47
HEINEKEN N.V. ANNUAL REPORT 2008
Stability of Africa and the Middle East Region
In the Africa and the Middle East Region, volume growth is
driven by economic growth in Nigeria, the Middle East and in
Central Africa. The Region remains stable and is at peace in
most areas. In the DRC, the current unrest is restricted to the
north-eastern regions. We are monitoring developments
closely but believe that the conflict will remain localised and
will not spill over into the remainder of the country or wider.
Economic downturn from credit crunch
Changes in the economic environment following the credit
crunch has impact on our regular business activities and
performance, in particular in the on-premise. The business
impact will differ across the regions and operations. Local
management assessed the risk exposure following central
instructions and is taking action to mitigate higher than
sual risks. Focus is being given in the areas of customers
nanaging trade receivables and loans) and suppliers
inancial position critical suppliers). Also management
Tention is given to our relationships with banks (see
apital availability risk) and insurance companies (credit
orthiness (re)insurance companies). Although pension fund
;sets deteriorated in values significantly per year-end, the
npact on 2008 cash premiums was limited because of
mg-term financing arrangements. Regional management
nd involved Group functions oversee the effectiveness of
ianagement analysis and action, supported by input from
ternal auditors.
perational risks
eorganisations
any reorganisation projects (amongst others, centralisation
f back office activities, closure of breweries and other
ghtsizing and downsizing activities) have been realised,
re underway or are in preparation. Highest impact is in the
ipply chain, wholesale business and support functions in
jrope and Americas. The risk is that due to social unrest, the
'oduction quality and supply continuity would be affected,
hich might negatively impact financial performance and
ompany reputation. The operating companies concerned
ianage reorganisation projects with care; the right speed,
ignment with relevant industrial and external relations and
onsistent communication to employees.
ontingency plans have been put in place and clear targets
re set on achieving the main change objectives. Since
'locating sufficient management attention to the many
^organisation projects in addition to managing the regular
usiness is considered critical, priority setting is monitored
osely. Risk management structures are overall well
nbedded, however, further structuring is required.
Acquisitions and business integration
In the pursuit of further expansion, Heineken seeks to strike
a balance between organic and acquired growth. In recent
years, Heineken has been very acquisitive, with smaller
transactions in mostly emerging markets and the S&N
acquisition. In any acquisition, Heineken is faced with
different cultures, business principles and political, economic
and social environments. This may affect corporate values,
image and quality standards. It may also impact the
realisation of long-term business plans, including synergy
objectives, underlying the value of newly acquired
companies. Due to the relative size of S&N, specifically
any risks materialising from this transaction could have
a significant impact on Heineken.
In order to mitigate these risks, Heineken continuously
improves its business development and integration
activities, which includes significant involvement by relevant
Group departments, operating companies and regional
management in carrying out effective due diligence
processes and preparing take charge and integration plans.
Heineken has best practice programmes in place for
acquisition and integration processes, which includes the
adaptation to the Heineken Common Systems.
Supply continuity
Discontinuity of supply of our products could affect sales
and market shares. This is not considered a major risk due
to the relative size and spread of operations. An exception
is the supply of beer products from the Netherlands to the
USA, one of Heineken's most profitable markets. Heineken
Netherlands Supply is in the process of implementing a more
structured Business Continuity Management System focusing
on the supply to the USA. Securing timely supply of raw and
packaging materials is strongly coordinated by our central
purchasing discipline. Securing supply of fast-growing
innovations like DraughtKeg is considered critical, since
we also depend on partnerships.
Information security
Heineken's worldwide operations are increasingly reliant
on information systems. Heineken has a strict information
security policy to ensure confidentiality, integrity and
availability of information and to guarantee IT control.
Structured compliance monitoring is in place by self-
assessments and audits. The increased attention for
Information Security and IT Control has a positive impact
on the compliance level with the policy, the awareness of IT
risks, and the measures to mitigate these risks. The increased
centralisation of IT systems allows central enforcement of
security measures across Operating Companies, but the
impact of any security incident will also be much larger
and requires strict monitoring.