NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
HEINEKEN N.V. ANNUAL REPORT 2008
30. Financial risk management and financial instruments
Overview
Heineken has exposure to the following risks from its use of financial 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, and it summarises
Heineken's policies and processes that are in place for measuring and managing risk, including those
related to capital management. Further quantitative disclosures are included throughout these consolidated
financial statements.
The Executive Board, under the supervision of the Supervisory Board, has overall responsibility and sets
rules for Heineken's risk management and control systems. They are reviewed regularly to reflect changes
in market conditions and the Group's activities. The Executive Board oversees the adequacy and functioning
of the entire system of risk management and internal control, assisted by Group departments.
The Group Treasury function focuses primarily on the management of financial risk and financial resources.
Some of the risk management strategies include the use of derivatives, primarily in the form of forward
exchange contracts and interest rate swaps, but options can be used as well. It is the Group policy that no
speculative transactions are entered into.
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.
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.