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Notes to the Consolidated Financial Statements
Sensitivity analysis
1 Heineken N.V. Report of the Report of the Financial Sustainability Other
J- \J Annual Report 2020 Introduction Executive Board Supervisory Board Statements Review Information
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.
During the COVID-19 pandemic, the financial markets became very volatile. The objective of our market risk
management was 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. Overall, COVID-19 negatively impacted currency developments for HEINEKEN.
In 2020, the transactional exchange risk was hedged in line with the hedging policy to the extent possible.
Especially the development of the Mexican Peso and Brazilian Real resulted in a negative translational and
transactional impact on the reported numbers of HEINEKEN.
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.
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 as at 31 December
is 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.
2020
2019
In millions
EUR
USD
EUR
USD
Financial assets
111
4,940
171
4,908
Financial liabilities
(2,374)
(5,433)
(2,243)
(5,524)
Gross balance sheet exposure
(2,263)
(493)
(2,072)
(616)
Estimated forecast sales next year
154
1,207
161
1,203
Estimated forecast purchases next year
(1,825)
(2,346)
(1,871)
(2,644)
Gross exposure
(3,934)
(1,632)
(3,782)
(2,057)
Net notional amounts foreign exchange contracts
373
885
366
858
Net exposure
(3,561)
(747)
(3,416)
(1,199)
Equity
(158)
27
(142)
18
Profit/(loss)
(30)
(6)
(21)
(12)
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 2020. 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.
