Risk Management and Control System (continued)
46 Annual Report 2009 - Heineken N.V.
Company reputation, brand image and revenue could be
impacted by product integrity issues. Therefore, the whole
supply chain of all Heineken Operating Companies are
subjected to high quality standards and intensive monitoring
procedures to secure product integrity in accordance with
international certifying bodies.
Starting in 2010, Heineken will begin the roll out of a
reputation survey with critical stakeholders at both a global
and national level. This will further mitigate reputational risk
and provide a clearer view of the Company's reputation.
A Code of Business Conduct and Whistle-blowing 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
that 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 and more specifically alcohol abuse could prompt
legislators to take restrictive measures including restrictions,
on such things as commercial freedom and increased
government tax. This perception is fed by critical coverage
in the media. Further restrictions of our commercial freedom
to promote and sell our products could lead to a decrease
in brand equity and potentially in sales and damage the
industry in general.
Heineken actively participates in the EU Forum on Alcohol
and Health and delivered its commitments in the area of
consumer information, alcohol consumption at the workplace
and commercial communication. In 2009, Heineken continued
to work on establishing effective self-regulation in the EU
together with the Brewers of Europe. We also filed our
multi-market campaign "Know the signs" at the EU Forum.
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. We have reached out in markets to
inform governments on what a global strategy should look
like. Rather than proposing 'a one size fits all strategy'
globally, we support evidence-based and tailor-made policies
that truly help to reduce alcohol-related harm. Furthermore,
we explain to governments that the alcohol industry has a
role to play in helping to reduce 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. Consumers may
also change behaviour following the rise of discount brands
and retailers following the recession. 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 Scottish Newcastle. Management focus is
on product innovation, portfolio management and cost-
effectiveness in order to secure market position and
Volatility of input costs
Pricing strategies are top priority in all of our markets. This
includes assessments of customer, consumer and competitor
responses based on different pricing scenarios, which will
have different outcomes market by market. In principle, we
will pass on increased input costs impacting volume. During
the second half of 2008, commodity markets rapidly declined
following the world economic climate and remained depressed
for most of 2009. In addition, the run of several years' poor
harvests in key grain and hop markets has reversed and
world grain stocks are recovering.
Group Purchasing ensures Heineken's scale is leveraged by
making use of flexibility in contracts and active hedging. This
brings economies of scale, minimises the impact of increases
in input costs, and maximises the opportunities for cost
reductions and other commercial terms. In 2009, a total of
83 per cent of input costs were covered via Group managed
contracts. In previous years, our hedging strategy provided
an effective shield against peak prices and similar strategies
are now ensuring that we secure 2010 and future supply at
effective, if not always minimum, cost. In the second half of
2009, we saw a return of volatility to fluctuations in certain
key commodity markets and we continue to evaluate and
maintain risk strategies to protect input costs from this effect.
Hedging contracts for most of the 2010 aluminium
requirements are now closed.
During the year, a joint review by Finance and Purchasing
functions of currency risk management resulted in the
implementation of new procedures for the evaluation
and monitoring of currency risk as well as the
commercial evaluation of purchasing contracts
involving foreign currency.