Credit risk
Management has credit policies in place and the exposure to credit risk is monitored on an ongoing
basis. Credit evaluations are performed on all customers requiring credit over a certain amount.
Heineken does not require collateral in respect of financial assets.
Transactions involving hedging instruments and investments, only allowed in liquid securities, are
conducted only with counter parties that have a credit rating of minimal single A or equivalent. Given
their high credit ratings, management does not expect any counter party to fail to meet its obligations.
At balance sheet date there were no significant concentrations of credit risk. The maximum exposure
to credit risk is represented by the carrying amount of each financial instrument, including derivative
financial instruments, in the balance sheet.
Interest rate risk
Heineken opts for a well-balanced mix of fixed and variable interest rates in its financing operations,
possibly combined with the use of interest rate instruments. Currently Heineken's interest rate position
is more fixed then floating. The interest rate instruments used are interest rate swaps, forward rate
agreements, caps and floors.
Swaps mature over the next years following the maturity of the related loans and have swap rates
n iging from 3.4 per cent to 5.5 per cent (2005: from 2.1 per cent to 5.5 per cent).
In principle Heineken applies hedge accounting to interest rate swaps and states them at fair value.
F eign currency risk
H ineken is exposed to foreign currency risk on sales, purchases and borrowings that are denominated
ir a currency other than the respective functional currencies of Heineken entities. The currencies
g ing rise to this risks are primarily US Dollars, Chilean Pesos, Singapore Dollars, Nigerian Nairas,
R ssian Rubles and Polish Zloty.
H ineken hedges up to 90 per cent of its mainly intra Heineken US Dollar cash flows on the basis of
r ling cash flow forecasts in respect to forecasted sales and purchases. Cash flows in other foreign
c rrencies are also hedged on the basis of rolling cash flow forecasts. Heineken uses mainly forward
e change contracts to hedge its foreign currency risk. Most of the forward exchange contracts have
rr iturities of less than one year after the balance sheet date.
T e Company has a clear policy on hedging transactional hedging risks, which postpones the impact
0 financial results. Translation exchange risks are not hedged.
C mmodity risk
C mmodity risk is the risk that changes in commodity prices will affect Heineken's income. The
c jective of commodity risk management is to manage and control commodity risk exposures within
a ceptable parameters, whilst optimising the return on risk. So far, commodity trading by the Company
i: imited to the sale of surplus C02 emission rights.
F ineken does not enter into commodity contracts other than to meet Heineken's expected usage and
s e requirements.
1 ir commitments and forecasted transactions
F ineken classifies its forward exchange contracts and options, hedging forecasted transactions and
f m commitments, as cash flow hedges and states them at fair value.
S isitivity analysis
I managing interest rate and currency risks Heineken aims to reduce the impact of short-term
fl ctuations on Heineken's earnings. Over the longer term, however, permanent changes in foreign
e change and interest rates would have an impact on profit.
Heineken N.V. A
Annual Report 2006 .LVs I
