g)@
Notes to the Consolidated Financial Statements
Defined benefit plan assets
Japan
Other
Q H Heineken N.V. Report of the Report of the Financial Sustainability Other
s \J Annual Report 2020 Introduction Executive Board Supervisory Board Statements Review Information
In millions of
2020
2019
Quoted
Unquoted
Total
Quoted
Unquoted
Total
Equity instruments:
Europe
411
411
579
579
Northern America
868
868
1,051
1,051
153
153
196
196
Asia other
213
213
122
122
83
76
159
339
69
408
1,728
76
1,804
2,287
69
2,356
Debt instruments:
Bonds - investment grade
4,634
723
5,357
3,759
512
4,271
Bonds - non-investment grade
393
162
555
251
240
491
5,027
885
5,912
4,010
752
4,762
Derivatives
35
(473)
(438)
5
(602)
(597)
Properties and real estate
20
860
880
15
794
809
Cash and cash equivalents
169
63
232
107
17
124
Investment funds
9
319
328
66
848
914
Other plan assets
13
26
39
13
70
83
246
795
1,041
206
1,127
1,333
Balance as at 31 December
7,001
1,756
8,757
6,503
1,948
8,451
During 2020, the UK fund replaced their equity portfolio of approx. €550 million by a synthetic equity
exposure using swaps. This lowered the reported equity value, whilst increasing the debt portfolio.
The HEINEKEN pension funds monitor the mix of debt and equity securities in their investment portfolios
based on market expectations. Material investments within the portfolio are managed on an individual basis.
Through its defined benefit pension plans, HEINEKEN is exposed to a number of risks, the most significant
are detailed below.
Risks associated with defined benefit plans
Asset volatility
The plan liabilities are calculated using a discount rate set with reference to AA corporate bond yields. If the
return on the plan assets is less than the return on the liabilities implied by this assumption, this will create a
deficit. Both the Netherlands and the UK plans hold a significant proportion of equities, which are expected to
outperform corporate bonds in the long term, while providing volatility and risk in the short term.
In the Netherlands, an Asset-Liability Matching (ALM) study is performed at least on a triennial basis.
The ALM study is the basis for the strategic investment policies and the (long-term) strategic investment mix.
This resulted in a strategic asset mix comprising 38% of plan assets in equity securities, 30% in bonds, 12.5%
in other investments, 10% in mortgage and 9.5% in real estate. The last ALM study was performed in 2018 and
the next will take place in 2021.
In the UK, an actuarial valuation is performed at least on a triennial basis. The valuation is the basis for the
funding plan, strategic investment policies and the (long-term) strategic investment mix. Following the 2018
valuation, this resulted in a strategic asset mix comprising 30% of plan assets in liability driven investments,
20% in equities, 15% in higher yielding credit, 15% in private markets, 12.5% in corporate bonds and 7.5% in
long lease property. As part of the Funding Agreement, the strategic asset mix will evolve between now and
2030 to provide a greater certainty of return, lower volatility and higher cash generation.
Interest rate risk
A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an
increase in the value of the plans' fixed rate instruments holdings.
In the Netherlands, interest rate risk is partly managed through fixed income investments. These investments
match the liabilities for 24% on average during the year (2019: 23%). In the UK, interest rate risk is partly
managed through the use of a mixture of fixed income investments and interest rate swap instruments.
These investments and instruments match 84% of the interest rate sensitivity of the total liabilities as
measured on a Gilts +1% liability basis (2019: 87% as measured on the same basis).
Inflation risk
Some of the pension obligations are linked to inflation. Higher inflation will lead to higher liabilities, although
in most cases caps on the level of inflationary increases are in place to protect the plan against extreme
inflation. The majority of the plan assets are either unaffected by or loosely correlated with inflation, meaning
that an increase in inflation will increase the deficit.
HEINEKEN provides employees in the Netherlands with an average pay pension plan, whereby indexation
of accrued benefits is conditional on the funded status of the pension fund. In the UK, inflation is partly
managed through the use of a mixture of inflation-linked derivative instruments. These instruments match
84% of the inflation-linked liabilities as measured on a Gilts 1% liability basis (2019: 76% as measured on the
same basis).
Life expectancy
The majority of the plans' obligations are to provide benefits for the life of the member, so increases in life
expectancy will result in an increase in the plans' liabilities. This is particularly significant in the UK plan,
where inflation-linked increases result in higher sensitivity to changes in life expectancy. In 2015, the Trustee
of HEINEKEN UK's pension plan implemented a longevity hedge to remove the risk of a higher increase in life
expectancy than anticipated for the 2015 population of pensioners.
