Notes to the consolidated financial statements
114 Financial statements
30. Financial risk management and financial instruments
Credit risk
Credit risk is the risk of financial loss to Heineken if a customer or counterparty to a financial 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 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.
Loans to customers
Heineken's exposure to credit risk is mainly influenced 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 influence 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 profile 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 specific loss component that relates to individually
significant exposures, and a collective loss component established for groups of similar customers
in respect of losses that have been incurred but not yet identified. 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 profile, maturity and existence of previous
financial difficulties. 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-specific 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 specific
loss component and a collective loss component.
Heineken N.V. Annual Report 2007