Notes to the Consolidated Financial Statements (continued)
O O Qs
Introduction Report of the Executive Board Report of the Supervisory Board
Market risk
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 financial
instruments. The objective of market risk management is to manage and control market risk exposures
within acceptable boundaries.
HEINEKEN enters into derivatives and other financial liabilities to manage market risks. Generally, HEINEKEN
seeks to apply hedge accounting or establish natural hedges in order to minimise the impact of market risks
in profit or loss. Foreign currency, interest rate and commodity hedging operations are governed by internal
policies and rules.
Foreign currency risk
HEINEKEN is exposed to:
- Transactional risk on (future) sales, working capital, (future) purchases, deposits, borrowings and dividends
denominated in a currency other than the respective functional currencies of HEINEKEN entities.
- Translational risk, which is the risk resulting from the translation of foreign operations into the reporting
currency of HEINEKEN.
The main currencies that give rise to this risk are the US Dollar, Mexican Peso, Brazilian Real, British Pound,
Vietnamese Dong and Euro. In 2019, the transactional exchange risk was hedged in line with the hedging
policy to the extent possible. The resulting transactional impact was negative, whereas the translational
impact was positive.
In managing foreign currency risk, HEINEKEN aims to ensure the availability of 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
of sales and purchases. Material cash flows in other foreign currencies are also hedged on the basis of rolling
cash flow forecasts. For this hedging HEINEKEN mainly uses forward exchange contracts. The majority of the
forward exchange contracts have maturities of less than one year after the balance sheet date.
HEINEKEN has a clear policy on hedging transactional exchange risks. Translation exchange risks are hedged
to a limited extent, as the underlying currency positions are generally considered to be long-term in nature.
The result of the hedging of translation risk, using net investment hedges is recognised in the translation
reserve, as can be seen in the consolidated statement of comprehensive income.
HEINEKEN's policy is to hedge material recognised transactional exposure like trade payables, receivables,
borrowings and declared dividends. For material unrecognised transactional exposures like forecasted sales
in foreign currencies, HEINEKEN hedges the exposure between agreed percentages according to the policy.
Financial Statements
Sustainability Review
Heineken N.V. Annual Report 2019110
Other Information
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 and Swiss Franc. 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
Based on notional amounts, HEINEKEN's transactional exposure to the US Dollar and Euro was as follows.
The Euro column relates to transactional exposure to the Euro within subsidiaries which are reporting in other
currencies. The amounts below include intra-HEINEKEN cash flows.
2019
2018
In millions of
EUR
USD
EUR
USD
Financial assets
171
4,908
164
4,919
Financial liabilities
(2,243)
(5,524)
(1,969)
(5,422)
Gross balance sheet exposure
(2,072)
(616)
(1,805)
(503)
Estimated forecast sales next year
161
1,203
157
1,428
Estimated forecast purchases next year
(1,871)
(2,644)
(1,924)
(2,479)
Gross exposure
(3,782)
(2,057)
(3,572)
(1,554)
Net notional amounts foreign exchange contracts
366
858
348
596
Net exposure
(3,416)
(1,199)
(3,224)
(958)
Sensitivity analysis
Equity
(142)
18
(121)
7
Profit or loss
(21)
(12)
(10)
(1)
The sensitivity analysis above shows the impact on equity and profit of 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 as
at 31 December 2019. 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.
