RISK MANAGEMENT
HEINEKEN N.V. ANNUAL REPORT 200 I
Strategic risks
Heineken brand and Company reputation
As both the Group and its most valuable brand carry
the same name, reputation management is of utmost
importance. Heineken enjoys a positive corporate reputation
and our operating companies are well respected in their
region. Constant management attention is directed towards
enhancing Heineken's social, environmental and financial
reputation. The Heineken brand is, along with our people,
our most valuable asset and one of the key elements in
Heineken's growth strategy with a portfolio that combines
the power of local and international brands. Anything that
adversely affects consumer or stakeholder confidence in the
Heineken brand or Company could have a negative impact
on the overall business.
Reputation and sales could be damaged by product integrity
issues. Therefore, production and logistics are subject to
rigorous quality standards and monitoring procedures, which
were further strengthened in 2008. The Heineken brand
strategy and positioning are centrally managed and strict
policies and marketing control procedures are in place.
A Code of Business Conduct and Whistleblowing Procedure
aim to prevent any unethical and irresponsible behaviour of
the Company or its employees.
During the year under review, a new practical crisis manual
was developed and distributed throughout the business.
Alongside this, a simulation workshop is being rolled out
throughout the business. All Heineken operating companies
are required to complete this workshop and undertake a
'refresher' exercise at least once every two years.
The Company also invests considerable resource in activities
which drive sustainability and support the Company
reputation. Heineken's Sustainability Report outlines
Heineken's priorities, goals and achievements in these areas.
The report can be viewed on www.Heinekeninternational.com
Pressure on alcohol
An increasingly negative perception in society towards
alcohol could prompt legislators to restrictive measures.
Limitations in advertising could lead to a decrease in sales
and damage the industry in general. Sales of Heineken
products could materially decrease, in particular in Europe.
Heineken's Alcohol Policy is based on the principle to brew,
market, and sell beer in ways that have a positive impact
on society at large. With this policy, Heineken promotes
awareness of the advantages and disadvantages of alcohol,
encouraging informed consumers to be accountable for their
own actions. Markets are becoming more and more engaged
to promote responsible consumption through different
means of communication including internet and in
partnership with third parties. In 2008, the 'Enjoy Heineken
Responsibly' programme (a responsibility message on
back labels directing consumers to a dedicated website)
has been extended to other major brands whereas the
'enjoy' responsibly message has been further integrated
in the commercial communication area. Heineken has
actively participated in the EU Forum and has delivered
its commitments in the area of consumer information,
alcohol consumption at the workplace and commercial
communication. Our internal programmes Cool@Work and
Responsible Commercial Communication, which are being
monitored continuously, remain important building blocks
of our policy. Heineken is also actively engaged in the
process of the World Health Organisation in developing
a global strategy on alcohol related harm.
Attractiveness of beer category under pressure
Heineken has many operations in mature beer markets
where the attractiveness of the beer category is being
challenged by other beverage categories. In these markets,
especially, the on-trade channel is under pressure, which
makes adjustments to the cost base unavoidable. Heineken
is relatively highly geared to mature markets since their
acquisition of S&N. Management focus is on product
innovation, portfolio management and cost-effectiveness
in order to secure market position and profitability.
Volatility of input costs
Input costs (including transportation and energy) acceleratet
to unprecedented levels in 2008. The world economic
climate and our active re-negotiation efforts has since meani
that some commodities (such as barley, aluminium and
energy) have come off the peak levels reached in mid-2008,
however the costs of some packaging materials (glass
bottles, steel cans/kegs and crown corks) continue to
increase. In addition the outlook is strongly regionalised
and also effected by currency fluctuations.
Group Purchasing ensures Heineken's scale is leveraged by
making use of flexibility in contracts and active hedging to
minimise input cost increases and maximise opportunities
for reductions. During 2008 our hedging strategy provided
an effective shield against peak prices, and similar strategies
have been put in place to secure 2009 and future supply at
effective cost. Despite the high volatility of input costs and
recent reductions in some costs categories, we anticipate
and plan to manage further rises in the future. In addition,
changes in packaging mixes continue to put pressure on
input costs.
Pricing strategies are top priority in all our markets. This
includes assessments of customer, consumer and competitoi
responses based on different pricing scenarios, which will
have different outcomes market by market. In principle, we
will pass on increased input costs. The effect on volume
developments is at present unclear.
