Coca‑Cola HBC’s funding strategy is built around four key principles.
The Group’s funding strategy in the debt capital markets is built around the following principles:
- To raise financing via our wholly owned Dutch financing subsidiary Coca‑Cola HBC Finance B.V., except in the case of subsidiaries with joint control, or countries where certain legal or tax restrictions or advantages apply, in which case financing at lower levels in the organisation may be considered
- To maintain our presence and profile in the international capital markets and where possible to broaden our investor base
- To maintain a well-balanced redemption profile
- To use our European Medium Term Note programme as well as our Global Commercial Paper programme as the main basis for our financing
Financial risk management
The Group activities expose it to a variety of financial risks including currency risk, interest rate risk, credit risk and liquidity risk. The overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance.
We regularly use derivative products like forwards, options and futures but these are solely used for the purpose of hedging underlying exposures to foreign currency exchange rate risk, interest rate risk and commodities’ pricing volatility. None of these financial instruments are leveraged, used for trading purposes or taken as speculative positions.
Further information about Coca‑Cola HBC's risk management can be found in our most recent integrated annual report.
Given the Group’s operating activities, we are exposed to a significant amount of foreign currency risk. Our foreign currency exposures arise from adverse changes in exchange rates between the euro, the US dollar and the currencies in our non-euro countries. Transaction exposures arise mainly from raw materials purchased in currencies such as the US dollar or euro which can lead to higher cost of sales in the functional currency of the country.
Translation exposures arise as many of our operations have functional currencies other than the euro, and any change in the functional currency against the euro impacts our consolidated income statement and balance sheet when results are translated into euro.
Our treasury policy requires the hedging of rolling 12-month forecasted transactional exposures within defined minimum (25%) and maximum (80%) coverage levels. Where available, we use derivative financial instruments to reduce our net exposure to currency fluctuations.
The Group is exposed to market risk arising from changing interest rates, primarily in the euro zone. Periodically we evaluate the desired mixture of fixed and floating rate liabilities and modify the interest payments based on the desired mixture of debt. We also use interest rate swaps to manage our interest rate cost.
The Group is exposed to market risks arising from the fluctuations in the prices of key raw materials. For a number of raw materials, where there are available tools to actively manage price risks, the relevant provisions are included in the Treasury Policy. Treasury and Procurement Departments are jointly responsible for applying the relevant policies.
Based on the Treasury Policy, hedging activities are conducted for a 36 rolling month’s horizon. Treasury Policy dictates minimum and maximum coverage levels per time bucket, with a ‘layered approached’ (gradually lower hedge percentage for longer tenors) being applied. Different minimum and maximum hedge levels are applicable for each underlying commodity. Hedging activities are conducted through financial derivatives – where available – or through relevant provisions in the physical supplies contracts.
Credit risk is controlled by a restrictive policy as to the choice of potential counter parties for treasury transactions. Our credit risk is managed by establishing approved counterparty and country limits, detailing the maximum exposure that we are prepared to accept with respect to individual counterparties or countries. The limits are reviewed and monitored on a regular basis.
Our general policy is to retain a minimum amount of liquidity reserves in the form of cash on our balance sheet while maintaining the balance of our liquidity reserves in the form of unused committed facilities, to ensure that we have cost-effective access to sufficient financial resources to meet our funding requirements. These include the day-to-day funding of our operations as well as the financing of our capital expenditure program.
In order to mitigate the possibility of liquidity constraints, we endeavor to maintain a minimum of €250 million of financial headroom. Financial headroom refers to the excess committed financing available, after considering cash flows from operating activities, dividends, interest expense, tax expense, acquisitions, capital expenditure requirements and short term debt.