Financing strategy

Funding Strategy

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 & profile in the international capital markets and where possible to broaden our investor base;
• to target specific investor segments through diversification of tenor and currency, although the euro is the most important funding currency of the Group;
• to maintain a well-balanced redemption profile, and
• to use our European Medium Term Note programme as well as our Global Commercial Paper programme as the main basis for our financing.

Risk management policy

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, caps and collars but these are solely used for the purpose of hedging underlying exposures to foreign currency exchange rate risk and interest rate risk. None of these financial instruments are leveraged, used for trading purposes or taken as speculative positions.

Foreign exchange risk

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 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. Hedging beyond a 12-month period may occur, subject to certain maximum coverage levels, provided the forecasted transactions are highly probable. Where available, we use derivative financial instruments to reduce our net exposure to currency fluctuations. These contracts normally mature within one year.

Interest rate risk

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 manage our interest rate costs using a combination of fixed and floating rate debt, interest rate swap and option cap agreements. Although we have no set target for the mixture of fixed to floating rate liabilities, historically we have been more exposed to floating rates as this has tended to act as a natural hedge against our overall business risk.

Credit risk

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.

Liquidity risk

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 and capital expenditure requirements.

Further information about Coca-Cola Hellenic’s risk management can be found in the Group's most recent Annual Report and 20F report.