Notes to the Consolidated Financial Statements (continued)
30. Financial risk management and financial instruments (continued)
Foreign currency risk
Report of the
Report of the
Annual Report 2016
Carrying Contractual Less than More than
In millions of EUR amount cash flows 1 year 1-2 years 2-5 years 5 years
Interest-bearing liabilities (14,973) (17,158) (4,4 2 2) (1,742) (5,193) (5,801)
Trade and other payables (excluding interest payable,
dividends and derivatives and including non-current part) (5,744) (5,744) (5,658) (62) (12) (12)
Derivative financial assets and (liabilities)
Interest rate swaps used for hedge accounting (net)
Forward exchange contracts used for hedge accounting (net)
Commodity derivatives used for hedge accounting (net)
Derivatives not used for hedge accounting (net)
Revised to reflect the change in accounting policy on netting cash and overdraft balances in cash pooling arrangements with legally enforceable rights to offset.
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 29) and non-current non-interest-bearing liabilities (refer to note 25).
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates, commodity prices and equity 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
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.
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, British pound, Vietnamese dong and Euro.
In 2016, the year-end exchange rate of US dollar moved to 1.05 vs the year-end 2015 rate of 1.09. This change had a limited translational and
transactional impact on financial statements. The Mexican peso exchange rate depreciated from 18.88 per year-end 2015 to 21.60 per year-end
2016. The transactional exchange risk was hedged in line with the hedging policy, the resulting impact was therefore mitigated. The negative
translational impact was more profound. The exchange rate for Vietnamese dong slightly moved from 24.438 per year-end 2015 to 23.969 per year-
end 2016, having a limited translational and transactional impact on financial statements. In June 2016, Central Bank of Nigeria officially devalued
the Nigerian naira. The Nigerian naira depreciated from year-end 2015 rate of 215.98 to 332.23 per year-end 2016. This devaluation had negative
translational and transactional impact on HEINEKEN's financial statements. Following the result of the United Kingdom referendum to leave the EU,
the year-end 2016 rate was 0.86 in comparison to 0.73 per year-end 2015. The transactional risk was hedged in line with the hedging policy, the
resulting impact was therefore mitigated. The negative translational impact was more profound. The exchange rates mentioned in this paragraph
are quoted vs 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% 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. HEINEKEN 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.