The Best Beer Company in a Better World - Anheuser-Busch InBev

Financial Report Annual Report 2008 | 103
Currency transactional risk
Most of AB InBev’s non-derivative monetary financial instruments are either denominated in the functional currency of the subsidiary or
are converted into the functional currency through the use of derivatives. However, the company has open positions in Central and Eastern
European countries for which no hedging is performed because the illiquidity of the local foreign exchange market prevents us from hedging
at a reasonable cost. The transactional foreign currency risk mainly arises from open positions in Russia, Ukraine, Serbia and Romania
against the euro and the US dollar. On the basis of the average volatility of the Ukrainian hryvnia, the Russian ruble, the Serbian dinar and
the Romanian lei against the euro and the US dollar during the year, we estimated the reasonably possible change of exchange rate of these
currencies as follows :
Closing rate
31 December 2008
2008 2007
Possible closing rate
31 December 2008
Possible volatility
of rates in %
Possible volatility
of rates in %
Euro / Russian ruble 41.44 35.47 - 47.41 14.41 % 5.64 %
Euro / Serbian dinar 88.60 83.00 - 94.19 6.31 % 4.05 %
Euro / Ukrainian hryvnia 10.86 3.74 - 17.97 65.51 % 11.30 %
Euro / Romanian lei 4.02 3.23 - 4.82 19.77 % 12.03 %
US dollar / Russian ruble 29.78 25.5 - 34.05 14.35 % 5.28 %
US dollar / Ukrainian hryvnia 7.80 3.43 - 12.17 56.05 % 5.91 %
If the Ukrainian hryvnia, the Russian ruble, the Serbian dinar and the Romanian lei had weakened/strengthened during 2008 by the above
estimated changes against the euro or the US dollar, with all other variables held constant, the 2008 profit would have been 143m euro lower/
higher (as compared to a potential lower/higher impact of 14m on profit estimated in 2007).
(C) Interest rate risk
The company applies a dynamic interest rate hedging approach whereby the target mix between fixed and floating rate debt is reviewed
periodically. The purpose of our policy is to achieve an optimal balance between cost of funding and volatility of financial results, while taking
into account market conditions as well as our overall business strategy.
Floating interest rate risk on borrowings in euro
The company entered into several interest rate swaps and forward rate agreements to hedge the floating interest rate risk on 1 395m euro
(last year 1 135m euro) out of the sum of credit facility agreements and commercial papers of 2 695m euro outstanding at 31 December 2008
(last year 1 734m euro).
In conformity with the IAS 39 hedge accounting rules, 1 085m euro of these hedges were designated as cash flow hedges. A remaining
310m euro hedge was not designated for hedge accounting.
Floating interest rate risk on borrowings in US dollar
The company borrowed an amount of 44b US dollar to acquire Anheuser-Busch and entered into a series of forward starting US dollar interest
rate swaps in order to provide a higher predictability of cash flows. As a result, the interest rates for up to an amount of US dollar 34.5 billion,
under the US dollar 45 billion senior facility agreement, have effectively been fixed at 3.875 % per annum plus applicable spreads, for the period
of 2009-2011. From this 34.5b US dollar hedging, 25b US dollar hedge was designated to the senior facility, 5b US dollar is designated to a
pre-hedging of the bond issuance in January 2009 and 4.5b US dollar is designated to a pre-hedging of future bonds issuance.
In conformity with the IAS 39 hedge accounting rules, these 34.5b US dollar hedges were designated as cash flow hedges.
Floating interest rate risk on borrowings in Canadian dollar
The company borrowed an additional amount of 198m Canadian dollar (last year 180m Canadian dollar) out of a total credit facility agreement
of 680m Canadian dollar at 31 December 2008 (last year 680m Canadian dollar).
The company entered into a series of interest rate swaps to hedge the interest rate risk of the floating rate debt in Canada; the first two issued
in September 2007 for 325m Canadian dollar and a third one issued in September 2008 for 168m Canadian dollar. The maturity dates of these
swaps are October 2010 for the first two swaps and September 2011 for the third swap.
In conformity with the IAS 39 hedge accounting rules, these hedges were designated as cash flow hedges.
A description of the interest rate risk hedging related to the private placements and the US dollar bonds is given below.