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

78 | Annual Report 2008 Financial Report
11. Finance cost and income
Recognized in profit or loss
Finance costs
Million euro 2008 2007
Interest expense (909) (549)
Accretion expense (95) (36)
Losses on hedging instruments that are not part of a hedge accounting relationship (25) (20)
Losses from hedge ineffectiveness (20) (6)
Taxes on financial transactions (26) (48)
Other financial costs, including bank fees (102) (54)
(1 177) (713)
The interest expense increased by 360m euro compared to 2007. 194m euro of this increase stems from the interest on the existing loans of
Anheuser-Busch and the financing of the transaction since 18 November 2008. The remainder of the interest expense increase results from
higher net debt positions in the parent companies and AmBev Brazil, mainly as a result of dividend payments and share buy back programs.
The increase in the accretion expense by 59m euro as compared to 2007 results from the amortization of the arrangement fees paid on
the senior facilities and the amortization of the fair value adjustment on the Anheuser-Busch debt (see also note 6 – Acquisition and disposal
of subsidiaries). The increase of the other financial costs is mainly explained by unrealized foreign exchange losses, mainly on outstanding
US dollar denominated assets.
Interest expense is presented net of the effect of interest rate derivative instruments hedging AB InBev’s interest rate risk – see also note 30
Risks arising from financial instruments. As required by IFRS 7 Financial Instruments : Disclosures the interest expense recognized on unhedged
and hedged financial liabilities and the net interest expense from the related hedging derivative instruments is split as follows :
Million euro 2008 2007
Financial liabilities measured at amortized cost – not hedged (555) (247)
Fair value hedges – hedged items (82) (103)
Fair value hedges – hedging instruments (95) (68)
Cash flow hedges – hedged items (105) (134)
Cash flow hedges – hedging instruments (reclassified from equity) 36 34
Net investment hedges - hedging instruments (interest component) (30) -
Hedged items not part of a hedge accounting relationship – economic hedges (69) (8)
Hedging instruments not part of a hedge accounting relationship – economic hedges (9) (23)
(909) (549)
Interest expense recognized on fair value hedged debt and hedging instruments mainly relates to the hedging of the 850m US dollar portion
of our Private Placements and the 500m US dollar AmBev bond maturing in 2011, 500m US dollar AmBev bond maturing in 2013 and the
300m Brazilian real bond maturing 2017. Interest expense in relation to cash flow hedges is mainly related to the hedging of the 2 695m euro
credit facility in AB InBev and to the 680m credit facilities in Canada. Interest expense on net investment hedges is related to the 500m euro
hedge of the net investment in AmBev Brazil. The increase of the interest expense on the hedged items not part of a hedge accounting
relationship is mainly explained by the 1.5b Brazilian real issue of promissory notes in AmBev Brazil during 2008.
Finance income
Million euro 2008 2007
Interest income 84 54
Dividend income, non-consolidated companies 1 1
Gains on hedging instruments that are not part of a hedge accounting relationship 85 22
Gains on non-derivative financial instruments at fair value through profit or loss 1 2
Other financial income 24 36
195 115