Notes to the consolidated financial statements continued
Report of the
Report of the
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Overview
Executive Board
Supervisory Board
Financial
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information
32. Financial risk management and financial instruments
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 include loans to customers, issued based on a loan contract. Loans to customers are ideally secured by among others, rights
on property or intangible assets, such as the right to take possession of the premises of the customer. Interest rates calculated by HEIN EKEN
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 given.
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 issuance of new loans is outsourced to third parties. In most cases, HEINEKEN issues guarantees to the third party
for the risk of default by the customer.
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 reguiring 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 since 2008, 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 basis, 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.
HEINEKEN has multiple distribution models to deliver goods to end customers. Deliveries are done in some countries via own wholesalers, in other
markets directly and in some others via third parties. As such distribution models are country-specific and diverse across HEINEKEN, the results
and the balance sheet items cannot be split between types of customers on a consolidated basis. The various distribution models are also not
centrally managed or monitored.
HEINEKEN establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables
and investments. The components of this allowance are a specific loss component and a collective loss component.
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Heineken N.V. Annual Report 2014