RISK MANAGEMENT CONTINUED
HEINEKEN N.V. ANNUAL REPORT 20CH
Financial risks
Currency risk
Fleineken operates internationally and reports in euros,
which has proven to be a very strong currency over the
past few years. Currency fluctuations, relating to the US
Dollar, South African Rand and, to a lesser extent, the British
Pound could materially affect overall Company results,
considering the size of exports from the Euro-zone to
mainly the USA and South Africa.
Heineken has a clear policy on hedging transactional
exchange risks, which postpones the impact on financial
results. Translation exchange risks are hedged to a limited
extent. In 2008, operating results of operating companies
in countries with currencies that devaluated versus the
euro are translated into euro at lower rates. Since the Group
attracts funding and pays interest in these currencies as
well, the impact of devaluations of such currencies like
Rouble, British Pound and Zloty on our results is mitigated
to a certain extent.
The sensitivity of the financial results with regard to currency
risks are explained on page 120.
Capital availability
We have taken on new debt to finance our entry into 11 new
markets in a short period of 18 months. Consequently, total
Net debt increased significantly. The Company has a strong
focus on cash generation to reduce our debt levels and
improve our financing ratios. Financing and liquidity are
explained further on page 52. Given the current credit
markets situation, the Company has a clear focus on ensuring
sufficient access to capital markets to refinance maturing
debt obligations and to finance long-term growth. The
Company aims to further fine-tune the maturity profile of its
long-term debts. Financing strategies are under continuous
evaluation. Terms and conditions of additional refinancing
may be impacted by the credit market situation. Strong cost
and cash management and strong controls over investment
proposals are in place to ensure effective and efficient
allocation of financial resources.
Regulatory risks
Tax
Fleineken and its operating companies are subject to a
variety of local excise and other tax regulations. Group Fisca
Affairs is in the process of structuring tax risk management
through the roll-out of a Tax Control Framework. Beer excise
duties could have strong impact on the financial results.
In principle, Fleineken's sales prices are adjusted to reflect
changes in the rate of excise duty, but increased rates may
have a negative impact on sales volume.
Litigation
Due to increasing legislation there is an increased possibility
of non-compliance. Additionally, more supervision by
regulators and the growing claim culture may potentially
increase the impact of non-compliance, both financially
and on the reputation of the Company. Every half year all
majority-owned companies formally report outstanding
claims and litigations against the Company in excess of
€1 million to Group Legal Affairs, including an assessment
of the amounts to be provided for.
There may be current risks not having a significant impact
on the business but which could - in a later stage - develop
a material impact on the Company's business. The Company's
risk management systems a re focused on timely discovery of
such risks.
