Notes to the Consolidated Financial Statements continued
Reportofthe Reportofthe Financial Other
Contents Overview Executive Board Supervisory Board Statements Information
32. Financial risk management and financial instruments continued
The total carrying amount and contractual cash flows of derivatives are included in trade and other receivables (refer to note 20). other investments (refer
to note 17). trade and other payables (refer to note 31and non-current non-interest-bearing liabilities (refer to note 25).
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates, commodity prices and eguity prices, will adversely affect
HEINEKEN's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk
exposures within acceptable parameters, while optimising the return on risk.
HEINEKEN uses derivatives in the ordinary course of business, and also incurs financial liabilities, in order to manage market risks. Generally. HEINEKEN
seeks to apply hedge accounting or make use of natural hedges in order to minimise the effects of foreign currency fluctuations in profit or loss.
Derivatives that can be used are interest rate swaps, forward rate agreements, caps and floors, commodity swaps, spot and forward exchange contracts
and options. Transactions are entered into with a limited number of counterparties with strong credit ratings. Foreign currency, interest rate and commodity
hedging operations are governed by internal policies and rules approved and monitored by the Executive Board.
Foreign currency risk
HEINEKEN is exposed to foreign currency risk on (future) sales, (future) purchases, borrowings and dividends that are denominated in a currency other than
the respective functional currencies of HEINEKEN entities. The main currencies that give rise to this risk are the US dollar, Mexican Peso, Nigerian Naira,
Vietnamese Dong and Euro.
In managing foreign currency risk, HEINEKEN aims to ensure the availability of these foreign currencies and to reduce the impact of short-term fluctuations
on earnings. Over the longer term, however, permanent changes in foreign exchange rates and the availability of foreign currencies, especially in emerging
markets, will have an impact on profit.
HEINEKEN hedges up to 90 per cent of its net US dollar export cash flows on the basis of rolling cash flow forecasts in respect to forecasted sales and
purchases. Cash flows in other foreign currencies are also hedged on the basis of rolling cash flow forecasts. HEIN EKEN mainly uses forward exchange
contracts to hedge its foreign currency risk. The majority of the forward exchange contracts have maturities of less than one year after the balance
sheet date.
HEINEKEN 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. The result of the net investment
hedging is recognised in the translation reserve, as can be seen in the consolidated statement of comprehensive income.
It is HEINEKEN's policy to provide intra-HEINEKEN financing in the functional currency of subsidiaries where possible to prevent foreign currency exposure
on a subsidiary level. The resulting exposure at Group level is hedged by means of foreign currency denominated external debts and by forward exchange
contracts. Intra-HEINEKEN financing in foreign currencies is mainly in British pounds, US dollars, Swiss francs, South African Rand and Polish zloty. In some
cases, HEINEKEN elects to treat intra-HEINEKEN financing with a permanent character as eguity and does not hedge the foreign currency exposure.
The principal amounts of HEINEKEN's US dollar, British pound, Nigerian naira, Singapore dollar bank loans and bond issues are used to hedge local
operations, which generate cash flows that have the same respective functional currencies or have functional currencies that are closely correlated.
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, H EIN EKEN 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.
120 Helneken N.V. Annual Report 2015