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
