Operational risks
Financial risks
69 Heineken N.V. Annual Report 2004 Report of the Executive Board Governance
from current levels, sales of Heineken products could materially decrease.
Heineken's Alcohol Policy is based on the principle to produce, market, and sell beer in ways that
have a positive impact on society at large. With this policy, Heineken promotes awareness of the advan
tages and disadvantages of alcohol, encouraging informed consumers to be accountable for their own
actions.
Attractiveness of Beer Category under pressure
Heineken has many operations in mature Western European 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 and portfolio management in order
to secure market position and profitability. Since Heineken is acquiring new businesses in emerging
markets, the relative dependency on profitability from mature markets will decline.
Growth in emerging markets and business integration
In the pursuit of further expansion, Heineken seeks to strike a balance between organic and acquired
growth within the limit of a conservative financing structure. Following its expansion in emerging
markets, Heineken will be faced with different cultures, business principles and political environments,
which may affect corporate values, image and quality standards. It may also impact the realisation
of long-term business plans including synergy objectives, underlying the valuation of new acquired
companies.
Heineken is strengthening its business development and integration processes, which includes
significant involvement from relevant corporate departments and regional management in carrying
out effective due diligences and preparing integration plans. Timely and sound integration of acquired
businesses should ensure control and the realisation of synergies.
Business continuity
Business interruptions could affect sales and market shares. These are not considered a major risk
due to the relative size and spread operations. An exception is the supply of beer products from
the Netherlands to the USA, one of Heineken's most profitable markets.
Contingency measures, involving multi-sourcing locations in Europe are in place and Heineken's
central purchasing department manages long-term contracts with preferred suppliers in order to
secure supply of critical raw and packaging materials.
IT security
IT has a growing impact on Heineken's worldwide business operations, and connectivity in the
company and with outside partners is increasing.
Heineken has a strict IT security policy to ensure confidentiality, integrity and availability of
information and data. Support and monitoring activities towards operating companies are being
strengthened. IT contingency measures with regard to the partly outsourced IT shared service
centre are under review and will be further strengthened.
Currency risks
Heineken operates internationally and reports in euros. Currency fluctuations, especially relating
to the US dollar, materially affect overall Company results.
Heineken has a clear policy on hedging transactional exchange risks, which postpones the impact
on financial results. Translation exchange risks are not hedged. The sensitivity on the financial
results with regard to US dollar positions are explained on page 95.
