98. Notes to the consolidated financial statements continued
23. Financial instruments continued
Foreign currency risk
Fleineken is exposed to foreign currency risk on sales, purchases and borrowings that are denominated in
a currency other than the functional currency. Currencies giving rise to this risk are primarily US Dollars,
Singapore Dollars, Nigerian Naira's, Russian Rubles and Polish Zloty.
Fleineken hedges 90 percent of its mainly intra-Fleineken US Dollar cash flows on the basis of rolling cash
flow forecasts. Cash flows in other foreign currencies are hedged on the basis of a rolling cash flow forecast.
Fleineken uses mainly forward exchange contracts to hedge its foreign currency risk. Most of the forward
exchange contracts have maturities of less than one year after the balance sheet date. Where necessary,
the forward exchange contracts are rolled over at maturity.
In respect of other monetary assets and liabilities held in currencies other than the functional currency,
Fleineken ensures that the net exposure is kept to an acceptable level, by buying or selling foreign currencies
at spot rates where necessary to address short-term imbalances.
Firm commitments and forecasted transactions
Fleineken classifies its forward exchange contracts and options, hedging forecasted transactions and firm
commitments, as cash flow hedges and states them at fair value. The fair value of forward exchange contracts
and options at 1 January 2005 was adjusted against the opening balance of the hedging reserve at that
date and retained earnings.
Sensitivity analysis
In managing interest rate and currency risks Fleineken aims to reduce the impact of short-term fluctuations
on Fleineken's earnings. Over the longer term, however, permanent changes in foreign exchange and interest
rates would have an impact on consolidated earnings.
A general increase of one percentage point in interest rates would have decreased Fleineken's profit in
2005 before tax by approximately €3.3 million. The effect of interest rate swaps have been included in this
calculation.
A general increase of one percentage point in the value of the Euro against foreign currencies would have
decreased Fleineken's profit before tax by approximately €11 million for the year ended 31 December 2005.
The effect of the forward exchange contracts have been included in this calculation.
Heineken N.V. - Annual Report 2005
