50. Risk management
of 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. Monitoring business continuity risks
will be further structured in 2006.
IT security
Heineken's worldwide operations are increasingly
relying on information systems.
Heineken has a strict IT security policy to ensure
confidentiality, integrity and availability of
information. Tools are used to support compliance
with that policy and compliance monitoring is
applied. A more structured IT auditing approach
will be implemented in 2006.
Financial risks
Currency risks
Heineken operates internationally and reports
in Euros. Currency fluctuations, especially relating
to the US dollar, could 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 currency risks are explained on page 98.
Capital availability and liquidity risks
There could be insufficient capital generated
in order to finance the long-term growth.
Regulatory risks
Tax
Heineken and its operating companies are subject
to a variety of local excise and other tax
regulations. If the beer excise would be averaged in
the European Union, a significant increase of excise
may be the result in various European markets.
In principle, Heineken's sales prices are adjusted
to reflect changes in the rate of excise duty, but
increased rates may have a negative impact on
sales volume.
Increasing legislation
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 financially and on the
reputation of the Company.
As from 2005, every half year all majority-owned
companies formally report litigations to Group
Legal Affairs. The information includes outstanding
litigations, details about lawsuits, and the risk
and extent of potential claims in order to determine
the amounts to be provided.
There may be current risks that the Company has
not fully assessed, and are currently identified as
not having a significant 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 incidents.
Sufficient access to capital is ensured to finance
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 efficient allocation
of financial resources.
Heineken N.V. - Annual Report 2005