Information
at a Glance
policy is to finance its operating subsidiaries
through a mix of retained earnings, third-party
borrowings and capital contributions and
loans from the parent and Group financing
companies.
Delhaize Group manages the exposure
by closely monitoring the cash resources
required to fulfill the working capital needs,
capital expenditures and debt requirements.
Furthermore, Delhaize Group closely monitors
the contractual maturity profiles and the amount
of short-term funding and the mix of short-term
funding to total debt, the composition of total
debt and the availability of committed credit
facilities in relation to the level of outstanding
short-term debt (see also Note 17 “Long-
term Debt” in the Financial Statements with
respect to maturity information on long-term
debts). A liquidity gap analysis is performed
on a quarterly basis in which Delhaize Group
anticipates large future cash inflows and
outflows.
Credit Risk/Counterparty Risk
Credit risk is the risk that one party will cause
a financial loss to another other party by
failing to discharge its obligation to a financial
instrument, such as trade receivables,
holdings in investment securities, derivatives
and cash and cash equivalents. Delhaize
Group manages this risk by obtaining credit
insurance in case of trade receivables and
by requiring a minimum credit quality of its
financial investments.
The Group’s short-term investments are
required to have a rating of at least A1
(Standard & Poor’s) / P1 (Moody’s). Delhaize
Group’s long-term investment policy requires a
minimum credit rating of A-/A3 for its financial
investments.
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
aggregate exposure to a single counterparty
or group of related parties to avoid or minimize
concentration risk. Delhaize Group’s derivatives
are regulated by International Swap Dealer
Association Agreements (“ISDAs”) with Credit
Support Agreements requiring the posting of
collateral when the marked-to-market value
of the derivative reaches a certain threshold,
limiting the counterparty risk.
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 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 retirement benefits are determined
by the value of the contributions paid and the
subsequent performance of investments made
with these funds.
A defined benefit plan is a post-employment
benefit plan which normally 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
contributions made.
Delhaize Group operates defined benefit
plans at several of its entities and a total
of approximately 20% of Delhaize Group’s
associates were covered by defined benefit
plans at the end of 2008.
If, as of a balance sheet date, the fair value
of the plan assets of a defined benefit plan,
is lower than the defined benefit obligations
(determined based on actuarial assumptions),
the Group would bear an “underfunding risk”
at that moment in time. At the end of 2008,
Delhaize Group recognized a net liability of
EUR 69 million (2007: EUR 61 million; 2006:
EUR 75 million).
Details on pension plans at Delhaize Group and
its subsidiaries can be found in Note 24 to the
Financial Statements, “Employee Benefit Plans”.
Macroeconomic Risk
Major macroeconomic risks of Delhaize
Group are reduced consumer spending and
cost inflation. Economic conditions such as
employment level, business conditions, interest
rates, energy and fuel costs and tax rates
could reduce consumer spending or change
consumer purchasing habits. Weaker consumer
spending can impact profitability negatively due
to pressure on sales and margins. If labor cost
and the cost of merchandise sold, which are the
Group’s primary operating costs, increase above
retail inflation rates, this could have an adverse
effect on the Group’s profitability. In addition,
rising fuel and energy prices can increase the
Group’s cost for heating, lighting, cooling and
transport. Where possible, cost increases are
recovered through retail price adjustments and
increased operating efficiencies.
Delhaize Group is particularly susceptible to
macroeconomic risks in the U.S. In 2008, 68.8%
of the Group’s revenues were generated in the
U.S. (2007: 69.9%), where all its stores are located
on the East Coast. Consequently, Delhaize
Group’s operations depend significantly upon
the economic conditions in this area.
December 31, 2008
(in millions of EUR)
Currency Reference
Interest Rate
Shift Impact on
Net Profit
Impact
on Equity
EUR
2.89% +/- 58 basis points +/- 0.2 -
USD
1.43% +/- 101 basis points -/+ 5.4 +/- 7.4
Total Increase/Decrease -/+ 5.2 +/- 7.4
December 31, 2007
(in millions of EUR)
Currency Reference
Interest Rate
Shift Impact on
Net Profit
Impact
on Equity
EUR
4.68% +/- 46 basis points -/+ 0.3 -
USD
4.70% +/- 78 basis points -/+ 4.2 +/- 4.2
Total Increase/Decrease -/+ 4.5 +/- 4.2
December 31, 2006
(in millions of EUR)
Currency Reference
Interest Rate
Shift Impact on
Net Profit
Impact
on Equity
EUR
3.73% +/- 32 basis points -/+ 0.5 -
USD
5.36% +/- 33 basis points -/+ 0.1 +/- 1.6
Total Increase/Decrease -/+ 0.6 +/- 1.6