Notes to the Consolidated Financial Statements (continued)
26. Employee benefits (continued)
Defined benefit plan assets
Interest rate risk
Report of the
Report of the
Annual Report 2016
In millions of EUR
Corporate bonds - investment grade
Corporate bonds - non-investment grade
Properties and real estate
Cash and cash equivalents
Other plan assets
Balance as at 31 December
The HEINEKEN pension funds monitor the mix of debt and equity securities in their investment portfolios based on market expectations. Material
investments within the portfolio are managed on an individual basis. Through its defined benefit pension plans, HEINEKEN is exposed to a number
of risks, the most significant which are detailed below:
The plan liabilities are calculated using a discount rate set with reference to corporate bond yields. If the return on the plan assets is less than the
return on the liabilities implied by this assumption, this will create a deficit. Both the Netherlands and the UK plans hold a significant proportion
of equities, which are expected to outperform corporate bonds in the long term, while providing volatility and risk in the short term.
In the Netherlands, an Asset-Liability Matching (ALM) study is performed at least on a triennial basis. The ALM study is the basis for the strategic
investment policies and the (long-term) strategic investment mix. This resulted in a strategic asset mix comprising 38% equity securities, 40% bonds,
7% property and real estate and 15% other investments. The objective is to hedge currency risk on the US dollar, Japanese yen and British pound
for 50% of the equity exposure in the strategic investment mix.
In the UK, an Asset-Liability Matching study is performed at least on a triennial basis. The ALM study is the basis for the strategic investment policies
and the (long-term) strategic investment mix. This resulted in a strategic asset mix comprising 40% of plan assets in liability driven investments,
19% in absolute return, 20% in equities (global and emerging markets), 5.5% in alternatives and 15.5% in private markets. The objective is to hedge
100% of currency risk on developed non-GBP equity market exposures in the strategic investment mix.
A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an increase in the value of the plans'
In the Netherlands, interest rate risk is partly managed through fixed income investments. These investments match the liabilities for 22.9%
(2015: 22.7%). In the UK, interest rate risk is partly managed through the use of a mixture of fixed income investments and interest rate
swap instruments. These investments and instruments match 28% of the interest rate sensitivity of the total liabilities (2015: 24.7%).