2007 annual report - jaarverslag · heineken n.v. 2007 annual report. 01 proﬁ le ... marketing...

2007 Annual Report

Also see www.enjoyheinekenresponsibly.comH

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01 Profi le

02 Performance highlights

04 Milestones 2007

Report of the Executive Board

06 Chief Executive’s statement

10 Outlook 2008

12 Executive Committee

14 Operational review

14 Top-line growth

14 The Heineken brand

16 Innovation, research and development

17 International marketing

18 Shifting the balance

18 The Amstel brand

19 Sustainability

21 Personnel and organisation

22 Regional review

22 Western Europe

26 Central and Eastern Europe

30 Americas

34 Africa and the Middle East

38 Asia Pacifi c

42 Risk management

47 Financial review

52 Dutch Corporate Governance Code

56 Decree Article 10

Report of the Supervisory Board

58 To the shareholders

61 Supervisory Board

62 Remuneration report

Financial statements

65 Consolidated income statement

66 Consolidated statement of recognised

Income and expense

67 Consolidated balance sheet

68 Consolidated statement of cash fl ows

70 Notes to the consolidated fi nancial

statements

132 Heineken N.V. balance sheet

133 Heineken N.V. income statement

134 Notes to Heineken N.V.

fi nancial statements

Other information

138 Auditor’s report

140 Appropriation of profi t

141 Shareholder information

145 Countries and brands

152 Historical summary

154 Glossary

156 Reference information

Contents

Heineken is one of the world’s great brewers and is committed to growth and remaining independent. The brand that bears the founder’s family name – Heineken – is available in almost every country on the planet and is the world’s most valuable international premium beer brand.

Heineken aims to be a leading brewer in each of the markets in which we operate and

to have the world’s most prominent brand portfolio. Our principal

brands are Heineken® and Amstel®. In addition to these, we have more than 170

international, regional, local and specialty beers around the globe, brewing a Group

beer volume of 139.2 million hectolitres. Our other leading brands include

Cruzcampo®, Tiger®, Zywiec®, Birra Moretti®, Ochota®, Primus® and Star®.

We have the widest presence of all international brewers, thanks to our global

network of distributors and 119 breweries in more than 65 countries. In Europe

we are the largest brewer and distributor of beverages.

Our global coverage is achieved through a combination of wholly-owned companies,

licence agreements, affi liates and strategic partnerships and alliances. Some of our

wholesalers also distribute wine, spirits and soft drinks. Our brands are well established

in profi table, mature markets, whilst the popularity of our beers is growing daily in

emerging beer markets.

Marketing excellence and innovation are key components of our growth strategy.

In everything we do, it is the consumers and their changing needs that is at the heart

of our efforts.

We also fully acknowledge our role in society. Social responsibility and sustainability

underpin everything we do. We will continue expanding initiatives to combat alcohol

abuse and misuse and we will work hard to reach the highest environmental standards

in the industry.

History The Heineken story began more than 140 years ago in 1864 when Gerard Adriaan

Heineken acquired a small brewery in the heart of Amsterdam. Four generations

of the Heineken family have been passionately involved in the expansion of the

Heineken brand and the Company throughout the world.

Employees In 2007, the average number of people employed was 54,004. Their hard work

and commitment are the basis of our Company’s success.

Profi le

01

Heineken N.V. Annual Report 2007

2003

2004

2005

2006

2007

1,357

1,377

1,392

1,569

EBIT (beia)In millions of EUR

1,846

2003

2004

2005

2006

2007

806

803

840

930

Net profit (beia)In millions of EUR

1,119

2003

2004

2005

2006

2007

85.2

96.7

100.5

111.9

Consolidated beer volumeIn millions of hectolitres

119.8

2003

2004

2005

2006

2007

18.5

19.2

20.1

22.5

Heineken volume in premium segmentIn millions of hectolitres

24.7

2003

2004

2005

2006

2007

85.2

96.7

100.5

111.9


119.8

2003

2004

2005

2006

2007

Heineken voIn millions of

Revenue +6.2%

€12,564 millionEBIT (beia) +17.6%

€1,846 millionNet profi t (beia) +20.4%

€1,119 millionConsolidated

beer volume +7.1%

119.8 million hectolitresHeineken volume in

premium segment +10%

24.7 million hectolitres

Net profi t (beia) increased by 20.4 per cent, the best • performance for the past nine years, driven by an increase in EBIT (beia).

Consolidated beer volume grew by 7.1 per cent to 119.8 million • hectolitres of which only 0.5 per cent was attributable to the fi rst time consolidation of newly-acquired companies.

Volume of the Heineken brand in the international premium • segment grew 10 per cent to 24.7 million hectolitres, increasing Heineken’s worldwide share in the segment.

Our performance highlights

Performance highlights

02


Results In millions of EUR 2007 2006 Change in %

Revenue 12,564 11,829 6.2

EBIT2 1,528 1,832 (16.6)

EBIT (beia)2 1,846 1,569 17.6

Net profi t 807 1,211 (33.4)

Net profi t (beia)2 1,119 930 20.4

EBITDA2 2,292 2,618 (12.5)

EBITDA (beia)2 2,568 2,346 9.5

Net debt 1,926 1,914 0.6

Dividend (proposed) 343 294 16.7

Free operating cash fl ow2 745 1,122 (33.6)

Balance sheetIn millions of EUR

Total assets 12,968 12,997 (0.2)

Equity attributable to equity holders of the Company 5,404 5,009 7.9

Net debt position 1,926 1,914 0.6

Market capitalisation 21,639 17,654 22.6

Results and balance sheet per share of €1.60

Weighted average number of shares – basic 489,353,315 489,712,594

Net profi t 1.65 2.47 (33.2)

Net profi t (beia) 2.29 1.90 20.4

Dividend (proposed) 0.70 0.60 16.7

Free operating cash fl ow 1.52 2.29 (33.6)

Equity attributable to equity holders of the Company 11.04 10.23 7.9

Share price as at 31 December 44.22 36.03 22.7

EmployeesIn numbers

Average number of employees pro rata 54,004 57,557 (6.2)

Ratios

EBIT as % of revenue 12.2% 15.5% (21.3)

EBIT as % of total assets 11.8% 14.1% (16.3)

Net profi t as % of average shareholders’ equity 15.5% 27.5% (43.6)

Net debt/EBITDA (beia) 0.75 0.82 (8.5)

Dividend % payout 30.7% 31.6% 74.5

Cash conversion rate 57.9% 105.6% (45.2)

EBITDA/Net interest expenses 22.7 19.7 15.2

1 Please refer to the ‘Glossary’ for defi nitions.2 ‘EBIT, EBIT (beia), net profi t (beia), EBITDA, EBITDA (beia) and free operating cash fl ow’ are not fi nancial measures calculated

in accordance with IFRS. Accordingly, it should not be considered as an alternative to ‘results from operating activities’ or

‘profi t’ as indicators of our performance, or as an alternative to ‘cash fl ow from operating activities’ as a measure of our

liquidity. However, we believe that ‘EBIT, EBIT (beia), net profi t (beia), EBITDA, EBITDA (beia) and free operating cash fl ow’ are

measures commonly used by investors and as such useful for disclosure. The presentation on these fi nancial measures may

not be comparable to similarly titled measures reported by other companies due to differences in the ways the measures are

calculated. For a reconciliation of ‘results from operating activities’, ‘profi t’ and ‘cash fl ow from operating activities’ to ‘EBIT, EBIT

(beia), net profi t (beia), EBITDA, EBITDA (beia) and free operating cash fl ow’ we refer to the fi nancial review on pages 47 to 51.

Key fi gures1

03

Important highlights

Amstel in South Africa Heineken regains control

of Amstel Lager in South

Africa, following an

arbitration award by

the International Court

of Arbitration of the

International Chamber

of Commerce in favour

of Amstel.

In addition, Heineken takes

an in-principle decision

to construct a brewery

in South Africa.

Amstel Lager will be

marketed, sold and

distributed in South Africa

through brandhouse

Beverages (Pty)

Ltd., the Cape Town-

headquartered joint

venture between

Heineken, Diageo and

Namibia Breweries.

Until the new brewery

is completed, the

production of Amstel

Lager will be brewed in

existing Amstel breweries

in Europe and transported

to South Africa.

March May June

New UEFA Champions League advertising campaign Heineken launches a new

advertising campaign for

the Heineken brand and

the UEFA Champions

League partnership, which

establishes the new theme

“Enjoyed together around

the world.” This new

campaign builds on

the truly international

premium status of both

Heineken and the UEFA

Champions League.

Heineken and FEMSA sign ten year import agreement for the USA Heineken and Fomento

Económico Mexicano,

S.A.B. de C.V. (‘FEMSA’)

extend their existing

three-year relationship

in the United States for

a period of ten years,

effective 1 January 2008.

Heineken USA will

continue to be the sole

and exclusive importer,

marketer and seller of

the FEMSA beer brands,

Dos Equis, Tecate, Tecate

Light, Sol, Bohemia and

Carta Blanca, in the USA.

Krušovice Brewery in Czech RepublicHeineken announces

the acquisition of

Krušovice Brewery

in the Czech Republic

from Radeberger Gruppe

KG. As a result of this

transaction, the market

share of Heineken in

the Czech Republic will

increase to 8 per cent,

with total volumes of over

1.6 million hectolitres,

improving Heineken’s

position in the market

to number three.

This acquisition provides

a strong opportunity

to accelerate top-line

growth in the Czech

market. The Krušovice

brand is very popular

among local consumers

and Heineken is confi dent

that with appropriate

commercial investment,

this brand has clear

potential to grow.

Milestones 2007

04


September October December

Heineken and Carlsberg to bid for Scottish & NewcastleHeineken and Carlsberg

confi rm their intention

to make an offer for the

entire issued share capital

of Scottish & Newcastle

plc. Through the deal,

it is intended that

Heineken will ultimately

obtain a number 1

position in the UK and

number 2 positions in the

key markets of Portugal,

Ireland, Finland and

Belgium, as well as greater

exposure to developing

markets and segments,

with positions in India and

the US import market.

Carlsberg will ultimately

acquire Scottish &

Newcastle’s interests

in Russia (BBH), France

and Greece.

In January 2008, the board

of Scottish & Newcastle

recommends the terms

of a cash offer to its

shareholders.

The Syabar Brewing

Company has been

operational since October

2005 following the

reconstruction of a state-

owned brewery, employs

280 people and is located

in Bobruysk, 140 km

south-east of Minsk.

The portfolio consists

of the national

mainstream beer brand

Bobrov, which holds the

number two position

in the market and the

recently introduced

premium brand Syabar.

2007 sales volume is

estimated at 600,000

hectolitres, compared

to 370,000 hectolitres

in 2006.

Rugby World Cup 2007 in ParisHeineken launches its

new campaign entitled

‘Continental Shift,’

offi cially starting the

countdown to the opening

game of Rugby World

Cup 2007 in Paris on

7 September. Heineken

was once again the Offi cial

Beer of the Rugby World

Cup and holds Offi cial

Sponsor status.

Referring to a new

campaign theme ‘One

World, One Cup, One

Beer’, Heineken presented

a TV commercial in which

thousands of fans from all

over the world show their

passion for the game of

rugby and for Heineken

beer. The television

commercial was shot

in a number of iconic

locations around the

world, and is based around

the idea that rugby fans

would do anything to get

to Rugby World Cup 2007.

Heineken announces the

acquisitions of the Rodic

Brewery, in Novi Sad,

Serbia and of the Syabar

Brewing Company, in

Bobruysk, Belarus.

Rodic was established

in 2003 and employs

282 people. The Rodic

Brewery facility is a state-

of-the-art, 1.5 million

hectolitre brewery,

located in Novi Sad,

northern Serbia.

The company’s portfolio

consists of the beer

brands MB Premium, MB

Pils and Master. Total 2007

sales volume is estimated

at 500,000 hectolitres.

Acquisitions in Serbia and Belarus

05


2007 was a very strong year for Heineken.

We signifi cantly exceeded the expectations set at

the start of the year in terms of profi t growth and

we delivered on our ambitious cost-reduction

targets. Along the way, we made good progress

towards becoming an organisation in which

performance and focus on consumer needs are

the key drivers of our strategic agenda.

Our success is clearly refl ected in the results we

achieved against our key metrics:

Organic growth in net profi t (beia) up •

22.6 per cent

Organic revenue growth up 7.3 per cent•

Organic consolidated beer volume growth •

up 6.5 per cent

Heineken® growth in the premium segment •

up 10 per cent.

2007 was an outstanding year. We executed our plans faster, more effi ciently and with greater impact than ever before. Alongside this, we maintained our focus and insistence on performance and delivery. We will not be complacent though and will continue to focus on delivering what we have promised.


Chief Executive’s Statement

06


Heineken N.V. Executive Board

Left: Jean-François van Boxmeer

Chairman of the Executive Board/CEO

Right: René Hooft Graafl and

Member of the Executive Board/CFO

increased shareholder returns. In particular, we

will have an important new distribution platform

in the UK and other markets to drive growth of the

Heineken brand.

Our acquisition strategy is focused on building

leadership positions in markets where we operate.

Scottish & Newcastle UK is the leading brewer

and cider producer. Hartwall in Finland, Centralcer

in Portugal and Alken-Maes in Belgium command

respectable number two positions in their

respective countries. We will also reinforce our

business platforms in both Ireland and the USA.

Last but not least the signifi cant stake in India’s

leading brewer UBL will open tremendous

opportunities for the future.

Alongside this, we will have acquired some very

strong, complementary brands such as Newcastle

Brown Ale, Foster’s and Strongbow cider, which

have international appeal and potential.

I would like to take this opportunity to wish all our

new employees, business partners and customers

a very warm welcome to Heineken. These are

exciting times for all of us and we will continue to

build on the superb heritage and sterling past

performance of Scottish & Newcastle.

Priorities for actionWe remained focused on our four Priorities for

Action:

Accelerate top-line growth •

Accelerate effi ciencies•

Accelerate speed of implementation•

Focus on selective opportunities.•

Accelerate top-line growthLooking back at the past few years, much has been

achieved in terms of top-line growth. For the year

2005 we announced revenue growth of 7.3 per

cent, of which 2.2 per cent was organic. For 2006,

revenue growth had risen to 9.6 per cent, of which

7.1 per cent was organic. In 2007, we once again

increased our positive annual revenue growth by

6.2 per cent, of which 7.3 per cent is organic.

We have also signifi cantly grown the Heineken

brand – our key strategic asset – which again

showed excellent growth of 10 per cent in 2007.

This is a great achievement and I would like

to thank our employees, and our trade and

business partners for playing their part in

this performance.

All regions contributed to growthOur results also reconfi rmed that we continue

to benefi t from our ability to extract value from

our mature markets. Nowhere is this more evident

than in Western Europe where, despite the

challenging market conditions, we signifi cantly

outperformed the sector with EBIT (beia) growth

of 5.1 per cent.

Performance from our Central and Eastern

European (CEE), African and Asian markets was

outstanding and are beginning to deliver on their

potential for both profi t and volume growth. CEE is

our second largest profi t pool. Consolidated volume

grew by 9 per cent and EBIT (beia) rose by 22 per

cent. With an 18 per cent volume growth and

41 per cent EBIT (beia) increase, Africa and Middle

East was the fastest growing region in 2007. The

Americas region was again consistent in growing

both its consolidated volumes and EBIT (Beia)

and our Asia Pacifi c region continued its positive

growth in volumes, revenue and profi tability.

In the fi rst half of 2007 we also made two very

positive steps, which will help us to maintain strong

regional and market performance in the future.

Firstly, in May, we renewed the sales and marketing

agreement with our partners FEMSA in the USA

for a further 10 years. This will allow our American

operation to mature into a true portfolio business,

fi rmly positioned in the growth segment of the

US beer market. Secondly, we regained control

of the Amstel brand in South Africa and decided

to construct a brewery there. This will mean

a stronger, more profi table business in partnership

with Diageo and Namibian Breweries.

Scottish & Newcastle: a strategic acquisitionThe second half of 2007 was dominated by our

planned acquisition of Scottish and Newcastle

plc., in combination with Carlsberg. This strategic

acquisition, which is still subject to approval of the

relevant authorities, will reinforce our position in

Europe, and will drive a sizeable, reliable cash fl ow

and profi t stream to support future expansion and

07


The savings are fl owing through to the bottom line,

enhancing our profi tability. In combination with

stronger top-line growth, this has delivered the

strongest operational profi t growth in many years.

The Fit2Fight rationale and the techniques for

achieving it are becoming more and more

embedded in the organisation and are crossing

all disciplines.

Looking ahead to 2008, we will complete our

Fit2Fight programme on time and with the stated

level of savings.

Accelerate speed of implementationWe have begun the implementation of an internal

project on information logistics, which will support

and simplify our Company-wide decision-making

processes, by ensuring that the right level of

accurate information on any aspect of our business

is available in a timely manner.

In parallel, we have made good progress on

our major business-wide change programme to

centralise IT and to introduce common systems

and processes.

The market-by-market implementation of our

brand portfolio reviews is well under way. It has

clearly delivered growth on many of our leading

regional and national brands such as Primus

(+14.5 per cent), Star (+13.1 per cent), Ochota

(+14.5 per cent), Cruzcampo (+1.7 per cent),

Zywiec (+8.2 per cent), Gulder (+10.9 per cent),

Goldenbrau (+15.5 per cent) and Three Bears

(+46.2 per cent).

This focused approach to investment in brand

building, innovation and execution is ultimately

what allows us to increase our profi tability.

Accelerate effi cienciesKey in our drive for effi ciency is our ‘Fit2Fight’

three-year-cost reduction programme, aiming

to save €450 million (including infl ation) before

tax from our fi xed cost base over the period

2006–2008. This year, the second year of the

programme, we delivered additional gross savings

of €191 million. To date, as we promised we would,

we have realised, €305 million or 68 per cent of

the total programme.

Chief Executive’s Statement continued

08



Thanks to our performance-driven approach and

our strategic focus, at the beginning of 2008,

I believe that we emerged stronger, more effi cient,

and more competitive than we were a year ago.

Looking ahead, we will continue to invest the

energy of our people and resources of our

business into ensuring that environmental and

social sustainability remain high on our agenda.

We will strengthen our existing commitment to

responsible consumption activities in partnership

with our employees, the industry and third parties

in order to play an active role in addressing

alcohol misuse. In addition, we will maintain our

focus on meeting the environmental and safety

targets that we have set ourselves. Our 2007

Sustainability Report will once again transparently

set out what we have done and what we have

achieved in this regard.

In 2008 and beyond, we remain resolute in

our desire and determination to deliver value

for all our shareholders through the sustainable

growth of our business and our position in the

global beer market.

Jean-François van BoxmeerChairman of the Executive Board/CEO

Amsterdam, 19 February 2008

Ultimately, however, it is not about processes and

systems. It is about whether we do or do

not implement decisions more quickly. For me,

there is no better example of this than our

experience in South Africa, where from a virtual

standing start in March of 2007, we had Amstel

back on the market and in the hands of our

consumers by September. Within six months, we

had brewing, packaging, shipping, marketing, sales

and distribution up and running and delivering for

our consumers and trade partners – a great

achievement.

Focus on selective opportunitiesAlthough the focus during 2007 was of course

on our planned acquisition of parts of Scottish

& Newcastle, we were also active on other fronts.

Total investment in acquisitions amounted to

€245 million net of cash acquired, with much of this

focused on markets in Central and Eastern Europe.

In Vietnam, thanks to our acquisition in 2007,

we are now the number two brewer with Heineken

brand volumes of more than one million

hectolitres. In the Czech Republic, we acquired

the Krušovice Brewery, a strategic addition

considerably narrows the gap between the number

two brewer and Heineken.

In December 2007 we acquired the Rodic Brewery

in Novi Sad in Serbia and announced the acquisition

of Syabar Brewing Company in Belarus. In January

2008 we acquired Tango Brewery in Algeria, and

announced a cooperation with Efes Breweries in

Uzbekistan, Serbia and Kazakhstan.

All these transactions take us forward in both our

strategy to become the number one or two player,

in key identifi ed markets where we see

opportunities to grow the Heineken brand.

09


Full-year profi t outlookHeineken expects that 2008 will be another year

of good organic growth in net profi t, based on

a further improvement in sales mix, better prices,

higher beer volume and savings in fi xed costs.

The international premium segment will continue

to grow at a higher rate than that of the overall

beer market and the Heineken brand will benefi t

from this trend. In its last year, the Fit2Fight

cost-savings programme is expected to deliver

approximately €150 million of gross costs savings

thus delivering in full the Fit2Fight programme

launched at the beginning of 2006.

As a result of worldwide input cost infl ation,

Heineken expects a 15 per cent price increase

in its raw material and packaging costs. The

Company expects that it will be able to pass on

the impact of the increased input and energy costs

in most of its markets. Due to the uncertainties

around the possible impact of worldwide

consumer price infl ation and weakening

economies on consumer spending and beer

consumption, it is too early to make a reliable

estimate of volume levels for 2008.

Heineken expects the capital expenditure related

to property, plant and equipment to total around

€1.2 billion in 2008. Part of this investment is

related to capacity expansion and the construction

of new breweries in Central and Eastern

Europe, Asia and Africa. In principle, the capital

expenditures will be fi nanced from the cash fl ow.

The total restructuring costs associated with the

Fit2Fight cost-savings programme is expected

to amount to about €225 million, of which about

€75 million will relate to 2008. As a result of cost-

reduction programmes, the underlying downward

trend in the number of employees will continue.

This outlook for 2008 provides further information on general developments in the international beer industry, their effects on Heineken’s position, its profi t forecast and its capital investments.

Outlook 2008

10 Report of the Executive Board


In the event of a successful offer for Scottish

& Newcastle, Heineken’s share of the assets

will be consolidated for the fi rst time when the

deal becomes effective.

The intended acquisition of the assets of Scottish

& Newcastle represents a signifi cant strategic step

that will create strong platforms for future profi t

and cash fl ow growth. It will enable the Company

to grow its fl agship Heineken brand faster

in profi table markets and make the Heineken

Group the leading brewer in the highly profi table

European beer market. Following the transaction,

Heineken will hold 18 number 1 or 2 positions in

Europe. In Western Europe, where Heineken has

increased its profi tability consistently, year after

year, Heineken will acquire number 1 and 2 market

positions in signifi cant new profi t pools.

The transaction will also add attractive brands with

international appeal such as Newcastle Brown Ale,

Foster’s, John Smith’s Bitter and Strongbow cider

to Heineken’s leading brand portfolio. In addition,

Heineken will acquire a 37.5 per cent stake in

United Breweries, the leading brewer in the still

small but fast-growing Indian beer market.

On a pro-forma annual basis, this acquisition

would add over 27 million hectolitres and revenues

of approximately €3.6 billion to Heineken, thus

becoming twice as big as the second player in the

European market.

11


1. Jean-François van Boxmeer (Belgian; 1961)

Chairman Executive Board/CEO

In 2001 appointed member of the Executive Board and from

1 October 2005 Chairman of the Executive Board/CEO. Joined

Heineken in 1984 and held various management positions in

Rwanda (Sales & Marketing Manager), DRC (General Manager),

Poland (Managing Director), Italy (Managing Director).

Executive Board responsibility: Heineken Regions, Group

Human Resources, Group Corporate Relations, Group Supply

Chain, Group Commerce, Group Legal Affairs, Group Internal

Audit, Company Secretary.

2. René Hooft Graafl and (Dutch; 1955)

Member Executive Board/CFO

In 2002 appointed member of the Executive Board. Joined

Heineken in 1981 and held various management positions

in DRC (Financial Director), Netherlands (Marketing Director),

Indonesia (General Manager) and the Netherlands (Director

Corporate Marketing, Director Heineken Export Group).

Executive Board responsibility: Group Control & Accounting,

Group Finance, Group Business Development, Group IT

and Group Business Processes.

The two members of the Executive Board, the fi ve Regional Presidents and fi ve Group Directors together form the Executive Committee. The Executive Committee supports the development of policies and ensures the alignment and continuous implementation of key priorities and strategies across the organisation.

3. Didier Debrosse (French; 1956)

Regional President Western Europe

Joined Heineken in France in 1997 as Sales and Marketing

Manager, after having worked with Nivea and Kraft Jacobs

Suchard, where he had various commercial positions. He was

later appointed General Manager of Brasseries Heineken in

France. In 2003 he became Managing Director of Heineken

France and Regional President in 2005.

4. Marc Gross (French; 1958)

Group Supply Chain Director

Joined Heineken in Greece in 1995. In 1999 he became Regional

Technical Manager North, Central and Eastern Europe. In 2002

he became Managing Director of Heineken Netherlands Supply.

Prior to joining Heineken, he held various management roles

with international food and consumer businesses. He was

appointed Group Supply Chain Director in 2005.

Executive Committee


5. 7.

9.

1.

2.

5. Siep Hiemstra (Dutch; 1955)

Regional President Asia Pacifi c

Joined Heineken in 1978 and worked in various commercial and

logistic positions. In 1989 he was appointed Country Manager

of Heineken Export based in Seoul, South Korea. Subsequently,

he held various management positions in several countries

including Papua New Guinea, Ile de la Réunion and Singapore.

In 2001 he was appointed Director of Heineken Technical

Services and Regional President in 2005.

6. Tom de Man (Dutch; 1948)

Regional President Africa and the Middle East

Joined Heineken Technical Services in 1971. Following this, he

held various management positions in Singapore, Korea, Japan,

Nigeria and Italy. From 1992, he was Group Production Policy &

Control Director. In 2003 he was appointed Managing Director

of Heineken’s operations in Sub-Saharan Africa and Regional

President in 2005.

7. Frans van der Minne (Dutch; 1948)

Group Human Resources Director

Joined Heineken in 1975 in sales. He held various management

positions in the export organisation. In 1988 he was appointed

General Manager of the Murphy Brewery, Ireland. In 1989 he

became Director of Heineken Export and in 1999 he became

Director of Central and Eastern Europe. He was appointed

President of Heineken USA in 2000 and became Group Human

Resources Director in 2005.

8. Nico Nusmeier (Dutch; 1961)

Regional President Central and Eastern Europe

Joined Heineken in 1985 as a management trainee and

graduated as a master brewer in 1988. Since then he has held

various management positions within Heineken in many parts of

the world. In 2001 he was appointed Managing Director of

Grupa Zywiec in Poland and Regional President in 2005.

9. Sean O’Neill (British; 1963)

Group Corporate Relations Director

Joined Heineken in 2004 following eight years in senior roles

within the alcoholic beverages sector. Prior to this, he held

management roles with a global communication and corporate

affairs consultancy based in the UK, Russia, the Middle East

and Australia. In 2005 he was appointed Group Corporate

Relations Director.

10. Stefan Orlowski (Polish/Australian; 1966)

Group Commerce Director

Joined Heineken in 1998, working as Vice-President & Managing

Director of Grupa Zywiec. From 2003 to 2006, he was Chief

Operating Offi cer, fi rst of Brau Union AG and as of 2005, of

Central and Eastern Europe (C&EE) with direct responsibility

as Managing Director Central Europe for the Central European

markets and for Marketing, Sales and Distribution of C&EE.

In October 2007 he was appointed Group Commerce Director.

11. Floris van Woerkom (Dutch; 1963)

Group Control and Accounting Director

Joined Heineken in 2005 as Group Control & Accounting

Director, after having worked with Unilever for 18 years, where

he held various international positions including Finance Director

in Mexico and regional Vice-President Finance in Latin America.

12. Massimo von Wunster (Italian; 1957)

Regional President Americas

Worked with Wunster Brewery, a family-owned brewery

founded in 1879, before joining Heineken in 1995. He held

various positions within Heineken’s Italian organisation, before

being appointed Managing Director of Heineken Italia in 2001

and Regional President in 2005.

(Regional Presidents and Group Directors are shown in

alphabetical order.)

13


10.

3.

4.

6.

8.

11.

12.

Top-line growthTop-line growth is the key measure of the strength

of a focused company. At the start of the year,

we set ourselves challenging targets in terms of

growing both profi tability and volume across our

brand portfolio. Through a combination of focused

marketing investment, innovation, increased

emphasis on in-market execution, strong creative

marketing and a continuing commitment to

meeting consumer and customer needs, our top-

line performance across our brand portfolio in

2007 was strong with an organic 7.3 per cent

increase in revenue and a 6.5 per cent rise in

organic consolidated beer volume growth.

The Heineken brandNowhere was this growth more evident than

for the Heineken brand. For more than 125 years

the brand has been and continues to be at the

physical, emotional and fi nancial heart of our

global portfolio. Throughout its history, successive

generations of managers and marketers have

made Heineken the world’s most valuable

international premium beer brand. 2007 once

again saw strong growth. Volumes of the brand

in the international premium segment grew

considerably by 10 per cent, driving further

growth in the brand’s share of the segment.

Operational reviewOur number one priority is to drive top-line growth through the creation of a global portfolio that combines the power of local and international brands and with the Heineken brand as the jewel in the crown.

14



• Western Europe* 7.5 30.4%

• Central and Eastern Europe 2.6 10.5%

• Americas 9.1 36.8%

• Africa and Middle East 1.6 6.5%

• Asia Pacific 3.9 15.8%

Total 24.7 100%

Heineken volume by regionIn millions of hectolitres

Heineken 28.0 20.1%

Amstel 10.6 7.6%

Other 100.6 72.3%

Total 139.2 100%

Global breakdown of brandsIn millions of hectolitres

* in premium segment

15


Premium Light was fuelled by strong repeat

purchase, and the expansion of packaging choices

for consumers with the launch of a ‘slim’ can and a

5-litre DraughtKeg.

2007 was another very successful year for

DraughtKeg. This unique 5-litre ‘go anywhere’

draught system provides an exciting beer

experience to share with friends. Driven by the

strong volume growth, in 2007 the focus was on

up-scaling the DraughtKeg supply chain and rolling

out systems to more markets. As a result,

DraughtKeg is now selling in 94 markets.

Since the launch of BeerTender, the genuine home

draught beer experience, more than 300,000

appliances have been sold worldwide.In 2007,

Heineken successfully combined DraughtKeg and

BeerTender innovations with a unique one-way

DraughtKeg for BeerTender. Based on the positive

results in France, this innovation was launched

in Greece and piloted in the USA. In 2008,

other countries will follow. Innovations such as

DraughtKeg and BeerTender, clearly differentiate

Heineken from our competitors.

Impressively, the Heineken brand grew volume,

value and share across all regions, further

strengthening its position as the only truly

international premium beer. Of particular note is

the double-digit growth achieved by Central and

Eastern Europe, Africa and Asia Pacifi c. This now

provides a very positive balance to the brand’s

already strong performance in more mature

markets. The growth and higher contribution of

the Heineken brand continues to be an important

driver of our profi tability and our outperformance

of the sector.

Innovation, research and developmentInnovation continues to contribute considerably

to top-line growth. In 2007, volume growth from

innovation grew more than 80% and total volume

from innovation passed 1.2 million hectolitres. In

its fi rst full year of sales, the growth of Heineken

Operational review continued


Five years following the introduction, the David

draught beer system aimed at lower volume

on-trade outlets, is available in 85 markets. During

the year, we also made good progress on the

mobile Xtreme Draught concept, the next

generation of the David system. Xtreme Draught

uses either the new ‘Ten Can’ (10-litre draught keg)

or the standard 20-litre David keg, making it

fl exible and easy to use. It also means optimal

freshness for the beer and a better experience for

both customer and consumer. The new system is

now available in 25 countries around the world.

Finding new and faster ways to grow volume

is the key rationale behind the roll-out of our Extra

Cold programme which adds value to the Heineken

brand equity and which is now available in more

than 100 markets.

As we move into 2008, all these programmes will

continue to be driven at a market level to address

specifi c consumer needs or to ensure we are able

to offer the consumer a quality Heineken brand

experience across the spectrum of consumer

drinking occasions.

International marketingWith Heineken now available in almost every

country in the world, Heineken is literally the only

beer brand in the world that can develop and

deliver major international marketing initiatives

with such authority and credibility. In 2007, we

again used this credibility as a way to clearly

differentiate the Heineken brand from its

competitors and as a way to bring the brand alive

for consumers and trade partners.

‘One World, One Cup, One Beer’ was the motto for

the fully-integrated campaign for the 2007 Rugby

World Cup held in France. Throughout the seven

weeks of competition, Heineken had a massive

presence around the stadia, the tournament and

in the world’s media. We also entertained 8,000

guests, including consumers and trade partners

from more than 30 markets.

The Heineken brand’s UEFA Champions League

(UCL) sponsorship also leveraged the credibility

and authority of the brand. The programme was

supported by centrally developed international

commercials and break bumpers, on air in 156

countries, as well as consistent communication

material and trade support programmes. At the

tournament fi nal in Athens, the culmination of

more than nine months of in-market activity, we

broke our own record for guests at a single event

when we hosted more than 1,100 guests from

around the world. The fi rst UCL Trophy Tour to Asia

17


Shifting the balance2007 was notable for taking the fi rst steps in

re-balancing our approach to marketing and sales.

In the past few years, we have made a signifi cant

investment in the architecture, strategy and

communication platforms for our major brands.

This has undoubtedly helped us drive some of the

growth that we are now seeing. What we began

during 2007 though was a series of marketing and

sales workshops with the clear objective to

improve the in-market execution of the plans we

have developed – in effect, ensuring that we get

the maximum return from the investments we

have already made.

During 2008, the focus on marketing and

communication excellence will accelerate.

Ultimately, our aim is to have the same levels

of competence across our business for delivery

of sales and distribution that we have traditionally

had for creative and consumer communication

development.

The Amstel brandThe Amstel brand is another important pillar within

our global portfolio, with availability in more than

100 markets and global volume of 10.6 million

hectolitres. 2007 was a pivotal year for Amstel

with a number of signifi cant developments which

helped to set the brand’s course for the future.

In March 2007, we regained control of Amstel in

South Africa, one of Amstel’s biggest markets. In

the short term, we have established a supply chain

out of Europe. In 2010 we will switch to local

production, following the completion of a brewery

in South Africa.

saw over 50,000 consumers have their picture

taken with the trophy and attracted a TV audience

of more than 200 million people.

However, we do not solely strategically promote

the brand. Over the last few years, we have been

building a reputation for innovative use of fi lm as a

way of reaching our target consumers. With ‘The

Matrix’ and ‘James Bond’ franchises already a part

of this approach, in 2007 we again sought a

high-profi le opportunity to continue the success.

We chose ‘The Bourne Ultimatum’, which we

successfully integrated into our global marketing

campaigns. Music also remains a key sponsorship

area for the Heineken brand with more than 100

Heineken supported or sponsored large music

events worldwide, including our global music event

‘Thirst Studio’.

18




2003

2004

2005

2006

2007

11.0

11.1

12.2

Amstel volumeIn millions of hectolitres

11.4

10.6

Just as with Heineken Premium Light, the Amstel

Pulse line extension was a signifi cant driver of

the brand’s growth during 2007 and will continue

to be so in 2008. During 2007, we added both

Hungary and New Zealand, to the list of existing

markets where Amstel Pulse is developing a strong

consumer franchise.

In the USA, Amstel Light did not achieve the

growth we had targeted. We are looking at every

aspect of the brand, from its positioning in the

segment to packaging and communication. We

are introducing new programmes to rejuvenate

the brand and help it regain its position in the

profi table imported light segment.

SustainabilityAs one of the world’s leading brewers, Heineken

creates value and enjoyment for millions of people

around the world through brewing, marketing and

selling high-quality beers. We are proud of this.

At the same time, we are fully aware that we have

an important role to play in society at large and in

the lives of all our stakeholders. These include our

employees, customers and suppliers who depend

on us for their income, our consumers who enjoy

our beers, our shareholders who seek a healthy

return on their capital and the communities in

which we operate which rely on us to be a good,

corporate citizen.

In all of our actions, we seek to balance commercial

reality with social responsibility. It is not an easy

task and it ultimately means that we can never

19


meet the expectations of all of our stakeholders all

of the time. However, understanding their needs

through dialogue improves our decision-making and

helps us strike a better balance more of the time.

It is this philosophy that underpins our approach

to sustainability and to meeting our obligations as

a brewer. It was also a key driver behind our decision

at the start of 2007 to focus on the seven areas

where we as a business have the most impact on

society:

Energy consumption and CO• 2 emission

Waste water consumption and discharge •

Safety of our employees and installations •

Quality and availability of raw materials •

Supply chain responsibility •

Responsible beer consumption •

Impact on developing markets. •

Through focus, and the establishment of clear

targets in each of these areas, we drive the

continuous improvement in our sustainability

performance. In 2007 we took a signifi cant step,

which refl ected this philosophy and reinforced

our long-standing commitment to responsible

consumption, by becoming a founding company

member of the European Forum on Alcohol and

Health. This Forum brings together all stakeholder

groups at a European level and seeks to adopt

a multi-stakeholder approach to addressing alcohol-

related harm. In December 2007, we made a series

of commitments to the Forum which built on the

two pillars of our alcohol policy: adherence to

our alcohol and work programme, training in and

compliance with our internal Rules for Responsible

Commercial Communication and the Enjoy

Heineken Responsibly initiative. We are evolving

our approach to promoting the responsible

consumption of our products by developing

strategic alcohol partnership programmes in many

of our markets, designed to educate consumers

and spread the responsible consumption message.

Alongside the Forum, we continued our

participation in and membership of international

industry groups such as the International

Centre for Alcohol Policies (ICAP), Global Alcohol

Producers Group and the Brewers of Europe.

We also worked in local partnerships with other

non-industry stakeholders to address specifi c

issues associated with alcohol abuse.

In 2007, we began the roll-out of the Heineken

Supplier Code to our operating companies.

Although it is still too early to report specifi c

results, the fi rst comments we received from

the relevant markets are promising. All our Group

suppliers – representing a purchasing value of

over €1.5 billion – have indicated that they are in

compliance with our Code and integration of the

Supplier Code in regular quality audits has started.

Like every energy consumer, we are facing the

global energy challenge: increased cost for fossil

fuels due to a larger demand and decreasing social

acceptance of CO2 emissions. To curb the increase

of fuel consumption due to increased production,

we have set a long-term target to improve effi ciency

of our energy consumption by 15 per cent in 2010

as compared to 2002. This target is integrated

in our Total Productive Management programme

and management systems, as a result of which the

energy performance of each individual brewery

is monitored on a quarterly basis.

20




• Western Europe 14,737*

• Head office 747

• Central and Eastern Europe 21,237

• Americas 3,265

• Africa and the Middle East 10,232

• Asia Pacific 3,786

* in the Netherlands 3,909

Geographical distribution of personnelIn numbers (pro rata)

We will never claim to be perfect or to have the

balance exactly right. We are though pleased that

in 2007, once again, our sustainability efforts were

recognised by our continued inclusion in the Dow

Jones Sustainability Index (fi rst within our global

industry category) and membership of the

FTSE4Good index.

We realise that we do not have the answers

to every question. In 2007 our role as

a signatory to the UN Global Compact increasingly

enabled us to learn from other organisations in

other industry sectors in different parts of the world.

More information about where we have and

where we have not fully achieved our objectives

can be found in our 2007 Sustainability Report,

which will be published in April 2008. This report

and other information can be found on our website

and we invite you to read it and to let us know

what you think.

Personnel and organisationOur people are the basis of our success. Effective

management, leadership and reward systems are

essential to enabling growth of our pelple and our

business.

The programmes initiated in 2006, were continued

in 2007. Based upon benchmark research, we

started a project to enhance consistency and

reliability of our Human Resources data across

the Group and to align the information among

a number of systems.

We developed a technically improved, more

focussed – and in some areas a somewhat

simplifi ed – performance management system

which will become effective in 2008. This will

better support us in developing good leaders and

in employing the right people in the right job at the

right time.

Job Family Modelling was introduced for Senior

Management jobs across the Group. Job Families

form a global platform for consistent and

transparent execution of major HR processes,

including capability building, career pathing,

performance management and job grading.

The consistency and transparency provided

by this platform allows us to become far more

effective and effi cient in the provision and

execution of transactional HR operations.

We continued to monitor the improving climate

of our organisation and the level of employee

engagement and were able to roll out a tool that

can be used by the operating companies to give

both management and employees an insight into

how the Company climate and working conditions

are perceived.

In the year under review, undivided attention

was given to the health and safety of our

employees, in particular to the work safety

conditions in different parts of the world.

In 2007, the average number of employees

(pro rata) decreased from 57,557 to 54,004.

21



2003

2004

2005

2006

2007

32.8

32.2

31.9

31.9

32.1

Report of the Executive Board 22


Regional review

Western Europe

In Western Europe, Heineken realised good profi t

growth driven by the premiumisation of the beer

market, higher prices and the delivery of cost

savings resulting in an EBIT (beia) increase of

5.1 per cent. Revenue grew 1.9 per cent to

€5,450 million.

In 2007, Heineken continued to invest in its key

brands and in innovation. In the fi rst half of 2007,

two additional fi lling lines for DraughtKeg were

installed in the Netherlands, increasing production

capacity to more than 1 million hectolitres. As

a result, supply and demand were better aligned

and DraughtKeg was able to achieve a signifi cant

increase in sales, doubling volume versus 2006.

Additionally, the roll-out of the Extra Cold beer

programme was accelerated, with the installation

of Extra Cold fridges or draught installations in

more than 22,000 outlets.

Consolidated beer volume in Western Europe

was 0.6 per cent lower at 31.9 million hectolitres.

Higher volumes were achieved in Spain, Italy, the

UK, Ireland and in the export markets in the Nordic

region. However, lower volumes in France, the

Netherlands and Switzerland offset these gains.

Revenue

€5.5 billion

EBIT

€410 million

EBIT (beia)

€665 million

Consolidated beer volume


Heineken volume in premium segment


“ Our region benefi ted from the success of our innovations: profi t grew and the Heineken brand continued to gain share. DraughtKeg achieved an increase in sales and the roll-out of the Extra Cold programme was accelerated. We will continue to invest in innovation in order to create opportunities.”

Didier Debrosse

President Heineken Western Europe

23


In this challenging environment the Heineken

brand continued to gain market share, organically

growing volume in the premium segment by 7 per

cent. All countries in the region recorded higher

volumes of the brand, with Spain, France, and Italy

accounting for 67 per cent of the total increase.

A new brewery in SevilleSpain is a key market for Heineken. The beer market enjoys long-

term growth in terms of volumes and profi tability, driven by an

increasing population, a strong on-trade and a healthy growth of

premium beers.

Heineken España, one of the most prominent players in the Spanish

market, currently operates fi ve breweries located in Arano, Jaen,

Madrid, Seville and Valencia, brewing 11.4 million hectolitres

consolidated beer volume across 20 brands.

Capacity utilisation is high, running as high as 100 per cent in

the peak of the summer season over the last few years. Capacity

constraints increased at the brewery in Seville, which was located

in the middle of a residential area, where expansion possibilities

were lacking and vehicle access was limited. In 2005 Heineken

España compared the cost of investing in a new brewery with the

cost of expanding the existing brewery and on the basis of that

decided to construct a greenfi eld brewery, just outside of the city.

Construction started in early 2006 and the new brewery has been

fully operational since January 2008.

This new brewery in Seville is particularly important to Heineken:

it is the fi rst greenfi eld in the Western European beer industry

landscape in the past 25 years and one of the largest breweries in

the Group in terms of volume. It marks our strong commitment to

the growing Spanish market as well as our continuous drive for cost

effi ciency gains and technical improvements.

The brewery has a capacity of 4.5 million hectolitres and a technical

capacity of 5.2 million hectolitres. It boasts an effi ciency ratio

which is twice that of the old brewery. Total investment (including

the site itself) amounted to €220 million. Thanks to state-of-the-art

technology and higher production volumes, the new brewery will

generate annual savings before taxes of €25 million as of 2008.

In August 2006, Heineken España sold the land and buildings of the

old brewery, realising a book gain of €320 million before tax. The

old site will be closed.

Accelerate effi ciencies



Regional review – Western Europe continued

FranceConsolidated beer volume 6.3 million hectolitres

Market share 31.2 per cent

Market position 2

EBIT (beia) grew driven by improvement in the

price and sales mix and cost reduction. Revenue

increased slightly. The Heineken brand increased

its market share, posting 7 per cent growth on the

back of continuous innovation and the introduction

of new consumer packs. In the last quarter of 2007,

the Heineken brand gained the leadership position

in the off-trade segment. The Pelforth Blonde

brand developed positively during the year.

Total beer volume of Heineken France was

lower, particularly in the on-trade due to the

effects of mixed weather and lower volumes

of low-priced beers.

The one-way BeerTender, introduced in October

2006, has now sold more than 100,000 appliances.

ItalyConsolidated beer volume 5.7 million hectolitres


Market position 1

Volume of Heineken Italia increased, driven by the

positive performances of its key brands Heineken

and Birra Moretti. The Heineken brand grew

by 5.4 per cent and reached the 1.5 million

hectolitres mark; Moretti continued to grow,

selling more than 2 million hectolitres, extending

its leadership in the off-trade segment. The roll-out

of Moretti 0/0, the alcohol-free beer is on track.

The NetherlandsConsolidated beer volume 5.5 million hectolitres


Market position 1

Revenue of Heineken Netherlands was only

fractionally down as the increase in selling prices

across the portfolio compensated most of the

effect of lower volumes. The Heineken brand

maintained its market share, whilst Amstel brand

volumes decreased, largely due to a higher-than-

average price increase. Organic growth in

EBIT (beia) was strong, driven by effi ciency

improvement across the supply chain.

Innovation initiatives proceeded at fast pace in the

Heineken brand’s home market: Extra Cold beer

installations are now available in 10 per cent of

the on-trade outlets where Heineken’s brands are

served. The fi rst of a new Amstel franchise bar, the

Loca cafes was opened in 2007 with more to follow

in 2008.

A new cider-based drink, Jillz, was tested in two

Dutch cities and resulted in positive consumer and

on-trade reactions. A further roll-out is planned

for 2008.

Volume at Vrumona, the soft drinks company in

the Netherlands, was lower due to unfavourable

summer weather, however EBIT (beia) improved.


25

United KingdomConsolidated beer volume 0.5 million hectolitres


Consolidated beer volume exceeded 0.5 million

hectolitres. Volume of the Heineken brand

increased 20 per cent, continuing its strong

momentum and exceeding 0.4 million hectolitres

in a market that was affected by exceptionally

poor weather and the introduction of a smoking

ban in the on-trade channel. Consumer acceptance

of the premium positioning of Heineken is rising

further also driven by the high-profi le introduction

of the DraughtKeg and the eye-catching ‘continental

pour’ advertising campaign. Marketing investment

in the Heineken brand was at a high level and as

a result, EBIT (beia) remained negative.

IrelandConsolidated beer volume 1.1 million hectolitres


Market position 2

The Heineken brand continued to grow its volume

in the Irish market by 3.5 per cent. Total volume

of Heineken Ireland increased 2.7 per cent and,

in combination with the positive price and sales

mix effect, drove the growth in revenue and

EBIT (beia).

Both revenue and EBIT (beia) increased, driven

by higher volumes, better prices implemented

early in 2007, and an improvement in the sales

mix. The Ten-Can, a 10-litre keg, which can be

combined with the mobile Xtreme draught beer

unit was successfully launched.

SpainConsolidated beer volume 11.4 million hectolitres


Market position 1

Volume at Heineken España grew healthily and its

market share improved.

The Heineken brand was the main driver behind

the good performance. Volume of the brand

grew almost 8 per cent as a result of focused and

innovative marketing, the successful nationwide

introduction of DraughtKeg and the roll-out of the

Extra cold beer programme.

Cruzcampo, Heineken España’s mainstream brand,

grew 2 per cent in Andalusia, its home region.

Cruzcampo lager benefi ted from the halo effect

of the recently introduced Cruzcampo Light, which

sold 60,000 hectolitres during the year. Revenue

and EBIT (beia) increased as a result of the positive

volume trend and a better sales and price mix.

The greenfi eld brewery in Seville is now complete,

and as planned, will fully replace the old brewery

in the city in the fi rst quarter of 2008. This will

lead to signifi cant savings in production and

logistic costs.


2003

2004

2005

2006

2007

27.1

36.9

39.3

46.9

51.1



Regional review continued

Central and Eastern Europe

In 2007, beer consumption in Central and Eastern

Europe was exceptionally strong as a result of

a mild winter and spring. Consolidated volume

increased organically by 8.3 per cent, with

Russia, Poland and Romania as major contributors.

Acquisitions in 2007 in the Czech Republic

(Krusovice Brewery) and Germany (Schmucker

Brewery) contributed 287,000 hectolitres.

This growth in the region is driven in part by

an increase in purchasing power and a structural

shift from spirits to beer. Economic growth in new

member states of the European Union and the

development of a modern off-trade also continues

to play an important role in the long-term growth

of beer consumption of the region. With growing

income levels across many markets, the interest

in premium beers is increasing strongly.

The Heineken brand added more than 400,000

hectolitres (+19 per cent) to its volume, thanks to

initiatives such as the introduction of clear plastic

labels in Romania and Hungary, the installation

of 11,000 Extra Cold draught beer units, the

introduction of DraughtKeg and innovative

advertising campaigns. Russia, Greece and Poland

were major drivers of growth of the Heineken brand.

Revenue increased organically by 8.1 per cent,

and fl uctuations in currencies in Poland, Romania

and Slovakia contributed €41 million to revenue

(+1.2 per cent). EBIT (beia) increased 22 per cent

to €444 million largely driven by higher volume,

a positive price and sales mix and a modest

increase in fi xed costs.

“ Across the region, we are obtaining leading market positions and brands. Fast-growing markets, new acquisitions and further top-line growth give us an excellent platform from which to develop both the Heineken brand as well as our local and regional brands. We are excellently positioned to build an increasingly profi table business.”

Nico Nusmeier

President Heineken Central and Eastern Europe

Revenue

€3.7 billion

EBIT

€381 million

EBIT (beia)

€444 million



Heineken volume


27


PETPackaging is a key element in Heineken’s marketing and innovation

strategy. New pack types create new consumption moments, build

excitement around our brands, improved margins and higher

volumes.

In the world beer market, glass bottles are by far the most

important pack type, accounting for 64 per cent of total volume.

The bottled beer segment is still growing, driven by the increasing

beer consumption in emerging markets. Beer in cans ranks second

in terms of importance, with 20 per cent, whilst draught beer

accounts for 11 per cent of world beer consumption. PET

represents the remaining 4 per cent of world volumes, but its share

is growing fast.

PET is the acronym for ‘PolyEthylene Terephthalate’, which is

a lightweight, colourless, transparent plastic. PET is diffi cult

to break and is widely used for soft drinks and water; the

fi rst PET bottle was patented as early as 1973. PET is cheaper

to produce than other types of packaging and can easily be

recycled through incineration.

Especially in Central and Eastern Europe, beer in PET bottles is

well established. We estimate that beer in PET bottles accounts

for more than 40 per cent of some markets such as Macedonia,

and more than a third of volume in markets such as Romania and

Bulgaria, and is swiftly growing in both Germany (6 per cent) and

Croatia (7 per cent). PET bottles in Russia deserve special mention:

they account for 47 per cent of the beer market and are growing

strongly. PET is available in many sizes, ranging from 0.5-litre to

5-litre bottles. The most popular format, however, is 2.5-litre, which

alone accounts for 25 per cent of the market. Heineken Russia’s

beer sales in PET account for more than half of its volume. All of

our 10 breweries in Russia produce beer in PET.

Heineken is very active in the PET segment in Central and Eastern

Europe and has developed a ‘high quality’ PET proposition named

‘Top Star’, which offers a unique look and feel to the packaging.

Several leading brands in the region, such as Goldenbrau

(Romania), Soproni (Hungary) and Bochkarev (Russia), have

successfully upgraded this format.

Accelerate top-line growth



Regional review – Central and Eastern Europe continued

RussiaConsolidated beer volume 15.0 million hectolitres


Market position 3

The winter and spring were exceptionally mild

in Russia leading to exceptionally strong market

growth. Beer volume of Heineken Russia grew

16 per cent, passing 15 million hectolitres. Total

volume of the seven strategic brands, representing

around 60 per cent of the portfolio, grew faster

than the overall market increasing 18 per cent.

Volume of the Heineken brand grew nearly

40 per cent. Amstel Pulse continued to develop

well, driven by consistent marketing, the

introduction of a 50cl bottle and the increase

in numerical distribution. Ochota, our key brand

in the mainstream segment and Three Bears

(positioned at the top end of the economy

segment) grew strongly. Volume of the Botchkarov

brand was slightly lower.

Revenue grew at a double-digit rate, despite the

effect of the lower rouble against the euro. EBIT

(beia) increased, driven by the effect of higher

revenue that was only partially offset by the

impact of higher input costs and marketing

investments. Production capacity is being

upgraded and expanded, and headcount at

the breweries continued to reduce.

In 2007 and January 2008, Heineken continued

the expansion of its business in the region through

a series of targeted acquisitions. At the end of

2007 the Krusovice brewery was acquired in the

Czech Republic, whilst the acquisition of the Rodic

brewery in Serbia was announced. Early 2008,

Heineken established a partnership with Efes

Breweries International that will invest in

the growing Uzbek beer market. In addition,

both companies intend to merge the brewing

operations in Serbia and Kazakhstan, leading to

number two market positions in both countries.

PolandConsolidated beer volume 11.8 million hectolitres


Market position 2

Beer volume increased 7.3 per cent, with

a stronger performance in the high-end segments

of the market. In particular the Heineken brand

performed well, growing at 13 per cent and

gaining share in the international premium

segment. Zywiec, the national premium brand,

grew high single digit driven by higher domestic

volumes and an increase in export mainly to the

USA and UK. As a result of its double digit volume

growth, Warka’s market share grew.

Revenue of Grupa Zywiec saw a double-digit

growth rate with volumes accounted for half of

the increase and higher prices, a better sales mix

and a positive currency effect accounting for the

remainder. EBIT (beia) grew signifi cantly, helped by

costs savings in production and the introduction of

a shared service centre.


29

AustriaConsolidated beer volume 4.5 million hectolitres


Market position 1

The beer market in 2007 was broadly stable.

Beer volume of Brau Union Austria was stable

as the growth of the Heineken and Gösser

brands was offset by lower volume of low-priced

beers. Volume of the Heineken brand, in particular,

increased strongly by almost 20 per cent, partly

driven by BeerTender volumes and the success

of the introduction of the 50cl one-way bottle.

BeerTender has now sold more than 40,000

appliances since its introduction in 2005.

Domestic volume of the Gösser brand increased,

mainly due to the introduction of Gösser Natur

Radler in the fl avoured speciality beer segment.

Volume of the Zipfer brand remained stable.

Heineken Austria increased prices in March and

April, which together with the higher volume,

resulted in an increase in revenue. Further

effi ciency improvements in the production and

restructuring in all parts of the company drove

a double digit increase in EBIT (beia).

GreeceConsolidated beer volume 3.5 million hectolitres


Market position 1

After several years of stagnation, the beer market

show growth again in 2007 as a result of a mild

winter, a hot summer, and higher tourist numbers.

Athenian Brewery grew its beer volume organically

by 5.4 per cent. Volume of the Heineken brand

grew 10 per cent, benefi ting from packaging

innovations (DraughtKeg, BeerTender and

Extra cold beer) and the marketing activation

programmes around the Champions League soccer

fi nal in Athens. Domestic volume of the Heineken

brand came close to one million hectolitres.

Amstel, the leading mainstream brand in Greece,

grew volume by 4 per cent, in part due to the

successful introduction of Amstel Pulse, in both

the On-trade and Off-trade channels. Revenue

and EBIT (beia) grew at a double-digit rate.

GermanyConsolidated beer volume 3.6 million hectolitres


The German market declined in 2007 as a result

of poor weather and challenging comparison with

higher volumes of the World Cup Football year

of 2006. Volume at Brau Holding International,

Heineken’s joint venture with the Schoerghuber

Group, was 1 per cent lower. Volume of the

Paulaner brand grew 8 per cent, driven by the

success of its Weissbier and the strength of the

exports to the USA, the UK and continental

Europe. Volumes of the Kulmbacher and Karlsberg

brands were lower.

Revenue was lower, but EBIT (beia) grew as a result

of strict cost control and improvement in sales mix.

2003

2004

2005

2006

2007


10.1

11.5

11.8

13.2

13.7

Americas




“ I am very proud that we continued to maintain our strong position in the region. Heineken Premium Light greatly contributed to our success. The introduction of BeerTender to the US market expands our product range and further enhances consumers’ preference for our portfolio, with the Heineken brand as its centrepiece. ”

Massimo von Wunster

President Heineken Americas

Markets in the region developed well and saw

continued growth. Consolidated beer volume grew

3.9 per cent, mainly driven by Argentina, Canada

and the USA.

With strong positions throughout the region,

volume of the Heineken brand grew by 5.9 per

cent to 9.1 million hectolitres. Both Canada and

Brazil renewed the Heineken brand import and

licence agreements respectively for 10 years.

In the USA, its largest market, the brand is

centrepiece of a combined Mexican and European

beer portfolio, the two biggest categories in the

import segment.

Revenue increased 3.4 per cent to more

than €2 billion, of which 8.8 per cent was an

organic increase.

Revenue

€2.0 billion

EBIT

€278 million

EBIT (beia)

€278 million



Heineken volume


31


Speed of implementation

DraughtKegDraughtKeg is one of the most successful innovations in the beer

industry in the past few years. This unique product, developed and

engineered by Heineken, is a 5-litre, CO2 pressurised keg with

a tap, which allows a perfect and ‘portable’ draft beer experience.

The keg is disposable, 100 per cent recyclable and is manufactured

in lightweight steel. Beer can stay fresh for up to 30 days

after opening.

It was fi rst introduced in France in April 2005 and is now available

in more than 90 countries around the world. It sold more than

10 million units in 2007.

In the USA, DraughtKeg was rolled out nationwide in June 2007 and

contributed signifi cantly to the growth of the Heineken brand.

In August 2007, Heineken Premium Light was also introduced in the

5-litre DraughtKeg format. The introduction campaign included

television, out-of-home and print advertising, as well as a

targeted internet campaign, staged in a night club, which featured

a DraughtKeg coming to life through a stunning metamorphosis.

Heineken Premium Light DraughtKeg recorded a resounding

success and quickly sold out. It ranked fi rst amongst the new Stock

Keeping Units (SKUs) of 2007.

Sales of over 200,000 hectolitres in DraughtKeg format exceeded

expectations in the Americas. Thanks to this successful performance,

most of it achieved in the second half of 2007, the Americas region

became the second biggest region for sales of DraughtKeg, after

Western Europe.

This was driven by price increases across the

region and higher volumes in Argentina, Chile

and the USA, which were only partly offset by the

effect of the lower Chilean peso and Caribbean

currencies. EBIT (beia) increased 4 per cent as the

much better operating performance was in part

offset by the effect of unfavourable exchange rate

fl uctuations against the euro.



Regional review – Americas continued

USAConsolidated beer volume* 7.5 million hectolitres

Market share* 39 per cent

Market position* 2

* imported beer segment

The total US beer market grew approximately

1 per cent in 2007 with import segment growth

of 2.5 per cent, once again outperforming

domestic beer growth. Over 70 per cent of the

import beer growth was generated by Heineken

USA. The speciality beers segment also showed

further growth.

Heineken USA grew volume of its combined

portfolio of Dutch and Mexican import brands

by 6 per cent despite a substantial price increase

of 3.5 per cent at the start of 2007 and lower

discounts which together translated into an

average consumer price increase of around

5–6 per cent in the key trade channels. Beer sales

volume, excluding the Femsa brands, grew 3.0

per cent at 7.7 million hectolitres whilst depletions

– sales by distributors to retailers – increased

2.3 per cent. Sales volume for the Heineken

franchise totalled 6.8 million hectolitres. Heineken

Lager and Heineken Premium Light grew sales

volume 2.7 per cent and 20 per cent respectively

and depletions by 1 per cent and 27 per cent

respectively. Both beers sold well in DraughtKeg

across the USA and marketing investment behind

both brands increased.

Heineken Premium Light in cans was introduced

in June 2007. Heineken Premium Light continues

to unlock its long-term brand potential and repeat-

purchase rates remain high. Tests of the BeerTender

were successfully completed and the concept will

be roll-out nation wide in 2008. A new advertising

agency was appointed with the aim of further

improving the marketing communication and

image of the Heineken brand.

Sales and depletions volume growth of the

Mexican brands was 14 per cent, signifi cantly

exceeding segment growth. This excellent

performance was driven by the rapid growth of

the Dos Equis brand (+17 per cent) and the Tecate

franchise (+13.6 per cent), the latter in part driven

by the introduction of Tecate Light in selective

regions of the USA.

In April 2007, Heineken USA and Femsa announced

a 10 year extension of their existing relationship

in the USA starting 1 January 2008. Under the

terms of the agreement, Heineken USA will be

the exclusive importer, marketer and seller of the

Femsa beer brands.

Sales and depletions volume of Amstel Light

were 11 per cent lower due to weak off-trade

performance in the Northeast Region. Heineken

USA has appointed a new advertising agency for

the brand and will introduce a new proposition for

the brand based on its history, high quality and

Amsterdam origin in 2008.

Revenue of Heineken USA grew 8 per cent

organically driven by higher volumes and prices.

During the year, Heineken USA successfully re-

organised its sales force and further lowered

costs in the supply chain. EBIT (beia) grew at a

single-digit rate driven by higher prices, higher

volumes and favourable shifts in the sales mix.

There was a limited adverse effect due to the

lower exchange rate of the dollar versus the euro

was limited.


33

CanadaVolume growth at Heineken Canada outpaced the

overall beer market growth signifi cantly. Despite

price increases, volume of the Heineken brand

grew 15 per cent, driven by the positive effects of

the renewed import agreement, the strong efforts

of our partner Coors-Molson Brewery Company,

and the success of the DraughtKeg.

Chile and ArgentinaBeer volumes of CCU, Heineken’s joint venture

with Quiñenco in Chile and Argentina, grew 4 per

cent and 11 per cent respectively driven by good

performance from the Heineken, Escudo and

Schneider brands. Total Group beer volume

of CCU in Chile and Argentina amounted to 7.6

million hectolitres. The soft drink, wine and spirits

business also posted strong volume increases.

Volume of the Heineken brand increased 24

per cent, gaining market share in the premium

segment despite increased competition. EBIT

(beia) grew organically by a double-digit rate,

driven by higher volumes.

The CaribbeanConsolidated beer volume was lower and EBIT

(beia) was stable in an environment that was

characterised by lower tourist numbers, extreme

weather conditions and a weak economy

particularly in Puerto Rico. Locally produced and

imported volume of the Heineken brand grew

slightly, driven by the introduction of DraughtKeg

and Heineken Premium Light in several markets.

2003

2004

2005

2006

2007


10.4

10.8

11.6

13.3

15.7

Africa and the Middle East




“ 2007 was a year of unprecedented success for our region. Our current operations have delivered sterling results, whilst brand-building and marketing initiatives also boosted growth. Investments have been made in new operations and in the construction of new breweries. We are fully prepared to confront increasing and new competition.”

Tom de Man

President Heineken Africa and the Middle East

Revenue

€1.4 billion

EBIT

€329 million

EBIT (beia)

€329 million



Heineken volume


The increasing worldwide demand for, and rising

prices of, African minerals continues to drive

economic development and improve purchasing

power, making beer more affordable. Foreign

investments in the region continue to grow and

the expansion in infrastructure is opening up new

markets. In a number of countries the emergence

of a distinct middle class has increased the

demand for international premium beers.

Consolidated beer volume of the Heineken group

grew 18 per cent to 15.7 million hectolitres driven

by improved economic conditions and increased

stability in the region. In Nigeria and the

Democratic Republic of Congo (DRC) particularly,

the beer market expanded rapidly and these two

countries accounted for a substantial part of the

regional volume growth. Bralima, our operating

company in the DRC gained market share driven

Focus on selective opportunities

35


Greenfi eld breweryIn Central Africa, increased political stability and the growing

global demand for the region’s raw materials, are driving economic

development. The resulting increase in purchasing power is fuelling

growth of the beer markets of Central Africa and is supporting

the development of an emerging middle class.

These dynamics are helping the Democratic Republic of Congo

to develop quickly and particularly in the province of Katanga in

the south, where new mines are opening, boosting purchasing

power of the local population.

The population of Katanga is approximately 12 million people

and the capital of the province, Lumumbashi, is the largest

city. Although there is higher purchasing power in Lumumbashi,

average beer consumption per capita is only 4.2 litres, compared

with 12 litres in the country’s capital Kinshasa. The beer market

is therefore expected to expand rapidly.

It is this economic development which convinced Heineken’s

operating business in the country, Bralima, to build a greenfi eld

brewery near Lumumbashi, with an annual brewing capacity of

about 0.5 million hectolitres. The brewery will supply Lumumbashi

and the Katanga province with Primus and other beers,

considerably improving supply.

Production of our local soft drink plant will also be transferred

to the new brewery. The brewery will employ ‘continuous brewing

and fermenting’, a state-of-the-art brewing technology,

which enables a 25 per cent reduction in the amount invested

in equipment.

by growth of the Primus brand. In Nigeria, the

combined market share of the Heineken Group

increased 2.6 per cent.

Across the region, volume of the Heineken

brand grew almost 40 per cent to 1.6 million

hectolitres. Volume growth was particularly

strong in Nigeria, South Africa and the Middle East.

Volume of Amstel in the region, excluding South

Africa, grew 8 per cent.

During the year, Heineken expanded several

agricultural projects in the region with the aim of

increasing the local supply of raw materials and

reducing dependence on high-priced imported

malt and barley. Heineken is growing part of its

own grain requirements in Nigeria, Ghana, Sierra

Leone, Rwanda and Egypt, whilst similar projects

are under way in Burundi and the DRC.



Regional review – Africa and the Middle East continued

NigeriaConsolidated beer volume 8.4 million hectolitres


Market position 1

Strong economic growth in the country continues,

supported by high oil prices. The beer market

increased approximately 12.5 per cent driving

volume growth of both Nigerian Breweries and

Consolidated Breweries. The combined volume

grew more than 17 per cent to 8.4 million

hectolitres and market share increased. Volume

of the Heineken brand grew by 75 per cent, whilst

volume of the Star and ‘33’ Export brands grew by

a double-digit rate in the growing lager segment.

The introduction of the Fayrouz brand in Nigeria

was well received by consumers and the brand

produced good volumes in its fi rst year with

excellent potential for further growth.

Revenue and EBIT (beia) increased substantially

despite the effect of the weaker Nigerian naira.

The increase was driven by strong volumes, price

increases implemented at the end of 2006 and

2007 and effi ciency improvements.

Revenue in the region grew 20 per cent driven

by strong volumes in particular in Nigeria, South

Africa and Central Africa, and price and sale mix

improvement, despite an adverse effect of 6 per

cent as a result of weakening of local currencies

against the euro. EBIT (beia) increased 41 per cent.

Heineken is expanding its presence throughout

Africa and the Middle East. Breweries are under

construction in the Democratic Republic of Congo

and Tunisia, whilst preparations are underway

for the construction of a brewery in South Africa.

At the start of 2008, Heineken acquired the second

largest brewer in Algeria.


37

South AfricaBrandhouse (the distribution joint venture between

Heineken, Diageo and Namibian Breweries for

South Africa) was expanded and reorganised to

cater for the increase in business as a result of

the addition of the Amstel brand to its portfolio.

European-brewed Amstel in cans and one-way

bottles is now fully available in the market.

Although the temporary route to market is not

profi table, it is a necessary interim step until the

profi table local production commences. This is

expected to start by the end of 2009 and until

this point, volume of the Amstel brand will be

temporarily lower.

Heineken has identifi ed potential locations in

the Gauteng province for the new brewery in

South Africa and construction is expected to

commence shortly.

Volume of the Heineken brand grew more than

70 per cent in South Africa.

EgyptConsolidated beer volume 1.1 million hectolitres


Market position 1

The beer market in Egypt continued its steady

growth, driven by higher tourist numbers.

Total volume (beer, soft drinks and Fayrouz) of

Al Ahram grew in line with the market, driven

by the Heineken and Sakara brands. Substantial

cost savings were achieved in production and the

number of stock-keeping units was reduced by

30 per cent following a review of the product

portfolio. Revenue grew organically and EBIT (beia)

increased substantially.

2003

2004

2005

2006

2007


4.8

5.3

6.0

6.4

7.4




“ Growing our business and expanding our portfolio, spearheaded by the Heineken brand, underpin our long-standing commitment to this important region. I am confi dent that we continue to grow and increase our share of the Asia Pacifi c profi t pool, with the strategic benefi t of our wide geographical spread, our winning portfolio and successful partnerships.”

Siep Hiemstra

President Heineken Asia Pacifi c

Revenue

€597 million

EBIT

€100 million

EBIT (beia)

€100 million



Heineken volume


In a large part of the region, Heineken operates

through Asia Pacifi c Breweries (APB), its joint

venture with Fraser and Neave.

Consolidated beer volume grew by over 1 million

hectolitres in 2007, driven largely by growth

in Vietnam, New Zealand and Cambodia as well

as the fi rst-time consolidation of acquisitions

in Vietnam.

Consolidated beer volume as reported in the fi rst

half of the year included 0.35 million hectolitres in

relation with the Chinese brewing group DaFuHao.

For the full-year 2007 DaFuHao is treated as an

associated company, the beer volumes of the fi rst-

half of 2007 are excluded from the full-year number.

Volume of the Heineken brand grew 11 per cent

to 3.9 million hectolitres, driven by strong growth

in Vietnam, Taiwan, South Korea, Malaysia, China

and New Zealand. Volume of the Heineken brand

was lower in Thailand where a weaker economy

and trade and advertising restrictions held back

growth. The Heineken brand extended its position

as the leading international premium beer in the

region. Tiger beer expanded its international

footprint further through the expansion of the

number of export markets and the start of local

production in Mongolia.

Asia Pacifi c

39


Accelerate top-line growth

VietnamProfi tability in the Asian beer markets varies widely country by

country. While China has a very low profi tability, the countries of

Southeast Asia, such as Vietnam, offer attractive profi t pools.

Vietnam is a fast-developing beer market, in which Asia Pacifi c

Breweries (APB) recently achieved a leading market position, driven

by acquisitions and an excellent organic growth rate.

The Vietnamese beer market is particularly attractive as a result

of signifi cant increases in purchasing power and favourable

demographics. After fi ve years of double-digit volume growth,

market volume reached a total of 18.0 million hectolitres in 2007,

with a per capita consumption of 20.9 litres. This is in line with

average consumption in the Asian region, but still far below the per

capita consumption level in Thailand (31.3 litres) and South Korea

(35.4 litres).

The sound economic conditions are expected to drive another

period of sustained growth in the Vietnamese beer market and

a compound average volume growth in excess of 7 per cent is

forecast for the period from 2007 to 2010.

APB’s investments in Vietnam date back to 1993, when the fi rst

brewery was constructed near Ho Chi Min City (in the southern

part of the country). In 2003, a second brewery was completed in

Hatay near Hanoi (in the north). In 2006, APB expanded its existing

footprint in the region through the acquisition of the Foster’s

operations (two breweries) and the assets of the Quang

Nam Brewery. Today APB operates a total of fi ve breweries

in the country.

APB brews, markets and distributes a portfolio of brands,

with a strong focus in the highly profi table premium segment,

where it holds the undisputed leadership position with the Heineken

and Tiger brands. Other well-known brands are Bivina, Anchor

Draft and Biere LaRue.

Revenue grew by a robust 6.7 per cent and EBIT

(beia) increased 5.5 per cent, driven by better

volume, strict cost control and a better sales

and price mix. Profi t growth was held back by

the impact of weaker currencies against the euro,

integration costs of recently acquired breweries

and gestation expenses related to the greenfi eld

breweries in the region. In addition, profi t in 2006

was favourably affected by royalty restitutions.

Breweries are under construction in India

and Laos, whilst the brewery in Mongolia was

completed in 2007.



Regional review – Asia Pacifi c continued

SingaporeAsia Pacifi c Breweries (Singapore) benefi ted from

growth in the beer market driven by the good

economy, better export volume and a rise in

contract brewing volume. An infl ux of foreign

brands expanded the beer market, but increased

competition. In particular the Heineken and Tiger

brands contributed to volume growth.

VietnamThe strong economy in Vietnam continues to

have a positive impact on beer consumption. The

breweries of APB achieved strong volume growth,

particularly in the southern and central regions

of the country. The Heineken brand continued

to outperform the market. The newly acquired

brands LaRue and Foster’s, the latter produced

under licence, developed positively. EBIT (beia)

grew driven by better prices and higher volume.

The three breweries that were acquired at the end

of 2006 and in 2007 in the central and southern

part of the country have now been successfully

integrated and synergies in costs, brand portfolio

and distribution were realised.

CambodiaCambodia Brewery which is 80 per cent owned

by APB, further consolidated its position in the

market. As a result of good distribution and

effi cient and effective marketing programmes,

results in terms of volume and profi tability

improved signifi cantly in a market that is growing

15 per cent annually. Anchor and Tiger continues

to be the leading brands in the market.

ChinaThe market remains challenging with low selling

prices and increase in input costs. The Heineken

brand continues to perform well in China with

13 per cent growth despite of its 600 per cent

price premium versus local mainstream beers

as a consequence of low local beer prices.

ThailandGrowth in the beer market was mainly limited to

the mainstream and low-priced segments of the

market as a result of the economic uncertainties

in the country and consumption, distribution and

advertising restrictions. Volume of Thai Asia Pacifi c

Breweries was lower, but volume of the Tiger

brand grew at a double-digit rate.


41

IndonesiaVolume of Multi Bintang Indonesia was marginally

lower, but volume of the Heineken brand once

again grew strongly. As a result of excellent

execution in the market and improved effi ciency,

EBIT (beia) improved organically.

TaiwanIn Taiwan, volume of the Heineken brand grew

17 per cent and continued to improve its market

share. Heineken is now the undisputed number

one international premium beer in the country.

South KoreaVolume of the Heineken brand grew by more than

40 per cent as a result of increased penetration

in the various distribution channels. Consumers’

awareness and preference for the brand also

increased as a result of inaugural TV commercials

in 2007 and the brand gained momentum as the

leading international premium beer.

Other markets in Asia Pacifi c regionIn the middle of 2007 the greenfi eld brewery

in Ulaanbaatar, Mongolia with a capacity of

120,000 hectolitres came on stream. The brewery

produces Tiger beer locally. Tiger has been in the

market on an imported basis for the last 15 years.

In addition, the local brand Sengur was launched.

Volume increased substantially in India, but EBIT

(beia) is still negative as a result of gestation losses

of the greenfi eld brewery in Hyderabad which will

be completed at the beginning of 2008, and the

marketing investment in the launch of new brands

on the market.

Construction of a greenfi eld brewery in Laos that

started in July 2006 is expected to be completed

in the fi rst quarter of 2008.

Risk management and control systemThe Heineken risk management and control

systems aim to ensure at a reasonable level

of assurance, that the risks of the Company are

identifi ed and managed and that the operational

and fi nancial objectives are met, in compliance

with applicable laws and regulations. A system

of controls to ensure adequate fi nancial reporting

is included. Heineken’s internal control system is

based on the COSO Internal Control Framework.

Risk appetite

The Company is recognised by its drive for quality,

consistency and fi nancial discipline. Entrepreneurial

spirit is encouraged across the Group to seek

opportunities supporting continuous growth (like

business development and innovation), whilst

taking controlled risks.

Risk profi le

Heineken is a single-product company, with a high

level of commonality in its worldwide business

operations spread over many mature and emerging

markets. The worldwide activities are exposed

to varying degrees of risk and uncertainty, some

of which, if not identifi ed and managed, may result

in a material impact on a particular operating

company, but may not materially affect the Group

as a whole.

Risk management

Doing business inherently involves taking risks,

and by managing these risks Heineken strives

to be a sustainable and performance-driven

company. Structured risk assessments are part

of, amongst others, Heineken’s Company-change

programmes, business planning and performance-

monitoring process, common process and system

implementations, acquisitions and business

integration activities. The risk management and

control systems are considered to be in balance

with Heineken’s risk profi le, although such systems

can never provide absolute assurance. Following

Heineken’s continuing growth and changing risk

profi le, the Company’s risk management and

control systems are subject to continuous review

and adaptations.

Responsibilities

The Executive Board, under the supervision of

the Supervisory Board, has overall responsibility

for Heineken’s risk management and control

systems. Regional and operating company

management are responsible for managing

performance, underlying risks and effectiveness

of operations, within the rules set by the

Executive Board, supported and supervised

by Group departments.

Heineken Company Rules

In the year under review, the governance process

of the Heineken Company Rules has been further

structured. Also, compliance monitoring by Group

departments has been further strengthened.

From 2007, local management has been requested

to sign a so-called ‘Assurance Letter’ to confi rm

compliance with Company Rules in addition to

compliance with certain matters with regard to

fi nancial reporting.

Business planning and performance monitoring

The main pillar of Heineken’s internal governance

activities is the business planning and performance

monitoring process. Operating companies’

strategies, business plans, key risks and quarterly

performance are discussed with Regional

Management. Regional performance is discussed

with the Executive Board. The approved business

plans include clear objectives, performance

indicators and target setting, which provide

the basis for monitoring performance compared

to business plan. These plans also contain an

annual assessment of the main risks (including

mitigation plans) and fi nancial sensitivities. In 2007,

Heineken started a Company-wide programme to

create a more integrated management nformation

environment for reporting to Regions and Group.

Internal control in operating companies

Heineken is progressing the Group-wide

development and implementation of best practice

processes supported by common IT systems.

At the end of 2007, 69 per cent of Heineken’s

Managing risks is explicitly on the agenda of management in order to protect the business from the effects of disasters, failures and reputational damage. Continuity and sustainability of the business is as important to the stakeholders as growing and operating it.

Risk management

Report of the Executive Board42


operations (based on revenue) worked in

accordance with the evolving Heineken Common

System. Best practice key control frameworks, to

ensure the integrity of the information processing

in supporting the day-to-day transactions

and fi nancial and management reporting, are

embedded and used for continuous controls

monitoring and improvements.

Code of Business Conduct and Whistle-blowing

Local Codes of Business Conduct and whistle-

blowing procedures have been implemented

group-wide based on Group policies applicable

to majority-owned subsidiaries. On Group level

continuous awareness building is supported and

oversees the functioning of the Code. The Integrity

Committee oversees the functioning of whistle-

blowing and issued two reports to the Executive

Board and Audit Committee in the year under

review on effectiveness of the procedure and

reported cases.

Supervision

The Executive Board oversees the adequacy

and functioning of the entire system of risk

management and internal control, assisted

by Group departments. Group Internal Audit

provides independent assurance on the entire

risk management and internal control system.

The Assurance Meetings, at local and regional

level, oversee the adequacy and operating

effectiveness of the risk management and internal

control systems in their respective environments.

Regional Management and Group Internal

Audit participate in the local meetings to ensure

effective dialogue and transparency. The outcome

and effectiveness of the risk management and

internal control systems have been discussed with

the Audit Committee.

Financial reporting

The risk management and control system over

fi nancial reporting contains clear accounting rules

and a standard chart of accounts. The Heineken

common systems, as implemented in almost all

majority-owned subsidiaries in terms of revenue,

support common accounting and regular

fi nancial reporting in standard forms. In 2007,

the testing of key controls relevant for fi nancial

reporting were added to the Common Internal

Audit Approach.

The worldwide external audit activities – which

are based on local statutory requirements,

and therefore more detailed than necessary for

the audit of the Heineken N.V. consolidated fi gures

– provide additional assurance on fair presentation

of fi nancial reporting on operating company

level. Within the parameters of their fi nancial

audit assignment, external auditors also

report on internal control issues through

their management letters and attend local

and regional Assurance Meetings.

Considering Heineken’s risk management and

control system described in this section, the

fi nancial reporting is adequately designed and

worked effectively in the year under review in

providing reasonable assurance that the 2007

fi nancial statements do not contain any material

inaccuracies. There are no indications that the

risk management and control systems relating

to fi nancial reporting will not work properly in the

current year.

This statement cannot be construed as a statement

in accordance with the requirements of Section

404 of the US Sarbanes-Oxley Act, which is not

applicable to Heineken N.V.

Main risksUnder the explicit understanding that this is

not an exhaustive list, Heineken’s main risks are

described below. It includes mitigation measures

and where possible quantifying the potential

impact. Risks concerning the Heineken brand

and Company reputation, rising input costs

and increasing legislation (like alcohol, excise

duties and anti-trust) affecting the business, are

considered the most signifi cant risks. The main

Company risks have been discussed with the full

Supervisory Board.


43

Strategic risks Heineken brand and Company reputation

As both the Group and its most valuable brand

carry the same name, reputation management

is of utmost importance. Heineken enjoys

a positive corporate reputation and our operating

companies are well respected in their region.

Constant management attention is directed

towards enhancing Heineken’s social,

environmental and fi nancial reputation.

The Heineken brand is key to Heineken’s growth

strategy and is the most valuable asset of

the Company. Anything that adversely affects

consumer and stakeholder confi dence in the

Heineken brand or Company could have a negative

impact on the overall business.

The Company reputation and sales could be

damaged by product integrity issues. Therefore,

production and logistics are subject to rigorous

quality standards and monitoring procedures,

which were further strengthened in 2007.

Brand perception is managed by strict marketing

control procedures and, increasingly, by centrally

managed marketing campaigns. A Code of

Business Conduct and Whistle-blowing Procedure

aim to prevent any unethical and irresponsible

behaviour of the Company or its employees.

Reference is made to Heineken’s Sustainability

Report 2007 for reviewing Heineken’s priorities

in the area of social responsibility supporting

Company reputation.

Pressure on alcohol

An increasingly negative perception in society

towards alcohol could prompt legislators to

restrictive measures. Limitations in advertising

could lead to a decrease in sales and damage the

industry in general. Sales of Heineken products

could materially decrease, in particular in Europe.

Heineken’s Alcohol Policy is based on the principle

to brew, market, and sell beer in ways that have

a positive impact on society at large. With this

policy, Heineken promotes awareness of the

advantages and disadvantages of alcohol,

encouraging informed consumers to be

accountable for their own actions. Markets are

becoming more and more engaged to promote

responsible consumption, in partnership with

third parties. The ‘Enjoy Heineken Responsibly’

programme (a responsibility message on back

labels directing consumers to a dedicated website)

is a key initiative in this respect. Heineken has

signed up to the Charter of the EU Forum and

posted commitments on actions in the area of

consumer information, alcohol consumption at

the workplace and commercial communication.

Alcohol policy compliance monitoring was further

strengthened in 2007.

Attractiveness of beer category under pressure

Heineken has many operations in mature beer

markets where the attractiveness of the beer

category is being challenged by other beverage

categories. In these markets, management focus

is on product innovation, portfolio management

and cost effectiveness in order to secure market

position and profi tability. Since Heineken’s

business in emerging markets is growing fast

(autonomously and through acquisitions), the

relative dependency on profi tability from mature

markets will further decline over time.

Rising input costs

Input costs have accelerated to unprecedented

levels. The prices of raw materials (malted barley

and maize) and packaging materials (glass bottles,

aluminium cans and kegs) have risen signifi cantly,

as has the cost of transportation and energy.

Infl ation and pressure on labour costs are also

expected in many markets. In addition changes

in packaging mixes has put pressure on input

costs. Central Purchasing is tasked with securing

the best possible deals.

Our own prices also need to increase to limit margin

erosion. Pricing strategies are top priority in all our

markets. This includes assessments of customer,

consumer and competitor responses based on

Risk management continued



different pricing scenarios, which will have

different outcomes market by market. In principle,

we will pass on increased input costs. The effect

on volume developments is at present unclear.

Stability of Africa & Middle East Region

In the Africa & Middle East Region, volume growth

is driven by economic growth in Nigeria and the

Middle East and continued stability and economic

growth in Central Africa. The Region is in most

areas at peace, with some uncertainty in Nigeria.

The situation in Lebanon remains fragile. The

impact of the crisis in Kenia on our businesses in

Central Africa is closely followed and still managable.

Operational risksChange initiative overload

Many change programmes and projects are

running on Group, regional and local level.

Examples are greenfi eld operations, creation

of back offi ce shared service centres, acceleration

of implementing Heineken best practice

processes based on common information systems,

centralising IT and outsourcing of non-core

activities. The scope and breadth of the

organisational changes may threaten effectiveness

of business operations. Company-wide strategic

programmes are steered by the Executive

Committee, whilst change projects at regional

and local level have direct attention of the

management teams. Since allocating suffi cient

management capacity to the many change

projects in addition to managing the regular

business is considered critical, priority setting

is monitored closely. Clear target setting is in

place on achieving the main change objectives.

Risk management structures are overall well

embedded, however further structuring is

required. Suffi cient programme and project

management skills need to be ensured.

Reorganisations from Fit2Fight

Many reorganisation projects (amongst others,

centralisation of back offi ce activities, closure

of breweries and other right and downsizing

activities) have been realised, are underway or

are in preparation. Highest impact is in the supply

chain, wholesale business and support functions

in Europe. The risk is that due to social unrest, the

production quality and supply continuity would

affected, which might negatively impact fi nancial

performance and Company reputation. The

operating companies concerned manage

reorganisation projects with care; the right speed,

alignment with relevant industrial and external

relations and consistent communication to

employees. Contingency plans have been put

in place.

Acquisitions and business integration

In the pursuit of further expansion, Heineken

seeks to strike a balance between organic and

acquired growth within the limits of a conservative

fi nancing structure. In acquisitions, specifi cally

in emerging markets, Heineken will be faced with

different cultures, business principles and political,

economic and social environments. This may

affect corporate values, image and quality

standards. It may also impact the realisation

of long-term business plans, including synergy

objectives, underlying the value of newly

acquired companies.

In order to mitigate these risks, Heineken has

further strengthened its business development

and integration activities, which includes

signifi cant involvement from relevant Group

departments, operating companies and regional

management in carrying out effective due

diligence processes and preparing take charge

and integration plans. The Heineken Common

Systems Strategy is highly supportive to

integrating acquired businesses.

Supply continuity

Discontinuity of supply of our products could

affect sales and market shares. This is not

considered a major risk due to the relative size and

spread of operations. An exception is the supply

of beer products from the Netherlands to the USA,


45

one of Heineken’s most profi table markets.

Securing supply of fast-growing innovations like

DraughtKeg is also considered critical, since we

also depend on partnerships. Monitoring supply

continuity risks was further structured in 2007,

but requires embedding. Securing timely supply

|of raw and packaging materials is strongly

coordinated by our central purchasing discipline.

In 2007, the production infrastructure in

Western Europe was evaluated. This resulted in

strengthened central coordination with respect

to production allocation and a corresponding

realignment of our investment strategy.

IT security

Heineken’s worldwide operations are increasingly

reliant on information systems. Heineken has

a strict IT security policy to ensure confi dentiality,

integrity and availability of information. In 2007

compliance monitoring was further structured

by self-assessments and audits. The progressive

centralisation of IT systems and infrastructure has

a positive impact on ensuring IT security measures.

Financial risksCurrency risk

Heineken operates internationally and reports

in euros, which has proved to be a very strong

currency over the past few years. Currency

fl uctuations, relating to the US dollar in particular

could materially affect overall Company results,

considering the size of export from the Euro-zone

to mainly the US.

Heineken has a clear policy on hedging transactional

exchange risks, which postpones the impact on

fi nancial results. Translation exchange risks are not

hedged. The sensitivity on the fi nancial results with

regard to currency risks are explained on page 117.

Capital availability

There could be insuffi cient capital generated

in order to fi nance long-term growth. Suffi cient

access to capital is ensured to fi nance long-term

growth and to keep pace with the consolidation

of the global beer market. Financing strategies are

under continuous evaluation. Strong cost and cash

management and strong controls over investment

proposals are in place to ensure effective and

effi cient allocation of fi nancial resources.

Regulatory risksTax

Heineken and its operating companies are

subject to a variety of local excise and other tax

regulations. The EU Council did not adopt the

Commission proposal to adapt the minimum

excise rate for beer with the rate of infl ation. This

adjustment would have lead to increases in some

European markets.

In principle, Heineken’s sales prices are adjusted

to refl ect changes in the rate of excise duty, but

increased rates may have a negative impact on

sales volume.

Litigation

Due to increasing legislation there is an increased

possibility of non-compliance. Additionally, more

supervision by regulators and the growing claim

culture may potentially increase the impact of non-

compliance, both fi nancially and on the reputation

of the Company. Every half year all majority-owned

companies formally report outstanding claims

and litigations against the Company in excess

of €1 million to Group Legal Affairs, including

an assessment of the amounts to be provided for.

There may be current risks not having a signifi cant impact on the business but which could – in a later stage – develop a material impact on the Company’s business. The Company’s risk management systems are focused on timely discovery of such risks.

Risk management continued



Results from operating activities In millions of EUR 2007 2006

Revenue 12,564 11,829

Other income 30 379

Raw materials, consumables and services 8,162 7,376

Personnel expenses 2,165 2,241

Amortisation, depreciation and impairments 764 786

Total expenses 11,091 10,403

Results from operating activities 1,503 1,805

Share of profi t of associates 25 27

EBIT 1,528 1,832

Revenue and expenses Revenues increased by 6.2 per cent from €11.8 billion to €12.6 billion and by 7.3 per cent organically.

Other revenues, which form part of revenues, increased slightly by 3 per cent from €241 million to

€249 million and relates mainly to royalties, rental income and service to third parties.

Consolidated beer volume rose by 7.9 million hectolitres to 119.8 million hectolitres in 2007,

representing an increase of 7.1 per cent. Organic growth in consolidated beer volume amounted

to 6.5 per cent. Consolidated volumes of the Heineken brand in the premium segment of the market

(including Heineken Premium Light) rose by 10 per cent or 2.2 million hectolitres to 24.7 million

hectolitres in 2007.

The volume increase, improvements in sales mix and higher selling prices drove growth in revenue of

€735 million to €12.6 billion in 2007. All regions contributed to this strong performance. Strong volume

growth of 4.2 per cent and improving sales and price mix of 3.1 per cent drove organic growth of 7.3 per

cent. The negative effect of movements in exchange rates on revenue amounted to €171 million or 1.4

per cent and was mainly related to the US Dollar, Chilean Peso, Singapore Dollar and Nigerian Naira.

Other income dropped to €30 million, mainly due to the gain in 2006 of €320 million, relating to the sale

of land in Seville, Spain,

The Fit2Fight fi xed-cost ratio improved further to 30.7 per cent from 33.1 per cent in 2006. In 2007

Heineken delivered additional gross cost savings of €191 million, achieving 68 per cent of the forecast

three-year plan cumulative amount. Exceptional restructuring charges related to Fit2Fight amounted

to €57 million before tax.

Costs of raw materials increased by 14.9 per cent, due to an increase in consolidated volume, higher

commodity and energy prices and the shift towards innovative and more expensive packaging. The

effect of higher commodity prices was limited to 8 per cent as a result of good timing of purchasing

and the advantages of further centralisation of procurement.

Marketing and selling expenses increased by 9 per cent as a result of additional focus on long-term

brand-building across most regions and represented 13 per cent of revenue.

Financial review


47

Personnel expenses decreased by 3.4 per cent, including €30 million of exceptional restructuring

charges related to our Fit2Fight initiative.

As such, total expenses increased more than revenue and rose by 6.6 per cent to €11,091 million.

The effect of movements in exchange rates had a marginally positive impact on total operating expenses

of 1.3 per cent or €137 million.

Results (beia) In millions of EUR 2007 2006

EBIT 1,528 1,832

Amortisation of brands 11 10

Exceptional items 307 (273)

EBIT (beia) 1,846 1,569

In millions of EUR 2007 2006

Net profi t 807 1,211

Amortisation of brands 11 10

Exceptional items 301 (291)

Net profi t (beia) 1,119 930

EBIT (beia) and Net profi t (beia)

In millions of EUR EBIT beia Net profi t beia

2006 1,569 930

Organic growth 314 210

Changes in consolidation (1) (4)

Effects of movements in exchange rates (36) (17 )

2007 1,846 1,119

EBIT and net profi tIn 2007 EBIT amounted to €1,528 million compared with €1,832 million in 2006, heavily impacted

by the EC fi ne of €219 million in 2007 compared with the exceptional gain on the sale of land in Seville

in 2006. 2007 EBIT (beia) of €1,846 million compared favourably to the 2006 EBIT (beia) of €1,569 million,

representing an organic growth of 20 per cent.

Head offi ce EBIT increased by €54 million from a loss of €24 million to a profi t of €30 million in 2007.

This strong improvement was achieved thanks to a combination of positive trends. Volume growth of the

Heineken brand generated an increase in royalties. In addition, the increase in volume in innovative pack

types (BeerTender, DraughtKeg, Xtreme Draught) led to lower marketing support costs from Head Offi ce,

and the global increase in malting fees boosted results of Maltery Albert (which is part of Head Offi ce).

Finally, the cost reductions related to Fit2Fight also contributed positively to the improvement.

Financial review continued



A total amount of €64 million is recognised on EBIT level, relating to impairments of goodwill, brands

and property, plant and equipment.

€40 million relates to our joint venture, Brau Holding International in Germany, of which €36 million

relates specifi cally to Karlsberg Brewery in which BHI holds a 45% stake, and the remaining 55% is held

by Kulmbucher Brauerei A.G., and is treated as an exceptional item. Volume and long-term profi tability of

Karlsberg Brewery was severely affected by the introduction of a deposit on one-way pack types and the

rise of input costs. By the end of 2007 management of Karlsberg was taken over by an experienced turn-

around manager from the Heineken Group.

Other impairments relate to various other entities, across various regions and are individually small and

therefore not treated as exceptional items.

EBIT as a proportion of revenue decreased to 12.2 per cent from 15.5 per cent, mainly due to

aforementioned exceptional items.

The average tax burden increased signifi cantly from 22 per cent in 2006 to 31.7 per cent in 2007. In

2006 the average tax rate was positively affected by the low rate of tax on the sale of real estate in

Spain. In 2007 the average tax rate was negatively impacted by the European Commission fi ne, which

is treated as non-deductible. Without these exceptional tax gains, the tax burden would have been 26.2

per cent compared with 27.2 per cent in 2006.

Basic earnings per share decreased from €2.47 to €1.65 as a result of lower net profi t.

Cash fl ow In millions of EUR 2007 2006

Cash fl ow from operating activities 1,730 1,849

Cash fl ow used in operational investing activities (985) (727)

Free operating cash fl ow 745 1,122

Cash fl ow used for acquisitions and disposals (278) (72)

Cash fl ow from fi nancing activities (656) (649)

Net cash fl ow (189) 401

Cash fl ow and investmentsCash fl ow from operating activities is below last year’s performance with €119 million, mainly driven

by the EC fi ne infl uencing profi t, an increase in working capital investments of €177 million and higher

changes in provisions of €50 million due to the restructuring activities in Western Europe, partly

compensated by €42 million less interest paid.

Purchase of property, plant and equipment was on a higher level compared with 2006, due to

accelerated investments in capacity expansion mainly in Central and Eastern Europe and Africa and

Middle East. Proceeds from the sale of property, plant and equipment amounted to €81 million versus

€182 million last year, mainly due to the aforementioned sale of land and brewery site in Seville, Spain.


49

2003

2004

2005

2006

2007

1.91*

1.41

1.26

0.82

Net debt/EBITDA (beia)

0.75

* (Dutch GAAP)

2003

2004

2005

2006

2007

35.8*

34.6

38.2

42.5

Total equity as a percentage of total assets

45.9

* (Dutch GAAP)

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

703

1,170

1,323

1,330

1,369

1,283

980

850

1,832

EBIT performanceIn millions of EUR

1,528

0.000000140.375008280.750017421.125025561.500033701.875042842.250050982.625059

2003

2004

2005

2006

2007 1,123

611

615

705

853

844

719

560

706

Property, plant & equipmentIn millions of EUR

• Investments

• Depreciation

694

A net amount of €278 million in 2007 was invested in acquisitions and expansion of existing interests,

compared with €72 million in 2006. Heineken acquired Královský Pivovar Krušovice a.s. in the Czech

Republic and CJSC Brewing Company ‘Syabar’, in Bobruysk, Belarus for a total amount of €241 million

Net cash fl ow decreased signifi cantly to - €189 million compared to + €401 million in 2006. This decline

was mainly attributable to a lower operating cash fl ow and an increase in cash fl ow used for acquisitions.

Although the cash fl ow used in fi nancing activities is stable compared with last year, lower repayments

of net borrowings of €132 million are offset by higher dividend payments of €153 million.

Financing structure

In millions of EUR 2007 % 2006 %

Total equity 5,946 46 5,520 42

Deferred tax liabilities 478 4 471 4

Employee benefi ts 646 5 665 5

Provisions 327 3 364 3

Loans and borrowings 2,394 18 2,585 20

Other liabilities 3,177 24 3,392 26

12,968 100 12,997 100

Financial review continued



Financing and liquidityAs at 31 December 2007, total equity increased by €426 million to €5,946 million, whilst equity

attributable to equity holders of the Company increased by €395 million to €5,404 million. The total

recognised income and expense attributable to equity holders of the Company of €736 million was

offset by dividend distribution of €333 million and purchase of own shares of €15 million.


EBIT 1,528 1,832

Depreciation and impairments P, P&E 712 739

Amortisation and impairments intangible assets 52 47

EBITDA 2,292 2,618

Exceptional items (adjusted for exceptional items in

depreciation and amortisation) 276 (272)

EBITDA (beia) 2,568 2,346

Financing ratiosOur net-interest bearing debt position remains stable compared to last year at €1,926 million, which

is in line with our free operating cash fl ow and taking into account higher acquisitions and dividends.

Net debt/EBITDA (beia) ratio is 0.75 and improved versus last year (0.82), driven by a higher EBITDA (beia).

Our cash conversion rate dropped from 105 per cent in 2006 to 58 per cent in 2007, which was mainly

driven by the lower free operating cash fl ow and high Net profi t (beia) before minority interest.

Profi t appropriationHeineken N.V.’s profi t (attributable to shareholders of the Company) in 2007 amounted to €807 million.

In accordance with Article 12, paragraph 7, of the Articles of Association, the Annual General Meeting

of Shareholders will be invited to appropriate an amount of €343 million for distribution as dividend.

This proposed appropriation corresponds to a dividend of €0.70 per share of €1.60 nominal value, on

account of which an interim dividend of €0.24 was paid on 20 September 2007. The fi nal dividend thus

amounts to €0.46 per share. Netherlands withholding tax will be deducted from the fi nal dividend at

15 per cent. It is proposed that the remaining €464 million be added to retained earnings.


51

The Annual Meeting of Shareholders of 20 April

2005 sanctioned the way Heineken deals with the

Code and in particular the non-compliance with

a limited number of best practice provisions. Below

are the best practice provisions not (fully) applied,

or applied with explanation. The full Comply or

Explain report was published in February 2005

and is available at www.heinekeninternational.com

II.1.1 An Executive Board member is appointed

for a maximum period of four years.

A member may be reappointed for a term

of not more than four years at a time.

Members of the Executive Board who have been appointed before 31 December 2003 have been appointed for an indefi nite period. This best practice provision cannot be applied, as it confl icts with the law.

II.2.7 The maximum remuneration in the event

of dismissal is one year’s salary (the ‘fi xed’

remuneration component). If the maximum

of one year’s salary would be manifestly

unreasonable for a member of the

Executive Board who is dismissed

during his fi rst term of offi ce, such board

member shall be eligible for a severance

pay not exceeding twice the annual salary.

In the contracts of the members of the Executive Board there is no mention of a specifi c scheme in the event of dismissal. This best practice provision will not be applied as it confl icts with the law.

III.2.1 All Supervisory Board members, with the

exception of not more than one person,

shall be independent within the meaning

of best practice provision III.2.2.

Heineken endorses the principle and Heineken considers the members of the Supervisory Board as independent. In a strictly formal sense, however, three members of the Supervisory Board do not meet the applicable criteria.

III.2.2 A Supervisory Board member shall

be deemed to be independent if the

following criteria of dependence do

not apply to him. The said criteria are

that the Supervisory Board member

concerned or his wife, registered partner

or other life companion, foster child or

relative by blood or marriage up to the

second degree:

a. has been an employee or member

of the management board of the

company (including associated

companies as referred to in section 1

of the Disclosure of Major Holdings in

Listed Companies Act (WMZ) 1996) in

the fi ve years prior to the appointment;

Mr. De Jong was prior to his appointment in 2002 member of the Board of Directors of Heineken Holding N.V. for one year. According to this criterion Mr. De Jong would not be independent. With reference to criterion f., which contains an exception for management board positions in a group company, Heineken does not consider this as an impediment to Mr. De Jong being independent.

b. receives personal fi nancial compensation

from the company, or a company

associated with it, other than the

compensation received for the work

performed as a Supervisory Board

member and in so far as this is not

in keeping with the normal course

of business;

Mr. Das receives from Heineken Holding N.V. a fi nancial compensation as Chairman of the Board of Directors of Heineken Holding N.V. Messrs. Van Lede and de Carvalho receive from Heineken Holding N.V. a compensation for attending the meetings of the Board of Directors of Heineken Holding N.V. These compensations are in keeping with the

Heineken N.V. endorses the principles of the Dutch Corporate Governance Code of December 2003 and applies virtually all best practice provisions. In particular, the structure of the Heineken Group – and specifi cally the relationship between Heineken Holding N.V. and Heineken N.V. – prevents Heineken N.V. from applying a small number of best practice provisions.

Dutch Corporate Governance Code



normal course of business. No other Supervisory Board member receives personal fi nancial compensation from the company, or a company associated with it, other than the compensation received from the work performed as a Supervisory Board member.

c. has had an important business

relationship with the company, or a

company associated with it, in the year

prior to the appointment. This includes

the case where the Supervisory Board

member, or the fi rm of which he is

a shareholder, partner, associate or

adviser, has acted as adviser to the

company (consultant, external auditor,

civil notary and lawyer) and the case

where the supervisory board member

is a management board member or an

employee of any bank with which the

company has a lasting and signifi cant

relationship;

In a strict sense Mr. Das also would not be independent, as he was a partner in a fi rm which was appointed as a consultant to Heineken N.V. the year before his appointment in 1994. However, Heineken does not consider this as an impediment to Mr. Das being independent.

e. holds at least ten per cent of the shares

in the company (including the shares held

by natural persons or legal entities which

cooperate with him under an express

or tacit, oral or written agreement);

Mr. de Carvalho is married to Mrs. de Carvalho-Heineken (large shareholder and delegated member of the Board of Directors of Heineken Holding N.V.). Mrs. de Carvalho indirectly holds more than 10% of the shares in Heineken N.V. Heineken does not consider this an impediment to Mr. de Carvalho being independent.

III.2.3 The report of the Supervisory Board shall

state that, in the view of the Supervisory

Board members, best practice provision

III.2.1 has been fulfi lled, and shall also

state which Supervisory Board member is

not considered to be independent, if any.

As indicated in III.2.2, in a strictly formal sense, three members of the Supervisory Board do not meet the dependence criteria as set out in best practice provision III.2.2. However, Heineken does not consider this as an impediment to Messrs. De Jong, Das and de Carvalho being independent.

III.3.4 The number of supervisory boards of

Dutch listed companies of which an

individual may be a member shall be

limited to such an extent that the proper

performance of his duties is assured;

the maximum number is fi ve, for

which purpose the chairmanship of

a supervisory board counts double.

Heineken takes the view that the decision on whether to apply this best practice provision should also be guided by the Company’s interest in terms of its ability to attract and retain skilled Supervisory Board members. Any departures for this provision will be mentioned in the annual report.

III.3.5 A person may be appointed to the

Supervisory Board for a maximum

of three 4-year terms.

Given the structure of the Heineken group, the maximum appointment period will not be applied to members who are related by blood or marriage to the Heineken family or who are members of the Board of Directors of Heineken Holding N.V. For all other members Heineken applies the best practice provision.


53

III.4.1 The Chairman of the Supervisory Board

shall see to it that:

a. the Supervisory Board members

follow their induction and education

or training programme;

b. the Supervisory Board members

receive in good time all information

which is necessary for the proper

performance of their duties;

c. there is suffi cient time for consultation

and decision-making by the

Supervisory Board;

d. the committees of the Supervisory

Board function properly;

e. the performance of the Executive

Board members and Supervisory

Board members is assessed at least

once a year;

f. the Supervisory Board elects a

Vice-Chairman;

g. the Supervisory Board has proper

contact with the Executive Board

and the Works Council (or Central

Works Council).

Heineken applies this best practice provision, with the exception of a part of criterion g: contact with the Central Works Council. This relates to the structure of the group. The Central Works Council operates on the level of Heineken Nederlands Beheer B.V., a subsidiary with a separate Supervisory Board.

III.5.11 The Remuneration Committee shall

not be chaired by the Chairman of the

Supervisory Board or by a former member

of the Executive Board of the company,

or by a Supervisory Board member who

is a member of the management board

of another listed company.

Given the structure of the Heineken Group and the character of the Board of Directors of Heineken Holding N.V., Heineken will not apply this best practice provision to the extent that the Remuneration Committee can be chaired by a Supervisory Board member who is also a member of the Board of Directors of Heineken Holding N.V. Currently the Remuneration Committee is chaired by Mr. Das, who is chairman of the Board of Directors of Heineken Holding N.V.

III.6.6 A delegated Supervisory Board member

is a Supervisory Board member who has

a special duty. The delegation may not

extend beyond the duties of the Supervisory

Board itself and may not include the

management of the company. It may entail

more intensive supervision and advice

and more regular consultation with the

Executive Board. The delegation shall be

of a temporary nature only. The delegation

may not detract from the role and power

of the Supervisory Board. The delegated

Supervisory Board member remains

a member of the Supervisory Board.

As regulated in the Articles of Association of Heineken N.V., the delegated Supervisory Board member, a position currently held by Mr. Das (Chairman of the Board of Directors of Heineken Holding N.V.) is consistent with this best practice provision, except insofar that the position is not temporary and is held for the term for which the member concerned is appointed by the General Meeting of Shareholders of Heineken N.V. Heineken considers that, as regulated by the Articles of Association of Heineken N.V., the post of delegated Supervisory Board member, which has been in existence since 1952, befi ts the structure of the Heineken Group.

Dutch Corporate Governance Code continued



III.7.3 The Supervisory Board shall adopt a set

of regulations containing rules governing

ownership of and transactions in

securities by Supervisory Board

members, other than securities issued

by their ‘own’ company. The regulations

shall be posted on the company’s website.

A Supervisory Board member shall give

periodic notice, but in any event at least

once a quarter, of any changes in his

holding of securities in Dutch listed

companies to the compliance offi cer

or, if the company has not appointed

a compliance offi cer, to the Chairman

of the Supervisory Board. A Supervisory

Board member who invests exclusively

in listed investment funds or who has

transferred the discretionary management

of his securities portfolio to an independent

third party by means of a written mandate

agreement is exempted from compliance

with this last provision.

This best practice provision will be applied, provided, however, that the periodic notice will be given only once per year.

III.8.1 The Chairman of the management board

shall not also be and shall not have been

an executive director. The Chairman of the

management board shall check the proper

composition and functioning of the entire

board. The management board shall apply

chapter III.5 of this code. The committees

referred to in chapter III.5 shall consist

only of non-executive management board

members. The majority of the members

of the management board shall be non-

executive directors and are independent

within the meaning of best practice

provision III.2.2.

Heineken has a two-tier management structure. Principle III.8 and the best practice provisions do not apply to Heineken.

IV.3.8 The report of the General Meeting

of Shareholders shall be made available,

on request, to shareholders no later than

three months after the end of the meeting,

after which the shareholders shall have

the opportunity to react to the report

in the following three months. The report

shall then be adopted in the manner

provided for in the Articles of Association.

A notarial record is made of the proceedings of the meeting, as provided for in the Articles of Association. Heineken considers it desirable to continue this practice. Therefore this best practice provision will be applied to the extent that it is consistent with a notarial record. The notarial record will be available no later than three months after the meeting.


55

The issued share capital of Heineken N.V. amounts

to €783,959,350.40, consisting of 489,974,594

shares of €1.60 each. Each share carries one vote.

The shares are listed on Euronext Amsterdam.

The shares are freely transferable.

Pursuant to the Financial Markets Supervision Act

(Wet op het fi nancieel toezicht) and the Decree on

Disclosure of Major Holdings and Capital Interests

in Securities-Issuing Institutions (Besluit melding

zeggenschap en kapitaalbelang in uitgevende

instellingen), the Financial Markets Authority has

been notifi ed about the following substantial

shareholdings regarding Heineken N.V.:

Mrs. C.L. de Carvalho-Heineken (indirectly •

50.005 per cent; the direct 50.005 per cent

shareholder is Heineken Holding N.V.);

ING Group N.V. (indirectly 5.40 per cent; the •

direct 5.40 per cent shareholder is a subsidiary

of ING Group N.V.).

All shares carry equal rights.

There are share-based long-term incentive plans

for both the Executive Board members and senior

management. Eligibility for participation is based

on objective criteria.

Each year, performance shares are awarded to

the participants. Depending on the fulfi lment of

certain predetermined performance conditions

during a three-year performance period, the

performance shares will vest and the participants

will receive real Heineken N.V. shares. The shares

required for the share-based long-term incentive

plans will be acquired by Heineken N.V. The

transfer of shares to the participants requires the

approval of the Supervisory Board of Heineken N.V.

Shares repurchased by Heineken N.V. for the

share-based long-term incentive plans do not

carry any voting rights and dividend rights. As

regards other Heineken N.V. shares, there are

no restrictions on voting rights. Shareholders who

hold shares on a predetermined record date are

entitled to attend and vote at General Meetings

of Shareholders. The record date for the Annual

General Meeting of Shareholders of 17 April 2008

is 21 days before the Annual General Meeting of

Shareholders, i.e. on 27 March 2008.

As far as known to Heineken N.V., there is no

agreement involving a shareholder of Heineken N.V.

that could lead to a restriction of the transferability

of shares or of voting rights on shares.

There are no important agreements to which

Heineken N.V. is a party and that will come into

force, be amended or be terminated under the

condition of a change of control over Heineken N.V.

as a result of a public offer.

There are no agreements of Heineken N.V. with

Executive Board members or other employees

that entitle them to any compensation rights upon

termination of their employment after completion

of a public offer on Heineken N.V. shares.

Members of the Supervisory Board and the

Executive Board are appointed by the General

Meeting of Shareholders on the basis of a non-

binding nomination by the Supervisory Board.

The General Meeting of Shareholders can dismiss

members of the Supervisory Board and the

Executive Board by a majority of the votes cast,

if the subject majority at least represents one-third

of the issued capital.

The Articles of Association can be amended by

resolution of the General Meeting of Shareholders

in which at least half of the issued capital is

represented and exclusively either at the proposal

of the Supervisory Board or at the proposal

of the Executive Board which has been approved

by the Supervisory Board, or at the proposal of

one or more Shareholders representing at least

half of the issued capital.

Decree Article 10 Information Pursuant to Takeover Directive (Besluit Artikel 10 Overnamerichtlijn).

Decree Article 10



incentive plans for both the Executive Board

members and senior management, but may

also serve other purposes, such as acquisitions.

A further renewal of the authorisation will be

submitted for approval to the Annual General

Meeting of Shareholders of 17 April 2008.

Executive BoardJ.F.M.L. van BoxmeerD.R. Hooft Graafl and


On 20 April 2005, the Annual General Meeting

of Shareholders authorised the Executive

Board (which authorisation was last renewed on

19 April 2007 for the statutory maximum period

of 18 months), to acquire own shares subject to

the following conditions and with due observance

of the law and the Articles of Association (which

require the approval of the Supervisory Board):

a. the maximum number of shares which may be

acquired is the statutory maximum of 10 per

cent of the issued share capital of Heineken N.V.;

b. transactions must be executed at a price

between the nominal value of the shares and

110 per cent of the opening price quoted for

the shares in the Offi cial Price List (Offi ciële

Prijscourant) of Euronext Amsterdam on the

date of the transaction or, in the absence of

such a price, the latest price quoted therein;

c. transactions may be executed on the stock

exchange or otherwise.

The authorisation to acquire own shares may

be used in connection with the share-based long-

term incentive plans for both the Executive Board

members and senior management, but may

also serve other purposes, such as acquisitions.

A further renewal of the authorisation will be

submitted for approval to the Annual General

Meeting of Shareholders of 17 April 2008.

On 20 April 2005, the Annual General Meeting

of Shareholders also authorised the Executive

Board (which authorisation was last renewed

on 19 April 2007 for a period of 18 months) to

issue (rights) to shares and to restrict or exclude

shareholders’ pre-emption rights, with due

observance of the law and Articles of Association

(which require the approval of the Supervisory

Board). The authorisation is limited to 10 per

cent of Heineken N.V.’s issued share capital, as per

the date of issue. The authorisation may be used

in connection with the share-based long-term


57

Financial statements and profi t appropriation The Executive Board has submitted its fi nancial

statements for 2007 to the Supervisory Board.

These fi nancial statements can be found on pages

65 to 137 of this Annual Report.

KPMG ACCOUNTANTS N.V. audited the fi nancial

statements. Their report appears on page 138.

The Supervisory Board recommends that

shareholders, in accordance with the Articles of

Association, adopt these fi nancial statements and,

as proposed by the Executive Board, appropriate

€343 million of the profi t as dividend and add the

remainder, amounting to €464 million, to retained

earnings. The proposed dividend amounts to

€0.70 per share of €1.60 nominal value, of which

€0.24 was paid as an interim dividend on

20 September 2007.

Supervisory Board composition and remuneration Mr. M.R. de Carvalho resigned by rotation from the

Supervisory Board at the Annual General Meeting

of Shareholders on 19 April 2007. Mr. de Carvalho

was duly reappointed for a period of four years.

As at the same date Mr. A.H.J. Risseeuw stepped

down from the Supervisory Board as he reached

the statutory age limit, based on the internal

regulations of the Supervisory Board. The

Supervisory Board currently consists of seven

members.

All members of the Supervisory Board comply

with best practice provision III.3.4 of the Dutch

Corporate Governance Code (maximum number

of Supervisory Board seats).

The General Meeting of Shareholders determines

the remuneration of the members of the

Supervisory Board. The 2005 Annual General

Meeting of Shareholders resolved to adjust the

remuneration of the Supervisory Board effective

1 January 2006. The detailed amounts are stated

on page 125 of the fi nancial statements.

Corporate Governance The Annual General Meeting of Shareholders of

20 April 2005 sanctioned the way Heineken deals

with the Dutch Corporate Governance Code

of 9 December 2003, and in particular the non-

compliance with a limited number of best practice

provisions (see page 52), as a consequence of the

special character of the Company. Since then there

has been no change in the way Heineken N.V. deals

with the Code.

Meetings and activities of the Supervisory Board The Supervisory Board held eight meetings

with the Executive Board, including meetings by

telephone conference. The items discussed in the

meetings included recurring subjects, such as the

Company’s strategy, the fi nancial performance

of the Group and the operating companies,

acquisitions – in particular the acquisition of part of

Scottish & Newcastle – large investment proposals,

management changes and the reappointment of

the external auditor. The external auditor attended

the meeting in which the annual results were

discussed.

One meeting was held in New York, USA where the

Regional President Americas and his management

team presented the main developments in this

region and the Management Team of Heineken

USA presented an overview of the developments

in the USA. In 2007 the Regional Presidents of

Western Europe and Asia Pacifi c presented the

main developments in their regions during the

regular meetings of the Supervisory Board. Also

a meeting was held on the developments of the

Heineken brand.

None of the members of the Supervisory Board

were frequently absent. Two absences in two years

or more is considered frequent.

During the year under review, the Supervisory Board performed its duties in accordance with the law and the Articles of Association of Heineken N.V. and supervised and advised the Executive Board on an ongoing basis.

To the shareholders


58


Independence With regard to the independence of the

Supervisory Board members, reference is made

to the best practice provision III.2.2 of the Dutch

Corporate Governance Code as contained in the

‘Comply or Explain’ report of 21 February 2005

(see page 52).

Committees The Supervisory Board has four committees,

the Preparatory Committee, the Audit Committee,

the Selection & Appointment Committee and the

Remuneration Committee.

Preparatory Committee

Composition: Messrs. Van Lede (Chairman),

Das and de Carvalho.

The Preparatory Committee met eight times.

The committee prepares decision-making by

the Supervisory Board.

Audit Committee

Composition: Messrs. De Jong (Chairman), Hessels

and Mrs. Fentener van Vlissingen.

The members collectively have the experience

and fi nancial expertise to supervise the fi nancial

statements and the risk profi le of Heineken N.V.

The Audit Committee met three times to discuss

regular topics, such as the annual and interim

fi nancial statements, risk management, the

adequacy of internal control policies and internal

audit programmes, the external audit scope,

approach and fees, as well as reports from both

the internal and external audits.

The Audit Committee also reviewed the

achievement of targets for the annual bonus

for the Executive Board and Senior Management

and decided on the procedure for the assessment

of the external auditor, in view of the re-

appointment. The CEO and the CFO attended all

the meetings, as well as the external auditor, the

Director Group Control & Accounting and the

Group Internal Auditor.

The external auditor was appointed in the Annual

General Meeting of 2003 for a fi ve-year period.

In 2007 an assessment was made, following

a thorough review in 2005. The Audit Committee

recommended to the Supervisory Board to

re-appoint KPMG Accountants N.V. as the external

auditors for Heineken N.V. for a further period of

four years.

The Supervisory Board will submit the

recommendation for approval to the shareholders

in the Annual General meeting of Shareholders on

17 April 2008.

Selection & Appointment Committee

Composition: Messrs. Van Lede (Chairman),

Das, de Carvalho and Lord MacLaurin.

The Selection & Appointment Committee met

once. In this meeting the composition and the

rotation schedule of the Supervisory Board were

discussed.

Remuneration Committee

Composition: Messrs. Das (Chairman), Van Lede

and de Carvalho.

The Remuneration Committee met three times.

The Remuneration Committee discussed the target

setting and payout levels for the annual bonus and

the long-term incentive plan for the Executive

Board (Heineken N.V. shares).


59

Remuneration Executive Board The Annual General Meeting of Shareholders

adopted on 19 April 2007 a revised remuneration

policy for the Executive Board. In 2006 a new

pension scheme was introduced. Details of the

policy and its implementation are described on

page 62 of this report. The remuneration policy

aims to ensure that highly qualifi ed managers

can be attracted and retained as members of the

Executive Board. The package includes a base

salary, an annual bonus and a long-term incentive

scheme. Ensuring a balanced focus on both the

short-term and long-term, performance variable

pay is equally divided between short-term bonus

and the long-term incentive. Every two years the

policy is evaluated.

Appreciation The Supervisory Board would like to take this

opportunity to express its gratitude to the members

of the Executive Board and all Heineken employees

for their contribution to the results in 2007.

Supervisory Board Heineken N.V.Van Lede

De Jong

Das

de Carvalho

Hessels

Fentener van Vlissingen

MacLaurin


To the shareholders continued

60



Cees (C.J.A.) van Lede (1942)

Dutch; male.

Appointed in 2002; latest reappointment in 2006;

next reappointment in 2010. Chairman (2004).

Profession: Company Director.

Supervisory directorships Dutch stock listed

companies: Royal Philips Electronics N.V.

Other: Sara Lee Corporation, Air Liquide S.A.,

Air France/KLM, Senior Advisor Europe JP Morgan

Plc., London.

Jan Maarten (J.M.) de Jong (1945)

Dutch; male.


next reappointment in 2010. Vice-Chairman (2004).

Profession: Banker.


companies: Nutreco Holding N.V.

Other: Banca Antonveneta SpA, Italy, CRH plc,

Ireland, AON Groep Nederland B.V.

Maarten (M.) Das (1948)

Dutch; male.


next reappointment in 2009. Delegated member

(1995).

Profession: Lawyer, Partner of Loyens & Loeff.

No supervisory directorships Dutch stock listed

companies. Other: Greenfee B.V. (Chairman) Other

posts*: Heineken Holding N.V. (Chairman), L’Arche

Green N.V. (Chairman), Stichting

Administratiekantoor Priores, LAC B.V.

Michel (M.R.) de Carvalho (1944)

British; male.


next reappointment in 2011.

Profession: Banker, Investment Banking (Vice-

Chairman) Citigroup Inc., UK.


companies.

Jan Michiel (J.M.) Hessels (1942)

Dutch; male.


next reappointment in 2009.



companies: Royal Philips Electronics N.V., Fortis N.V.

Other: NYSE Euronext (Chairman), S.C. Johnson

Europlant B.V. (Chairman), Member International

Advisory Board The Blackstone Group, USA,

Netherlands Committee for Economic Policy

Analysis (CPB) (Chairman).

Annemiek (A.M.) Fentener van Vlissingen (1961)

Dutch; female.

Appointed in 2006; reappointment in 2010.



companies: Draka Holding N.V.

Other: SHV Holdings N.V. (Chairman),

De Nederlandsche Bank N.V. (member).

Ian (I.C.) MacLaurin (1937)

British; male.

Appointed in 2006; reappointment in 2010.



companies.

Other: Evolution Group Plc., Chartwell Group Ltd.

(Chairman).

If applicable, board memberships mentioned

under ‘Other’ only list other major board

memberships.

* Where relevant to performance of the duties of

the Supervisory Board.

Supervisory Board as at 19 February 2008


61


Remuneration Executive Board as from 2007 The remuneration package of the Executive Board

includes a base salary, a short-term incentive and

a long-term incentive. Base salary accounts for

33 per cent of the total remuneration package

at target level for the CEO and 40 per cent for the

CFO. Target percentage for each of annual bonus

and long-term incentive is 100 per cent of base

salary for the CEO and 75 per cent for the CFO.

The equal division of variable pay between short-

term bonus and long-term incentive ensures

a balanced focus, on both short-term and long-

term performance.

The Company aims to achieve consistency in the

structure of the remuneration packages of both

Executive Board members and senior Heineken

executives. The variable elements in Executive

Board members’ remuneration are more strongly

emphasised than those of senior executives,

refl ecting the principle of increasing performance

sensitivity in line with the impact on Group results.

Both internal pay relativities and relevant

market data are used to defi ne the remuneration

package for the Executive Board. For market data,

a specifi c labour market is defi ned.

Heineken operates in a highly international labour

market and is headquartered in the Netherlands.

Consequently, the reference for market data

is primarily other Dutch multinational companies.

To refl ect the specifi c business of Heineken

a minority of continental European companies

that operate in the branded consumer products

markets are included. The labour market peer

group consists of the following companies:

Akzo Nobel N.V.,

Koninklijke DSM N.V.,

Reed Elsevier N.V.,

Koninklijke Ahold N.V.,

Koninklijke KPN N.V.,

Koninklijke Numico N.V.*,

TNT N.V.,

Unilever N.V.,

Koninklijke Philips Electronics N.V.,

InBev S.A.,

Henkel KGaA,

L’Oréal S.A.,

Nestlé S.A.

* Replacement of Koninklijke Numico N.V., following its take-

over, will be part of our next review in 2009.

Base salary

The members of the Executive Board are paid

at the median of the labour market peer group.

This represents €750,000 for the CEO and

€550,000 for the CFO.

Annual bonus

The focus of the annual bonus is on annual

operational performance. Organic net profi t

growth is the measure used to assess the

operational performance of Heineken on

a one-year basis and accounts for 75 per

cent of the bonus opportunity. Each year, the

Supervisory Board determines an ambitious,

yet realistic organic net profi t growth target. The

threshold level of payout is set at 60 per cent of

target. A linear payout curve applies. Part of the

payout is subject to meeting an acceptable cash

conversion rate. The remaining 25 per cent of the

annual bonus is linked to yearly personal targets.

The specifi c targets are commercially sensitive

and cannot be disclosed. At target level, the annual

bonus level for the CEO is €750,000 and for the CFO

€412,500. The maximum payout will not exceed

1.5 times the target bonus level.

Based on its overall assessment, the Supervisory

Board awarded the maximum bonus, as in 2007

all targets were exceeded. This represents

€1,125,000 for the CEO and €618,750 for the CFO.

Long-term incentive

The long-term incentive plan for the Executive

Board, in effect since 1 January 2005, is

a performance share plan. A similar plan was

The remuneration policy and structure refl ects the strategic ambitions of the Company and takes into account internal and external circumstances. The policy seeks to maintain a tight focus on both short-term and long-term strategic results. The policy was adopted in the Annual General Meeting of Shareholders in 2005 and the revised policy was adopted in 2007. A review of the policy is conducted every two years.

Remuneration report

62


implemented for senior management in 2006.

Each year a number of performance shares are

conditionally awarded, the vesting of which is

subject to meeting a stretching performance

target after three years. The value of the

performance shares at target level for 2007 for

the CEO is €750,000 and for the CFO €412,500.

The performance condition is total shareholder

return, measured over a three-year period,

relative to a performance peer group. The

performance peer group is different from the

labour market peer group and includes companies

with which Heineken competes for shareholder

preference. It is composed of other brewers,

but also includes European companies operating

in the branded consumer products market.

The performance peer group consists of the

following companies:

Anheuser-Busch Inc.,

Carlsberg A/S,

InBev S.A.,

SABMiller plc,

Scottish & Newcastle plc,

Henkel KGaA,

L’Oréal S.A.,

LVMH S.A.,

Koninklijke Numico N.V.*,

Nestlé S.A.,

Unilever N.V.

* Following its take-over, Koninklijke Numico N.V. has been

replaced in the performance peer group by Diageo Plc. This

replacement shall have effect as of the plan period 2005-

2007.

If, over a three-year period, Heineken performs

better than the median of the peer group

a proportion of the performance shares will vest.

Below median, no performance shares will vest.

At sixth position, 25 per cent of the target amount

will vest. A linear vesting schedule applies, with

50 per cent of the target number vesting at fi fth

position and 75 per cent at fourth position. At third

position, the target number will vest. If Heineken is

ranked fi rst, the maximum number of performance

shares will vest. This is 1.5 times the target

amount of shares. The vested shares are subject

to a holding restriction of two years.

For the LTIP performance period, Heineken was

ranked at the end of 2007 as follows:

Period 2007-2009: 5th•

Period 2006-2008: 3rd•

Period 2005-2007: 3rd•

Heineken is acquiring the shares that will be

required for vesting.

The Executive Board performance share allocation

at target level is as follows:

For the year starting 1 January 2005, based on •

the share price of €24.53 at 31 December 2004,

17,224 performance shares for the CEO and

13,250 performance shares for the CFO. On

the basis of the fulfi lment of the performance

condition (total shareholder return ranking

for the LTIP performance period 2005-2007

at third position), the performance shares will

vest within 5 business days after the publication

of the 2007 annual results as determined by the

Supervisory Board in such a way that Mr Van

Boxmeer is entitled to a gross amount (pro-

rated to the time of appointment as CEO) of

14,244 (100 per cent of target) Heineken N.V.

shares and Mr Hooft Graafl and is entitled to

a gross amount of 13,250 (100 per cent of

target) Heineken N.V. shares. As Heineken N.V.

will fulfi ll the tax payment obligations related

to vesting, the amount of Heineken N.V. shares

to be received by the CEO and CFO will be a net

amount in shares.




12,136 performance shares for the CFO. These

will vest, subject to the fulfi lment of the

performance condition, in 2009.

63



For the year starting 1 January 2007, based •

on the share price of €36.03 at 31 December

2006, 20,816 performance shares for the CEO

and 11,449 performance shares for the CFO.

These will vest, subject to the fulfi lment of the





9,328 performance shares for the CFO. These

will vest, subject to the fulfi lment of the


Pensions In 2006 a new pension policy was introduced

for current and future members of the Executive

Board, refl ecting the Netherlands market and

Netherlands legislative changes. The arrangement

is based on the principle of defi ned contribution.

Executive Board members can choose to

participate in the Defi ned Contribution Plan or

to allocate, within the fi scal rules, the amounts

into a Capital Creation option. In the Defi ned

Contribution Plan, apart from the survivor’s

pension, a separate lump sum of two times base

salary will be paid in the event of death whilst

in service.

In the Capital Creation option the Executive

Board member may elect to receive as income

the Defi ned Contribution premium amounts from

the pension scheme, less an amount equivalent to

the employee contribution. Instead of a survivor’s

pension, a lump sum of, depending on age, ten,

eight, six or four times base salary will be paid,

in the event of death whilst in service.

The retirement age is 65, but individual Executive

Board members may retire earlier with a reduced

level of benefi t. Contribution rates are designed

to enable the current Executive Board members

to retire from the Company at the age of 62.

Contracts

The contracts of the Executive Board are for an

indefi nite period of time. The general notice period

is six months for the Company and three months

for the members of the Executive Board. There is

no specifi c scheme in the event of dismissal. As

stated in the Comply or Explain Report (February

2005), on the basis of the Dutch Corporate

Governance Code, provision II.2.7 cannot be

complied with as it confl icts with the law.

Shares held by the Executive Board

As at 31 December 2007, except for the

aforementioned performance shares, the

members of the Executive Board did not hold

directly any of the Company’s shares, convertible

bonds or option rights.

Mr. Hooft Graafl and held 3,052 shares of Heineken

Holding N.V. as per 31 December 2007.

Remuneration Supervisory Board The amounts paid to the members of the

Supervisory Board are stated on page 125 of the

fi nancial statements. These amounts came into

force as per 2006. The General Meeting of

Shareholders determines the remuneration of the

Supervisory Board.

Shares held by the Supervisory Board

As at 31 December 2007, Mr. de Carvalho held

8 shares in Heineken N.V. The other Supervisory

Board members do not hold any of the Company’s

shares, convertible bonds or option rights. As at

31 December 2007 Mr. Van Lede held 2,656 shares

in Heineken Holding N.V. and Mr. de Carvalho held

8 shares in Heineken Holding N.V.

Supervisory Board Heineken N.V. Amsterdam, 19 February 2008

Remuneration report continued

64


In millions of EUR Note 2007 2006

Revenue 5 12,564 11,829

Other income 8 30 379

Raw materials, consumables and services 9 8,162 7,376

Personnel expenses 10 2,165 2,241

Amortisation, depreciation and impairments 11 764 786

Total expenses 11,091 10,403

Results from operating activities 1,503 1,805

Interest income 12 67 52

Interest expenses 12 (168) (185)

Other net fi nance (expenses)/income 12 (26) 11

Net fi nance expenses (127) (122)

Share of profi t of associates (net of income tax) 25 27

Profi t before income tax 1,401 1,710

Income tax expenses 13 (429) (365)

Profi t 972 1,345

Attributable to:

Equity holders of the Company (net profi t) 807 1,211

Minority interest 165 134

Profi t 972 1,345

Weighted average number of shares – basic 23 489,353,315 489,712,594

Weighted average number of shares – diluted 23 489,974,594 489,974,594

Basic earnings per share (€) 23 1.65 2.47

Diluted earnings per share (€) 23 1.65 2.47


65

For the year ended 31 December 2007Consolidated income statementFinancial statements


Foreign currency translation differences

for foreign operations 12 (100) (84)

Effective portion of change in fair value

of cash fl ow hedge 12 51 50

Net change in fair value of cash fl ow

hedges transferred to the income statement 12 (36) –

Net change in fair value available-for-sale investments 12 2 48

IFRS transitional adjustments prior year 22 – (10)

Net income and expense recognised directly in equity 22 (83) 4

Profi t 972 1,345

Total recognised income and expense 889 1,349

Attributable to:

Equity holders of the Company 736 1,246

Minority interest 153 103

Total recognised income and expense 889 1,349

66


Consolidated statement of recognised income and expenseFinancial statements

For the year ended 31 December 2007


Assets

Property, plant & equipment 14 5,362 4,944

Intangible assets 15 2,541 2,449

Investments in associates 16 214 186

Other investments 17 452 606

Advances to customers 219 180

Deferred tax assets 18 336 395

Total non-current assets 9,124 8,760

Inventories 19 1,007 893

Other investments 17 105 59

Trade and other receivables 20 1,873 1,779

Prepayments and accrued income 123 91

Cash and cash equivalents 21 715 1,374

Assets classifi ed as held for sale 7 21 41

Total current assets 3,844 4,237

Total assets 12,968 12,997

Equity

Share capital 784 784

Reserves 692 666

Retained earnings 3,928 3,559

Equity attributable to equity holders of the Company 22 5,404 5,009

Minority interests 542 511

Total equity 5,946 5,520

Liabilities

Loans and borrowings 24 1,521 2,091

Employee benefi ts 26 646 665

Provisions 28 184 242

Deferred tax liabilities 18 478 471

Total non-current liabilities 2,829 3,469

Bank overdrafts 21 282 747

Loans and borrowings 24 873 494

Trade and other payables 29 2,806 2,496

Tax liabilities 89 149

Provisions 28 143 122

Total current liabilities 4,193 4,008

Total liabilities 7,022 7,477

Total equity and liabilities 12,968 12,997


67

Consolidated balance sheetAs at 31 December 2007


Operating activities

Profi t 972 1,345

Adjustments for:

Amortisation, depreciation and impairments 11 764 786

Net interest (income)/expenses 12 101 133

Gain on sale of property, plant & equipment,

intangible assets and subsidiaries,

joint ventures and associates 8 (30) (379)

Investment income and share of profi t of associates (41) (40)

Income tax expenses 13 429 365

Other non-cash items 103 31

Cash fl ow from operations before changes

in working capital and provisions 2,298 2,241

Change in inventories (140) (43)

Change in trade and other receivables (175) 85

Change in trade and other payables 282 102

Total change in working capital (33) 144

Change in provisions and employee benefi ts (53) (3)

Cash fl ow from operations 2,212 2,382

Interest paid and received (96) (138)

Dividend received 27 13

Income taxes paid (413) (408)

Cash fl ow used for interest, dividend and income tax (482) (533)

Cash fl ow from operating activities 1,730 1,849

Investing activities

Proceeds from sale of property, plant & equipment

and intangible assets 81 182

Purchase of property, plant & equipment 14 (1,123) (844)

Purchase of intangible assets 15 (22) (33)

Loans issued to customers and other investments (146) (166)

Repayment on loans to customers 225 134

Cash fl ow used in operational investing activities (985) (727)

Acquisition of subsidiaries, joint ventures and

minority interests, net of cash acquired 6 (245) (84)

Acquisition of associates and other investments (89) (29)

Disposal of subsidiaries, joint ventures and

minority interests, net of cash disposed of 6 12 17

Disposal of associates and other investments 44 24

Cash fl ow used for acquisitions and disposals (278) (72)

Cash fl ow used in investing activities (1,263) (799)

Financial statements68


Consolidated statement of cash fl owsFor the year ended 31 December 2007


Financing activities

Proceeds from loans and borrowings 77 262

Repayment of loans and borrowings (265) (582)

Dividends paid (450) (297)

Purchase own shares 22 (15) (14)

Other (3) (18)

Cash fl ow used in fi nancing activities (656) (649)

Net Cash Flow (189) 401

Cash and cash equivalents as at 1 January 627 234

Effect of movements in exchange rates (5) (8)

Cash and cash equivalents as at 31 December 21 433 627


69

1. Reporting entityHeineken N.V. (the ‘Company’) is a company domiciled in the Netherlands. The address of the Company’s

registered offi ce is Tweede Weteringplantsoen 21, Amsterdam. The consolidated fi nancial statements of

the Company as at and for the year ended 31 December 2007 comprise the Company and its subsidiaries

(together referred to as ‘Heineken’ or the ‘Group’ and individually as ‘Heineken’ entities) and Heineken’s

interests in joint ventures and associates.

A summary of the main subsidiaries, joint ventures and associates is included in note 34, 35 and 16.

Heineken is primarily involved in brewing and selling of beer.

2. Basis of preparation(a) Statement of compliance

The consolidated fi nancial statements have been prepared in accordance with International Financial

Reporting Standards (IFRS) as endorsed by the EU and also comply with the fi nancial reporting

requirements included in Part 9 of Book 2 of the Dutch Civil Code.

The Company presents a condensed income statement, using the facility of Article 402 of Part 9, Book 2,

of the Dutch Civil Code.

The fi nancial statements have been prepared by the Executive Board of the Company and authorised

for issue on 19 February 2008 and will be submitted for adoption to the Annual General Meeting of

Shareholders on 17 April 2008.

(b) Basis of measurement

The consolidated fi nancial statements have been prepared on the historical cost basis except for the

following assets and liabilities:

Available-for-sale investments are measured at fair value.•

Investments at fair value through profi t and loss are measured at fair value.•

Derivative fi nancial instruments are measured at fair value.•

Liabilities for equity-settled share-based payment arrangements are measured at fair value.•

The methods used to measure fair values are discussed further in note 4.

(c) Functional and presentation currency

These consolidated fi nancial statements are presented in euro, which is the Company’s functional

currency. All fi nancial information presented in euros has been rounded to the nearest million unless

stated otherwise.

(d) Use of estimates and judgements

The preparation of fi nancial statements in conformity with IFRS requires management to make judgements,

estimates and assumptions that affect the application of accounting policies and the reported amounts

of assets and liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting

estimates are recognised in the period in which the estimate is revised and in any future

periods affected.



Notes to the consolidated fi nancial statements

In particular, information about signifi cant areas of estimation uncertainty and critical judgements

in applying accounting policies that have the most signifi cant effect on the amounts recognised in the

fi nancial statements are described in the following notes:

Note 6 Acquisitions and disposals of subsidiaries, joint ventures and minority interests.•

Note 15 Intangible assets.•

Note 18 Deferred tax assets and liabilities.•

Note 26 Employee benefi ts.•

Note 27 Share-based payments – Long-Term Incentive Plan.•

Note 28 Provisions and 32 Contingencies.•

Note 30 Financial risk management and fi nancial instruments.•

3. Signifi cant accounting policiesThe accounting policies set out below have been applied consistently to all periods presented in these

consolidated fi nancial statements and have been applied consistently by Heineken entities.

Certain comparative amounts have been reclassifi ed or line items have been added in order to conform

with current year’s presentation, in accordance with IFRS 7, of the consolidated balance sheet, the

consolidated statement of recognised income and expense, net fi nance expenses (see note 12), other

investments (see note 17), prepayments and accrued income, trade and other receivables (see note 20)

and fi nancial risk management and fi nancial instruments (see note 30). In addition certain comparative

amounts in the consolidated statement of cash fl ows have been reclassifi ed to conform with current

year’s presentation.

(a) Basis of consolidation

(i) Subsidiaries

Subsidiaries are entities controlled by Heineken. Control exists when Heineken has the power, directly

or indirectly, to govern the fi nancial and operating policies of an entity so as to obtain benefi ts from

its activities. In assessing control, potential voting rights that currently are exercisable or convertible

are taken into account. The fi nancial statements of subsidiaries are included in the consolidated fi nancial

statements from the date that control commences until the date that control ceases. Accounting policies

have been changed where necessary to ensure consistency with the policies adopted by Heineken.

(ii) Associates

Associates are those entities in which Heineken has signifi cant infl uence, but not control, over the

fi nancial and operating policies. Signifi cant infl uence is presumed to exist when the Group holds between

20 and 50 per cent of the voting power of another entity. The consolidated fi nancial statements include

Heineken’s share of the total recognised income and expenses of associates on an equity-accounted

basis, from the date that signifi cant infl uence commences until the date that signifi cant infl uence ceases.

When Heineken’s share of losses exceeds the carrying amount of the associate, the carrying amount is

reduced to nil and recognition of further losses is discontinued except to the extent that Heineken has an

obligation or has made a payment on behalf of the associate.

(iii) Joint ventures

Joint ventures are those entities over whose activities Heineken has joint control, established by

contractual agreement and requiring unanimous consent for strategic fi nancial and operating decisions.

The consolidated fi nancial statements include Heineken’s proportionate share of the entities’ assets,

liabilities, revenue and expenses with items of a similar nature on a line-by-line basis, from the date that

joint control commences until the date that joint control ceases.

(iv) Transactions eliminated on consolidation

Intra-Heineken balances and transactions, and any unrealised gains and losses or income and expenses

arising from intra-Heineken transactions, are eliminated in preparing the consolidated fi nancial statements.

Unrealised income arising from transactions with associates and joint ventures are eliminated to the

extent of Heineken’s interest in the entity. Unrealised expenses are eliminated in the same way as

unrealised income, but only to the extent that there is no evidence of impairment.


71

3. Signifi cant accounting policies continued(b) Foreign currency

(i) Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of Heineken

entities at the exchange rates at the dates of the transactions. Monetary assets and liabilities

denominated in foreign currencies at the balance sheet date are retranslated to the functional currency

at the exchange rate at that date. The foreign currency gain or loss arising on monetary items is the

difference between amortised cost in the functional currency at the beginning of the period, adjusted

for effective interest and payments during the period, and the amortised cost in foreign currency

translated at the exchange rate at the end of the period.

Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value

are retranslated to the functional currency at the exchange rate at the date that the fair value was

determined. Foreign currency differences arising on retranslation are recognised in the income

statement, except for differences arising on the retranslation of available-for-sale (equity) investments

and foreign currency differences arising on the retranslation of a fi nancial liability designated as a hedge

of a net investment. Non-monetary assets and liabilities denominated in foreign currencies that are

measured at cost remain translated into the functional currency at historical exchange rates.

(ii) Foreign operations

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising

on consolidation, are translated to euro at exchange rates at the balance sheet date. The revenue and

expenses of foreign operations are translated to euro at exchange rates approximating the exchange

rates ruling at the dates of the transactions.

Foreign currency differences are recognised directly in equity as a separate component. Since 1 January

2004, the date of transition to IFRS, such differences have been recognised in the translation reserve.

The cumulative currency differences at the date of transition to IFRS were deemed to be zero. When

a foreign operation is disposed of, in part or in full, the relevant amount in the translation reserve is

transferred to the income statement. Foreign exchange gains and losses arising from a monetary item

receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely

in the foreseeable future, are considered to form part of a net investment in a foreign operation and are

recognised directly in equity in the translation reserve.

The following exchange rates, for most important countries in which Heineken has operations, were used

whilst preparing these fi nancial statements:

Year-end Average

In EUR 2007 2006 2007 2006

CLP 0.0014 0.0014 0.0014 0.0015

EGP 0.1238 0.1333 0.1294 0.1389

NGN 0.0058 0.0059 0.0058 0.0062

PLN 0.2783 0.2611 0.2645 0.2570

RUB 0.0278 0.0288 0.0286 0.0293

SGD 0.4725 0.4951 0.4850 0.5020

USD 0.6793 0.7584 0.7308 0.7973

ZAR 0.0997 0.1087 0.1036 0.1188



Notes to the consolidated fi nancial statements continued

(iii) Hedge of net investment in foreign operation

Foreign currency differences arising on the retranslation of a fi nancial liability designated as a hedge

of a net investment in a foreign operation are recognised directly in equity, in the translation reserve,

to the extent that the hedge is effective. To the extent that the hedge is ineffective, such differences

are recognised in profi t or loss. When the hedged part of a net investment is disposed of, the associated

cumulative amount in equity is transferred to profi t or loss as an adjustment to the profi t or loss

on disposal.

(c) Non-derivative fi nancial instruments

(i) General

Non-derivative fi nancial instruments comprise investments in equity and debt securities, trade and other

receivables, cash and cash equivalents, loans and borrowings, and trade and other payables.

Non-derivative fi nancial instruments are recognised initially at fair value plus, for instruments not at fair

value through profi t or loss, any directly attributable transaction costs. Subsequent to initial recognition

non-derivative fi nancial instruments are measured as described below.

Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable

on demand and form an integral part of Heineken’s cash management are included as a component of

cash and cash equivalents for the purpose of the statement of cash fl ows.

Accounting for interest income, interest expenses and other net fi nance income and expenses are

discussed in note 3r.

(ii) Held-to-maturity investments

If Heineken has the positive intent and ability to hold debt securities to maturity, they are classifi ed as

held-to-maturity. Debt securities are loans and long-term receivables and are measured at amortised

cost using the effective interest method, less any impairment losses. Investments held-to-maturity are

recognised or derecognised on the day they are transferred to or by Heineken. Held-to–maturity

investments includes loans to customers of Heineken.

(iii) Available-for-sale investments

Heineken’s investments in equity securities and certain debt securities are classifi ed as available-for-sale.

Subsequent to initial recognition, they are measured at fair value and changes therein, except for

impairment losses (see note 3i(i)), and foreign exchange gains and losses on available-for-sale monetary

items (see note 3b(i)), are recognised directly in equity. When these investments are derecognised, the

cumulative gain or loss previously recognised directly in equity is recognised in the income statement.

Where these investments are interest-bearing, interest calculated using the effective interest method is

recognised in the income statement. Available-for-sale investments are recognised or derecognised by

Heineken on the date it commits to purchase or sell the investments.

(iv) Investments at fair value through profi t or loss

An investment is classifi ed as at fair value through profi t or loss if it is held for trading or is designated

as such upon initial recognition. Investments are designated at fair value through profi t or loss if

Heineken manages such investments and makes purchase and sale decisions based on their fair value

in accordance with Heineken’s documented risk management or investment strategy. Upon initial

recognition, attributable transaction costs are recognised in the income statement when incurred.

Investments at fair value through profi t or loss are measured at fair value, with changes therein

recognised in the income statement. Investments at fair value through profi t and loss are recognised

or derecognised by Heineken on the date it commits to purchase or sell the investments.


73

3. Signifi cant accounting policies continued(v) Other

Other non-derivative fi nancial instruments are measured at amortised cost using the effective interest

method, less any impairment losses. Included in non-derivative fi nancial instruments are advances

to customers. Subsequently the advances are amortised over the term of the contract as a reduction

of revenue.

(d) Derivative fi nancial instruments

(i) General

Heineken uses derivatives in the ordinary course of business in order to manage market risks. Generally

Heineken seeks to apply hedge accounting in order to minimise the effects of foreign currency

fl uctuations in the income statement.

Derivatives that can be used are interest rate swaps, forward rate agreements, caps and fl oors, forward

exchange contracts and options. Transactions are entered into with a limited number of counterparties

with strong credit ratings. Foreign currency and interest rate hedging operations are governed by an

internal policy and rules approved and monitored by the Executive Board.

Derivative fi nancial instruments are recognised initially at fair value, with attributable transaction

costs recognised in the income statement when incurred. Derivatives for which hedge accounting

is not applied are accounted for as instruments at fair value through profi t or loss. When derivatives

qualify for hedge accounting, subsequent measurement is at fair value, and changes therein accounted

for as described in note 3d(ii).

The fair value of interest rate swaps is the estimated amount that Heineken would receive or pay

to terminate the swap at the balance sheet date, taking into account current interest rates and the

current creditworthiness of the swap counterparties.

(ii) Cash fl ow hedges

Changes in the fair value of the derivative hedging instrument designated as a cash fl ow hedge are

recognised directly in equity to the extent that the hedge is effective. To the extent that the hedge

is ineffective, changes in fair value are recognised in the income statement.

If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold,

terminated or exercised, then hedge accounting is discontinued and the cumulative unrealised gain or

loss recognised in equity is recognised in the income statement immediately. When a hedging instrument

is terminated, but the hedged transaction still is expected to occur, the cumulative gain or loss at that

point remains in equity and is recognised in accordance with the above-mentioned policy when the

transaction occurs. When the hedged item is a non-fi nancial asset, the amount recognised in equity

is transferred to the carrying amount of the asset when it is recognised. In other cases the amount

recognised in equity is transferred to the income statement in the same period that the hedged item

affects the income statement.

(iii) Economic hedges

Hedge accounting is not applied to derivative instruments that economically hedge monetary assets and

liabilities denominated in foreign currencies. Changes in the fair value of such derivatives are recognised

in the income statement as part of foreign currency gains and losses.




(e) Share capital

(i) Ordinary shares

Ordinary shares are classifi ed as equity. Incremental costs directly attributable to the issue of ordinary

shares are recognised as a deduction from equity, net of any tax effects.

(ii) Repurchase of share capital (treasury shares)

When share capital recognised as equity is repurchased, the amount of the consideration paid, which

includes directly attributable costs, is net of any tax effects, and is recognised as a deduction from

equity. Repurchased shares are classifi ed as treasury shares and are presented in the reserve for own

shares. When treasury shares are sold or reissued subsequently, the amount received is recognised as

an increase in equity, and the resulting surplus or defi cit on the transaction is transferred to or from

retained earnings.

(iii) Dividends

Dividends are recognised as a liability in the period in which they are declared.

(f) Property, Plant and Equipment (P, P and E)

(i) Owned assets

Items of property, plant and equipment are measured at cost less government grants received (refer (q)),

accumulated depreciation (refer (iv)) and accumulated impairment losses (refer accounting policy 3i(ii)).

Cost comprises the initial purchase price increased with expenditures that are directly attributable

to the acquisition of the asset (like transports and non-recoverable taxes). The cost of self-constructed

assets includes the cost of materials and direct labour and any other costs directly attributable

to bringing the asset to a working condition for its intended use (like an appropriate proportion of

production overheads), and the costs of dismantling and removing the items and restoring the site on

which they are located. Borrowing costs related to the acquisition or construction of qualifying assets

are recognised in the income statement when incurred.

Spare parts that are acquired as part of an equipment purchase and only to be used in connection with

this specifi c equipment are initially capitalised and amortised as part of the equipment.

Where an item of property, plant and equipment comprises major components having different useful

lives, they are accounted for as separate items of property, plant and equipment.

(ii) Leased assets

Leases in terms of which Heineken assumes substantially all the risks and rewards of ownership are

classifi ed as fi nance leases. Upon initial recognition P, P and E acquired by way of fi nance lease is measured

at an amount equal to the lower of its fair value and the present value of the minimum lease payments

at inception of the lease. Lease payments are apportioned between the outstanding liability and fi nance

charges so as to achieve a constant periodic rate of interest on the remaining balance of the liability.

Other leases are operating leases and are not recognised on Heineken’s balance sheet. Payments made

under operating leases are charged to the income statement on a straight-line basis over the term of the

lease. When an operating lease is terminated before the lease period has expired, any payment required

to be made to the lessor by way of penalty is recognised as an expense in the period in which

termination takes place.


75

3. Signifi cant accounting policies continued(iii) Subsequent expenditure

The cost of replacing part of an item of property, plant and equipment is recognised in the carrying

amount of the item or recognised as a separate asset, as appropriate, if it is probable that the future

economic benefi ts embodied within the part will fl ow to Heineken and its cost can be measured reliably.

The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of

property, plant and equipment are recognised in the income statement when incurred.

(iv) Depreciation

Land is not depreciated as it is deemed to have an infi nite life. Depreciation on other P, P and E is charged

to the income statement on a straight-line basis over the estimated useful lives of items of property,

plant and equipment, and major components that are accounted for separately. Assets under

construction are not depreciated. The estimated useful lives are as follows:

Buildings 30 – 40 years•

Plant and equipment 10 – 30 years•

Other fi xed assets 5 – 10 years•

Where parts of an item of P, P and E have different useful lives, they are accounted for as separate items

of P, P and E.

The depreciation methods, residual value as well as the useful lives are reassessed, and adjusted if

appropriate, annually.

(v) Net gains on sale

Net gains on sale of items of P, P and E are presented in the income statement as other income.

Net gains are recognised in the income statement when the signifi cant risks and rewards of ownership

have been transferred to the buyer, recovery of the consideration is probable, the associated costs can

be estimated reliably, and there is no continuing management involvement with the P, P and E.

(g) Intangible assets

(i) Goodwill

Goodwill arises on the acquisition of subsidiaries, associates and joint ventures and represents the

excess of the cost of the acquisition over Heineken’s interest in net fair value of the net identifi able

assets, liabilities and contingent liabilities of the acquiree. Goodwill on acquisitions of subsidiaries is

included in ‘intangible assets’. Goodwill arising on the acquisition of associates is included in the carrying

amount of the associate.

In respect of acquisitions prior to 1 October 2003, goodwill is included on the basis of deemed cost,

being the amount recorded under previous GAAP.

Goodwill on acquisitions purchased before 1 January 2003 has been deducted from equity.

Goodwill arising on the acquisition of a minority interest in a subsidiary represents the excess of the cost

of the additional investment over the carrying amount of the net assets acquired at the date of exchange.

Goodwill is measured at cost less accumulated impairment losses (refer accounting policy 3i(ii)).

Goodwill is allocated to cash-generating units for the purpose of impairment testing and is tested

annually for impairment.

Negative goodwill is recognised directly in the income statement.




(ii) Brands

Brands acquired, separately or as part of a business combination, are capitalised as part of a brand

portfolio if the portfolio meets the defi nition of an intangible asset and the recognition criteria are

satisfi ed. Brand portfolios acquired as part of a business combination include the customer base related

to the brand because it is assumed that brands have no value without a customer base and vice versa.

Brand portfolios acquired as part of a business combination are valued at fair value based on the royalty

relief method. Brands and brand portfolios acquired separately are measured at cost. Brands and brand

portfolios are amortised on a straight-line basis over their estimated useful life.

(iii) Software, research and development and other intangible assets

Purchased software is measured at cost less accumulated amortisation (refer (v)) and impairment losses

(refer accounting policy 3i(ii)). Expenditure on internally developed software is capitalised when the

expenditure qualifi es as development activities, otherwise it is recognised in the income statement when

incurred.

Expenditure on research activities, undertaken with the prospect of gaining new technical knowledge

and understanding, is recognised in the income statement when incurred.

Development activities involve a plan or design for the production of new or substantially improved

products and processes. Development expenditure is capitalised only if development costs can be

measured reliably, the product or process is technically and commercially feasible, future economic

benefi ts are probable, and Heineken intends to and has suffi cient resources to complete development

and to use or sell the asset. The expenditure capitalised includes the cost of materials, direct labour and

overhead costs that are directly attributable to preparing the asset for its intended use. Borrowing costs

related to the development of qualifying assets are recognised in the income statement when incurred.

Other development expenditure is recognised in the income statement when incurred.

Capitalised development expenditure is measured at cost less accumulated amortisation (refer (v)) and

accumulated impairment losses (refer accounting policy 3i(ii)).

Other intangible assets that are acquired by Heineken are measured at cost less accumulated

amortisation (refer (v)) and impairment losses (refer accounting policy 3i(ii)). Expenditure on internally

generated goodwill and brands is recognised in the income statement when incurred.

(iv) Subsequent expenditure

Subsequent expenditure is capitalised only when it increases the future economic benefi ts embodied

in the specifi c asset to which it relates. All other expenditure is expensed when incurred.

(v) Amortisation

Intangible assets with a fi nite life are amortised on a straight-line basis over their estimated useful lives

from the date they are available for use. The estimated useful lives are as follows:

Brands 15 – 25 years•

Software 3 years•

Capitalised development costs 3 years•


77

3. Signifi cant accounting policies continued(vi) Gains and losses on sale

Gains on sale of intangible assets are presented in the income statement as other income. Gains are

recognised in the income statement when the signifi cant risks and rewards of ownership have been

transferred to the buyer, recovery of the consideration is probable, the associated costs can be estimated

reliably, and there is no continuing management involvement with the intangible assets.

(h) Inventories

(i) General

Inventories are measured at the lower of cost and net realisable value, based on the First In First Out

principle and includes expenditure incurred in acquiring the inventories and bringing them to their

existing location and condition. Net realisable value is the estimated selling price in the ordinary course

of business, less the estimated costs of completion and selling expenses.

(ii) Finished products and work in progress

Finished products and work in progress are measured at manufacturing cost based on weighted

averages and takes into account the production stage reached. Costs include an appropriate share

of direct production overheads based on normal operating capacity.

(iii) Other inventories and spare parts

The cost of other inventories is based on weighted averages. Spare parts are valued at the lower of

cost and net realisable value. Value reductions and usage of parts are charged to the income statement.

Spare parts that are acquired as part of an equipment purchase and only to be used in connection with

this specifi c equipment are initially capitalised and amortised as part of the equipment.

(i) Impairment

(i) Financial assets

A fi nancial asset is assessed at each reporting date to determine whether there is any objective evidence

that it is impaired. A fi nancial asset is considered to be impaired if objective evidence indicates that one

or more events have had a negative effect on the estimated future cash fl ows of that asset.

An impairment loss in respect of a fi nancial asset measured at amortised cost is calculated as the

difference between its carrying amount, and the present value of the estimated future cash fl ows

discounted at the original effective interest rate. An impairment loss in respect of an available-for-sale

fi nancial asset is calculated by reference to its current fair value.

Individually signifi cant fi nancial assets are tested for impairment on an individual basis. The remaining

fi nancial assets are assessed collectively in groups that share similar credit risk characteristics.

All impairment losses are recognised in the income statement. Any cumulative loss in respect of an

available-for-sale fi nancial asset recognised previously in equity is transferred to the income statement.

An impairment loss is reversed if the reversal can be related objectively to an event occurring after the

impairment loss was recognised. For fi nancial assets measured at amortised cost and available-for-sale

fi nancial assets that are debt securities, the reversal is recognised in the income statement. For

available-for-sale fi nancial assets that are equity securities, the reversal is recognised directly in equity.




(ii) Non-fi nancial assets

The carrying amounts of Heineken’s non-fi nancial assets, other than inventories (refer accounting

policy (h)) and deferred tax assets (refer accounting policy (s)), are reviewed at each reporting date to

determine whether there is any indication of impairment. If any such indication exists then the asset’s

recoverable amount is estimated. For goodwill and intangible assets that have indefi nite lives or that are

not yet available for use, the recoverable amount is estimated at each reporting date.

The recoverable amount of an asset or cash-generating unit is considered the value in use. In assessing

value in use, the estimated future cash fl ows are discounted to their present value using a post-tax

discount rate that refl ects current market assessments of the time value of money and the risks specifi c

to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group

of assets that generates cash infl ows from continuing use that are largely independent of the cash

infl ows of other assets or groups of assets (the ‘cash-generating unit’). The goodwill acquired in a

business combination, for the purpose of impairment testing, is allocated to cash-generating units that

are expected to benefi t from the synergies of the combination.

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds

its recoverable amount. A cash-generating unit is the smallest identifi able asset group that generates

cash fl ows that largely are independent from other assets and groups. Impairment losses are recognised

in the income statement. Impairment losses recognised in respect of cash-generating units are allocated

fi rst to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying

amount of the other assets in the unit (group of units) on a pro rata basis. An impairment loss in respect

of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods

are assessed at each reporting date for any indications that the loss has decreased or no longer exists.

An impairment loss is reversed if there has been a change in the estimates used to determine the

recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount

does not exceed the carrying amount that would have been determined, net of depreciation or

amortisation, if no impairment loss had been recognised.

(j) Non-current assets held for sale

Non-current assets (or disposal groups comprising assets and liabilities) that are expected to be

recovered primarily through sale rather than through continuing use are classifi ed as held for sale.

Immediately before classifi cation as held for sale, the assets (or components of a disposal group) are

remeasured in accordance with Heineken’s accounting policies. Thereafter the assets (or disposal group)

are measured at the lower of their carrying amount and fair value less cost to sell. Any impairment loss

on a disposal group fi rst is allocated to goodwill, and then to remaining assets and liabilities on pro rata

basis, except that no loss is allocated to inventories, fi nancial assets, deferred tax assets and employee

benefi t assets, which continue to be measured in accordance with Heineken’s accounting policies.

Impairment losses on initial classifi cation as held for sale and subsequent gains or losses on

remeasurement are recognised in the income statement. Gains are not recognised in excess of any

cumulative impairment loss.

(k) Employee benefi ts

(i) Defi ned contribution plans

A defi ned contribution plan is a pension plan under which the Group pays fi xed contributions into

a separate entity. The Group has no legal or constructive obligations to pay further contributions if the

fund does not hold suffi cient assets to pay all employees the benefi ts relating to employee service in

thecurrent and prior periods.

Obligations for contributions to defi ned contribution pension plans are recognised as an employee

benefi t expense in the income statement when they are due. Prepaid contributions are recognised as

an asset to the extent that a cash refund or a reduction in future payments is available.


79

3. Signifi cant accounting policies continued(ii) Defi ned benefi t plans

A defi ned benefi t plan is a pension plan that is not a defi ned contribution plan. Typically defi ned

benefi t plans defi ne an amount of pension benefi t that an employee will receive on retirement, usually

dependent on one or more factors such as age, years of service and compensation. Heineken’s net

obligation in respect of defi ned benefi t pension plans is calculated separately for each plan by estimating

the amount of future benefi t that employees have earned in return for their service in the current and

prior periods; that benefi t is discounted to determine its present value. Any unrecognised past service

costs and the fair value of any plan assets are deducted. The discount rate is the yield at balance sheet

date on AA-rated bonds that have maturity dates approximating the terms of Heineken’s obligations and

that are denominated in the same currency in which the benefi ts are expected to be paid.

The calculations are performed annually by qualifi ed actuaries using the projected unit credit method.

Where the calculation results in a benefi t to Heineken, the recognised asset is limited to the net total of

any unrecognised actuarial losses and past service costs and the present value of any future refunds

from the plan or reductions in future contributions to the plan.

When the benefi ts of a plan are improved, the portion of the increased benefi t relating to past service by

employees is recognised as an expense in the income statement on a straight-line basis over the average

period until the benefi ts become vested. To the extent that the benefi ts vest immediately, the expense is

recognised immediately in the income statement.

In respect of actuarial gains and losses that arise, Heineken applies the corridor method in calculating

the obligation in respect of a plan. To the extent that any cumulative unrecognised actuarial gain or loss

exceeds 10 per cent of the greater of the present value of the defi ned benefi t obligation and the fair

value of plan assets, that portion is recognised in the income statement over the expected average

remaining working lives of the employees participating in the plan. Otherwise, the actuarial gain or loss

is not recognised.

(iii) Other long-term employee benefi ts

Heineken’s net obligation in respect of long-term employee benefi ts, other than pension plans, is the

amount of future benefi t that employees have earned in return for their service in the current and prior

periods; that benefi t is discounted to determine its present value, and the fair value of any related assets

is deducted. The discount rate is the yield at balance sheet date on high-quality credit-rated bonds that

have maturity dates approximating the terms of Heineken’s obligations. The obligation is calculated using

the projected unit credit method. Any actuarial gains or losses are recognised in profi t or loss in the

period in which they arise.

(iv) Termination benefi ts

Termination benefi ts are payable when employment is terminated by the Group before the normal

retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefi ts.

Termination benefi ts are recognised as an expense when Heineken is demonstrably committed to

either terminating the employment of current employees according to a detailed formal plan without

possibility of withdrawal, or providing termination benefi ts as a result of an offer made to encourage

voluntary redundancy. Termination benefi ts for voluntary redundancies are recognised if Heineken has

made an offer encouraging voluntary redundancy, it is probable that the offer will be accepted, and the

number of acceptances can be estimated reliably.

Benefi ts falling due more than 12 months after the balance sheet date are discounted to their present value.




(v) Share-based payment plan (long-term incentive plan)

As at 1 January 2005 Heineken established a share plan for the Executive Board members (see note 27),

as at 1 January 2006 Heineken also established a share plan for senior management members

(see note 27).

The share plan for the Executive Board is fully based on external performance conditions, while the plan

for senior management members is for 25 per cent based on external market performance conditions

and for 75 per cent on internal performance conditions.

The grant date fair value of the share rights granted is recognised as personnel expenses with

a corresponding increase in equity (equity-settled), over the period that the employees become

unconditionally entitled to the share rights. The costs of the share plan for both the Executive Board

and senior management members are spread evenly over the performance period.

At each balance sheet date, Heineken revises its estimates of the number of share rights that are

expected to vest, only for the 75 per cent internal performance conditions of the share plan of the

senior management members. It recognises the impact of the revision of original estimates, if any, in the

income statement, with a corresponding adjustment to equity. The fair value is measured at grant date

using the Monte Carlo model taking into account the terms and conditions of the plan.

(vi) Short-term benefi ts

Short-term employee benefi t obligations are measured on an undiscounted basis and are expensed

as the related service is provided.

A liability is recognised for the amount expected to be paid under short-term benefi ts if the Group has

a present legal or constructive obligation to pay this amount as a result of past service provided by the

employee and the obligation can be estimated reliably.

(l) Provisions

(i) General

A provision is recognised if, as a result of a past event, Heineken has a present legal or constructive

obligation that can be estimated reliably, and it is probable that an outfl ow of economic benefi ts will

be required to settle the obligation. Provisions are measured at the present value of the expenditures

to be expected to be required to settle the obligation using a pre-tax rate that refl ects current market

assessments of the time value of money and the risks specifi c to the obligation. The increase in the

provision due to passage of time is recognised as part of the net fi nance expenses.

(ii) Restructuring

A provision for restructuring is recognised when Heineken has approved a detailed and formal

restructuring plan, and the restructuring has either commenced or has been announced publicly. Future

operating costs are not provided for. The provision includes the benefi t commitments in connection with

early retirement, relocation and redundancy schemes.

(iii) Onerous contracts

A provision for onerous contracts is recognised when the expected benefi ts to be derived by Heineken

from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The

provision is measured at the present value of the lower of the expected cost of terminating the contract

and the expected net cost of continuing with the contract. Before a provision is established, Heineken

recognises any impairment loss on the assets associated with that contract.


81

3. Signifi cant accounting policies continued(m) Loans and borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are

subsequently stated at amortised cost any difference between the proceeds (net of transaction costs)

and the redemption value is recognised in the income statement over the period of the borrowings using

the effective interest method.

Borrowings for which the Group has an unconditional right to defer settlement of the liability for at least

12 months after the balance sheet date, are classifi ed as non-current liabilities.

(n) Revenue

(i) Products sold

Revenue from the sale of products in the ordinary course of business is measured at the fair value of

the consideration received or receivable, net of sales tax, excise duties, returns, customer discounts and

other sales-related discounts. Revenue from the sale of products is recognised in the income statement

when the amount of revenue can be measured reliably, the signifi cant risks and rewards of ownership

have been transferred to the buyer, recovery of the consideration is probable, the associated costs and

possible return of products can be estimated reliably, and there is no continuing management

involvement with the products.

(ii) Other revenue

Other revenues are proceeds from royalties, rental income and technical services to third parties, net

of sales tax. Royalties are recognised in the income statement on an accrual basis in accordance with the

substance of the relevant agreement. Rental income and technical services are recognised in the income

statement when the services have been delivered.

(o) Other income

Other income are gains from sale of P, P and E, intangible assets and (interests in) subsidiaries, joint

ventures and associates, net of sales tax. They are recognised in the income statement when ownership

has been transferred to the buyer.

(p) Expenses

(i) Operating lease payments

Payments made under operating leases are recognised in the income statement on a straight-line basis

over the term of the lease. Lease incentives received are recognised in the income statement as an

integral part of the total lease expense, over the term of the lease.

(ii) Finance lease payments

Minimum lease payments under fi nance leases are apportioned between the fi nance expense and the

reduction of the outstanding liability. The fi nance expense is allocated to each period during the lease

term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

Contingent lease payments are accounted for by revising the minimum lease payments over the

remaining term of the lease when the lease adjustment is confi rmed.

(q) Government grants

Government grants are recognised at their fair value when it is reasonably assured that Heineken will

comply with the conditions attaching to them and the grants will be received.

Government grants relating to P, P and E are deducted from the carrying amount of the asset.

Government grants relating to costs are deferred and recognised in the income statement over the

period necessary to match them with the costs that they are intended to compensate.




(r) Interest income, interest expenses and other net fi nance income and expenses

Interest income and expenses are recognised as they accrue, using the effective interest method unless

collectibility is in doubt.

Other net fi nance income comprises dividend income, gains on the disposal of available-for-sale

investments, changes in the fair value of investments designated at fair value through profi t or loss

and held for trading investments and gains on hedging instruments that are recognised in the income

statement. Dividend income is recognised in the income statement on the date that Heineken’s right

to receive payment is established, which in the case of quoted securities is the ex-dividend date.

Other net fi nance expenses comprise unwinding of the discount on provisions, changes in the fair

value of investments designated at fair value through profi t or loss and held for trading investments,

impairment losses recognised on investments, and losses on hedging instruments that are recognised

in the income statement.

Foreign currency gains and losses are reported on a net basis.

(s) Income tax

Income tax comprises current and deferred tax. Income tax is recognised in the income statement

except to the extent that it relates to items recognised directly to equity, in which case it is recognised

in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted

or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of

previous years.

Deferred tax is recognised using the balance sheet method, for temporary differences between the

carrying amounts of assets and liabilities for fi nancial reporting purposes and the amounts used for

taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial

recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business

combination and that affects neither accounting nor taxable profi t, and differences relating to investments

in subsidiaries and joint ventures to the extent that the Company is able to control the timing of the

reversal of the temporary difference and they will probably not reverse in the foreseeable future.

Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially

enacted by the balance sheet date and are expected to apply when the related deferred income tax

asset is realised or the deferred income tax liability is settled. Deferred tax assets and liabilities are

offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate

to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities,

but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities

will be realised simultaneously.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profi ts will

be available against which the temporary difference can be utilised. Deferred tax assets are reviewed

at each balance sheet date and are reduced to the extent that it is no longer probable that the related

tax benefi t will be realised.

When an entity has a history of recent losses, the entity recognises a deferred tax asset arising from

unused tax losses or tax credits only to the extent that the entity has suffi cient taxable temporary

differences or there is convincing other evidence that suffi cient taxable profi t will be available against

which the unused tax losses or unused tax credits can be utilised by the entity.


83

3. Signifi cant accounting policies continued(t) Earnings per share

Heineken presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS

is calculated by dividing the profi t or loss attributable to ordinary shareholders of the Company by the

weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined

by adjusting the profi t or loss attributable to ordinary shareholders and the weighted average number

of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise

share rights granted to employees.

(u) Cash fl ow statement

The cash fl ow statement is prepared using the indirect method. Changes in balance sheet items that

have not resulted in cash fl ows such as translation differences, fair value changes, equity-settled share-

based payments and other non-cash items, have been eliminated for the purpose of preparing this

statement. Assets and liabilities acquired as part of a business combination are included in investing

activities (net of cash acquired). Dividends paid to ordinary shareholders are included in fi nancing

activities. Dividends received are classifi ed as operating activities. Interest paid is also included in

operating activities.

(v) Segment reporting

A segment is a distinguishable component of Heineken that is engaged either in providing related

products or services (business segment), or in providing products or services within a particular economic

environment (geographical segment), which is subject to risks and rewards that are different from those

of other segments. Segment information is presented in respect of the Group’s business and geographical

segments. Heineken’s primary format for segment information is based on geographical segments.

Inter-segment transfers or transactions are entered into under the normal commercial terms and

conditions that would also be available to unrelated third parties.

Segment results, assets and liabilities include items directly attributable to a segment as well as those

that can be allocated on a reasonable basis. Unallocated result items comprise net fi nance expenses

and income tax expenses. Unallocated assets comprise current other investments and cash call deposits.

Segment capital expenditure is the total cost incurred during the period to acquire property, plant and

equipment, and intangible assets other than goodwill.

(w) Emission rights

Emission rights are related to the emission of CO2, which relates to the production of energy. Heineken

has received a certain quantity of emission rights from the government for free for the fi rst allocation

period 2005–2007. These rights are freely tradable. Bought emission rights and liabilities due to production

of CO2 are measured at cost, including any directly attributable expenditure. Emission rights received for

free are also recorded at cost, i.e. with a zero value.

(x) Recently issued IFRS

(i) Standard and amendment effective in 2007

IFRS 7 ‘Financial instruments: Disclosures and the complementary amendment to IAS 1 Presentation

of fi nancial statements – Capital disclosures’ is effective as from 2007. 2006 comparative disclosures

have been amended accordingly. For a description of the changes due to this standard, refer to note 3

signifi cant accounting policies.




(ii) New standards and interpretations not yet adopted

The following new standards and interpretations to existing standards relevant to Heineken are not

yet effective for the year ended 31 December 2007, and have not been applied in preparing these

consolidated fi nancial statements:

IAS 23 (Amendment) Borrowing costs (effective from 1 January 2009). The amendment to•

the standard is still subject to endorsement by the EU. It requires an entity to capitalise borrowing

costs directly attributable to the acquisition, construction or production of a qualifying asset (one

that takes a substantial period of time to get ready for use or sale) as part of the cost of that asset.

The option of immediately expensing those borrowing costs will be removed. The revised IAS 23 will

constitute a change in accounting policy for Heineken. In accordance with the transitional provisions

the Company will apply the revised IAS 23 to qualifying assets for which capitalisation of borrowing

costs commences on or after the effective date.

IFRS 8 Operating segments (effective from 1 January 2009). The standard is still subject to endorsement •

by the EU. IFRS 8 replaces IAS 14 and aligns segment reporting with the requirements of the US standard

SFAS 131, ‘Disclosures about segments of an enterprise and related information’. The new standard

requires a ‘management approach’, under which segment information is presented on the same basis

as that used for internal reporting purposes. The Company is currently assessing the impact.

IFRIC 13 Customer loyalty programmes (effective from 1 July 2008). The interpretation is still subject •

to endorsement by the EU. IFRIC 13 clarifi es that where goods or services are sold together with

a customer loyalty incentive (for example, loyalty points or free products), the arrangement is a

multiple-element arrangement and the consideration receivable from the customer is allocated

between the components of the arrangement in using fair values. The Company is currently assessing

the impact, but it is not expected that it will have a material impact.

IFRIC 14 IAS 19 – The limit on a defi ned benefi t asset, minimum funding requirements and their •

interaction (effective from 1 January 2008). The interpretation is still subject to endorsement by the

EU. IFRIC 14 provides guidance on assessing the limit in IAS 19 on the amount of the surplus that can

be recognised as an asset. It also explains how the pension asset or liability may be affected by a

statutory or contractual minimum funding requirement. It is not expected that the IFRIC will have a

material impact on Heineken’s accounts.

IFRIC 11 IFRS 2 – Group and Treasury Share Transactions (effective for annual periods beginning •

on or after 1 March 2007). IFRIC 11 requires a share-based payment arrangement in which an entity

receives goods or services as consideration for its own equity instruments to be accounted for as

an equity-settled share-based payment transaction, regardless of how the equity instruments are

obtained. Based on the fact that the LTIP of Heineken is already accounted for as equity-settled, it

is not expected that this IFRIC will have an impact.


85

4. Determination of fair values (i) General

A number of Heineken’s accounting policies and disclosures require the determination of fair value, for

both fi nancial and non-fi nancial assets and liabilities. Fair values have been determined for measurement

and/or disclosure purposes based on the following methods. When applicable, further information about

the assumptions made in determining fair values is disclosed in the notes specifi c to that asset or liability.

(ii) Property, plant and equipment

The fair value of property, plant and equipment recognised as a result of a business combination is

based on the quoted market prices for similar items.

(iii) Intangible assets

The fair value of brands acquired in a business combination is based on the ‘relief of royalty’ method.

The fair value of other intangible assets is based on the discounted cash fl ows expected to be derived

from the use and eventual sale of the assets.

(iv) Inventories

The fair value of inventories acquired in a business combination is determined based on its estimated

selling price in the ordinary course of business less the estimated costs of completion and sale, and

a reasonable profi t margin based on the effort required to complete and sell the inventories.

(v) Investments in equity and debt securities

The fair value of fi nancial assets at fair value through profi t or loss, held-to-maturity investments and

available-for-sale fi nancial assets is determined by reference to their quoted bid price at the reporting

date. The fair value of held-to-maturity investments is determined for disclosure purposes only.

(vi) Trade and other receivables

The fair value of trade and other receivables is estimated as the present value of future cash fl ows,

discounted at the market rate of interest at the reporting date.

(vii) Derivative fi nancial instruments

The fair value of forward exchange contracts is based on their listed market price, if available. If

a listed market price is not available, then fair value is in general estimated by discounting the difference

between the contractual forward price and the current forward price for the residual maturity of the

contract using a risk-free interest rate (based on inter-bank interest rates).

The fair value of interest rate swaps is estimated by discounting the difference between cash fl ows

resulting from the contractual interest rates of both legs of the transaction, taking into account current

interest rates and the current creditworthiness of the swap counterparties.

(viii) Non-derivative fi nancial instruments

Fair value, which is determined for disclosure purposes, is calculated based on the present value of

future principal and interest cash fl ows, discounted at the market rate of interest at the reporting date.

For fi nance leases the market rate of interest is determined by reference to similar lease agreements.

(ix) Interest rates

The interest rates used to discount estimated cash fl ows were as follows:

2007 2006

Derivatives 0%-11.0% 0%-7.0%

Non-derivative fi nancial instruments, assets 0.4%-3.8% 0.4%-2.9%

Non-derivative fi nancial instruments, liabilities 4.0%-5.0% 4.0%-5.0%

Finance leases 3.8%-10.5% 8.0%-13.0%




5. Segment reportingGeneral

Segment information is presented only in respect of geographical segments consistent with Heineken’s

management and internal reporting structure. Over 80 per cent of the Heineken sales consist of beer.

The risks and rewards in respect of sales of other beverages do not differ signifi cantly from beer, as such

no business segments are reported.

Heineken has multiple distribution models to deliver goods to end customers. Deliveries are done in

some countries via own wholesalers, in other markets directly and in some others via third parties. As

such distribution models are country-specifi c and on consolidated level diverse. Therefore the results

and the balance sheet items cannot be split between types of customers on a consolidated basis. The

various distribution models are also not centrally managed or monitored. Therefore no secondary

segment information is provided.

Geographical segments

In presenting information on the basis of geographical segments, segment revenue is based on the

geographical location of customers. Export revenue and results are also allocated to the regions. Most

of the production facilities are located in Europe. Sales to the other regions are charged at transfer prices

with a surcharge for cost of capital. Segment assets are based on the geographical location of the assets.

Heineken distinguishes the following geographical segments:

Western Europe•

Central and Eastern Europe•

The Americas•

Africa and the Middle East•

Asia Pacifi c•

Head Offi ce/eliminations•


87

5. Segment reporting continuedGeographical segments

Central and

Western Europe Eastern Europe The Americas

In millions of EUR 2007 2006 2007 2006 2007 2006

Revenue

Third party revenue1 4,814 4,752 3,668 3,337 2,043 1,975

Interregional revenue 636 599 18 22 – –

Total revenue 5,450 5,351 3,686 3,359 2,043 1,975

Other income 26 361 3 16 1 15

Results from operating activities 416 916 376 339 263 257

Net fi nance expenses

Share of profi t of associates (6) 4 5 – 15 10

Income tax expenses

Profi t

Attributable to:

Equity holders of the Company (net profi t)

Minority interest

Beer volumes2

Consolidated volume 31,910 32,100 51,114 46,925 13,718 13,197

Minority interests – – 6,397 6,433 3,792 3,555

Licences 313 305 – – 223 172

Interregional volume 11,223 10,596 356 269 – –

Group volume 43,446 43,001 57,867 53,627 17,733 16,924

Segment assets 3,778 4,046 5,586 5,238 1,170 1,176

Investment in associates 7 9 16 14 74 55

Total segment assets 3,785 4,055 5,602 5,252 1,244 1,231

Unallocated assets

Total assets

Segment liabilities 3,664 3,583 3,432 2,950 431 546

Total equity

Total equity and liabilities

Purchase of P, P and E 393 340 417 287 70 53

Acquisition of goodwill 11 5 135 12 – 7

Purchases of intangible assets 5 5 12 16 2 11

Depreciation of P, P and E 253 264 290 298 49 42

Impairment and reversal of impairment of P, P & E – 11 14 12 – –

Amortisation intangible assets 9 6 18 18 3 3

Impairment intangible assets – – 21 19 – –

1 Includes other revenue of €249 million in 2007 and €241 million in 2006.2 For volume defi nitions see ‘Glossary’.




Head Offi ce/

Africa and the Middle East Asia Pacifi c Eliminations Consolidated

2007 2006 2007 2006 2007 2006 2007 2006

1,412 1,179 597 560 30 26 12,564 11,829

4 3 – – (658) (624) – –

1,416 1,182 597 560 (628) (598) 12,564 11,829

– 3 – – – (16) 30 379

325 231 93 86 30 (24) 1,503 1,805

(127) (122)

4 4 7 9 – – 25 27

(429) (365)

972 1,345

807 1,211

165 134

972 1,345

15,668 13,281 7,418 6,402 – – 119,828 111,905

1,044 925 5,060 4,157 – – 16,293 15,070

1,586 3,500 933 993 – – 3,055 4,970

2 – – – (11,581) (10,865) – –

18,300 17,706 13,411 11,552 (11,581) (10,865) 139,176 131,945

1,358 1,105 473 457 25 307 12,390 12,329

37 36 80 72 – – 214 186

1,395 1,141 553 529 25 307 12,604 12,515

364 482

12,968 12,997

831 631 263 279 (1,599) (512) 7,022 7,477

5,946 5,520

12,968 12,997

170 98 35 34 38 32 1,123 844

1 4 2 39 4 – 153 67

2 1 1 – – – 22 33

85 78 20 20 (3) 4 694 706

– 1 1 – 3 9 18 33

1 1 – – – – 31 28

– – – – – – 21 19


89

6. Acquisitions and disposals of subsidiaries, joint ventures and minority interestsKrušovice and Syabar acquisition

On 4 September 2007 Heineken acquired Králowský Pivovar Krušovice a.s. in the Czech Republic from

Radeberger Gruppe KG. The transaction was funded from existing cash resources.

On 28 December 2007, Heineken acquired the Cypriot holding company of the CJSC Brewing Company

‘Syabar’, in Bobruysk, Belarus. Heineken acquired Syabar’s Cypriot holding company from a consortium

led by Detroit Investments Limited (Cyprus) and from the International Finance Corporation, an affi liate

of the World Bank. The transaction was funded from existing cash resources.

Due to the competitive sensitivity and the non-disclosure agreements with the parties involved, the

acquisition prices of the Krušovice and Syabar acquisition are not individually disclosed.

Effect of Krušovice and Syabar acquisition

The Krušovice and Syabar acquisition had the following effect on Heineken’s assets and liabilities on

acquisition date. Pre-

acquisition Recognised

carrying Fair value values on

In millions of EUR Note amounts adjustments acquisition

Property, plant & equipment 14 70 50 120

Intangible assets 15 – 17 17

Other investments 8 – 8

Inventories 7 – 7

Trade and other receivables,

prepayments and accrued income 10 – 10

Cash and cash equivalents 2 – 2

Minority interests – (2) (2)

Loans and borrowings (9) – (9)

Provisions 28 (1) – (1)

Deferred tax liabilities 18 (1) (13) (14)

Current liabilities (32) – (32)

Net identifi able assets and liabilities 54 52 106Goodwill on acquisition 15 134

Consideration paid, satisfi ed in cash 240Cash acquired (2)

Net cash outfl ow 238

The fair values of assets and liabilities have been determined on a provisional basis, as not all information

was available on the balance sheet date.

The amount of goodwill paid relates to synergies Heineken expects to realise. With respect to the

Krušovice acquisition, the synergies to be achieved are a result of a stronger presence in the Czech

market a growth expected that the potential growth opportunities will be realised with the appropriate

commercial investments. Furthermore, it is expected that cost synergies will be realised due to more

effi cient purchasing, sourcing and selling, as a result of the integration of these activities within the

region Central and Eastern Europe.

With respect to the Syabar acquisition, the synergies to be achieved are a result of a stronger presence

in the Belarus market, also it is expected that the Belarus market will become a fast-growing market and

by way of this acquisition a platform is established from which it is expected that both the Heineken

brand and imported Russian brands will grow. Furthermore, it is expected that cost synergies will be

realised resulting from more effi cient purchasing, sourcing and selling due to the integration of these

activities within the region Central and Eastern Europe.




The contribution of these acquisitions in 2007 to results from operating activities was €1 million and to

revenue €12 million.

If both acquisitions had occurred on 1 January 2007, management estimates that consolidated results

from operating activities would have been €6 million higher and consolidated revenue would have

been €49 million higher. In determining these amounts, management has assumed that the fair value

adjustments that arose on the date of the acquisitions would have been the same if the acquisitions had

occurred on 1 January 2007.

Other acquisitions and disposals

In addition to the acquisitions of Krušovice and Syabar, there were various other minor acquisitions and

disposals during 2007.

In 2007 wholesalers in France, Spain and the Netherlands were acquired. In Vietnam and Germany

breweries were acquired.

Disposals during the year concerned a number of wholesalers in Italy and Austria. Furthermore our joint

venture in Chile sold the majority of shares of a subsidiary, which held investments in brands.

Effect of other acquisitions and disposals

Other acquisitions and disposals had the following effect on Heineken’s assets and liabilities on

acquisition date. Total other Total

acquisitions disposals


Property, plant & equipment 14 6 (11)

Intangible assets 15 – (11)

Investments in associates 7 –

Other investments 9 (2)

Deferred tax assets 18 – (3)

Inventories 2 (2)

Trade and other receivables,

prepayments and accrued income 1 (12)

Cash and cash equivalents 2 (1)

Minority interests – (6)

Loans and borrowings – 2

Employee benefi ts 26 – 1

Current liabilities (35) 36

Net identifi able assets and liabilities (8) (9)Goodwill on acquisitions 15 17 (4)

Consideration paid/(received), satisfi ed in cash 9 (13)Cash disposed of/(acquired) (2) 1

Net cash outfl ow/(infl ow) 7 (12)

The fair values of assets and liabilities of some acquisitions have been determined on a provisional basis,

as not all information was available yet on the balance sheet date.

The contribution in 2007 of the other acquisitions to results from operating activities and to revenue was

immaterial. If the acquisitions had occurred on 1 January 2007, management estimates that consolidated

results from operating activities and consolidated revenue would not have been materially different.

Aquisition of minority interests

In 2007, Heineken increased its ownership in Heineken Spain. The Group recognised an increase in

goodwill of €6 million.


91

7. Assets classifi ed as held for saleAssets classifi ed as held for sale represent land and buildings following the commitment of Heineken to

a plan to sell the land and buildings. During 2007, part of the assets classifi ed as held for sale have been

sold. Efforts to sell the remaining assets have commenced and are expected to be completed during 2008.


Property, plant & equipment 21 41

8. Other income


Net gain on sale of P, P and E 27 351

Net gain on sale of intangible assets – 10

Net gain on sale of subsidiaries, joint ventures and associates 3 18

30 379

The net gain on sale of P, P and E in 2006 is for €320 million relating to the sale of a brewery site in

Seville, Spain.

9. Raw materials, consumables and services


Raw materials 896 780

Non-returnable packaging 1,592 1,439

Goods for resale 1,604 1,531

Inventory movements (51) (11)

Marketing and selling expenses 1,627 1,493

Transport expenses 711 640

Energy and water 290 268

Repair and maintenance 263 258

EC fi ne 219 –

Other expenses 1,011 978

8,162 7,376

For more details regarding the EC fi ne, refer to note 32.




10. Personnel expenses


Wages and salaries 1,488 1,490

Compulsory social security contributions 245 249

Contributions to defi ned contribution plans 14 10

Expenses related to defi ned benefi t plans 26 84 100

Increase in other long-term employee benefi ts 9 10

Equity-settled share-based payment plan 27 7 4

Other personnel expenses 318 378

2,165 2,241

The average number of employees during the year was: 2007 2006

The Netherlands 3,909 4,315

Other Western Europe 11,575 12,080

Central and Eastern Europe 18,749 20,220

The Americas 1,797 1,785

Africa and the Middle East 9,516 11,504

Asia Pacifi c 893 1,035

Heineken N.V. and subsidiaries 46,439 50,939



Africa and the Middle East 1,614 659

Asia Pacifi c 5,787 4,666

Joint ventures1 16,824 14,709



Africa and the Middle East 716 330

Asia Pacifi c 2,893 2,333

Joint ventures employees pro rata 7,565 6,618

54,004 57,557

1 Employees of joint ventures are stated at 100%.

11. Amortisation, depreciation and impairments


Property, plant &equipment 14 712 739

Intangible assets 15 52 47

764 786


93

12. Net fi nance expensesRecognised in the income statement


Interest income on unimpaired held-to-maturity investments 6 10

Interest income on impaired held-to-maturity investments – 1

Interest income on available-for-sale investments 1 1

Interest income on cash and cash equivalents 60 40

Interest income 67 52

Interest expenses (168) (185)

Dividend income on available-for-sale investments 16 13

Net gain on disposal of investments held for trading – 1

Net change in fair value of derivatives (4) 10

Net foreign exchange loss (37) (11)

Unwinding discount on provisions (1) (2)

Other net fi nance income (26) 11

Net fi nance expenses (127) (122)

Recognised directly in equity


Foreign currency translation differences for foreign operations (100) (84)

Effective portion of changes in fair value of cash fl ow hedges 51 50

Net change in fair value of cash fl ow hedges transferred to the income statement (36) –

Net change in fair value of available-for-sale investments 2 48

(83) 14

Recognised in:

Fair value reserve 2 48

Hedging reserve 15 50

Translation reserve (100) (84)

(83) 14




13. Income tax expensesRecognised in the income statement


Current tax expense

Current year 408 439

Over provided in prior years (30) (26)

378 413

Deferred tax expense

Change in previously unrecognised temporary differences (1) (55)

Origination and reversal of temporary differences 37 (6)

Change in tax rate 4 10

(Benefi t)/charge of tax losses recognised (7) 3

Under/(over)provided in prior years 18 –

51 (48)

Total income tax expenses in the income statement 429 365

Reconciliation of effective tax rate


Profi t before income tax 1,401 1,710

Net gain on sale of subsidiaries, joint ventures and associates (3) (18)

Income from associates (25) (27)

Dividend income (16) (13)

Taxable profi t 1,357 1,652

% 2007 % 2006

Income tax using the Company’s domestic tax rate 25.5 346 29.6 489

Effect of tax rates in foreign jurisdictions 1.3 18 (3.0) (50)

Effect of non-deductible expenses 6.6 89 2.4 40

Effect of tax incentives and exempt income (2.7) (36) (3.2) (53)

Change in previously unrecognised temporary differences (0.1) (2) (3.3) (55)

Effect of recognition of previously unrecognised tax losses (0.1) (2) (0.3) (4)

Current year losses for which no deferred tax asset is recognised 1.1 15 0.4 7

Effect of change in tax rates 0.3 4 0.6 10

Under/(over) provided in prior years (0.9) (12) (1.6) (26)

Other reconciling items 0.7 9 0.4 7

31.7 429 22.0 365

In 2007 the tax effect related to the fi ne of the European Commission of €219 million has been included

in non-deductible expenses.

In 2006 within various countries it was agreed with the tax authorities to fi scally amortise goodwill.

This benefi t was capitalised in 2006 and explains the decrease in change in previously unrecognised

temporary differences.

Deferred tax (debit)/credit recognised directly in equity


Relating to changes in fair value recognised directly in equity 18 (5) (14)

(5) (14)


95

14. Property, plant and equipment

Land and Plant and Other Under

In millions of EUR Note buildings equipment fi xed assets construction Total

Cost

Balance as at 1 January 2006 2,725 5,093 2,985 271 11,074

Changes in consolidation 88 (125) 53 2 18

Purchases 40 125 311 368 844

Transfer of completed projects under construction 27 104 90 (221) –

Transfer to assets classifi ed as held for sale (70) – (6) – (76)

Disposals (150) (214) (198) – (562)

Effect of movements in exchange rates (39) (76) (30) (7) (152)

Balance as at 31 December 2006 2,621 4,907 3,205 413 11,146

Balance as at 1 January 2007 2,621 4,907 3,205 413 11,146

Changes in consolidation 6 41 29 14 2 86

Purchases 56 186 344 537 1,123

Transfer of completed projects under construction 109 241 72 (422) –

Transfer to/from assets classifi ed as held for sale 12 (3) (1) – 8

Disposals (32) (156) (347) 1 (534)

Effect of movements in exchange rates (27) (58) (25) (9) (119)

Balance as at 31 December 2007 2,780 5,146 3,262 522 11,710

Depreciation and impairment losses

Balance as at 1 january 2006 (1,339) (2,724) (1,944) – (6,007)

Changes in consolidation 11 8 (9) – 10

Depreciation charge for the year 11 (75) (251) (380) – (706)

Impairment losses 11 (10) (24) (3) – (37)

Reversal impairment losses 11 – 2 2 – 4

Transfer to assets classifi ed as held for sale 35 – – – 35

Disposals 115 163 169 – 447

Effect of movements in exchange rates 14 23 15 – 52

Balance as at 31 December 2006 (1,249) (2,803) (2,150) – (6,202)

Balance as at 1 January 2007 (1,249) (2,803) (2,150) – (6,202)

Changes in consolidation 6 7 21 1 – 29

Depreciation charge for the year 11 (74) (252) (368) – (694)

Impairment losses 11 (8) (23) (12) – (43)

Reversal impairment losses 11 3 13 9 – 25

Transfer to/from assets classifi ed as held for sale (4) 2 – – (2)

Disposals 15 142 320 – 477

Effect of movements in exchange rates 13 26 23 – 62

Balance as at 31 December 2007 (1,297) (2,874) (2,177) – (6,348)

Carrying amount

As at 1 January 2006 1,386 2,369 1,041 271 5,067

As at 31 December 2006 1,372 2,104 1,055 413 4,944

As at 1 January 2007 1,372 2,104 1,055 413 4,944

As at 31 December 2007 1,483 2,272 1,085 522 5,362




Impairment losses

In 2007 a total impairment loss of €43 million was charged to the income statement. These impairment

losses related to various entities of which a total of €20 million related to impairments of the Karlsberg

Brewery in Germany held by our joint venture, Brau Holding International, in Germany.

Security

Property, plant & equipment totalling €68 million (2006: €131million) has been pledged to the authorities

in a number of countries as security for the payment of taxation, particularly excise duties on beers, non-

alcoholic beverages and spirits and import duties.

Property, plant and equipment under construction

Property, plant & equipment under construction mainly relates to expansion of the brewing capacity in

the Netherlands, Spain, Russia, Poland and Congo.


97

15. Intangible assets Software,

research and

development

In millions of EUR Note Goodwill Brands and other Total

Cost

Balance as at 1 January 2006 2,152 232 137 2,521

Changes in consolidation 67 11 2 80

Purchases/internally developed – 11 22 33

Disposals – – (1) (1)

Effect of movements in exchange rates 7 (1) (2) 4

Balance as at 31 December 2006 2,226 253 158 2,637

Balance as at 1 January 2007 2,226 253 158 2,637

Changes in consolidation 6 153 4 2 159

Purchases/internally developed – – 22 22

Disposals – – (1) (1)

Effect of movements in exchange rates (38) (2) – (40)

Balance as at 31 December 2007 2,341 255 181 2,777

Amortisation and impairment losses

Balance as at 1 January 2006 (14) (20) (107) (141)

Amortisation charge for the year 11 – (11) (17) (28)

Impairment losses 11 (17) (1) (1) (19)

Balance as at 31 December 2006 (31) (32) (125) (188)

Balance as at 1 January 2007 (31) (32) (125) (188)

Amortisation charge for the year 11 – (11) (20) (31)

Impairment losses 11 (18) (3) – (21)

Disposals – – 1 1

Effect of movements in exchange rates – 2 1 3

Balance as at 31 December 2007 (49) (44) (143) (236)

Carrying amount

As at 1 January 2006 2,138 212 30 2,380

As at 31 December 2006 2,195 221 33 2,449

As at 1 January 2007 2,195 221 33 2,449

As at 31 December 2007 2,292 211 38 2,541




Impairment tests for cash-generating units containing goodwill

The aggregate carrying amounts of goodwill allocated to each cash-generating unit are as follows:


Brau Union 1,250 1,116

Russia 434 451

Compania Cervecerias Unidas (CCU) 328 339

2,012 1,906

Various other entities 280 289

2,292 2,195

Goodwill has been tested for impairment as at 31 December 2007. The recoverable amounts exceed

the carrying amount of the cash-generating units including goodwill, except for cash-generating units

(various other entities) where an impairment loss of €18 million was charged to the income statement.

This mainly relates to impairments of goodwill on the Karlsberg Brewery in Germany for a total amount

of €13 million.

The recoverable amounts of the cash-generating units are based on value-in-use calculations. Value-in-

use was determined by discounting the future post-tax cash fl ows generated from the continuing use of

the unit using a post-tax discount rate.

The key assumptions used for the value in use calculations are as follows:

Cash fl ows were projected based on actual operating results and the three-year business plan. Cash •

fl ows for a further seven-year period were extrapolated using expected annual per country volume

growth rates, which are based on external sources. Management believes that this forecasted period

is justifi ed due to the long-term nature of the beer business and past experiences.

The beer price growth per year after the fi rst three-year period is assumed to be at specifi c per •

country expected annual long-term infl ation, based on external sources.

Cash fl ows after the fi rst ten-year period were extrapolated using expected annual long-term infl ation, •

based on external sources, in order to calculate the terminal recoverable amount.

A per cash-generating unit specifi c post-tax Weighted Average Cost of Capital (WACC) was applied in •

determining the recoverable amount of the units. The WACC’s used are presented in the table below,

accompanied by the expected volume growth rates and the expected long-term infl ation:

Brau union Russia CCU Other

Post-tax WACC 8.7% 13.1% 9.4% 6.4%-17.4%

Expected annual long-term infl ation 2.9% 6.8% 3.4% 1.3%-8.7%

Expected volume growth rates 2011-2017 1.0% 2.8% 3.1% -0.3%-4.4%

The values assigned to the key assumptions represent management’s assessment of future trends in the

beer industry and are based on both external sources and internal sources (historical data).


99

16. Investments in associatesHeineken has the following investments in associates, direct or indirect through subsidiaries or joint

ventures:

Ownership Ownership

Country 2007 2006

Cervecerias Costa Rica S.A. Costa Rica 25.0% 25.0%

Brasserie Nationale d’Haïti Haïti 23.3% 23.3%

Guinness Ghana Breweries Ltd. Ghana 20.0% 20.0%

Sierra Leone Brewery Sierra Leone 42.5% 42.5%

Guinness Anchor Berhad1,2 Malaysia 10.7% 10.7%

Thai Asia Pacifi c Brewery Co. Ltd.1,2 Thailand 14.7% 14.7%

Jiangsu DaFuHao Breweries Co. Ltd.1,2 China 22.5% 22.5%

1 Indirect through joint ventures.2 The reporting date of the fi nancial statements of these associates is 30 September.

Heineken’s share in the profi t of associates for the year ended 31 December 2007 was €25 million

(2006: €27 million).

Guinness Anchor Berhad is listed on the Malaysian stock exchange. Fair value as at 31 December 2007

amounted to €37 million (2006: €42 million).

Heineken is considered to have signifi cant infl uence in Guinness Anchor Berhad and Thai Asia Pacifi c

Brewery Co. Ltd. indirectly via Heineken’s interest in Asia Pacifi c Investment Pte. Ltd.




17. Other investments


Non-current other investments

Held-to-maturity investments 30 218 404

Available-for-sale investments 30 234 202

452 606

Current other investments

Investments held for trading 30 15 12

Financial assets held for trading 15 12

Derivatives used for hedging 30 90 47

105 59

Included in held-to-maturity investments are loans to customers with a carrying amount of €145 million

as at 31 December 2007 (2006: €180 million). Effective interest rates range from 3 to 10 per cent.

€139 million (2006: €168 million) matures between one and fi ve years and €6 million (2006: €12 million)

after fi ve years.

In 2006, deferred payments in relation to the sale of a brewery site in Seville, Spain, amounting to

€147 million were included in held-to-maturity investments and is included in trade and other receivables

as at 31 December 2007.

Within available-for-sale investments, debt securities (which are interest-bearing) with a carrying amount

of €26 million (2006: €24 million) are included.

Sensitivity analysis – equity price risk

An amount of €76 million as at 31 December 2007 (2006: €84 million) of available-for-sale investments

and investments held for trading is listed on stock exchanges. A 1 per cent increase in the share price at

the reporting date would have increased equity by €1 million (2006: €1 million) an equal change in

the opposite direction would have decreased equity by €1 million (2006: €1 million).


101

18. Deferred tax assets and liabilities Recognised deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following items:

Assets Liabilities Net


Property, plant & equipment 21 21 (388) (387) (367) (366)

Intangible assets 65 79 (45) (41) 20 38

Investments 3 9 (2) (2) 1 7

Inventories 15 12 – (2) 15 10

Loans and borrowings 1 (3) – – 1 (3)

Employee benefi ts 113 134 – 1 113 135

Provisions 52 73 – 5 52 78

Other items 98 72 (92) (58) 6 14

Tax losses carry-forwards 17 13 – (2) 17 11

Tax assets/(liabilities) 385 410 (527) (486) (142) (76)

Set-off of tax (49) (15) 49 15 – –

Net tax assets/(liabilities) 336 395 (478) (471) (142) (76)

Tax losses carry-forwards

Heineken has losses carry-forwards for an amount of €193 million (2006: €119 million) as per

31 December 2007 which expire in the following years:


2007 – 23

2008 18 24

2009 12 13

2010 8 7

2011 3 3

2012 2 –

After 2012 respectively 2011 but not unlimited 65 36

Unlimited 85 13

193 119

Recognised as deferred tax assets gross (71) (42)

Unrecognised gross 122 77

Unrecognised net 33 21

The tax losses expire in different years. Deferred tax assets have not been recognised in respect of

these items because it is not probable that future taxable profi t will be available against which Heineken

can utilise the benefi ts thereof.

The increase of €45 million in unrecognised gross tax losses mainly relates to impairments taken for

which it is uncertain that they will be recovered by future profi ts.




Movement in temporary differences during the year

Effect of Balance

Balance Changes movements 31

1 January in in foreign Recognised Recognised December

In millions of EUR 2006 consolidation exchange in income in equity 2006

Property, plant & equipment (360) (3) 9 (13) 1 (366)

Intangible assets (15) 6 – 47 – 38

Investments 14 – – (6) (1) 7

Inventories 9 – (1) 2 – 10

Loans and borrowings 3 (6) – – – (3)

Employee benefi ts 139 – (1) (3) – 135

Provisions 60 – – 19 (1) 78

Other items 24 (7) 1 9 (13) 14

Tax losses carry-forwards 19 – (1) (7) – 11

(107) (10) 7 48 (14) (76)

Effect of Balance

Balance Changes movements 31

1 January in in foreign Recognised Recognised December

In millions of EUR 2007 consolidation exchange in income in equity 2007

Property, plant & equipment (366) (4) 7 (4) – (367)

Intangible assets 38 (9) – (9) – 20

Investments 7 – – (6) – 1

Inventories 10 1 – 4 – 15

Loans and borrowings (3) 1 3 – – 1

Employee benefi ts 135 (1) – (21) – 113

Provisions 78 (5) – (21) – 52

Other items 14 – (3) – (5) 6

Tax losses carry-forwards 11 – – 6 – 17

(76) (17) 7 (51) (5) (142)

19. Inventories


Raw materials 168 131

Work in progress 92 86

Finished products 188 226

Goods for resale 221 162

Non-returnable packaging 108 85

Other inventories 230 203

1,007 893

In millions of EUR

Inventories measured at net realisable value 101 97

In 2007 the write-down of inventories to net realisable value amounted to €12 million (2006: €8 million).

The write-downs are included in expenses for raw materials, consumables and services.


103

20. Trade and other receivables


Trade receivables due from associates and joint ventures 9 22

Trade receivables 1,416 1,388

Other receivables including current part loans to customers 448 369

30 1,873 1,779

Included in other receivables including current part loans to customers, is a deferred payment in relation

to the sale of a brewery site in 2006 in Seville, Spain, amounting to €153 million.

With respect to this deferred payment, Heineken España received bank guarantees from several banks

to cover this deferred payment by the buyer, due in March 2008.

A net impairment loss of €19 million (2006: €3 million) in respect of trade receivables was included in

expenses for raw materials, consumables and services.

21. Cash and cash equivalents


Bank balances 326 894

Call deposits 389 480


Bank overdrafts 24 (282) (747)

Cash and cash equivalents in the statement of cash fl ows 433 627

Heineken set up notional cash pools in 2006. The structure facilitates interest and balance compensation

of cash and bank overdrafts. This notional pooling did not meet the strict set-off rules under IFRS in

2006, and as a result, the cash and bank overdraft balances have been reported ‘gross’ on the balance

sheet. On a ‘netted’ pro forma basis cash and cash equivalents and overdraft balances would have been

€401 million lower, resulting in €973 million cash and cash equivalents and €346 million bank overdraft

balances as at 31 December 2006. In 2007 the set-off rules under IFRS have been met.




22. Total equity Equity

attribu-

table

to equity

Trans- Fair Other Reserve holders

Share lation Hedging value legal for own Retained of the Minority Total

In millions of EUR Note capital reserve reserve reserve reserves shares earnings Company interests equity

Balance as at

1 January 2006 784 148 (21) 49 392 – 2,617 3,969 545 4,514

Net recognised

income and expense – (52) 49 48 (6) – (4) 35 (31) 4

Profi t – – – – 110 – 1,101 1,211 134 1,345

Transfer to retained earnings – – – – (37) – 37 – – –

Dividends to shareholders – – – – – – (196) (196) (101) (297)

Purchase minority shares – – – – – – – – (30) (30)

Purchase own shares – – – – – (14) – (14) – (14)

Share-based payments 27 – – – – – – 4 4 – 4

Changes in consolidation – – – – – – – – (6) (6)

Balance as at

31 December 2006 784 96 28 97 459 (14) 3,559 5,009 511 5,520

Balance as at

1 January 2007 784 96 28 97 459 (14) 3,559 5,009 511 5,520

Net recognised

income and expense – (89) 16 2 19 – (19) (71) (12) (83)

Profi t – – – – 89 – 718 807 165 972

Transfer to retained earnings – – – – 4 – (4) – – –

Dividends to shareholders – – – – – – (333) (333) (117) (450)

Purchase minority shares – – – – – – – – (13) (13)

Purchase own shares – – – – – (15) – (15) – (15)

Share-based payments 27 – – – – – – 7 7 – 7

Changes in consolidation – – – – – – – – 8 8

Balance as at

31 December 2007 784 7 44 99 571 (29) 3,928 5,404 542 5,946

Share capital Ordinary shares


On issue as at 1 January 784 784

Issued for cash – –

On issue as at 31 December 784 784

As at 31 December 2007, the issued share capital comprised 489,974,594 ordinary shares

(2006: 489,974,594). The ordinary shares have a par value of €1.60. All issued shares are fully paid.

The Company’s authorised capital amounts to €2.5 billion, comprising of 1,562,500,000 shares.

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are

entitled to one vote per share at meetings of the Company. In respect of the Company’s shares that are

held by Heineken (see next page), rights are suspended.


105

22. Total equity continued Translation reserve

The translation reserve comprises foreign currency differences arising from the translation of the

fi nancial statements of foreign operations of the Group (excluding amounts attributable to minority interests).

Hedging reserve

This reserve comprises the effective portion of the cumulative net change in the fair value of cash

fl ow hedging instruments where the hedged transaction has not yet occurred. Heineken considers this

a legal reserve.

Fair value reserve

This reserve comprises the cumulative net change in the fair value of available-for-sale investments until

the investment is derecognised or impaired. Heineken considers this a legal reserve.

Other legal reserves

These reserves relate to the share of profi t of joint ventures and associates over the distribution of which

Heineken does not have control. The movement in these reserves refl ects retained earnings of joint

ventures and associates minus dividends received.

In case of a legal or other restriction which causes that retained earnings of subsidiaries cannot be freely

distributed, a legal reserve is recognised for the restricted part.

Reserve for own shares

The reserve for the Company’s own shares comprises the cost of the Company’s shares held by

Heineken. As at 31 December 2007, Heineken held 800,000 of the Company’s shares (2006: 410,000).

Dividends

The following dividends were declared and paid by Heineken:


Final dividend previous year €0.44, respectively €0.24 per qualifying ordinary share 215 118

Interim dividend current year €0.24, respectively €0.16 per qualifying ordinary share 118 78

Total dividend declared and paid 333 196

As approved during the Annual General Meeting of Shareholders in April 2007, Heineken renewed its

dividend policy by reinforcing the relationship between dividend payments and the annual development

of net profi t before exceptional items and amortisation of brands. Heineken’s dividend policy targets a

payout of 30 to 35% of net profi t before exceptional items and amortisation of brands.

After the balance sheet date the Executive Board proposed the following dividends. The dividends, taken

into account the interim dividends declared and paid, have not been provided for.


€0.70 per qualifying ordinary share (2006: €0.60) 343 294

Prior-year adjustments in 2006

In 2006, BHI recognised IFRS transitional adjustments, which should have been refl ected in the 2004

Heineken IFRS opening balance sheet. The prior-year estimation error, with a negative impact of

€10 million, is not considered material and was recognised in equity in 2006.




23. Earnings per shareBasic earnings per share

The calculation of basic earnings per share as at 31 December 2007 is based on the profi t attributable to

ordinary shareholders of the Company (net profi t) of €807 million (2006: €1,211 million) and a weighted

average number of ordinary shares – basic outstanding during the year ended 31 December 2007

of 489,353,315 (2006: 489,712,594).

Basic earnings per share for the year amounts to €1.65 (2006: €2.47).

Weighted average number of shares – basic

In thousands of shares 2007 2006

Number of shares – basic – as at 1 January 489,564,594 489,974,594

Effect of own shares held (211,279) (262,000)

Weighted average number of shares – basic – as at 31 December 489,353,315 489,712,594

Diluted earnings per share

The calculation of diluted earnings per share as at 31 December 2007 was based on the profi t attributable

to ordinary shareholders of the Company (net profi t) of €807 million (2006: €1,211 million) and a weighted

average number of ordinary shares – basic outstanding after adjustment for the effects of all dilutive

potential ordinary shares of 489,974,594 (2006: 489,974,594). Diluted earnings per share for the year

amounted to €1.65 (2006: €2.47).

24. Loans and borrowingsThis note provides information about the contractual terms of Heineken’s interest-bearing loans and

borrowings. For more information about Heineken’s exposure to interest rate risk and foreign currency

risk, refer to note 30.

Non-current liabilities


Secured bank loans 38 70

Unsecured bank loans 304 642

Unsecured bond issues 1,143 1,341

Finance lease liabilities 16 6

Non-current interest-bearing liabilities 1,501 2,059

Non-current non-interest-bearing liabilities 20 32

1,521 2,091

Current interest-bearing liabilities


Current portion of secured bank loans 39 22

Current portion of unsecured bank loans 291 159

Current portion of unsecured bond issues 216 2

Current portion of fi nance lease liabilities 2 1

Total current portion of non-current interest-bearing liabilities 548 184

Deposits from third parties 323 293

Other current interest-bearing liabilities 2 17

Bank overdrafts 282 747

1,155 1,241


107

24. Loans and borrowings continuedNet interest-bearing debt position


Non-current interest-bearing liabilities 1,501 2,059

Current portion of non-current interest-bearing liabilities 548 184

Deposits from third parties and other current interest-bearing liabilities 325 310

2,374 2,553

Bank overdrafts 282 747

2,656 3,300

Cash, cash equivalents and investments held for trading (730) (1,386)

Net interest-bearing debt position 1,926 1,914

Terms and debt repayment schedule

Terms and conditions of outstanding loans were as follows:

Face Carrying Face Carrying

Nominal value amount value amount

In millions of EUR Currency interest rate % Repayment 2007 2007 2006 2006

Secured bank loans EUR various various 45 45 52 52

Secured bank loans USD 1.2-6.6 2008-2011 9 9 15 15

Secured bank loans various various various 23 23 25 25

Unsecured bank loans EUR various various 327 327 456 456

Unsecured bank loans PLN 4.2-4.5 2008 6 6 26 26

Unsecured bank loans CLP 5.5-8.0 2009-2012 101 101 86 86

Unsecured bank loans EGP 8.9-11.6 2009-2010 56 56 85 85

Unsecured bank loans various various various 105 105 148 148

Unsecured bond issues EUR 4.4 2010 500 499 500 499



Unsecured bond issues CLP 7.6-8.0 2024-2025 41 41 48 47

Unsecured bond issues various various various 22 22 – –

Deposits from third parties and other

current interest-bearing liabilities various various various 325 325 310 310

Finance lease liabilities various various various 18 18 7 7

2,378 2,374 2,558 2,553

Committed facilities: the Heineken N.V. €2 billion Revolving Credit Facility 2005-2012 was not utilised as

at 31 December 2007 (31 December 2006: not utilised).

25. Finance lease liabilitiesFinance lease liabilities are payable as follows:

Future Present value Future Present value

minimum of minimum minimum of minimum

lease lease lease lease

payments Interest payments payments Interest payments


Less than one year 2 – 2 2 – 2

Between one and fi ve years 6 1 5 4 – 4

More than fi ve years 12 1 11 1 – 1

20 2 18 7 – 7




26. Employee benefi ts


Present value of unfunded obligations 345 309

Present value of funded obligations 2,571 2,734

Total present value of obligation 2,916 3,043

Fair value of plan assets (2,535) (2,397)

Present value of net obligation 381 646

Actuarial gains (losses) not recognised 171 (78)

Recognised liability for defi ned benefi t obligations 552 568

Other long-term employee benefi ts 94 97

646 665

Plan assets comprise:


Equity securities 1,050 968

Government bonds 959 955

Properties and real estate 220 199

Other plan assets 306 275

2,535 2,397

Liability for defi ned benefi t obligations

Heineken makes contributions to a number of defi ned benefi t plans that provide pension benefi ts for

employees upon retirement in a number of countries being mainly: the Netherlands, Greece, Austria,

Germany, Italy, France, Spain and Nigeria. In other countries the pension plans are defi ned contribution

plans and/or similar arrangements for employees.

Other long-term employee benefi ts mainly relate to long-term bonus plans, termination benefi ts and

jubilee benefi ts.

Movements in the present value of the defi ned benefi t obligations


Defi ned benefi t obligations as at 1 January 3,043 3,121

Changes in consolidation and reclassifi cation 6 (1) (1)


Benefi ts paid (98) (97)

Current service costs and interest on obligation (see next page) 206 209

Past service costs 1 2

Effect of any curtailment or settlement 4 6

Actuarial gains (235) (195)

Defi ned benefi t obligations as at 31 December 2,916 3,043


109

26. Employee benefi ts continued Movements in the present value of plan assets


Fair value of plan assets as at 1 January 2,397 2,268


Contributions paid into the plan 91 99

Benefi ts paid (98) (97)

Expected return on plan assets 129 118

Actuarial gains 19 12

Fair value of plan assets as at 31 December 2,535 2,397

Actual return on plan assets 148 138

Expense recognised in the income statement


Current service costs 72 84

Interest on obligation 134 125

Expected return on plan assets (129) (118)

Actuarial gains and losses recognised 2 1

Past service costs 1 2

Effect of any curtailment or settlement 4 6

10 84 100

Principal actuarial assumptions as at the balance sheet date

Western and Central Africa and the Asia

and Eastern Europe Americas Middle East Pacifi c

2007 2006 2007 2006 2007 2006 2007 2006

Discount rate as at

31 December 3.5-5.7 2.5-6 5.5-6.5 5.5-6.5 4.6-15 4.5-15 3.5-9.5 3.5-13

Expected return on plan

assets as at 1 January 1.5-6.6 3.5-6.6 6.5 6.5 4.6 6.5 3.5-8 3.5-11

Future salary increases 2-9 1.5-8 0.5-5.5 0.5-5 3-14 3-14 3-6.5 3-8

Future pension increases 1-2.5 1-2.5 3.5 3.5 2 2 6.5 8

Medical cost trend rate 1.5 1.5 5 5 – – – –

Assumptions regarding future mortality rates are based on published statistics and mortality tables.

The overall expected long-term rate of return on assets is 5.3% (2006: 5.9%).

Assumed healthcare cost trend rates have a signifi cant effect on the amounts recognised in profi t or loss.

A one per centage point change in assumed healthcare cost trend rates would have the following effects:

1 percentage 1 percentage

In millions of EUR point increase point decrease

Effect on the aggregate service and interest costs 9 (9)

Effect on defi ned benefi t obligation 142 (142)

The Group expects the 2008 contributions to be paid for the defi ned benefi t plans to be in line with 2007

and 2006, excluding the impact of acquisitions.




Historical information

In millions of EUR 2007 2006 2005

Present value of the defi ned benefi t obligation 2,916 3,043 3,121

Fair value of plan assets (2,535) (2,397) (2,268)

Defi cit in the plan 381 646 853

Experience adjustments arising on plan liabilities (4) (159)

Experience adjustments arising on plan assets 16 9

27. Share-based payments – Long-Term Incentive PlanOn 1 January 2005 Heineken established a performance-based share plan (Long-Term Incentive Plan LTIP)

for the Executive Board. On 1 January 2006 a similar LTIP was established for senior management.

The Long-Term Incentive Plan for the Executive Board includes share rights, which are conditionally

awarded to the Executive Board each year and are subject to Heineken’s Relative Total Shareholder

Return (RTSR) performance in comparison with the TSR performance of a selected peer group.

The LTIP share rights conditionally awarded to senior management each year is for 25 per cent subject

to Heineken’s RTSR performance and for 75 per cent subject to internal performance conditions.

At target performance, 100 per cent of the shares will vest. At maximum performance 150 per cent

of the shares will vest.

The performance period for share rights granted in 2005 was from 1 January 2005 to 31 December 2007.

The performance period for share rights granted in 2006 is from 1 January 2006 to 31 December 2008.

The performance period for share rights granted in 2007 is from 1 January 2007 to 31 December 2009.

The vesting date for the Executive Board is within fi ve business days, and for senior management the

latest of 1 April and 20 business days, after the publication of the annual results of 2007, 2008 and 2009

respectively.

As Heineken N.V. will fulfi l the tax payment obligations related to vesting on behalf of the individual

employees, the amount of Heineken N.V. shares to be received by the Executive Board and senior

management will be a net amount.

The terms and conditions of the share rights granted are as follows:

Based on Contractual

Grant date/employees entitled Number share price Vesting conditions life of rights

Share rights granted to Continued service

Executive Board in 2005 43,724 24.53 and RTSR performance 3 years



Continued service, 75%

Share rights granted to internal performance

senior management conditions and 25%

in 2006 352,098 26.78 RTSR performance 3 years



Continued service, 75%

Share rights granted to internal performance

senior management conditions and 25%

in 2007 281,400 36.03 RTSR performance 3 years

749,536

The number of shares in the table above is based on target performance.


111

27. Share-based payments – Long-Term Incentive Plan continuedBased on the expectations in relation to RTSR performance and internal performance additional shares

will be expected to be vested, amounting to 121,018 shares. The expenses relating to these expected

additional grants are recognised in profi t and loss during the vesting period.

The number and weighted average share price per share is as follows:

Weighted Number Weighted Number

average share of share average share of share

price 2007 rights 2007 price 2006 rights 2006

Outstanding as at 1 January 26.55 435,871 24.53 43,724

Granted during the year 36.03 313,665 26.78 392,147

Forfeited during the period – (52,920) – –

Outstanding as at 31 December 30.10 696,616 26.55 435,871

The fair value of services received in return for share rights granted is based on the fair value of shares

granted, measured using the Monte Carlo model, with following inputs:

Executive Executive Senior Senior

Board Board management management

In EUR 2007 2006 2007 2006

Fair value at grant date 486,879 424,519 9,524,037 8,814,436

Expected volatility 20.1% 22.4% 20.1% 22.4%

Expected dividends 1.2% 1.5% 1.2% 1.5%

Personnel expenses


Share rights granted in 2006 3 4

Share rights granted in 2007 4 –

Total expense recognised as personnel expenses 10 7 4

28. Provisions

In millions of EUR Note Restructuring Other Total

Balance as at 1 January 2007 252 112 364

Changes in consolidation 6 – 1 1

Provisions made during the year 49 66 115

Provisions used during the year (108) (6) (114)

Provisions reversed during the year (23) (16) (39)

Effect of movements in exchange rates – (1) (1)

Unwinding of discounts 1 – 1

Balance as at 31 December 2007 171 156 327

Non-current 61 123 184

Current 110 33 143

171 156 327

Restructuring

The provision for restructuring of €171 million mainly relates to restructuring programmes in the

Netherlands, France, Spain and Italy. During the year, €46 million (2006: €102 million) restructuring

expenses relating to Fit2Fight have been recognised.




Other provisions

Included are, amongst others, provisions formed for onerous contracts (€22 million), surety provided

(€26 million), litigations and claims (€55 million) and environmental provisions (€17 million).

29. Trade and other payables


Trade payables due to associates and joint ventures 6 9

Other trade payables 1,164 1,030

Returnable packaging deposits 382 340

Taxation and social security contributions 296 301

Dividend 36 29

Interest 38 34

Derivatives used for hedging 22 10

Other payables 174 140

Accruals and deferred income 688 603

30 2,806 2,496

30. Financial risk management and fi nancial instrumentsOverview

Heineken has exposure to the following risks from its use of fi nancial instruments, as they arise in the

normal course of Heineken’s business:

Credit risk•

Liquidity risk•

Market risk•

This note presents information about Heineken’s exposure to each of the above risks, Heineken’s

objectives, policies and processes for measuring and managing risk, and Heineken’s management

of capital. Further quantitative disclosures are included throughout these consolidated fi nancial

statements.

The Executive Board, under the supervision of the Supervisory Board, has overall responsibility for

Heineken’s risk management and control systems. Regional and subsidiary company management are

responsible for managing performance, underlying risks and effectiveness of operations, within the

Rules set by the Executive Board, supported and supervised by Group departments.

Heineken’s risk management policies are established to identify and analyse the risks faced, to set

appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management

policies and systems are reviewed regularly to refl ect changes in market conditions and the Group’s

activities. Heineken, through its training and management standards and procedures, aims to develop

a disciplined and constructive control environment in which all employees understand their roles and

responsibilities.

The Executive Board oversees the adequacy and functioning of the entire system of risk management

and internal control, assisted by Group departments. Group Internal Audit provides independent

assurance on the entire risk management and internal control system. The Assurance Meetings at

subsidiary companies and regional level, oversee the adequacy and operating effectiveness of the risk

management and internal control system. Regional management and Group Internal Audit participate

in these meetings to ensure effective dialogue and transparency.

The outcome and effectiveness of the risk management and internal control systems have been

discussed with the Audit Committee of the Supervisory Board.


113

30. Financial risk management and fi nancial instruments continued Credit risk

Credit risk is the risk of fi nancial loss to Heineken if a customer or counterparty to a fi nancial instrument

fails to meet its contractual obligations, and arises principally from Heineken’s receivables from

customers and investment securities.

As at balance sheet date there were no signifi cant concentrations of credit risk. The maximum exposure

to credit risk is represented by the carrying amount of each fi nancial instrument, including derivative

fi nancial instruments, in the balance sheet.

Loans to customers

Heineken’s exposure to credit risk is mainly infl uenced by the individual characteristics of each customer.

The demographics of Heineken’s customer base, including the default risk of the industry and country

in which customers operate, have less of an infl uence on credit risk. Geographically there is no

concentration of credit risk.

Heineken’s held-to-maturity investments includes loans to customers, issued based on a loan contract.

Loans to customers are ideally secured by, amongst others, rights on property or intangible assets, such

as the right to take possession of the premises of the customer. Interest rates calculated by Heineken

are at least based on the risk-free rate plus a margin, which takes into account the risk profi le of the

customer and value of security given.

Heineken establishes an allowance for impairment of loans that represents its estimate of incurred

losses. The main components of this allowance are a specifi c loss component that relates to individually

signifi cant exposures, and a collective loss component established for groups of similar customers

in respect of losses that have been incurred but not yet identifi ed. The collective loss allowance

is determined based on historical data of payment statistics.

In a few countries the issue of new loans is outsourced to third parties. In most cases, Heineken issues

sureties (guarantees) to the third party for the risk of default of the customer. Heineken in return

receives a fee.

Trade and other receivables

Heineken’s local management has credit policies in place and the exposure to credit risk is monitored

on an ongoing basis. Under the credit policies all customers requiring credit over a certain amount are

reviewed and new customers are analysed individually for creditworthiness before Heineken’s standard

payment and delivery terms and conditions are offered. Heineken’s review includes external ratings,

where available, and in some cases bank references. Purchase limits are established for each customer

and these limits are reviewed regularly. Customers that fail to meet Heineken’s benchmark

creditworthiness may transact with Heineken only on a prepayment basis.

In monitoring customer credit risk, customers are, on a country base, grouped according to their credit

characteristics, including whether they are an individual or legal entity, which type of distribution

channel they represent, geographic location, industry, ageing profi le, maturity and existence of previous

fi nancial diffi culties. Customers that are graded as ‘high risk’ are placed on a restricted customer list,

and future sales are made on a prepayment basis with approval of management.

Heineken has multiple distribution models to deliver goods to end customers. Deliveries are done in

some countries via own wholesalers, in other markets directly and in some others via third parties. As

such distribution models are country-specifi c and on consolidated level diverse, as such the results and

the balance sheet items cannot be split between types of customers on a consolidated basis. The various

distribution models are also not centrally managed or monitored.

Heineken establishes an allowance for impairment that represents its estimate of incurred losses in

respect of trade and other receivables and investments. The components of this allowance are a specifi c

loss component and a collective loss component.




Investments

Heineken limits its exposure to credit risk, except for held-to-maturity investments as disclosed in note

17, by only investing in liquid securities and only with counterparties that have a credit rating of at least

single A or equivalent.

Guarantees

Heineken’s policy is to avoid issuing guarantees where possible unless this leads to substantial savings

for the Group. In cases where Heineken does provide guarantees, such as to banks for loans (by third

parties), Heineken aims to receive security from the third party.

The Company has issued a joint and several liability statement to the provisions of Section 403, Part 9,

Book 2 of the Dutch Civil Code with respect to legal entities established in the Netherlands.

Exposure to credit risk

The carrying amount of fi nancial assets represents the maximum credit exposure. The maximum

exposure to credit risk at the reporting date was:


Held-to-maturity investments 17 218 404

Investments held for trading 17 15 12

Available-for-sale investments 17 234 202

Interest rate swaps used for hedging: assets 17 – 4

Forward exchange contracts used for hedging: assets 17 90 43

Trade and other receivables 20 1,873 1,779


3,145 3,818

The maximum exposure to credit risk for trade and other receivables at the reporting date by

geographic region was:


Western Europe 896 907

Central and Eastern Europe 548 478

The Americas 214 205

Africa and the Middle East 126 90

Asia Pacifi c 78 74

Head Offi ce/eliminations 11 25

1,873 1,779

Impairment losses

The ageing of trade and other receivables at the reporting date was:

Gross Impairment Gross Impairment

In millions of EUR 2007 2007 2006 2006

Not past due 1,363 (7) 1,385 (8)

Past due 0–30 days 292 (33) 177 (6)

Past due 31–120 days 182 (23) 177 (47)

More than 120 days 244 (145) 248 (147)

2,081 (208) 1,987 (208)


115

30. Financial risk management and fi nancial instruments continuedThe movement in the allowance for impairment in respect of trade and other receivables during the year

was as follows:


Balance as at 1 January 208 215

Impairment loss recognised 49 39

Allowance used (12) (10)

Allowance released (30) (36)

Effect of movements in exchange rates (7) –

Balance as at 31 December 208 208

The movement in the allowance for impairment in respect of held-to-maturity investments during the

year was as follows:


Balance as at 1 January 90 53

Changes in consolidation – 2

Impairment loss recognised 38 37

Allowance used (19) (2)

Balance as at 31 December 109 90

Impairment losses recognised for trade and other receivables and held-to-maturity investments are part

of the other non-cash items in the consolidated statement of cash fl ows.

The impairment loss of €38 million in respect of held-to-maturity investments and the impairment loss of

€49 million in respect of trade receivables were included in expenses for raw materials, consumables

and services.

An impairment loss of €38 million in respect of held-to-maturity investments was recognised during the

current year of which €25 million related to loans to customers. Heineken has no collateral in respect of

these impaired investments.

The allowance accounts in respect of trade and other receivables and held-to-maturity investments are

used to record impairment losses, unless Heineken is satisfi ed that no recovery of the amount owing is

possible, at that point the amount considered irrecoverable is written off against the fi nancial asset.

Liquidity risk

Liquidity risk is the risk that Heineken will not be able to meet its fi nancial obligations as they fall due.

Heineken’s approach to managing liquidity is to ensure, as far as possible, that it will always have

suffi cient liquidity to meet its liabilities when due, under both normal and stressed conditions, without

incurring unacceptable losses or risking damage to Heineken’s reputation.

Strong cash fl ow generation and suffi cient access to capital is ensured to fi nance long-term growth and

to keep pace with the consolidation of the global beer market. Financing strategies are under continuous

evaluation. Strong cost and cash management and controls over investment proposals are in place to

ensure effective and effi cient allocation of fi nancial resources. In addition, the Heineken N.V. €2 billion

Revolving Credit Facility 2005–2012 was not utilised as at 31 December 2007 (31 December 2006:

not utilised).




Contractual maturities

The following are the contractual maturities of non-derivative fi nancial liabilities and derivative fi nancial

assets and liabilities, including interest payments and excluding the impact of netting agreements:

2007

Carrying Contractual 6 months 6-12 More than

In millions of EUR amount cash fl ows or less months 1-2 years 2-5 years 5 years

Non-derivative fi nancial liabilities

Secured bank loans 77 (80) (6) (9) (11) (52) (2)

Unsecured bank loans 595 (609) (185) (117) (79) (220) (8)

Unsecured bond issues 1,359 (1,609) (23) (246) (55) (619) (666)

Finance lease liabilities 18 (19) (1) (2) (1) (4) (11)

Non-interest-bearing liabilities 20 (20) – – (12) (7) (1)

Deposits from third parties and other

current interest-bearing liabilities 325 (327) (324) (3) – – –

Bank overdrafts 282 (282) (282) – – – –

Trade and other payables 2,806 (2,823) (2,646) (163) (4) (3) (7)

Derivative fi nancial assets

and liabilities

Forward exchange contracts used

for hedging accounting:

Outfl ow 36 (1,492) (707) (586) (199) – –

Infl ow (104) 1,560 738 613 209 – –

5,414 (5,701) (3,436) (513) (152) (905) (695)

The total carrying amount of derivatives are included in current other investments (note 17) and trade

and other payables (note 29).

2006

Carrying Contractual 6 months 6-12 More than

In millions of EUR amount cash fl ows or less months 1-2 years 2-5 years 5 years

Non-derivative fi nancial liabilities

Secured bank loans 92 (96) (7) (16) (18) (54) (1)

Unsecured bank loans 801 (827) (30) (146) (287) (357) (7)

Unsecured bond issues 1,343 (1,667) (22) (43) (265) (641) (696)

Finance lease liabilities 7 (10) – (1) (2) (3) (4)

Non-interest-bearing liabilities 32 (34) – (5) (23) (4) (2)

Deposits from third parties and

other current interest-bearing liabilities 310 (310) (310) – – – –

Bank overdrafts 747 (749) (749) – – – –

Trade and other payables 2,496 (2,496) (2,281) (195) (3) (1) (16)

Derivative fi nancial assets

and liabilities

Interest rate swaps used for

hedging net 12 (12) – – (1) (11) –

Forward exchange contracts used

for hedging accounting:

Outfl ow 2 (1,234) (514) (451) (269) – –

Infl ow (43) 1,268 531 464 273 – –

5,799 (6,167) (3,382) (393) (595) (1,071) (726)

The total carrying amount of derivatives are included in current other investments (note 17) and trade

and other payables (note 29).


117

30. Financial risk management and fi nancial instruments continued Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and

equity prices will affect Heineken’s income or the value of its holdings of fi nancial instruments. The

objective of market risk management is to manage and control market risk exposures within acceptable

parameters, whilst optimising the return on risk.

Heineken uses derivatives in the ordinary course of business, and also incurs fi nancial liabilities, in order

to manage market risks. Generally Heineken seeks to apply hedge accounting in order to minimise the

effects of foreign currency fl uctuations in the income statement.

Derivatives that can be used are interest rate swaps, forward rate agreements, caps and fl oors, forward

exchange contracts and options. Transactions are entered into with a limited number of counterparties

with strong credit ratings. Foreign currency and interest rate hedging operations are governed by an

internal policy and rules approved and monitored by the Executive Board.

Foreign currency risk

Heineken is exposed to foreign currency risk on sales, purchases and borrowings that are denominated

in a currency other than the respective functional currencies of Heineken entities. The main currency

that gives rise to this risk is the US Dollar.

In managing foreign currency risk Heineken aims to reduce the impact of short-term fl uctuations on

earnings. Over the longer term, however, permanent changes in foreign exchange rates would have an

impact on profi t.

Heineken hedges up to 90 per cent of its mainly intra-Heineken US Dollar cash fl ows on the basis of

rolling cash fl ow forecasts in respect of forecasted sales and purchases. Cash fl ows in other foreign

currencies are also hedged on the basis of rolling cash fl ow forecasts. Heineken mainly uses forward

exchange contracts to hedge its foreign currency risk. The majority of the forward exchange contracts

have maturities of less than one year after the balance sheet date. Where necessary, the forward

exchange contracts are rolled over at maturity.

The Company has a clear policy on hedging transactional exchange risks, which postpones the impact

on fi nancial results. Translation exchange risks are hedged to a limited extent, as the underlying

currency positions are generally considered to be long-term in nature.

It is Heineken’s policy to provide intra-Heineken fi nancing in the functional currency of subsidiaries where

possible to prevent foreign currency exposure on subsidiary level. The resulting exposure at Group level

is hedged by means of forward exchange contracts. Intra-Heineken fi nancing is mainly in US Dollars,

Russian Rubles and Polish Zloty.

The principal amounts of Heineken’s Chilean Peso, Polish Zloty and Egyptian Pound bank loans and bond

issues are used to hedge local operations, which generate cash fl ows that have the same respective

functional currencies. Corresponding interest on these borrowings is also denominated in currencies

that match the cash fl ows generated by the underlying operations of Heineken. This provides an

economic hedge and no derivatives are entered into.

In respect of other monetary assets and liabilities denominated in currencies other than the functional

currencies of the Company and the various foreign operations, Heineken ensures that its net exposure

is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to

address short-term imbalances.




Exposure to foreign currency risk

Heineken’s exposure for the USD was as follows based on notional amounts:

2007 2006

In millions USD USD

Loans and held-to-maturity investments 74 25

Trade and other receivables 198 229

Cash and cash equivalents 5 33

Secured bank loans – (35)

Bank overdrafts – (3)

Trade and other payables (8) (16)

Gross balance sheet exposure 269 233

Estimated forecast sales next year 1,051 1,147

Estimated forecast purchases next year (163) (201)

Gross exposure 1,157 1,179

Cash fl ow hedging forward exchange contracts (890) (978)

Other hedging forward exchange contracts (161) (178)

Net exposure 106 23

Included in the USD amounts are intra-Heineken cash fl ows.

The loans represent intra-Heineken fi nancing.

The following signifi cant exchange rates applied during the year: Reporting date

Average rate mid-spot rate

In EUR 2007 2006 2007 2006

USD 0.7308 0.7973 0.6793 0.7584

Sensitivity analysis

A 10 per cent strengthening of the euro against the US Dollar as at 31 December would have increased

(decreased) equity and profi t by the amounts shown below. This analysis assumes that all other variables,

in particular interest rates, remain constant. The analysis is performed on the same basis for 2006.

Equity Profi t or loss


USD 41 50 (6) (3)

A 10 per cent weakening of the euro against the US Dollar as at 31 December would have had the equal

but opposite effect on the basis that all other variables remain constant.

Interest rate risk

In managing interest rate risk, Heineken aims to reduce the impact of short-term fl uctuations on

earnings. Over the longer term, however, permanent changes in interest rates would have an impact

on profi t.

Heineken opts for a well-balanced mix of fi xed and variable interest rates in its fi nancing operations,

combined with the use of interest rate instruments. Currently, Heineken’s interest rate position is

predominantly fi xed rather than fl oating. Interest rate instruments that can be used are interest rate

swaps, forward rate agreements, caps and fl oors.

Swap maturity follows the maturity of the related loans and borrowings and have swap rates ranging

from 5.0 to 5.5 per cent (2006: from 3.4 to 5.5 per cent).


119

30. Financial risk management and fi nancial instruments continued Interest rate risk – Profi le

At the reporting date the interest rate profi le of Heineken’s interest-bearing fi nancial instruments was

as follows:


Fixed rate instruments

Financial assets 63 32

Financial liabilities (1,779) (1,797)

Interest rate swaps fl oating to fi xed 40 (82)

(1,676) (1,847)

Variable rate instruments

Financial assets 810 1,522

Financial liabilities (878) (1,503)

Interest rate swaps fi xed to fl oating (40) 70

(108) 89

Fair value sensitivity analysis for fi xed rate instruments

During 2007, Heineken did not account for any fi xed rate fi nancial assets and liabilities at fair value

through profi t or loss. Therefore a change in interest rates at the reporting date would not affect profi t

or loss or equity.

Cash fl ow sensitivity analysis for variable rate instruments

A change of 100 basis points in interest rates constantly applied during the reporting period would have

increased (decreased) equity and profi t or loss by the amounts shown below. This analysis assumes that

all other variables, in particular foreign currency rates, remain constant. The analysis is performed on

the same basis for 2006.

Profi t or loss Equity

100 bp 100 bp 100 bp 100 bp

In millions of EUR increase decrease increase decrease

31 December 2007

Variable rate instruments (1) 1 (1) 1

Interest rate swaps fi xed to fl oating – – – –

Cash fl ow sensitivity (net) (1) 1 (1) 1

31 December 2006

Variable rate instruments (1) 1 (1) 1

Interest rate swaps fi xed to fl oating 1 (1) 1 (1)

Cash fl ow sensitivity (net) – – – –




Other market price risk

Management of Heineken monitors the mix of debt and equity securities in its investment portfolio based

on market expectations. Material investments within the portfolio are managed on an individual basis.

The primary goal of Heineken’s investment strategy is to maximise investment returns in order to

partially meet its unfunded defi ned benefi t obligations management is assisted by external advisors

in this regard.

Commodity risk is the risk that changes in commodity price will affect Heineken’s income. The objective

of commodity risk management is to manage and control commodity risk exposures within acceptable

parameters, whilst optimising the return on risk. So far, commodity trading by the Company is limited to

the sale of surplus CO2 emission rights. Heineken does not enter into commodity contracts other than

to meet Heineken’s expected usage and sale requirements.

Cash fl ow hedges

The following table indicates the periods in which the cash fl ows associated with derivatives that are

cash fl ow hedges are expected to occur.

2007

Expected 6 More

Carrying cash months 6-12 1-2 2-5 than 5

In millions of EUR amount fl ows or less months years years years

Interest rate swaps used

for hedging, net liabilities – – – – – – –

Forward exchange contracts:

Assets (104) 1,560 738 613 209 – –

Liabilities 36 (1,492) (707) (586) (199) – –

(68) 68 31 27 10 – –

2006

Expected 6 More

Carrying cash months 6-12 1-2 2-5 than 5

In millions of EUR amount fl ows or less months years years years

Interest rate swaps used

for hedging, net liabilities 12 (12) – – (1) (11) –

Forward exchange contracts:

Assets (43) 1,154 531 350 273 – –

Liabilities 2 (1,121) (514) (338) (269) – –

(29) 21 17 12 3 (11) –

The periods in which the cash fl ows associated with derivatives that are cash fl ow hedges are expected

to impact the income statement is on average two months earlier than the occurrence of the cash fl ows

as in above table.

Capital management

There were no major changes in Heineken’s approach to capital management during the year. The

Executive Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and

market confi dence and to sustain future development of business and acquisitions. Capital is herein

defi ned as equity attributable to equity holders of the Company (total equity minus minority interests).

Heineken is not subject to externally imposed capital requirements other then the legal reserves

explained in note 22. Shares are purchased to meet the requirements under the Long-Term Incentive

Plan as further explained in note 27. As approved in the Annual General Meeting of Shareholders in

April 2007, Heineken renewed its dividend policy as further explained in note 22.


121

30. Financial risk management and fi nancial instruments continued Fair values

The fair values of fi nancial assets and liabilities, together with the carrying amounts shown in the balance

sheet, are as follows:

Carrying Fair Carrying Fair

amount value amount value


Held-to-maturity investments 218 218 404 404

Available-for-sale investments 234 234 202 202

Advances to customers 219 219 180 180

Investments held for trading 15 15 12 12

Loans and receivables 1,873 1,879 1,779 1,781

Cash and cash equivalents 715 716 1,374 1,374

Interest rate swaps used for hedging:

Assets – – 4 4

Liabilities – – (16) (16)

Forward exchange contracts used for hedging:

Assets 90 90 43 43

Liabilities (36) (36) (2) (2)

Bank loans (672) (675) (893) (877)

Unsecured bond loans (1,359) (1,364) (1,343) (1,374)

Finance lease liabilities (18) (18) (7) (7)

Non-current non-interest-bearing liabilities (20) (20) (32) (32)

Deposits from third parties and other current liabilities (325) (325) (310) (310)

Trade and other payables excluding dividend, interest

and derivatives (2,710) (2,713) (2,423) (2,401)

Bank overdrafts (282) (282) (747) (747)

(2,058) (2,062) (1,775) (1,766)

Basis for determining fair values

The signifi cant methods and assumptions used in estimating the fair values of fi nancial instruments

refl ected in the table above are discussed in note 4.




31. Off-balance sheet commitments

Less than 1-5 More than Total

In millions of EUR Total 1 Year Years 5 Years 2006

Guarantees to banks for loans (by third parties) 387 188 182 17 398

Other guarantees 138 27 94 17 116

Guarantees 525 215 276 34 514

Lease & operational lease commitments 281 48 127 106 242

Property, plant and equipment ordered 64 64 – – 127

Raw materials purchase contracts 621 71 8 542 610

Other off-balance sheet obligations 460 186 175 99 267

Off-balance sheet obligations 1,426 369 310 747 1,246

Committed bank facilities 2,120 77 2,043 – 2,411

Heineken leases buildings, cars and equipment.

During the year ended 31 December 2007 €147 million (2006: €133 million) was recognised

as an expense in the income statement in respect of operating leases and rent.

Other off-balance sheet obligations mainly include rental, service and sponsorship contracts.

Committed bank facilities are credit facilities on which commitment fee is paid as compensation for the

bank’s requirement to reserve capital. The bank is obliged to provide the facility under the terms and

conditions of the agreement.

Of the total guarantees, off-balance sheet obligations and committed bank facilities, an amount of

€288 million is related to joint ventures.

32. ContingenciesThe Netherlands

Heineken is involved in an antitrust case initiated by the European Commission for alleged violations of

the EU competition laws. By decision of 18 April 2007 the European Commission stated that Heineken,

and other brewers operating in the Netherlands, restricted competition in the Dutch market during the

period 1996–1999. This decision follows an investigation by the European Commission that commenced

in March 2000. Heineken fully cooperated with the authorities in this investigation. As a result of its

decision, the European Commission has imposed a fi ne on Heineken of €219 million.

All cartel decisions by the European Commission may be appealed against before the European Court of

First Instance and then before the Court of Justice of the European Communities in Luxembourg. These

two courts are empowered to annul decisions in whole or in part and to reduce or increase fi nes, where

this is deemed appropriate.

On 4 July 2007 Heineken fi led an appeal with the European Court of First Instance against the decision of

the European Commission as Heineken disagrees with the fi ndings of the European Commission. Pending

appeal, Heineken was obliged to pay the fi ne to the European Commission. This imposed fi ne is treated

as an expense in our 2007 annual report.

The European Commission fi led its defence on 22 November 2007. Heineken will fi le its statement of

reply in March 2008. After the European Commission will have fi led its reply by rejoinder, Heineken is

entitled to request for oral pleadings before the Court. A fi nal decision by the European Court is

expected thereafter.


123

32. Contingencies continuedUSA

Heineken USA and Heineken N.V. (and in certain cases other Heineken companies and Heineken Holding

N.V.) were named as defendants in purported ‘class action’ lawsuits fi led in nine states. The lawsuits

claim that Heineken companies, along with other producers and distributors of alcoholic beverages,

had unlawfully advertised and marketed its products to underage people. Heineken has been defending

vigorously against these accusations, as Heineken companies advertise and market their products

lawfully to people of legal drinking age. In November 2007, Heineken reached agreement with the

plaintiffs of the lawsuits to fi nally end all of the plaintiffs’ underage drinking cases.

33. Related partiesIdentity of related parties

Heineken has a related party relationship with its associates (refer note 16 and 33), joint ventures

(refer note 33 and 35), Heineken Holding N.V., Heineken pension funds (refer note 26) and with its key

management personnel (Executive Board and the Supervisory Board).

Key management remuneration


Executive Board 4.1 6.0

Supervisory Board 0.4 0.4

4.5 6.4

Executive Board

The remuneration of the members of the Executive Board comprises a fi xed component and a variable

component. The variable component is made up of a Short-Term Incentive Plan and a Long-Term

Incentive Plan. The Short-Term Incentive Plan is based on an organic profi t growth target and specifi c

year targets as set by the Supervisory Board. For the Long-Term Incentive Plan we refer to note 27.

The separate remuneration report is stated on page 62.

As at 31 December 2007 and as at 31 December 2006, the members of the Executive Board did not

hold any of the Company’s shares, bonds or option rights, other than under the Long-Term Incentive

Plan aforementioned. D.R. Hooft Graafl and held 3,052 shares of Heineken Holding N.V. as at

31 December 2007 (2006: 3,052 shares).

Executive Board Short-Term Long-Term Other

Fixed Incentive Incentive deferred

Salary Plan Plan Benefi ts Pension Plan Total

In thousands of EUR 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006* 2007 2006

J.F.M.L. van

Boxmeer 750 680 1,125 592 207 93 – – 395 192 2,477 1,557

D.R. Hooft

Graafl and 550 525 619 455 143 86 – – 311 238 1,623 1,304

M.J. Bolland1 – 306 – 189 – 50 – 2,550 – 82 – 3,177

Total 1,300 1,511 1,744 1,236 350 229 – 2,550 706 512 4,100 6,038

1 Stepped down from the Executive Board on 1 August 2006. Mr. Bolland was compensated with an amount of €2,550,000.

* Comparatives have been adjusted to include pension entitlements related to the Short-Term Incentive Plan.




Supervisory Board

The individual members of the Supervisory Board received the following remuneration:

In thousands of EUR 2007 2006

C.J.A. van Lede 66 66

J.M. de Jong 52 52

M. Das 52 52

M.R. de Carvalho 50 50

A.H.J. Risseeuw1 13 50

J.M. Hessels 50 50

I.C. MacLaurin 50 33

A.M. Fentener van Vlissingen 50 33

Total 383 386

Only M.R. de Carvalho held 8 shares of Heineken N.V. as at 31 December 2007 (2006: 8 shares).

As at 31 December 2007 and 2006, the Supervisory Board members did not hold any of the Company’s

bonds or option rights. C.J.A. van Lede and M.R. de Carvalho (2006: three Supervisory Board members)

together held 2,664 shares of Heineken Holding N.V. as at 31 December 2007 (2006: 9,508 shares).

1 Stepped down from the Supervisory Board on 19 April 2007.

Other related party transactions

Balance outstanding

Transaction value as at 31 December


Sale of products and services

Joint ventures 44 26 4 1

Associates 17 20 – –

61 46 4 1

Raw materials, consumables and services

Goods for resale – joint ventures 4 – 1 –

Other expenses – joint ventures 1 – 1 –

5 – 2 –

Heineken Holding N.V.

In 2007 an amount of €572,000 (2006: €551,000) was paid to Heineken Holding N.V. for management

services for the Heineken Group.

This payment is based on an agreement of 1977 as amended in 2001, providing that Heineken N.V.

reimburses Heineken Holding N.V. for its administration costs. Best practice provision III.6.4 of the Dutch

Corporate Governance Code of 9 December 2003 has been observed in this regard.


125

34. Heineken entitiesControl of Heineken

The shares and options of the Company are traded on Euronext Amsterdam, where the Company is

included in the main AEX index. Heineken Holding N.V. Amsterdam has an interest of 50.005 per cent

in the issued capital of the Company. The fi nancial statements of the Company are included in the

consolidated fi nancial statements of Heineken Holding N.V.

A declaration of joint and several liability pursuant to the provisions of Section 403, Part 9, Book 2, of

the Dutch Civil Code has been issued with respect to legal entities established in the Netherlands marked

with a • below.

Signifi cant subsidiaries Ownership interest

Country of incorporation 2007 2006

• Heineken Nederlands Beheer B.V. The Netherlands 100% 100%

• Heineken Brouwerijen B.V. The Netherlands 100% 100%

• Heineken Nederland B.V. The Netherlands 100% 100%

• Heineken International B.V. The Netherlands 100% 100%

• Heineken Supply Chain B.V. The Netherlands 100% 100%

• Amstel Brouwerij B.V. The Netherlands 100% 100%

• Amstel Internationaal B.V. The Netherlands 100% 100%

• Vrumona B.V. The Netherlands 100% 100%

• Invebra Holland B.V. The Netherlands 100% 100%

• B.V. Beleggingsmaatschappij Limba The Netherlands 100% 100%

• Brand Bierbrouwerij B.V. The Netherlands 100% 100%

• Beheer- en Exploitatiemaatschappij Brand B.V. The Netherlands 100% 100%

• Heineken CEE Holdings B.V. The Netherlands 100% 100%

• Heineken CEE Investments B.V. The Netherlands 100% –

• Brasinvest B.V. The Netherlands 100% 100%

• Heineken Beer Systems B.V. The Netherlands 100% 100%

Heineken France S.A. France 100% 100%

Heineken España S.A. Spain 98.6% 98.5%

Heineken Italia S.p.A Italy 100% 100%

Athenian Brewery S.A. Greece 98.8% 98.8%

Brau Union AG Austria 100% 100%

Brau Union Österreich AG Austria 100% 100%

Grupa Zywiec S.A. 1 Poland 61.7% 61.8%

Heineken Ireland Ltd. 2 Ireland 100% 100%

Heineken Hungária Myrt. Hungary 99.6% 99.6%

Heineken Slovensko a.s. Slovakia 100% 100%

Heineken Switzerland AG Switzerland 100% 100%

Karlovacka Pivovara d.o.o. Croatia 100% 100%

Mouterij Albert N.V. Belgium 100% 100%

Ibecor S.A. Belgium 100% 100%

Affl igem Brouwerij BDS N.V. Belgium 100% 100%

LLC Heineken Breweries Russia 100% 100%

Dinal LLP Kazakhstan 99.9% 99.9%

Heineken USA Inc. United States 100% 100%

Starobrno a.s. Czech Republic 97.6% 97.6%

Králowský Pivovar Krušovice a.s. Czech Republic 100% –

Heineken Romania S.A. Romania 96.3% 96.3%




Signifi cant subsidiaries continued Ownership interest


JSC KPBN Shikhan Russia 99.8% 99.3%

LLC Volga Brewing Company Russia 100% 100%

LLC Patra Russia 100% 100%

LLC Heineken Brewery Baikal Russia 100% 100%

LLC Heineken Brewery Siberia Russia 100% 100%

LLC Company PIT, Kaliningrad Russia 100% 100%

LLC PIT Novotroitsk Russia 100% 100%

JSC Amur-Pivo Russia 100% 98.8%

CJSC Brewing Company ‘Syabar’ Belarus 96.0% –

Commonwealth Brewery Ltd. Bahamas 53.2% 53.2%

Windward and Leeward Brewery Ltd. St Lucia 72.7% 72.7%

Cervecerias Baru-Panama S.A. Panama 74.9% 74.9%

Nigerian Breweries Plc. Nigeria 54.1% 54.1%

Al Ahram Beverages Company S.A.E. Egypt 99.9% 99.9%

Brasserie Lorraine S.A. Martinique 83.1% 83.1%

Surinaamse Brouwerij N.V. Surinam 76.1% 76.1%

Consolidated Breweries Ltd. Nigeria 50.1% 50.1%

Grande Brasserie de Nouvelle Calédonie S.A. New Caledonia 87.3% 87.3%

Brasserie Almaza S.A.L. Lebanon 67.0% 67.0%

Brasseries, Limonaderies et Malteries ‘Bralima’ S.A.R.L. R.D. Congo 95.0% 95.0%

Brasseries et Limonaderies du Rwanda ‘Bralirwa’ S.A. Rwanda 70.0% 70.0%

Brasseries et Limonaderies du Burundi ‘Brarudi’ S.A. Burundi 59.3% 59.3%

Brasseries de Bourbon S.A. Réunion 85.7% 85.6%

P.T. Multi Bintang Indonesia Tbk. Indonesia 84.5% 84.5%

1 Excluding treasury shares (will be cancelled in the course of 2008).2 In accordance with article 17 of the Republic of Ireland Companies (Amendment) Act 1986, the Company issued an irrevocable

guarantee for the year ended 31 December 2007 and 2006 regarding the liabilities of Heineken Ireland Ltd. and Heineken Ireland

Sales Ltd., as referred to in article 5(c) of the Republic of Ireland Companies (Amendment) Act 1986.


127

35. Signifi cant interests in joint venturesHeineken has interests in the following joint ventures:

Ownership interest


BrauHolding International GmbH and Co KgaA Germany 49.9% 49.9%

Zagorka Brewery A.D. Bulgaria 50.0% 49.0%

Pivara Skopje A.D Macedonia 50.0% 27.6%

Brasseries du Congo S.A. Congo 50.0% 50.0%

Asia Pacifi c Investment Pte. Ltd. Singapore 50.0% 50.0%

Asia Pacifi c Breweries (Singapore) Pte. Ltd. Singapore 41.9% 41.9%

Shanghai Asia Pacifi c Brewery Ltd. China 44.6% 44.6%

Hainan Asia Pacifi c Brewery Ltd. China 46.0% 46.0%

South Pacifi c Brewery Ltd. Papua New Guinea 31.8% 31.8%

Vietnam Brewery Ltd. Vietnam 25.2% 25.2%

Cambodia Brewery Ltd. Cambodia 33.5% 33.5%

DB Breweries Ltd. New Zealand 41.9% 41.9%

Compania Cervecerias Unidas S.A. Chile 33.1% 33.1%

Tempo Beverages Ltd. Israel 40.0% 40.0%

Asia Pacifi c Brewery (Lanka) Ltd. Sri Lanka 25.2% 25.2%

Société de Production et de Distribution des Boissons “SPDB” Tunesia 49.9% 49.9%

Heineken Lion Australia Pty. Australia 50.0% 50.0%

Via joint ventures Heineken is able to jointly govern the fi nancial and operating policies of the above

mentioned companies. Consequently, Heineken proportionally consolidates these companies.




Reporting date

The reporting date of the fi nancial statements of all Heineken entities and joint ventures disclosed are

the same as for the Company, except for: Asia Pacifi c Breweries (Singapore) Pte. Ltd., Shanghai Asia

Pacifi c Brewery Ltd., Hainan Asia Pacifi c Brewery Ltd., South Pacifi c Brewery Ltd., Heineken Lion Australia

Pty., Vietnam Brewery Ltd., and Cambodia Brewery Ltd., which have a 30 September reporting date.

Included in the consolidated fi nancial statements are the following items that represent Heineken’s

interests in the assets and liabilities, revenue and expenses of the joint ventures:


Non-current assets 978 982

Current assets 588 504

Non-current liabilities (364) (328)

Current liabilities (479) (441)

Net assets 723 717

Revenue 1,373 1,295

Expenses (1,244) (1,155)

Results from operating activities 129 140


129

36. Subsequent eventsAcquisition of Tango Sarl

On 14 January 2008, Heineken announced and completed the acquisition of Tango Sarl in Algeria.

Heineken acquired 100% of the shares from the Group Mehri. The transaction has been funded from

existing cash resources. Due to the competitive sensitivity and the non-disclosure agreements with the

parties involved, the acquisition price is not disclosed.

Based on the timing of this acquisition and the local timing of the year-end closing and the subsequent

IFRS changes involved, it is considered impracticable to disclose the information required according

to IFRS 3.67.

Tango Sarl employs 350 employees and operates a modern brewing facility in Algiers. The brewery has

been operational since 2001 and has a production capacity of 750,000 hectolitres. The brand portfolio

consists of the leading national mainstream beer brand Tango, and two brands in the economy segment,

Samba and Fiesta.

Acquisition of Rodic

In December 2007, Heineken announced the acquisition of the Rodic Brewery, in Novi Sad, Serbia.

On 12 February 2008 this acquisition was completed by way of acquiring 100% of the shares. Heineken

aims to combine its operations in Serbia with the operations of Efes Breweries International.

Based on the timing of this acquisition and the local timing of the year-end closing and the subsequent

IFRS changes involved, it is considered impracticable to disclose the information required according to

IFRS 3.67.

The Rodic Brewery was established in 2003 and employs 282 employees. The Rodic Brewery facility is

a state-of-the-art, 1.5 million hectolitre brewery, located in Novi Sad, northern Serbia. The company’s

portfolio consists of the beer brands MB Premium, MB Pils and Master.

Announcement of joint venture with Efes Breweries

On 28 January 2008, Heineken announced the establishment of a joint venture with Efes Breweries

International to invest in the Uzbek beer market through the acquisition of breweries. Under the terms

of the agreement, Heineken and Efes Breweries International will hold 40% and 60% of the shares in the

joint venture, respectively, with Efes Breweries International responsible for operational management.

In addition, Heineken and Efes Breweries International have also announced that they intend to combine

their operations in the Kazakh and Serbian beer markets. Both of these transactions are subject to the

customary regulatory approvals and are expected to be completed in the fi rst half of 2008.




Announcement of recommended cash offer for Scottish and Newcastle plc

On 25 January 2008, the boards of Sunrise Acquisitions Limited (the company jointly owned by Heineken

N.V. and Carlsberg A/S) and Scottish and Newcastle plc (‘S&N’) announced that they have reached an

agreement on the terms of a recommended cash offer (‘the Offer’) for the entire issued and to be issued

share capital of S&N. Under the terms of the offer, S&N shareholders will receive 800 pence in cash for

each share.

The offer is subject to the approval of Heineken N.V. and Heineken Holding N.V. (‘Heineken Holding’)

shareholders. S&N has received irrevocable undertakings from the controlling family shareholders in

respect of all of their own benefi cial holdings of Heineken shares and Heineken Holding shares to vote

in favour of (or procure the voting in favour of) any such resolutions that may be necessary to approve,

effect and implement the Offer by Sunrise Acquisitions Limited to be proposed at the Heineken

Shareholders Meeting and the Heineken Holding Shareholders Meeting.

The approval of the European Commission and certain other competition authorities will also be

required. Subject to the satisfaction of the Conditions, it is expected that the Scheme will become

effective during the fi rst half of 2008.

In anticipation of the contemplated acquisition of S&N, banks committed to a new multicurrency

acquisition facility for an amount of £3.85 billion for Heineken’s part of the fi nancing of the offer,

for any re-fi nancing of existing debt of the companies to be acquired by Heineken as well as for related

transaction costs. The facility consists of a £1.1 billion tranche with a maturity of one year (extendable

to two years), and a £2.75 billion fi ve year tranche. Interest is based on EURIBOR/LIBOR plus a margin.

No fi nancial covenants apply; there is only an incurrence covenant.

The combination of this new credit facility, and the €2 billion existing facility, largely exceeds the

estimated enterprise value (including assumed debt) of the S&N’s businesses to be acquired by Heineken

of £4.5 billion (€6.1 billion).

If the Offer is accepted by the Scheme Shareholders, Heineken will gain control over S&N’s businesses

in the United Kingdom and Ireland, Portugal, Finland, Belgium, United States and India. Following

completion of the offer, S&N’s share of BBH Russian Breweries, as well as the French, Greek, Chinese and

Vietnamese operations are transferred to Carlsberg A/S. The remaining businesses, principally the UK

and Ireland, Portuguese, Finnish, Belgian, US and Indian operations, will be seperated as soon as possible

and in any event within 12 months after the Effective Date.


131


Fixed assets

Financial fi xed assets 37 6,560 6,160

Total fi xed assets 6,560 6,160

Trade and other receivables – 3

Cash and cash equivalents 1 3

Total current assets 1 6

Total assets 6,561 6,166

Shareholders’ equity

Issued capital 784 784

Translation reserve 7 96

Hedging reserve 44 28

Fair value reserve 99 97

Other legal reserves 571 459

Reserve for own shares (29) (14)

Retained earnings 3,121 2,348


Total shareholders’ equity 38 5,404 5,009

Liabilities

Loans and borrowings 39 1,096 1,096

Total non-current liabilities 1,096 1,096

Trade and other payables 29 27

Tax payable 32 34

Total current liabilities 61 61

Total liabilities 1,157 1,157

Total shareholders’ equity and liabilities 6,561 6,166

Before appropriation of profi t as at 31 December 2007



Heineken N.V. balance sheet

For the year ended 31 December 2007


Share of profi t of participating interests, after income tax 37 840 1,190

Other profi t after income tax (33) 21



133

Heineken N.V. income statement

Reporting entityThe fi nancial statements of Heineken N.V. (the ‘Company’) are included in the consolidated statements

of Heineken.

Basis of preparationThe Company fi nancial statements have been prepared in accordance with the provisions of Part 9,

Book 2, of the Dutch Civil Code. The Company uses the option of Article 362.8 of Part 9, Book 2,

of the Dutch Civil Code to prepare the Company fi nancial statements, using the same accounting

policies as in the consolidated fi nancial statements. Valuation is based on recognition and measurement

requirements of accounting standards adopted by the EU (i.e., only IFRS that is adopted for use

in the EU at the date of authorisation) as explained further in the notes to the consolidated fi nancial

statements).

Signifi cant accounting policiesFinancial fi xed assets

Participating interests (subsidiaries, joint ventures and associates) are measured on the basis of the

equity method.

Shareholders’ equity

The translation reserve and other legal reserves are previously formed under and still recognised and

measured in accordance with the Dutch Civil Code.

Profi t of participating interests

The share of profi t of participating interests consists of the share of the Company in the results of these

participating interests. Results on transactions, where the transfer of assets and liabilities between the

Company and its participating interests and mutually between participating interests themselves, are

not recognised.



Notes to Heineken N.V. fi nancial statements

37. Financial fi xed assets Loans to

Participating participating

In millions of EUR interests interest Total

Balance as at 1 January 2006 1,598 3,721 5,319

Loans converted into share capital 815 (815) –

Profi t of participating interests 1,190 – 1,190

Dividend payments by participating interests (232) 232 –

Effect of movements in exchange rates (52) – (52)

Changes in hedging and fair value adjustments 97 – 97

Cash receipts (1) – (1)

Repayments – (393) (393)

Balance as at 31 December 2006 3,415 2,745 6,160

Balance as at 1 January 2007 3,415 2,745 6,160

Profi t of participating interests 840 – 840

Dividend payments by participating interests (224) 224 –

Effect of movements in exchange rates (89) – (89)

Changes in hedging and fair value adjustments 18 – 18

Cash receipts (6) – (6)

Repayments – (363) (363)

Balance as at 31 December 2007 3,954 2,606 6,560


135

38. Shareholders’ equity Fair Other Reserve

Issued Translation Hedging value legal for own Retained Shareholders’

In millions of EUR capital reserve reserve reserve reserves shares earnings Net profi t equity

Balance as at

1 January 2006 784 148 (21) 49 392 – 1,856 761 3,969

Net recognised

income and expense1 – (52) 49 48 (6) – (4) – 35

Profi t – – – – 110 – (110) 1,211 1,211

Transfer to

retained earnings – – – – (37) – 798 (761) –

Dividends to

shareholders – – – – – – (196) – (196)

Purchase own shares – – – – – (14) – – (14)

Share-based payments – – – – – – 4 – 4

Balance as at

31 December 2006 784 96 28 97 459 (14) 2,348 1,211 5,009

Balance as at

1 January 2007 784 96 28 97 459 (14) 2,348 1,211 5,009

Net recognised

income and expense1 – (89) 16 2 19 – (19) – (71)

Profi t – – – – 89 – (89) 807 807

Transfer to

retained earnings – – – – 4 – 1,207 (1,211) –

Dividends to

shareholders – – – – – – (333) – (333)

Purchase own shares – – – – – (15) – – (15)

Share-based payments – – – – – – 7 – 7

Balance as at

31 December 2007 784 7 44 99 571 (29) 3,121 807 5,404

For more details on reserves, please refer to note 22 of the consolidated fi nancial statements.

For more details on LTIP, please refer to note 27 of the consolidated fi nancial statements.

1 Net recognised income and expense is explained in note 22 of the consolidated fi nancial statements.



Notes to Heineken N.V. fi nancial statements continued

39. Loans and borrowingsTerms and debt repayment schedule

Nominal 1 year 1-2 2-5 More than

In millions of EUR interest rate Total or less years years 5 years 2006

Unsecured

Bond loan in EUR 4.4% 499 – – 499 – 499

Bond loan in EUR 5.0% 597 – – – 597 597

1,096 – – 499 597 1,096

40. Off balance sheet commitments

Less than 1-5 More than Total

In millions of EUR Total 1 Year Years 5 Years 2006

Committed bank faciliity 2,000 – 2,000 – 2,000

2007 2006

Third Heineken Third Heineken

parties companies parties companies

Declarations of joint and several liability – 1,067 – 1,364

Fiscal unity

The Company is part of the fi scal unity of Heineken in the Netherlands. Based on this the Company is

liable for the tax liability of the fi scal unity in the Netherlands.

41. Other disclosuresRemuneration

We refer to note 33 of the consolidated fi nancial statements for the remuneration and the incentives of

the Executive Board members and the Supervisory Board. The Executive Board members are the only

employees of the Company.

Participating interests

For the list of direct and indirect participating interests, we refer to notes 16, 34 and 35 to the

consolidated fi nancial statements.

Amsterdam, 19 February 2008 Executive Board Supervisory Board

Van Boxmeer Van Lede

Hooft Graafl and De Jong

Das

de Carvalho

Hessels

Fentener van Vlissingen

MacLaurin


137

Report on the fi nancial statementsWe have audited the 2007 fi nancial statements

of Heineken N.V., Amsterdam as set out on pages

65 to 137. The fi nancial statements consist of

the consolidated fi nancial statements and the

Company fi nancial statements. The consolidated

fi nancial statements comprise the consolidated

balance sheet as at 31 December 2007, the income

statement, statement of recognised income and

expense and statement of cash fl ows for the

year then ended, and a summary of signifi cant

accounting policies and other explanatory notes.

The Company fi nancial statements comprise the

Company balance sheet as at 31 December 2007,

the Company income statement for the year then

ended and the notes.

Management’s responsibility

The Executive Board is responsible for the

preparation and fair presentation of the fi nancial

statements in accordance with International

Financial Reporting Standards as adopted by the

European Union and with Part 9 of Book 2 of the

Netherlands Civil Code, and for the preparation

of the report of the Executive Board in accordance

with Part 9 of Book 2 of the Netherlands Civil Code.

This responsibility includes: designing, implementing

and maintaining internal control relevant to

the preparation and fair presentation of the

fi nancial statements that are free from material

misstatement, whether due to fraud or error;

selecting and applying appropriate accounting

policies; and making accounting estimates that

are reasonable in the circumstances.

Auditor’s responsibility

Our responsibility is to express an opinion on

the fi nancial statements based on our audit. We

conducted our audit in accordance with Dutch

law. This law requires that we comply with ethical

requirements and plan and perform our audit to

obtain reasonable assurance whether the fi nancial

statements are free from material misstatement.

An audit involves performing procedures to obtain

audit evidence about the amounts and disclosures

in the fi nancial statements. The procedures

selected depend on the auditor’s judgement,

including the assessment of the risks of material

misstatement of the fi nancial statements, whether

due to fraud or error. In making those risk

assessments, the auditor considers internal

control relevant to the entity’s preparation and fair

presentation of the fi nancial statements in order

to design audit procedures that are appropriate

in the circumstances, but not for the purpose of

expressing an opinion on the effectiveness of the

entity’s internal control. An audit also includes

evaluating the appropriateness of accounting

policies used and the reasonableness of

accounting estimates made by management,

as well as evaluating the overall presentation

of the fi nancial statements.

We believe that the audit evidence we have

obtained is suffi cient and appropriate to provide

a basis for our audit opinion.

Other information

Auditor’s report

To: Annual General Meeting of Shareholders of Heineken N.V.

138


139

Opinion with respect to the consolidated


In our opinion, the consolidated fi nancial

statements give a true and fair view of the fi nancial

position of Heineken N.V. as at 31 December 2007,

and of its result and its cash fl ow for the year then

ended in accordance with International Financial

Reporting Standards as adopted by the European

Union and with Part 9 of Book 2 of the Netherlands

Civil Code.

Opinion with respect to the Company


In our opinion, the Company fi nancial statements

give a true and fair view of the fi nancial position

of Heineken N.V. as at 31 December 2007, and of

its result for the year then ended in accordance

with Part 9 of Book 2 of the Netherlands Civil Code.

Report on other legal and regulatory requirementsPursuant to the legal requirement under 2:393 sub

5 part e of the Netherlands Civil Code, we report,

to the extent of our competence, that the report of

the Executive Board as set out on pages 6 to 57 is

consistent with the fi nancial statements as required

by 2:391 sub 4 of the Netherlands Civil Code.

KPMG ACCOUNTANTS N.V.J.F.C. van Everdingen RA



Appropriation of profi t

Appropriation of profi tArticle 12, paragraph 7, of the Articles of

Association stipulates:

“Of the profi ts, payment shall fi rst be made, if

possible, of a dividend of six per cent of the issued

part of the authorised share capital. The amount

remaining shall be at the disposal of the General

Meeting of Shareholders.”

It is proposed to appropriate €343 million of

the profi t for payment of dividend and to add

€464 million to the retained profi ts.

Civil codeHeineken N.V. is not a ‘structuurvennootschap’

within the meaning of Sections 152-164 of the

Netherlands Civil Code. Heineken Holding N.V.,

a company listed on the Euronext Amsterdam,

holds 50.005 per cent of the issued shares of

Heineken N.V.

Authorised capitalThe Company’s authorised capital amounts to

€2.5 billion.

Other information140


Investor relationsHeineken takes a proactive role in maintaining an

open dialogue with shareholders and bondholders,

providing accurate and complete information in

a timely and consistent way. We do this through

press releases, the Annual Report, presentations,

webcasts, regular briefi ngs and open days with

analysts, fund managers and shareholders.

Ownership structureHeading the Heineken Group, Heineken Holding N.V.

is no ordinary holding company. Since its

formation in 1952, the objective of Heineken

Holding N.V., pursuant to its Articles of Association

has been to manage and/or supervise the

Heineken Group and to provide services to the

Heineken Group. The role Heineken Holding N.V.

has performed for the Heineken Group since 1952

has been to safeguard its continuity, independence

and stability and create conditions for controlled,

steady growth of the activities of the Heineken

Group. This stability has enabled the Heineken

Group to rise to its present position as the brewer

with the widest international presence and one

of the world’s largest brewing groups. Every

Heineken N.V. share held by Heineken Holding N.V.

is matched by one share issued by Heineken

Holding N.V. The net asset value of one Heineken

Holding N.V. share is therefore identical to

the net asset value of one Heineken N.V. share.

The dividend payable on the two shares is also

identical. Historically, however, Heineken Holding

N.V. shares have traded at a lower price due to

technical factors that are market-specifi c.

Neither Heineken N.V. nor Heineken Holding N.V.

are a ‘structuurvennootschap’ within the meaning

of the Dutch Civil Code.

On 2 March 2007, Heineken Holding N.V.’s principal

long-term shareholders L’Arche Holding S.A. (the

Heineken family’s holding company, that owned

50.005 per cent of the shares), LAC B.V. (the

Heineken family’s holding company, that owned

1.97 per cent of the shares) and Greenfee B.V. (the

holding company of the Hoyer family, that owned

6.81 per cent of the shares ) combined their

shareholdings in a new company called L’Arche

Green N.V. The holding companies of the Heineken

family hold 88.42 per cent of L’Arche Green N.V.

L’Arche Green N.V. holds 58.78 per cent of the

Heineken Holding N.V. shares.

In addition, Mrs de Carvalho-Heineken owns a

direct 0.03 per cent stake in Heineken Holding N.V.

Heineken Holding N.V. still holds 50.005 per cent

of the Heineken N.V. issued shares.

Pursuant to the Financial Markets Supervision Act

(Wet op fi nancieel toezicht) and the Decree on

Disclosure of Major Holdings and Capital Interests

in Securities-Issuing Institutions (Besluit melding

zeggenschap en kapitaalbelang in uitgevende

instellingen), the Financial Markets Authority has

been notifi ed about the following substantial

shareholding regarding Heineken N.V.:

ING Group N.V. (5.40 per cent indirectly through •

a subsidiary).

Heineken N.V. shares and options Heineken N.V. shares are traded on Euronext

Amsterdam, where the Company is included in

the main AEX Index. Prices for the ordinary shares

may be accessed on Bloomberg under the symbols

HEIA NA and HEIO NA and on the Reuters Equities

2000 Service under HEIA.AS and HEIO.AS. The ISIN

code is NL0000009165. Options on Heineken N.V.

shares are listed on Euronext.Liffe. Additional

information is available on the website:

www.heinekeninternational.com.

In 2007, the average daily trading volume of

Heineken N.V. shares was 1,668,921 shares.

Right to add agenda items

Shareholders who, alone or together, represent at

least 1 per cent of Heineken N.V.’s issued capital or

Shareholder information


141

Based on 245.0 million shares in free float

• North America 30.7%

• UK/Ireland 14.9%

• Netherlands 14.3%

• Europe (ex. Netherlands) 14.5%

• Rest of the world 2.3%

• Undisclosed 23.3%

Share distribution comparisonyear-on-year Heineken N.V. shares*Based on Free float: Excluding shares of

Heineken Holding N.V. in Heineken N.V.

0 10 20 30 40 50

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

26.78

36.03

44.22

24.53

24.15

29.76

34.07

42.24

30.75

33.05

Heineken N.V. share priceIn EUR, Euronext Amsterdam

after restatement for recapitalisation and share split

Share price range

Year-end price

Average trade in 2007: 1,668,921 shares per day

2003

2004

2005

2006

2007

24.15

24.53

26.78

36.03

Heineken N.V. share priceIn EUR, Euronext Amsterdam


44.22

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

0.20

0.26

0.26

0.32

0.32

0.32

0.40

0.40

0.60

Dividend per share (proposed)In EUR


0.70

who hold shares with a market value of €50 million

have the right to request items to be placed on the

agenda of the General Meeting of Shareholders.

Requests to place items on the agenda must be

received by Heineken N.V. at least 60 days before

the date of the General Meeting of Shareholders.

Heineken N.V. reserves the right to refuse to place

an item on the agenda if its inclusion would be

contrary to the Company’s material interest.

Market capitalisation

On 31 December 2007, there were 489,974,594

shares of €1.60 nominal value in issue. At a year-

end price of €44.22 on 31 December 2007, the

market capitalisation of Heineken N.V. on the

balance sheet date was €21.7 billion.

Year-end price €44.22 31 December 2007

High €48.98 2 November 2007

Low €35.72 5 January 2007

* Source: Capital Precision, based on best

estimate January 2008

Shareholder information continued



Based on 101 million shares in free float

• North America 48.1%

• UK/Ireland 15.2%

• Netherlands 2.1%

• Europe (ex. Netherlands) 6.3%

• Rest of the world 0.4%

• Undisclosed 27.9%

Share distribution comparison year-on-year Heineken Holding N.V. shares*Based on Free float: Excluding shares of

L’Arche Green N.V. in Heineken Holding N.V.

0 10 20 30 40 50

24.82

30.80

38.73

22.25

21.70

22.12

25.60

28.80

22.37

26.14

Heineken Holding N.V. share priceIn EUR, Euronext Amsterdam


Share price range

Year-end price

Average trade in 2007: 257,636 shares per day

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Heineken Holding N.V. shares The ordinary shares of Heineken Holding N.V. are

traded on Euronext Amsterdam. The shares are

listed under ISIN code NL0000008977. In 2007, the

average daily trading volume of Heineken Holding

N.V. shares was 257,636 shares.

Right to add agenda items

Shareholders who, alone or together, represent

at least 1 per cent of Heineken Holding N.V.’s issued

capital or who hold shares with a market value

of at least €50 million have the right to request

items to be placed on the agenda of the General

Meeting of Shareholders.

Requests to place items on the agenda must be

received by Heineken Holding N.V. at least 60

days before the date of the General Meeting of

Shareholders. Heineken Holding N.V. reserves the

right to refuse to place an item on the agenda if

its inclusion would be contrary to the Company’s

material interest.

Market capitalisation

On 31 December 2007, there were 245,011,848

ordinary shares of €1.60 nominal value in issue and

250 priority shares of €2.00 nominal value in issue.

At a year-end price of €38.73 on 31 December

2007, the market capitalisation of Heineken

Holding N.V. on balance sheet date was €9.5 billion.

Year-end price €38.73 31 December 2007

High €42.00 24 July 2007

Low €30.09 10 January 2007

* Source: Capital Precision, based on best

estimate January 2008


143

Contacting Heineken N.V. and Heineken Holding N.V.Further information on Heineken N.V. is obtainable

from the Group Corporate Relations and/or

Investor Relations department,

telephone +31 20 523 92 39 or by

e-mail: [email protected].

Further information on Heineken Holding N.V. is

obtainable by telephone +31 20 622 11 52 or fax

+31 20 625 22 13. Information is also obtainable

from the Investor Relations department,

telephone +31 20 523 92 39 or by

email: [email protected].

The website www.heinekeninternational.com

also carries further information about both

Heineken N.V. and Heineken Holding N.V.

Financial calendar in 2008 for both Heineken N.V. and Heineken Holding N.V.Announcement of 2007 results 20 February

Publication of Annual Report 19 March

Annual General Meeting of

Shareholders, Amsterdam 17 April

Quotation ex-fi nal dividend 21 April

Final dividend 2007 payable 25 April

Announcement of half-year

results 2008 27 August

Quotation ex-interim dividend 28 August

Interim dividend 2008 payable 3 September

Bonds Heineken N.V. bonds are listed on the Luxembourg

Stock Exchange. Two bond loans were issued on

4 November 2003. One was issued for €500 million

with an annual coupon of 4.375 per cent,

maturing on 4 February 2010 and listed under ISIN

code XS0179266597.

Another one was issued for €600 million with

a annual coupon of 5.00 per cent, maturing on 4

November 2013 and listed under ISIN code

XS0179266753.

Shareholder information continued



At Heineken we aim to be a leading brewer in each

of the markets in which we operate and to have

the world’s most prominent brand portfolio. The

tables in this chapter show our breweries and

brands worldwide.

1. Western Europe

Heineken is Western Europe’s largest and leading

beer brewer. We have market leadership positions

in the Netherlands, Spain and Italy and we are

the number two player in France, Ireland and

Switzerland. Heineken, and in some cases Amstel,

are also brewed under licence or imported into

several other Western European markets.

2. Central and Eastern Europe

Heineken is the largest brewing group in Central

Europe, leading in Greece, Austria, Romania,

Slovakia, Bulgaria and Macedonia. We are the

number two player in Poland, Croatia and Belarus.

Heineken has strong market positions in Russia,

Germany, Hungary, Serbia and the Czech Republic.

Heineken, and in some cases Amstel, are also

brewed under licence or imported into several

other Central and Eastern European markets.

3. The Americas

Heineken has built a strong position in the

Americas, with exports to the USA, Central

America and the Caribbean. Heineken also owns

a number of breweries in the Caribbean and

Central America and has interests in and licensing

agreements with several breweries in Central and

South America. The agreement of Heineken USA

and FEMSA of Mexico makes Heineken the exclusive

national importer, marketer and seller of FEMSA’s

brands for ten years. Our interest in CCU has

strengthened our position in Chile and Argentina.

4. Africa and the Middle East

Heineken is also very successful in Africa and the

Middle East. We have owned breweries and have

enjoyed substantial market positions in several

African countries for more than 50 years. In Africa

we brew a variety of local brands and in some

countries Heineken and Amstel beer are also

brewed locally. Most of the operating companies

also produce and market soft drinks.

5. Asia Pacifi c

Underpinning our position in the region is our

Singapore-based joint venture with Fraser &

Neave, Asia Pacifi c Breweries (APB). It operates

32 breweries in Singapore, Malaysia, Thailand,

Vietnam, Cambodia, China, New Zealand, Papua

New Guinea, India and Sri Lanka. Heineken is

brewed at several of APB’s breweries throughout

the region. In addition, we have our own breweries

in Indonesia and on New Caledonia. We also import

Heineken into the region. Heineken beer has

a strong market position, particularly in Thailand,

Vietnam, Australia, New Zealand, Singapore and

Taiwan. In the fi rst quarter of 2008, two greenfi eld

breweries will be operational in Laos and India.

Geographical distribution

of Consolidated beer volume

In millions of hectolitres 2007 2006 %

Western Europe 31,910 32,100 (0.6)

Central and

Eastern Europe 51,114 46,925 8.9

The Americas 13,718 13,197 3.9

Africa and the

Middle East 15,668 13,281 18.0

Asia Pacifi c 7,418 6,402 15.9

Consolidated

beer volume 119,828 111,905 7.1

Reach

As at 31 December 2007

Countries and brands


145Other information


Western Europe

Country Company Brewery location Brands

Belgium Affl igem Brouwerij BDS (100%) Opwijk Affl igem

France Heineken France (100%) Marseille, Mons-en-Baroeul,

Schiltigheim, St. Omer

Heineken, Adelscott, Amstel, Buckler,

Desperados, Doreleï, ‘33’ Export,

Fischer tradition, Kriska, Murphy’s Irish

Stout, Pelforth, St. Omer

Ireland Heineken Ireland (100%) Cork Heineken, Amstel, Coors Light, Murphy’s

Irish Stout

Italy Heineken Italia (100%) Aosta, Bergamo, Cagliari,

Massafra, Messina

Heineken, Amstel, Birra Messina, Birra

Moretti, Budweiser, Classica von

Wunster, Dreher, Ichnusa, McFarland,

Murphy’s Irish Stout, Prinz, Sans Souci

Netherlands Heineken Nederland (100%)

Brand Bierbrouwerij (100%)

’s-Hertogenbosch,

Zoeterwoude

Wijlre

Heineken, Amstel, Lingen’s Blond,

Murphy’s Irish Red, Wieckse Witte,

Brand

Spain Heineken España (98.6%) Arano, Jaen, Madrid, Seville,

Valencia

Heineken, Amstel, Buckler, Cruzcampo,

Guinness, Kaliber, Legado de Yuste,

Murphy’s Irish Red

Switzerland Heineken Switzerland (100%) Chur Heineken, Amstel, Calanda, Ittinger,

Murphy’s Irish Stout

Countries and brands continued



Central and Eastern Europe


Austria Brau Union Österreich (100%) Göss, Puntigam, Schladming,

Schwechat, Wieselburg, Zipf

Heineken, Edelweiss, Gösser, Kaiser,

Puntigamer, Schlossgold, Schwechater,

Wieselburger, Zipfer

Belarus Brewing Company Syabar (96%) Babruysk Syabar, Bobrov

Bulgaria Zagorka Brewery (50%) Stara Zagora Heineken, Amstel, Ariana, Stolichno,

Zagorka

Croatia Karlovacka Pivovara (100%) Karlovac Heineken, Desperados, Karlovacko

Czech

Republic

Starobrno (97.6%)

Kralovsky Pivovar Krušovice

(100%)

Brno, Znojmo

Krušovice

Heineken, Amstel, Hostan, Starobrno,

Zlaty Bazant

Krušovice

Germany Paulaner Brauerei (25%)

Kulmbacher Brauerei (31.4%)

Karlsberg (22.5%)

Fürstlich Fürstenbergische

Brauerei (49.9%)

Hoepfner Brauerei (49.9%)

Schmucker Brauerei (49.8%)

Würzburger Hofbräu (31.4%)

Munich, Rosenheim

Chemnitz, Kulmbach, Plauen

Homburg, Koblenz

Donaueschingen

Karlsruhe

Mossautal, Odenwald

Würzburg, Poppenhausen

Hacker-Pschorr, Paulaner, Paulaner

Weissbier

Kulmbacher, Mönchshof, Sternquell-pils

Desperados, Karlsberg, Mixery, UrPils

Bären Pilsner, Fürstenberg, Riegeler,

QOWAZ

Arnegger, Edel-Weizen, Export,

Goldköpfl e, Grape, Hefe Weißbier,

Hoepfner Pilsner, Jubelbier, Keller-

Weißbier, Kräusen, Leicht, Maibock,

Porter, Radler

Schmucker, Odenwälder Zwickel

Würzburger Hofbräu, Werner Bräu,

Lohrer Bier, Wächtersbacher

Greece Athenian Brewery (98.8%) Athens, Patras, Thessaloniki Heineken, Alfa, Amstel, Buckler,

Desperados, Fischer McFarland,

Murphy’s Irish Stout, Zorbas

Hungary Heineken Hungaria (99.6%) Martfü, Sopron Heineken, Amstel, Buckler, Gösser,

Kaiser, Schlossgold, Soproni Ászok,

Talléros, Zlaty Bazant

Kazakhstan Dinal (99.9%) Almaty Heineken, Amstel, Tian Shan

Macedonia Pivara Skopje (50%) Skopje Heineken, Amstel, Gorsko, Skopsko


147


Central and Eastern Europe continued


Poland Grupa Zywiec (61.7%) Bydgoszcz, Cieszyn, Elblag,

Lezajsk, Warka, Zywiec

Heineken, Krolewskie, Kujawiak, Lezajsk,

Specjal, Strong, Tatra, Warka Jasne

Pelne, Zywiec, Budweiser

Romania Heineken Romania (96.3%) Bucuresti, Constanta, Craiova,

Hateg, Miercurea Ciuc

Heineken, Bucegi, Ciuc, Gambrinus,

Golden Brau, Gösser, Schlossgold, Silva

Russia Heineken Breweries (100%)

Heineken Brewery Siberia (100%)

Shikhan Brewery (99.8%)

Volga Brewery (100%)

Patra (100%)

Heineken Brewery Baikal (100%)

PIT Kaliningrad (100%)

PIT Novotroitsk (100%)

Amur-Pivo (100%)

St. Petersburg (2)

Novosibirsk

Sterlitamak

Nizhnyi Novgorod

Ekaterinburg

Irkutsk

Kaliningrad

Novotroitsk

Chabarovsk

Heineken, Amstel, Botchkarov, Ochota,

Zlaty Bazant, Bud, Kirin, Guinness,

Kilkenny, Buckler, Stepan Razin, Kalinkin,

Ordinar

Sobol, Zhigulevskoye

Sedoy Ural, Shikhan, Solyanaya Pristan

Okskoye, Rusich, Volga

Patra, Strelets, Zhigulevskoye

Zhigulevskoye, Yantarnoe, Rizhkoye,

Kumanda, Gubernatorskoye,

Brandmayor

PIT, Docter Diesel, Ostmark, Three

Bears, Gösser, Bitburger, Buckler

PIT, Docter Diesel, Three Bears, Gösser

PIT, Amur-Pivo, Docter Diesel,

Three Bears

Slovakia Heineken Slovensko (100%) Hurbanovo Heineken, Amstel, Corgon, Gemer, Kelt,

Martiner, Zlaty Bazant




The Americas


Argentina Companias Cervecerias Unidas

Argentina (30.7%)

Salta, Santa Fe Heineken, Budweiser, Cordoba,

Rosario, Salta, Santa Fe, Schneider

Bahamas Commonwealth Brewery (53.2%) Nassau Heineken, Guinness, Kalik, Vitamalt

Chile Companias Cervecerias

Unidas (33.1%)

Antofagasta, Santiago,

Temuco

Heineken, Cristal, Escudo

• Costa Rica Cervecería Costa Rica (25%) San José Heineken, Bavaria, Imperial, Pilsen, Rock

Ice

• Dominican

Republic

Cervecería Nacional

Dominicana (9.3%)

Santo Domingo Presidente

• Haiti Brasserie Nationale d’Haïti (23.3%) Port-au-Prince Guinness, Malta, Prestige

• Jamaica Desnoes & Geddes (15.5%) Kingston Heineken, Dragon Stout, Guinness,

Red Stripe

Martinique Brasserie Lorraine (83.1%) Lamentin Heineken, Lorraine, Malta, Porter

• Nicaragua Consorcio Cervecero

Centroamericano (12.4%)

Managua Heineken, Bufalo, Tona, Victoria

Panama Cervecerias Barú-Panama (74.9%) Panama City Heineken, Crystal, Guinness, Panama,

Soberana, Budweiser

St. Lucia Windward & Leeward

Brewery (72.7%)

Vieux-Fort Heineken, Guinness, Piton

Surinam Surinaamse Brouwerij (76.1%) Paramaribo Heineken, Parbo

• Affi liated company (non-consolidated).


149

Africa and the Middle East


Burundi Brarudi (59.3%) Bujumbura, Gitega Amstel, Primus

• Cameroon Brasseries du Cameroun (8.8%) Bafoussam, Douala, Garoua,

Yaoundé

Amstel, Dynamalt, Mützig

Congo Brasseries du Congo (50%) Brazzaville, Pointe Noire Amstel, Guinness, Maltina, Mützig,

Ngok, Primus, Turbo King

Democratic

Republic of

Congo

Bralima (95%) Boma, Bukavu, Kinshasa,

Kisangani, Mbandaka

Amstel, Guinness, Maltina, Mützig,

Primus, Turbo King

Egypt Al Ahram Beverages

Company (99.9%)

Badr, El Obour, Sharkí Heineken, Birell, Fayrouz, Meister,

Sakara, Stella

• Ghana Guinness Ghana

Breweries Ltd. (20%)

Accra, Kumasi Amstel Malt, Guinness, Gulder, Star

Israel Tempo Beverages Limited (40%) Netanya Heineken, Gold Star, Maccabee, Malt

Star, Nesher

• Jordan General Investment (10.8%) Zerka Amstel

Lebanon Almaza (67%) Beirut Almaza, Laziza

• Morocco Brasseries du Maroc (2.2%) Casablanca, Fès, Tanger Heineken, Amstel

• Namibia Namibia Breweries (14.5%) Windhoek Heineken, Beck’s, Guinness, Killkenny,

Windhoek

Nigeria Nigerian Breweries (54.1%)

Consolidated Breweries (50.1%)

Aba, Ama, Ibadan, Kaduna,

Lagos

Jjebu Ode, Owe Omamma

Heineken, Amstel Malta, Gulder, Legend,

Maltina, Star

“33” Export, Hi-malt

Réunion Brasseries de Bourbon (85.7%) Saint Denis Bourbon, Dynamalt

Rwanda Bralirwa (70%) Gisenyi, Kigali Amstel, Guinness, Mützig, Primus

• Sierra Leone Sierra Leone Brewery (42.5%) Freetown Heineken, Guinness, Maltina, Star

South Africa ** Johannesburg

Tunisia Société de Production et de

Distribution des Boissons (49.99%)

Tunis Heineken


** Under construction.



150


Other information

Asia Pacifi c


Cambodia Cambodia Brewery (33.5%) Phnom Penh ABC Extra Stout, Anchor, Gold Crown,

Tiger

China Shanghai Asia

Pacifi c Brewery (44.6%)

Hainan Asia Pacifi c (46%)

• Kingway Brewery (9.9%)

• Jiangsu Da Fu Hao

Breweries (22.5%)

Guangzhou Asia Pacifi c Brewery

(46%)**

Shanghai

Haikou

Shantou, Shenzhen

Nantong, Tongzhou, Qidong,

Yancheng

Guangzhou

Heineken, Reeb, Tiger

Anchor, Aoke, Tiger

Kingway

BBOSS, Tongzhou, Changjiang

India Asia Pacifi c Breweries

(Aurangabad) (31.9%)

Asia Pacifi c Breweries – Pearl

Private (28.1%)**

Chowgule

Hyderabad

Cannon – 10000, Arlem

Indonesia Multi Bintang Indonesia (84.5%) Sampang Agung, Tangerang Heineken, Bintang, Guinness, Bintang

Zero, Green Sands

Laos Lao Asia Pacifi c Breweries

(28.5%)**

• Malaysia Guinness Anchor Berhad (10.7%) Kuala Lumpur Heineken, Anchor, Baron’s, Guinness,

Kilkenny, Tiger, Lion, Malta, Anglia

Mongolia Asia Pacifi c Breweries (23.1%) Ulaan baatar Tiger

New

Caledonia

Grande Brasserie de Nouvelle

Calédonie (87.3%)

Noumea Heineken, Number One, Desperados

New Zealand DB Breweries (41.9%) Greymouth, Mangatainoka,

Otahuhu, Timaru

Heineken, Amstel, DB Draught, Export

Gold, Export Dry, Tiger, Erdinger, Sol,

Budejovicky Budvar, Monteith’s, Tui

Papua New

Guinea

South Pacifi c Brewery (31.8%) Lae, Port Moresby Niugini Ice Beer, South Pacifi c Export

Lager, SP Lager

Singapore Asia Pacifi c Breweries (41.9%) Singapore Heineken, ABC Extra Stout, Anchor,

Baron’s, Tiger, Gold Crown, Sol

Sri Lanka Asia Pacifi c Brewery (Lanka)

(25.2%)

Mawathagama Archipelago, Bisonxxtra, Kings Lager,

Pilsener, Stout

• Thailand Thai Asia Pacifi c Brewery (14.7%) Bangkok Heineken, Tiger, Cheers

Vietnam Vietnam Brewery (25.2%)

Hatay Brewery (41.9%)

Foster's Da Nang Co (41.9%)

Foster's Tien Giang (25.2%)

Ho Chi Minh City

Hatay

Heineken, Bivina, Tiger, Coors Light

Heineken, Anchor Draft, Tiger

Coors Light, Foster's, Bier Larue


** Under construction


151

Historical summary

Other information

Dutch Dutch Dutch Dutch Dutch Dutch Dutch

IFRS IFRS IFRS IFRS GAAP GAAP GAAP GAAP GAAP GAAP GAAP

2007 2006 2005 2004 2004 2003 2002 2001 2000 1999 1998

Revenue and profi tIn millions of EUR

Revenue 12,564 11,829 10,796 10,062 10,005 9,255 8,482 7,637 6,766 5,973 5,347

Results from operating activities 1,503 1,805 1,249 1,348 1,248 1,222 1,282 1,125 921 799 659

Results from operating (beia) 1,821 1,543 1,363 1,355 1,329 1,327 1,282 1,125 921 799 659

as % of revenue 14.5 13.0 12.6 13.5 13.3 14.3 15.1 14.7 13.6 13.4 12.3

as % of total assets 14.0 11.9 11.5 12.6 12.8 12.2 16.4 15.6 14.6 13.3 12.4

EBITDA/net interest expenses 22.7 19.7 14.8 12.2 11.2 13.3 16.6 22.5 21.0 30.1 92.7

Net profi t 807 1,211 761 642 537 798 795 767 621 516 445

Net profi t (beia) 1,119 930 840 803 791 806 795 715 621 516 445

as % of equity attributable to

equity holders of the Company 20.7 18.6 21.2 24.7 23.4 25.4 30.1 25.9 25.9 19.7 19.4

Dividend proposed 343 294 196 196 196 157 157 157 125 125 100

as % of net profi t 42.5 24.3 25.8 30.5 36.5 19.7 19.7 20.5 20.1 24.2 22.4

Bonus sharesIn millions of EUR

Increase in share capital – – – – – – – 73 – – 142

Cash payment – – – – – – – – – – 16

Distribution from reserves – – – – – – – 73 – – 158

Percentage increase – – – 25 25 – – 10 – – 25

Per share of €1.601

In millions of EUR

Cash fl ow from

operating activities 3.53 3.77 3.82 3.29 3.10 3.34 2.42 2.38 2.11 1.91 1.80

Net profi t (beia) 2.28 1.90 1.71 1.64 1.61 1.64 1.62 1.46 1.27 1.05 0.91

Dividend proposed 0.70 0.60 0.40 0.40 0.40 0.32 0.32 0.32 0.26 0.26 0.20

Equity attributable to equity

holders of the Company 11.04 10.23 8.10 6.65 6.90 6.46 5.38 5.63 4.89 5.34 4.69

Bonus shares (par value) – – – – – – – 0.23 – – 0.57

Cash payment – – – – – – – – – – 0.06

Cash fl ow statementIn millions of EUR

Cash fl ow from operating activities 1,730 1,849 1,872 1,611 1,520 1,638 1,184 1,165 1,035 935 882

Dividend (450) (294) (271) (243) (243) (241) (187) (168) (160) (112) (114)

Investing (1,263) (799) (1,194) (1,795) (1,671) (2,081) (1,973) (783) (1,503) (527) (728)

Financing (206) (355) (321) (123) (125) 1,233 427 (39) 335 (13) 80

Net cash fl ow (189) 401 86 (550) (519) 549 (549) 175 (293) 283 120

1 Adjusted for the 5:4 share split in 2004.

All years prior to 2005 have been restated using the current number of issued shares of 489,974,594.

152


153



2007 2006 2005 2004 2004 2003 2002 2001 2000 1999 1998

FinancingIn millions of EUR

Share capital 784 784 784 784 784 784 784 784 711 711 711

Reserves and retained

earnings 4,620 4,225 3,185 2,472 2,595 2,383 1,853 1,974 1,685 1,907 1,588


holders of the Company 5,404 5,009 3,969 3,256 3,379 3,167 2,637 2,758 2,396 2,618 2,299

Minority interest 542 511 545 477 483 732 393 381 124 248 256

Total equity 5,946 5,520 4,514 3,733 3,862 3,899 3,030 3,139 2,520 2,866 2,555

Employee benefi ts 646 665 664 680 680

Provisions (incl. deferred tax liabilities) 805 835 766 725 568 1,367 981 1,024 976 770 733

Non-current liabilities 1,521 2,091 2,233 2,638 2,642 2,721 1,215 797 875 490 522

Current liabilities (excl. provisions) 4,050 3,886 3,652 3,001 2,666 2,910 2,555 2,235 1,892 1,860 1,460

Liabilities 5,571 5,977 5,885 5,639 5,308 5,631 3,770 3,032 2,767 2,350 1,982

Total equity and liabilities 12,968 12,997 11,829 10,777 10,418 10,897 7,781 7,195 6,263 5,986 5,270


holders of the Company/(employee

benefi ts, provisions, and liabilities) 0.77 0.74 0.62 0.53 0.59 0.56 0.64 0.77 0.67 0.92 0.94

Employment of capitalIn millions of EUR

P, P & E 5,362 4,944 5,067 4,773 5,127 4,995 4,094 3,592 3,250 2,964 2,605

Intangible fi xed assets 2,541 2,449 2,380 1,837 1,720 1,151 39 13 – – –

Financial fi xed assets 1,221 1,367 1,104 1,035 779 1,122 835 531 615 422 490

Total non-current assets 9,124 8,760 8,551 7,645 7,626 7,268 4,968 4,136 3,865 3,386 3,095

Inventories 1,007 893 883 782 779 834 765 692 550 490 452

Trade and other receivables 1,873 1,779 1,787 1,646 1,309 1,379 1,270 1,192 1,024 903 775

Cash and other current assets 964 1,565 608 704 704 1,416 778 1,175 824 1,207 948

Current assets 3,844 4,237 3,278 3,132 2,792 3,629 2,813 3,059 2,398 2,600 2,175

Total assets 12,968 12,997 11,829 10,777 10,418 10,897 7,781 7,195 6,263 5,986 5,270

Total equity/Total

non-current assets 0.65 0.63 0.53 0.49 0.51 0.54 0.61 0.76 0.65 0.85 0.83

Current assets/

Current liabilities 0.95 1.09 0.90 1.04 1.05 1.25 1.10 1.37 1.27 1.40 1.49



2007 2006 2005 2004 2004 2003 2002 2001 2000 1999 1998

Revenue – – – – – – 10,293 9,333 8,107 7,149 6,272

Adjustments:

Excise duties – – – – – – (1,282) (1,226) (1,093) (984) (819)

Variable selling expenses – – – – – – (529) (300) (248) (192) (106)

Correction

adjustment 2002/1996 – – – – – – – (170) – – –

Revenue 12,564 11,829 10,796 10,062 10,005 9,255 8,482 7,637 6,766 5,973 5,347


BeiaBefore exceptional items and amortisation

of brands.

Cash conversion ratioFree operating cash fl ow/Net profi t (beia)

before deduction of minority interests.

DepletionsSales by distributors to the retail trade.

Dividend payoutProposed dividend as percentage of net

profi t (beia).

Earnings per share Basic

Net profi t divided by the weighted average

number of shares – basic – during the year.

Diluted

Net profi t divided by the weighted average

number of shares – diluted – during the year

EBITEarnings before interest and taxes and net

fi nance expenses.

EBITDAEarnings before interest and taxes and net fi nance

expenses before depreciation and amortisation.

Effective tax rateTaxable profi t adjusted for share of profi t of

associates, dividend income and impairments

of other investments.

Fit2FightCost saving programme aimed at reducing

the fi xed cost base versus 2005 by €450 million

by 2008.

Fixed costs under Fit2Fight

Fixed costs under Fit2Fight include personnel

costs, depreciation and amortisation, repair

and maintenance costs and other fi xed costs.

Exceptional items are excluded from these costs.

Fixed costs ratio

Fixed costs under Fit2Fight as a percentage

of revenue.

Free operating cash fl owThis represents the total of cash fl ow from

operating activities, and cash fl ow from

operational investing activities.

GearingNet debt/shareholders’ equity.

Net debtNon-current and current interest-bearing loans

and borrowings and bank overdrafts less

investments held for trading and cash.

Net profi tProfi t after deduction of minority interests (profi t

attributable to equity holders of the Company).

Organic growth Growth excluding the effect of foreign

exchange rate movements, consolidation changes,

exceptional items, amortisation of brands and

changes in accounting policies.

Defi nitions of terms and phrases used in this report

Glossary



Organic volume growth Increase in consolidated volume, excluding

the effect of the fi rst time consolidation

of acquisitions.

Profi tTotal profi t of the Group before deduction

of minority interests.

® All brand names mentioned in this Annual Report,

including those brand names not marked by an ®,

represent registered trade marks and are legally

protected.

RegionA region is defi ned as Heineken’s managerial

classifi cation of countries into geographical units.

Revenue Net realised sales proceeds in Euros.

Top-line growth Growth in net revenue.

VolumeAmstel® volume

The group beer volume of the Amstel brand.


100 per cent of beer volume produced and

sold by fully consolidated companies and

the share of beer volume brewed and

sold by proportionately consolidated joint-

venture companies.

Group beer volume

The part of the total Group volume that relates

to beer.

Heineken® volume

The Group beer volume of the Heineken brand.

Heineken® volume in premium segment

The Group beer volume of the Heineken brand in

the premium segment (Heineken volume in the

Netherlands is excluded).

Total beer volume

The Group beer volume in a country.

Total group volume

100 per cent of beer, soft drinks and other

beverages volume produced and sold by fully

consolidated companies and by proportionately

consolidated joint-venture companies as well as

the volume of Heineken’s brands produced and

sold under licence by third parties.

Weighted average number of sharesBasic

Weighted average number of issued shares

adjusted for the weighted average of own shares

purchased in the year.

Diluted

Weighted average number of basic shares after

adjustment for the effects of all dilutive own

shares purchased.


155

A Heineken N.V. publication

Heineken N.V. P.O. Box 28

1000 AA Amsterdam

The Netherlands

telephone +31 20 523 92 39

fax +31 20 626 35 03

Copies of the Annual Report and further

information are obtainable from the

Group Corporate Relations department

via www.heinekeninternational.com

Production and editing Heineken N.V. Group Corporate Relations

Text Heineken International

Translation into Dutch V V H Business Translations, Utrecht,

the Netherlands

PhotographyAndreas Pohlmann, Munich

The packshot company Ltd, London

Heineken International

Graphic design and electronic publishingAddison Corporate Marketing Ltd, London

Printing Boom & van Ketel Grafi media, Haarlem,

the Netherlands

Binding and distributionHexspoor, Boxtel, the Netherlands

Paper 9lives 55 silk 300 gms cover

9lives 55 silk 135 gms inside pages 01–64

9lives 55 silk 100 gms inside pages 65–156

9lives 55 is produced by an ISO 14001 accredited

manufacturer and is certifi ed as an FSC mixed

sources product. It is produced with 55% recycled

fi bre from both pre- and post-consumer sources,

together with 45% virgin elementary chlorine free

(ECF) fi bre sourced from well-managed forests.

This Report is available in the Dutch language

as well. In the event of any discrepancy between

language versions, the English version prevails.

More from Heineken online:

www.heinekeninternational.com

www.heineken.com

www.enjoyheinekenresponsibly.com

Reference information



01 Profi le

02 Performance highlights

04 Milestones 2007


06 Chief Executive’s statement

10 Outlook 2008

12 Executive Committee

14 Operational review

14 Top-line growth

14 The Heineken brand

16 Innovation, research and development

17 International marketing

18 Shifting the balance

18 The Amstel brand

19 Sustainability

21 Personnel and organisation

22 Regional review

22 Western Europe

26 Central and Eastern Europe

30 Americas

34 Africa and the Middle East

38 Asia Pacifi c

42 Risk management

47 Financial review

52 Dutch Corporate Governance Code

56 Decree Article 10


58 To the shareholders

61 Supervisory Board

62 Remuneration report

Financial statements

65 Consolidated income statement

66 Consolidated statement of recognised

Income and expense

67 Consolidated balance sheet

68 Consolidated statement of cash fl ows

70 Notes to the consolidated fi nancial

statements

132 Heineken N.V. balance sheet

133 Heineken N.V. income statement

134 Notes to Heineken N.V.


Other information

138 Auditor’s report

140 Appropriation of profi t

141 Shareholder information

145 Countries and brands

152 Historical summary

154 Glossary

156 Reference information

Contents

2007 Annual Report

Also see www.enjoyheinekenresponsibly.com

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