tiï O Q,
Notes to the Consolidated Financial Statements (continued)
Introduction Report of the Executive Board Report of the Supervisory Board
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 pound, US dollar, Swiss
franc and New Zealand dollar. In some cases, HEINEKEN elects to treat intra-HEINEKEN financing with
a permanent character as equity and does not hedge the foreign currency exposure.
HEINEKEN has financial liabilities in foreign currencies like US dollar and British pound to hedge local
operations, which generate cash flows that have the same or closely correlated functional currencies.
The corresponding interest on these liabilities is also denominated in currencies that match the cash flows
generated by the underlying operations of HEINEKEN.
In respect of other monetary assets and liabilities denominated in currencies other than the functional
currencies of HEINEKEN, 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 transactional exposure to the US dollar and Euro was as follows based on notional amounts.
The Euro column relates to transactional exposure to the Euro within subsidiaries which are reporting in
other currencies. Included in the amounts are intra-HEINEKEN cash flows.
2018
2017
In millions of
EUR
USD
EUR
USD
Financial assets
164
4,919
85
4,997
Financial liabilities
(1,969)
(5,422)
(2,284)
(6,657)
Gross balance sheet exposure
(1,805)
(503)
(2,199)
(1,660)
Estimated forecast sales next year
157
1,428
153
1,321
Estimated forecast purchases next year
(1,924)
(2,479)
(1,578)
(2,011)
Gross exposure
(3,572)
(1,554)
(3,624)
(2,350)
Net notional amounts foreign exchange contracts
348
596
411
1,670
Net exposure
(3,224)
(958)
(3,213)
(680)
Sensitivity analysis
Equity
(121)
7
(149)
1
Profit or loss
(10)
(1)
(13)
(9)
A 10% strengthening of the US dollar against the Euro or, in case of the Euro, a strengthening of the Euro
against all other currencies would have the above impact on equity and profit as at 31 December 2018.
This analysis assumes that all other variables, in particular interest rates, remain constant. In case of a 10%
weakening, the effects are equal but with an opposite effect.
Heineken N.V. Annual Report 2018! 10
Financial Statements
Sustainability Review
Other Information
Interest rate risk
Interest rate risk is the risk that changes in market interest rates affect the fair value or cash flows of a
financial instrument. The most significant interest rate risk for HEINEKEN relates to borrowings (note 11.3).
By managing interest rate risk, HEINEKEN aims to reduce the impact of short-term fluctuations on
earnings. Over the longer term however, permanent changes in interest rates will have an impact on profit.
HEINEKEN opts for a mix of fixed and variable interest rate financial instruments like bonds and bank loans,
combined with the use of derivative interest rate instruments. Currently, HEINEKEN's interest rate position
is more weighted towards fixed than floating. Interest rate derivative instruments that can be used are
(cross-currency) interest rate swaps, forward rate agreements, caps and floors.
Swap maturity follows the maturity of the related borrowings which have swap rates for the fixed leg 2.3%
(2017: from 2.3 to 6.5%).
Interest rate risk - profile
At the reporting date, the interest rate profile of HEINEKEN's interest-bearing financial instruments was
as follows:
In millions of
2018
2017
Fixed rate instruments
Financial assets
121
75
Financial liabilities
(13,214)
(13,002)
Cross currency interest rate swaps
437
417
(12,656)
(12,510)
Variable rate instruments
Financial assets
3,020
2,599
Financial liabilities
(1,771)
(2,376)
Cross currency interest rate swaps
(463)
(463)
786
(240)
