32. Financial risk management and financial instruments
Notes to the consolidated financial statements
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
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 consolidated statement of financial position.
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
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. As a result of the deteriorating economic circumstances in 2008 and 2009, certain purchase limits
have been redefined. 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 only with approval of Management.
Annual Report 2009 -