Notes to the Consolidated Financial Statements (continued) 12 Tax 12.1 Income tax expense Current tax expense Deferred tax expense - O Q, Introduction Report of the Executive Board Report of the Supervisory Board Fair value hedges HEINEKEN has entered into several cross-currency interest rate swaps (CCIRS) which have been designated as fair value hedges to hedge the foreign exchange rate risk on the principal amount and future interest payments of certain US dollar borrowings. The borrowings and the cross-currency interest rate swaps have the same critical terms. The accumulated loss arising on derivatives as designated hedging instruments in fair value hedges amounts to €34 million at 31 December 2018. The gain arising on the adjustment for the hedged item attributable to the hedged risk in a designated fair value hedge accounting relationship also amounts to €34 million at 31 December 2018. Net investment hedges HEINEKEN hedges its investments in certain subsidiaries by entering into local currency denominated borrowings, forward contracts and cross-currency interest rate swaps, which mitigate the foreign currency translation risk arising from the subsidiaries net assets. These borrowings, forward contracts and swaps are designated as net investment hedges and fully effective, as such there was no ineffectiveness recognised in profit and loss in 2018 (2017: nil). At 31 December 2018 the fair value of these borrowings was €453 million (2017: €475 million), the market value of forward contracts was €3 million negative (2017: nil) and the market value of these swaps was €24 million positive (2017: €8 million negative). Hedge effectiveness Hedge effectiveness is determined at the start of the hedge relationship and periodically through a prospective effectiveness assessment to ensure that an economic relationship exists between the hedged item and hedging instrument. This assessment is done qualitatively by comparing the critical terms, and if needed quantitative assessments are done using hypothetical derivatives. For the current hedges no hedge ineffectiveness is expected. Accounting policies Derivative financial instruments are recognised initially at fair value. Subsequent accounting for derivatives depends on whether or not the derivatives are designated as hedging instrument in a cash flow, fair value or net investment hedge. Derivatives with positive fair values are recorded as assets and negative fair values as liabilities. Refer to note 13.1 for fair value measurements. Cash flow hedge Changes in the fair value are recognised in other comprehensive income and presented in the hedging reserve within equity to the extent that the hedge is effective. The ineffective part is recognised as other net finance income/(expense). When the hedged risk impacts the profit or loss, the amounts previously recognized in other comprehensive income are transferred to the same item in the profit or loss as the hedged item. When the hedged risk subsequently results in a non-financial asset or liability (e.g. inventory or P,P&E), the amount previously recognised in the cash flow hedge reserve is included in its carrying amount. Heineken N.V. Annual Report 2018! 10 Financial Statements Sustainability Review Other Information Fair value hedge The fair value changes of derivatives used in fair value hedges are recognised in profit or loss. Net investment hedge The fair value changes of derivatives used in net investment hedges are recognised in other comprehensive income and presented within equity in the translation reserve. Any ineffectiveness is recognised in profit or loss. Recognised in profit or loss In millions of 2018 2017 Current year 831 815 Under/(over) provided in prior years (24) (16) 807 799 Origination and reversal of temporary differences, tax losses and tax credits (35) (12) De-recognition/(recognition) of deferred tax assets 11 Effect of changes in tax rates (3) (45) Under/(over) provided in prior years (12) 2 (50) (44) Total income tax expense in profit or loss 757 755 Reconciliation of the effective tax rate In millions of 2018 2017 Profit before income tax 2,852 2,908 Share of net profit of associates and joint ventures (210) (75) Profit before income tax excluding share of profit of associates and joint ventures 2,642 2,833

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Jaarverslagen | 2018 | | pagina 105