NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Cd INUI
HEINEKEN N.V. ANNUAL REPORT 20C 8
30. Financial risk management and financial instruments
The Company has a clear policy on hedging transactional exchange risks, which postpones the impact on
financial results. Translation exchange risks are hedged to a limited extent, as the underlying currency positions
are generally considered to be long-term in nature. Net investment hedging is only applied in circumstances
where a subsidiary reporting in a currency other than the euro has an exposure to the euro (the Group functional
currency). The result of the net investment hedging is recognised in the translation reserve as can be seen in
the consolidated statement of recognised income and expense.
It is Heineken's policy to provide intra-Heineken financing in the functional currency of subsidiaries where
possible to prevent foreign currency exposure on subsidiary level. The resulting exposure at Group level is
hedged by means of forward exchange contracts. Intra-Heineken financing in foreign currencies is mainly
in British Pound, US Dollars, Russian Roubles and Polish Zloty. In some cases Heineken elects to treat intra-
Heineken financing with a permanent character as equity and does not hedge the foreign currency exposure.
The principal amounts of Heineken's British Pound, Polish Zloty and Egyptian Pound bank loans and bond
issues are used to hedge local operations, which generate cash flows that have the same respective
functional currencies. Corresponding interest on these borrowings is also denominated in currencies that
match the cash flows generated by the underlying operations of Heineken. This provides an economic hedge
without derivatives being entered into.
In respect of other monetary assets and liabilities denominated in currencies other than the functional
currencies of the Company and the various foreign operations, Heineken ensures that its net exposure is
kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address
short-term imbalances.
Exposure to foreign currency risk
Heineken's exposure to the British Pound and US Dollar was as follows based on notional amounts:
2008
2008
2007
In millions
GBP
USD
USD
Loans and held-to-maturity investments
480
257
74
Trade and other receivables
12
142
198
Cash and cash equivalents
24
19
5
Unsecured bank loans
(537)
(1,720)
Unsecured bond issues
-
2
Non-interest-bearing liabilities
-
(2)
Bank overdrafts
-
(13)
Trade and other payables
(4)
(58)
(8)
Gross balance sheet exposure
(25)
(1,373)
269
Estimated forecast sales next year
2
1,000
1,051
Estimated forecast purchases next year
1
(295)
(163)
Gross exposure
(22)
(668)
1,157
Cash flow hedging forward exchange contracts
(1)
(987)
(890)
Other hedging forward exchange contracts
57
1,241
(161)
Net exposure
34
(414)
106
Included in the US Dollar amounts are intra-Heineken cash flows. The loans represent intra-Heineken
financing. The following significant exchange rates applied during the year:
