2007 Annual Report Also see

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1 2007 Annual Report

2 Contents 01 Profile 02 Performance highlights 04 Milestones 2007 Report of the Executive Board 06 Chief Executive s statement 10 Outlook Executive Committee 14 Operational review 14 Top-line growth 14 The Heineken brand 16 Innovation, research and development 17 International marketing 18 Shifting the balance 18 The Amstel brand 19 Sustainability 21 Personnel and organisation 22 Regional review 22 Western Europe 26 Central and Eastern Europe 30 Americas 34 Africa and the Middle East 38 Asia Pacific 42 Risk management 47 Financial review 52 Dutch Corporate Governance Code 56 Decree Article 10 Report of the Supervisory Board 58 To the shareholders 61 Supervisory Board 62 Remuneration report Financial statements 65 Consolidated income statement 66 Consolidated statement of recognised Income and expense 67 Consolidated balance sheet 68 Consolidated statement of cash flows 70 Notes to the consolidated financial statements 132 Heineken N.V. balance sheet 133 Heineken N.V. income statement 134 Notes to Heineken N.V. financial statements Other information 138 Auditor s report 140 Appropriation of profit 141 Shareholder information 145 Countries and brands 152 Historical summary 154 Glossary 156 Reference information

3 01 Profile Heineken is one of the world s great brewers and is committed to growth and remaining independent. The brand that bears the founder s family name Heineken is available in almost every country on the planet and is the world s most valuable international premium beer brand. Heineken aims to be a leading brewer in each of the markets in which we operate and to have the world s most prominent brand portfolio. Our principal brands are Heineken and Amstel. In addition to these, we have more than 170 international, regional, local and specialty beers around the globe, brewing a Group beer volume of million hectolitres. Our other leading brands include Cruzcampo, Tiger, Żywiec, Birra Moretti, Ochota, Primus and Star. We have the widest presence of all international brewers, thanks to our global network of distributors and 119 breweries in more than 65 countries. In Europe we are the largest brewer and distributor of beverages. Our global coverage is achieved through a combination of wholly-owned companies, licence agreements, affiliates and strategic partnerships and alliances. Some of our wholesalers also distribute wine, spirits and soft drinks. Our brands are well established in profitable, mature markets, whilst the popularity of our beers is growing daily in emerging beer markets. Marketing excellence and innovation are key components of our growth strategy. In everything we do, it is the consumers and their changing needs that is at the heart of our efforts. We also fully acknowledge our role in society. Social responsibility and sustainability underpin everything we do. We will continue expanding initiatives to combat alcohol abuse and misuse and we will work hard to reach the highest environmental standards in the industry. History The Heineken story began more than 140 years ago in 1864 when Gerard Adriaan Heineken acquired a small brewery in the heart of Amsterdam. Four generations of the Heineken family have been passionately involved in the expansion of the Heineken brand and the Company throughout the world. Employees In 2007, the average number of people employed was 54,004. Their hard work and commitment are the basis of our Company s success.

4 02 Performance highlights Our performance highlights Revenue +6.2% 12,564 million EBIT (beia) +17.6% 1,846 million Net profit (beia) +20.4% 1,119 million Consolidated beer volume +7.1% million hectolitres Net profit (beia) increased by 20.4 per cent, the best performance for the past nine years, driven by an increase in EBIT (beia). Consolidated beer volume grew by 7.1 per cent to million hectolitres of which only 0.5 per cent was attributable to the first time consolidation of newly-acquired companies. Volume of the Heineken brand in the international premium segment grew 10 per cent to 24.7 million hectolitres, increasing Heineken s worldwide share in the segment. Heineken volume in premium segment +10% 24.7 million hectolitres EBIT (beia) In millions of EUR ,357 1,377 Net profit (beia) In millions of EUR , , , ,119 Consolidated beer volume In millions of hectolitres Heineken volume in premium segment In millions of hectolitres

5 03 Key figures 1 Results In millions of EUR Change in % Revenue 12,564 11, EBIT 2 1,528 1,832 (16.6) EBIT (beia) 2 1,846 1, Net profit 807 1,211 (33.4) Net profit (beia) 2 1, EBITDA 2 2,292 2,618 (12.5) EBITDA (beia) 2 2,568 2, Net debt 1,926 1, Dividend (proposed) Free operating cash flow ,122 (33.6) Balance sheet In millions of EUR Total assets 12,968 12,997 (0.2) Equity attributable to equity holders of the Company 5,404 5, Net debt position 1,926 1, Market capitalisation 21,639 17, Results and balance sheet per share of 1.60 Weighted average number of shares basic 489,353, ,712,594 Net profit (33.2) Net profit (beia) Dividend (proposed) Free operating cash flow (33.6) Equity attributable to equity holders of the Company Share price as at 31 December Employees In numbers Average number of employees pro rata 54,004 57,557 (6.2) Ratios EBIT as % of revenue 12.2% 15.5% (21.3) EBIT as % of total assets 11.8% 14.1% (16.3) Net profit as % of average shareholders equity 15.5% 27.5% (43.6) Net debt/ebitda (beia) (8.5) Dividend % payout 30.7% 31.6% 74.5 Cash conversion rate 57.9% 105.6% (45.2) EBITDA/Net interest expenses Please refer to the Glossary for definitions. 2 EBIT, EBIT (beia), net profit (beia), EBITDA, EBITDA (beia) and free operating cash flow are not financial measures calculated in accordance with IFRS. Accordingly, it should not be considered as an alternative to results from operating activities or profit as indicators of our performance, or as an alternative to cash flow from operating activities as a measure of our liquidity. However, we believe that EBIT, EBIT (beia), net profit (beia), EBITDA, EBITDA (beia) and free operating cash flow are measures commonly used by investors and as such useful for disclosure. The presentation on these financial measures may not be comparable to similarly titled measures reported by other companies due to differences in the ways the measures are calculated. For a reconciliation of results from operating activities, profit and cash flow from operating activities to EBIT, EBIT (beia), net profit (beia), EBITDA, EBITDA (beia) and free operating cash flow we refer to the financial review on pages 47 to 51.

6 04 Milestones 2007 Important highlights March May June Amstel in South Africa Heineken regains control of Amstel Lager in South Africa, following an arbitration award by the International Court of Arbitration of the International Chamber of Commerce in favour of Amstel. In addition, Heineken takes an in-principle decision to construct a brewery in South Africa. Amstel Lager will be marketed, sold and distributed in South Africa through brandhouse Beverages (Pty) Ltd., the Cape Townheadquartered joint venture between Heineken, Diageo and Namibia Breweries. Until the new brewery is completed, the production of Amstel Lager will be brewed in existing Amstel breweries in Europe and transported to South Africa. New UEFA Champions League advertising campaign Heineken launches a new advertising campaign for the Heineken brand and the UEFA Champions League partnership, which establishes the new theme Enjoyed together around the world. This new campaign builds on the truly international premium status of both Heineken and the UEFA Champions League. Heineken and FEMSA sign ten year import agreement for the USA Heineken and Fomento Económico Mexicano, S.A.B. de C.V. ( FEMSA ) extend their existing three-year relationship in the United States for a period of ten years, effective 1 January Heineken USA will continue to be the sole and exclusive importer, marketer and seller of the FEMSA beer brands, Dos Equis, Tecate, Tecate Light, Sol, Bohemia and Carta Blanca, in the USA. Krušovice Brewery in Czech Republic Heineken announces the acquisition of Krušovice Brewery in the Czech Republic from Radeberger Gruppe KG. As a result of this transaction, the market share of Heineken in the Czech Republic will increase to 8 per cent, with total volumes of over 1.6 million hectolitres, improving Heineken s position in the market to number three. This acquisition provides a strong opportunity to accelerate top-line growth in the Czech market. The Krušovice brand is very popular among local consumers and Heineken is confident that with appropriate commercial investment, this brand has clear potential to grow.

7 05 September October December Rugby World Cup 2007 in Paris Heineken launches its new campaign entitled Continental Shift, officially starting the countdown to the opening game of Rugby World Cup 2007 in Paris on 7 September. Heineken was once again the Official Beer of the Rugby World Cup and holds Official Sponsor status. Referring to a new campaign theme One World, One Cup, One Beer, Heineken presented a TV commercial in which thousands of fans from all over the world show their passion for the game of rugby and for Heineken beer. The television commercial was shot in a number of iconic locations around the world, and is based around the idea that rugby fans would do anything to get to Rugby World Cup Heineken and Carlsberg to bid for Scottish & Newcastle Heineken and Carlsberg confirm their intention to make an offer for the entire issued share capital of Scottish & Newcastle plc. Through the deal, it is intended that Heineken will ultimately obtain a number 1 position in the UK and number 2 positions in the key markets of Portugal, Ireland, Finland and Belgium, as well as greater exposure to developing markets and segments, with positions in India and the US import market. Carlsberg will ultimately acquire Scottish & Newcastle s interests in Russia (BBH), France and Greece. In January 2008, the board of Scottish & Newcastle recommends the terms of a cash offer to its shareholders. Acquisitions in Serbia and Belarus Heineken announces the acquisitions of the Rodic Brewery, in Novi Sad, Serbia and of the Syabar Brewing Company, in Bobruysk, Belarus. Rodic was established in 2003 and employs 282 people. The Rodic Brewery facility is a stateof-the-art, 1.5 million hectolitre brewery, located in Novi Sad, northern Serbia. The company s portfolio consists of the beer brands MB Premium, MB Pils and Master. Total 2007 sales volume is estimated at 500,000 hectolitres. The Syabar Brewing Company has been operational since October 2005 following the reconstruction of a stateowned brewery, employs 280 people and is located in Bobruysk, 140 km south-east of Minsk. The portfolio consists of the national mainstream beer brand Bobrov, which holds the number two position in the market and the recently introduced premium brand Syabar sales volume is estimated at 600,000 hectolitres, compared to 370,000 hectolitres in 2006.

8 06 Report of the Executive Board Chief Executive s Statement 2007 was an outstanding year. We executed our plans faster, more efficiently and with greater impact than ever before. Alongside this, we maintained our focus and insistence on performance and delivery. We will not be complacent though and will continue to focus on delivering what we have promised was a very strong year for Heineken. We significantly exceeded the expectations set at the start of the year in terms of profit growth and we delivered on our ambitious cost-reduction targets. Along the way, we made good progress towards becoming an organisation in which performance and focus on consumer needs are the key drivers of our strategic agenda. Our success is clearly reflected in the results we achieved against our key metrics: Organic growth in net profit (beia) up 22.6 per cent Organic revenue growth up 7.3 per cent Organic consolidated beer volume growth up 6.5 per cent Heineken growth in the premium segment up 10 per cent.

9 07 This is a great achievement and I would like to thank our employees, and our trade and business partners for playing their part in this performance. All regions contributed to growth Our results also reconfirmed that we continue to benefit from our ability to extract value from our mature markets. Nowhere is this more evident than in Western Europe where, despite the challenging market conditions, we significantly outperformed the sector with EBIT (beia) growth of 5.1 per cent. Performance from our Central and Eastern European (CEE), African and Asian markets was outstanding and are beginning to deliver on their potential for both profit and volume growth. CEE is our second largest profit pool. Consolidated volume grew by 9 per cent and EBIT (beia) rose by 22 per cent. With an 18 per cent volume growth and 41 per cent EBIT (beia) increase, Africa and Middle East was the fastest growing region in The Americas region was again consistent in growing both its consolidated volumes and EBIT (Beia) and our Asia Pacific region continued its positive growth in volumes, revenue and profitability. In the first half of 2007 we also made two very positive steps, which will help us to maintain strong regional and market performance in the future. Firstly, in May, we renewed the sales and marketing agreement with our partners FEMSA in the USA for a further 10 years. This will allow our American operation to mature into a true portfolio business, firmly positioned in the growth segment of the US beer market. Secondly, we regained control of the Amstel brand in South Africa and decided to construct a brewery there. This will mean a stronger, more profitable business in partnership with Diageo and Namibian Breweries. Scottish & Newcastle: a strategic acquisition The second half of 2007 was dominated by our planned acquisition of Scottish and Newcastle plc., in combination with Carlsberg. This strategic acquisition, which is still subject to approval of the relevant authorities, will reinforce our position in Europe, and will drive a sizeable, reliable cash flow and profit stream to support future expansion and increased shareholder returns. In particular, we will have an important new distribution platform in the UK and other markets to drive growth of the Heineken brand. Our acquisition strategy is focused on building leadership positions in markets where we operate. Scottish & Newcastle UK is the leading brewer and cider producer. Hartwall in Finland, Centralcer in Portugal and Alken-Maes in Belgium command respectable number two positions in their respective countries. We will also reinforce our business platforms in both Ireland and the USA. Last but not least the significant stake in India s leading brewer UBL will open tremendous opportunities for the future. Alongside this, we will have acquired some very strong, complementary brands such as Newcastle Brown Ale, Foster s and Strongbow cider, which have international appeal and potential. I would like to take this opportunity to wish all our new employees, business partners and customers a very warm welcome to Heineken. These are exciting times for all of us and we will continue to build on the superb heritage and sterling past performance of Scottish & Newcastle. Priorities for action We remained focused on our four Priorities for Action: Accelerate top-line growth Accelerate efficiencies Accelerate speed of implementation Focus on selective opportunities. Accelerate top-line growth Looking back at the past few years, much has been achieved in terms of top-line growth. For the year 2005 we announced revenue growth of 7.3 per cent, of which 2.2 per cent was organic. For 2006, revenue growth had risen to 9.6 per cent, of which 7.1 per cent was organic. In 2007, we once again increased our positive annual revenue growth by 6.2 per cent, of which 7.3 per cent is organic. We have also significantly grown the Heineken brand our key strategic asset which again showed excellent growth of 10 per cent in Heineken N.V. Executive Board Left: Jean-François van Boxmeer Chairman of the Executive Board/CEO Right: René Hooft Graafland Member of the Executive Board/CFO

10 08 Report of the Executive Board Chief Executive s Statement continued The market-by-market implementation of our brand portfolio reviews is well under way. It has clearly delivered growth on many of our leading regional and national brands such as Primus (+14.5 per cent), Star (+13.1 per cent), Ochota (+14.5 per cent), Cruzcampo (+1.7 per cent), Żywiec (+8.2 per cent), Gulder (+10.9 per cent), Goldenbrau (+15.5 per cent) and Three Bears (+46.2 per cent). This focused approach to investment in brand building, innovation and execution is ultimately what allows us to increase our profitability. Accelerate efficiencies Key in our drive for efficiency is our Fit2Fight three-year-cost reduction programme, aiming to save 450 million (including inflation) before tax from our fixed cost base over the period This year, the second year of the programme, we delivered additional gross savings of 191 million. To date, as we promised we would, we have realised, 305 million or 68 per cent of the total programme. The savings are flowing through to the bottom line, enhancing our profitability. In combination with stronger top-line growth, this has delivered the strongest operational profit growth in many years. The Fit2Fight rationale and the techniques for achieving it are becoming more and more embedded in the organisation and are crossing all disciplines. Looking ahead to 2008, we will complete our Fit2Fight programme on time and with the stated level of savings. Accelerate speed of implementation We have begun the implementation of an internal project on information logistics, which will support and simplify our Company-wide decision-making processes, by ensuring that the right level of accurate information on any aspect of our business is available in a timely manner. In parallel, we have made good progress on our major business-wide change programme to centralise IT and to introduce common systems and processes.

11 09 Ultimately, however, it is not about processes and systems. It is about whether we do or do not implement decisions more quickly. For me, there is no better example of this than our experience in South Africa, where from a virtual standing start in March of 2007, we had Amstel back on the market and in the hands of our consumers by September. Within six months, we had brewing, packaging, shipping, marketing, sales and distribution up and running and delivering for our consumers and trade partners a great achievement. Focus on selective opportunities Although the focus during 2007 was of course on our planned acquisition of parts of Scottish & Newcastle, we were also active on other fronts. Total investment in acquisitions amounted to 245 million net of cash acquired, with much of this focused on markets in Central and Eastern Europe. In Vietnam, thanks to our acquisition in 2007, we are now the number two brewer with Heineken brand volumes of more than one million hectolitres. In the Czech Republic, we acquired the Krušovice Brewery, a strategic addition considerably narrows the gap between the number two brewer and Heineken. In December 2007 we acquired the Rodic Brewery in Novi Sad in Serbia and announced the acquisition of Syabar Brewing Company in Belarus. In January 2008 we acquired Tango Brewery in Algeria, and announced a cooperation with Efes Breweries in Uzbekistan, Serbia and Kazakhstan. All these transactions take us forward in both our strategy to become the number one or two player, in key identified markets where we see opportunities to grow the Heineken brand. Thanks to our performance-driven approach and our strategic focus, at the beginning of 2008, I believe that we emerged stronger, more efficient, and more competitive than we were a year ago. Looking ahead, we will continue to invest the energy of our people and resources of our business into ensuring that environmental and social sustainability remain high on our agenda. We will strengthen our existing commitment to responsible consumption activities in partnership with our employees, the industry and third parties in order to play an active role in addressing alcohol misuse. In addition, we will maintain our focus on meeting the environmental and safety targets that we have set ourselves. Our 2007 Sustainability Report will once again transparently set out what we have done and what we have achieved in this regard. In 2008 and beyond, we remain resolute in our desire and determination to deliver value for all our shareholders through the sustainable growth of our business and our position in the global beer market. Jean-François van Boxmeer Chairman of the Executive Board/CEO Amsterdam, 19 February 2008

12 10 Report of the Executive Board Outlook 2008 This outlook for 2008 provides further information on general developments in the international beer industry, their effects on Heineken s position, its profit forecast and its capital investments. Full-year profit outlook Heineken expects that 2008 will be another year of good organic growth in net profit, based on a further improvement in sales mix, better prices, higher beer volume and savings in fixed costs. The international premium segment will continue to grow at a higher rate than that of the overall beer market and the Heineken brand will benefit from this trend. In its last year, the Fit2Fight cost-savings programme is expected to deliver approximately 150 million of gross costs savings thus delivering in full the Fit2Fight programme launched at the beginning of As a result of worldwide input cost inflation, Heineken expects a 15 per cent price increase in its raw material and packaging costs. The Company expects that it will be able to pass on the impact of the increased input and energy costs in most of its markets. Due to the uncertainties around the possible impact of worldwide consumer price inflation and weakening economies on consumer spending and beer consumption, it is too early to make a reliable estimate of volume levels for Heineken expects the capital expenditure related to property, plant and equipment to total around 1.2 billion in Part of this investment is related to capacity expansion and the construction of new breweries in Central and Eastern Europe, Asia and Africa. In principle, the capital expenditures will be financed from the cash flow. The total restructuring costs associated with the Fit2Fight cost-savings programme is expected to amount to about 225 million, of which about 75 million will relate to As a result of costreduction programmes, the underlying downward trend in the number of employees will continue.

13 11 In the event of a successful offer for Scottish & Newcastle, Heineken s share of the assets will be consolidated for the first time when the deal becomes effective. The intended acquisition of the assets of Scottish & Newcastle represents a significant strategic step that will create strong platforms for future profit and cash flow growth. It will enable the Company to grow its flagship Heineken brand faster in profitable markets and make the Heineken Group the leading brewer in the highly profitable European beer market. Following the transaction, Heineken will hold 18 number 1 or 2 positions in Europe. In Western Europe, where Heineken has increased its profitability consistently, year after year, Heineken will acquire number 1 and 2 market positions in significant new profit pools. The transaction will also add attractive brands with international appeal such as Newcastle Brown Ale, Foster s, John Smith s Bitter and Strongbow cider to Heineken s leading brand portfolio. In addition, Heineken will acquire a 37.5 per cent stake in United Breweries, the leading brewer in the still small but fast-growing Indian beer market. On a pro-forma annual basis, this acquisition would add over 27 million hectolitres and revenues of approximately 3.6 billion to Heineken, thus becoming twice as big as the second player in the European market.

14 12 Report of the Executive Board Executive Committee The two members of the Executive Board, the five Regional Presidents and five Group Directors together form the Executive Committee. The Executive Committee supports the development of policies and ensures the alignment and continuous implementation of key priorities and strategies across the organisation. 1. Jean-François van Boxmeer (Belgian; 1961) Chairman Executive Board/CEO In 2001 appointed member of the Executive Board and from 1 October 2005 Chairman of the Executive Board/CEO. Joined Heineken in 1984 and held various management positions in Rwanda (Sales & Marketing Manager), DRC (General Manager), Poland (Managing Director), Italy (Managing Director). Executive Board responsibility: Heineken Regions, Group Human Resources, Group Corporate Relations, Group Supply Chain, Group Commerce, Group Legal Affairs, Group Internal Audit, Company Secretary. 2. René Hooft Graafland (Dutch; 1955) Member Executive Board/CFO In 2002 appointed member of the Executive Board. Joined Heineken in 1981 and held various management positions in DRC (Financial Director), Netherlands (Marketing Director), Indonesia (General Manager) and the Netherlands (Director Corporate Marketing, Director Heineken Export Group). Executive Board responsibility: Group Control & Accounting, Group Finance, Group Business Development, Group IT and Group Business Processes. 3. Didier Debrosse (French; 1956) Regional President Western Europe Joined Heineken in France in 1997 as Sales and Marketing Manager, after having worked with Nivea and Kraft Jacobs Suchard, where he had various commercial positions. He was later appointed General Manager of Brasseries Heineken in France. In 2003 he became Managing Director of Heineken France and Regional President in Marc Gross (French; 1958) Group Supply Chain Director Joined Heineken in Greece in In 1999 he became Regional Technical Manager North, Central and Eastern Europe. In 2002 he became Managing Director of Heineken Netherlands Supply. Prior to joining Heineken, he held various management roles with international food and consumer businesses. He was appointed Group Supply Chain Director in

15 13 5. Siep Hiemstra (Dutch; 1955) Regional President Asia Pacific Joined Heineken in 1978 and worked in various commercial and logistic positions. In 1989 he was appointed Country Manager of Heineken Export based in Seoul, South Korea. Subsequently, he held various management positions in several countries including Papua New Guinea, Ile de la Réunion and Singapore. In 2001 he was appointed Director of Heineken Technical Services and Regional President in Tom de Man (Dutch; 1948) Regional President Africa and the Middle East Joined Heineken Technical Services in Following this, he held various management positions in Singapore, Korea, Japan, Nigeria and Italy. From 1992, he was Group Production Policy & Control Director. In 2003 he was appointed Managing Director of Heineken s operations in Sub-Saharan Africa and Regional President in Frans van der Minne (Dutch; 1948) Group Human Resources Director Joined Heineken in 1975 in sales. He held various management positions in the export organisation. In 1988 he was appointed General Manager of the Murphy Brewery, Ireland. In 1989 he became Director of Heineken Export and in 1999 he became Director of Central and Eastern Europe. He was appointed President of Heineken USA in 2000 and became Group Human Resources Director in Nico Nusmeier (Dutch; 1961) Regional President Central and Eastern Europe Joined Heineken in 1985 as a management trainee and graduated as a master brewer in Since then he has held various management positions within Heineken in many parts of the world. In 2001 he was appointed Managing Director of Grupa Żywiec in Poland and Regional President in Sean O Neill (British; 1963) Group Corporate Relations Director Joined Heineken in 2004 following eight years in senior roles within the alcoholic beverages sector. Prior to this, he held management roles with a global communication and corporate affairs consultancy based in the UK, Russia, the Middle East and Australia. In 2005 he was appointed Group Corporate Relations Director. 10. Stefan Orlowski (Polish/Australian; 1966) Group Commerce Director Joined Heineken in 1998, working as Vice-President & Managing Director of Grupa Żywiec. From 2003 to 2006, he was Chief Operating Officer, first of Brau Union AG and as of 2005, of Central and Eastern Europe (C&EE) with direct responsibility as Managing Director Central Europe for the Central European markets and for Marketing, Sales and Distribution of C&EE. In October 2007 he was appointed Group Commerce Director. 11. Floris van Woerkom (Dutch; 1963) Group Control and Accounting Director Joined Heineken in 2005 as Group Control & Accounting Director, after having worked with Unilever for 18 years, where he held various international positions including Finance Director in Mexico and regional Vice-President Finance in Latin America. 12. Massimo von Wunster (Italian; 1957) Regional President Americas Worked with Wunster Brewery, a family-owned brewery founded in 1879, before joining Heineken in He held various positions within Heineken s Italian organisation, before being appointed Managing Director of Heineken Italia in 2001 and Regional President in (Regional Presidents and Group Directors are shown in alphabetical order.)

16 14 Report of the Executive Board Operational review Our number one priority is to drive top-line growth through the creation of a global portfolio that combines the power of local and international brands and with the Heineken brand as the jewel in the crown. Top-line growth Top-line growth is the key measure of the strength of a focused company. At the start of the year, we set ourselves challenging targets in terms of growing both profitability and volume across our brand portfolio. Through a combination of focused marketing investment, innovation, increased emphasis on in-market execution, strong creative marketing and a continuing commitment to meeting consumer and customer needs, our topline performance across our brand portfolio in 2007 was strong with an organic 7.3 per cent increase in revenue and a 6.5 per cent rise in organic consolidated beer volume growth. The Heineken brand Nowhere was this growth more evident than for the Heineken brand. For more than 125 years the brand has been and continues to be at the physical, emotional and financial heart of our global portfolio. Throughout its history, successive generations of managers and marketers have made Heineken the world s most valuable international premium beer brand once again saw strong growth. Volumes of the brand in the international premium segment grew considerably by 10 per cent, driving further growth in the brand s share of the segment.

17 15 Heineken volume by region In millions of hectolitres Western Europe* % Central and Eastern Europe % Americas % Africa and Middle East % Asia Pacific % Total % Global breakdown of brands In millions of hectolitres Heineken % Amstel % Other % Total % * in premium segment

18 16 Report of the Executive Board Operational review continued Impressively, the Heineken brand grew volume, value and share across all regions, further strengthening its position as the only truly international premium beer. Of particular note is the double-digit growth achieved by Central and Eastern Europe, Africa and Asia Pacific. This now provides a very positive balance to the brand s already strong performance in more mature markets. The growth and higher contribution of the Heineken brand continues to be an important driver of our profitability and our outperformance of the sector. Innovation, research and development Innovation continues to contribute considerably to top-line growth. In 2007, volume growth from innovation grew more than 80% and total volume from innovation passed 1.2 million hectolitres. In its first full year of sales, the growth of Heineken Premium Light was fuelled by strong repeat purchase, and the expansion of packaging choices for consumers with the launch of a slim can and a 5-litre DraughtKeg was another very successful year for DraughtKeg. This unique 5-litre go anywhere draught system provides an exciting beer experience to share with friends. Driven by the strong volume growth, in 2007 the focus was on up-scaling the DraughtKeg supply chain and rolling out systems to more markets. As a result, DraughtKeg is now selling in 94 markets. Since the launch of BeerTender, the genuine home draught beer experience, more than 300,000 appliances have been sold worldwide.in 2007, Heineken successfully combined DraughtKeg and BeerTender innovations with a unique one-way DraughtKeg for BeerTender. Based on the positive results in France, this innovation was launched in Greece and piloted in the USA. In 2008, other countries will follow. Innovations such as DraughtKeg and BeerTender, clearly differentiate Heineken from our competitors.

19 17 Five years following the introduction, the David draught beer system aimed at lower volume on-trade outlets, is available in 85 markets. During the year, we also made good progress on the mobile Xtreme Draught concept, the next generation of the David system. Xtreme Draught uses either the new Ten Can (10-litre draught keg) or the standard 20-litre David keg, making it flexible and easy to use. It also means optimal freshness for the beer and a better experience for both customer and consumer. The new system is now available in 25 countries around the world. Finding new and faster ways to grow volume is the key rationale behind the roll-out of our Extra Cold programme which adds value to the Heineken brand equity and which is now available in more than 100 markets. As we move into 2008, all these programmes will continue to be driven at a market level to address specific consumer needs or to ensure we are able to offer the consumer a quality Heineken brand experience across the spectrum of consumer drinking occasions. One World, One Cup, One Beer was the motto for the fully-integrated campaign for the 2007 Rugby World Cup held in France. Throughout the seven weeks of competition, Heineken had a massive presence around the stadia, the tournament and in the world s media. We also entertained 8,000 guests, including consumers and trade partners from more than 30 markets. The Heineken brand s UEFA Champions League (UCL) sponsorship also leveraged the credibility and authority of the brand. The programme was supported by centrally developed international commercials and break bumpers, on air in 156 countries, as well as consistent communication material and trade support programmes. At the tournament final in Athens, the culmination of more than nine months of in-market activity, we broke our own record for guests at a single event when we hosted more than 1,100 guests from around the world. The first UCL Trophy Tour to Asia International marketing With Heineken now available in almost every country in the world, Heineken is literally the only beer brand in the world that can develop and deliver major international marketing initiatives with such authority and credibility. In 2007, we again used this credibility as a way to clearly differentiate the Heineken brand from its competitors and as a way to bring the brand alive for consumers and trade partners.

20 18 Report of the Executive Board Operational review continued saw over 50,000 consumers have their picture taken with the trophy and attracted a TV audience of more than 200 million people. However, we do not solely strategically promote the brand. Over the last few years, we have been building a reputation for innovative use of film as a way of reaching our target consumers. With The Matrix and James Bond franchises already a part of this approach, in 2007 we again sought a high-profile opportunity to continue the success. We chose The Bourne Ultimatum, which we successfully integrated into our global marketing campaigns. Music also remains a key sponsorship area for the Heineken brand with more than 100 Heineken supported or sponsored large music events worldwide, including our global music event Thirst Studio. Shifting the balance 2007 was notable for taking the first steps in re-balancing our approach to marketing and sales. In the past few years, we have made a significant investment in the architecture, strategy and communication platforms for our major brands. This has undoubtedly helped us drive some of the growth that we are now seeing. What we began during 2007 though was a series of marketing and sales workshops with the clear objective to improve the in-market execution of the plans we have developed in effect, ensuring that we get the maximum return from the investments we have already made. During 2008, the focus on marketing and communication excellence will accelerate. Ultimately, our aim is to have the same levels of competence across our business for delivery of sales and distribution that we have traditionally had for creative and consumer communication development. The Amstel brand The Amstel brand is another important pillar within our global portfolio, with availability in more than 100 markets and global volume of 10.6 million hectolitres was a pivotal year for Amstel with a number of significant developments which helped to set the brand s course for the future. In March 2007, we regained control of Amstel in South Africa, one of Amstel s biggest markets. In the short term, we have established a supply chain out of Europe. In 2010 we will switch to local production, following the completion of a brewery in South Africa.

21 19 Amstel volume In millions of hectolitres Just as with Heineken Premium Light, the Amstel Pulse line extension was a significant driver of the brand s growth during 2007 and will continue to be so in During 2007, we added both Hungary and New Zealand, to the list of existing markets where Amstel Pulse is developing a strong consumer franchise. In the USA, Amstel Light did not achieve the growth we had targeted. We are looking at every aspect of the brand, from its positioning in the segment to packaging and communication. We are introducing new programmes to rejuvenate the brand and help it regain its position in the profitable imported light segment. Sustainability As one of the world s leading brewers, Heineken creates value and enjoyment for millions of people around the world through brewing, marketing and selling high-quality beers. We are proud of this. At the same time, we are fully aware that we have an important role to play in society at large and in the lives of all our stakeholders. These include our employees, customers and suppliers who depend on us for their income, our consumers who enjoy our beers, our shareholders who seek a healthy return on their capital and the communities in which we operate which rely on us to be a good, corporate citizen. In all of our actions, we seek to balance commercial reality with social responsibility. It is not an easy task and it ultimately means that we can never

22 20 Report of the Executive Board Operational review continued groups at a European level and seeks to adopt a multi-stakeholder approach to addressing alcoholrelated harm. In December 2007, we made a series of commitments to the Forum which built on the two pillars of our alcohol policy: adherence to our alcohol and work programme, training in and compliance with our internal Rules for Responsible Commercial Communication and the Enjoy Heineken Responsibly initiative. We are evolving our approach to promoting the responsible consumption of our products by developing strategic alcohol partnership programmes in many of our markets, designed to educate consumers and spread the responsible consumption message. meet the expectations of all of our stakeholders all of the time. However, understanding their needs through dialogue improves our decision-making and helps us strike a better balance more of the time. It is this philosophy that underpins our approach to sustainability and to meeting our obligations as a brewer. It was also a key driver behind our decision at the start of 2007 to focus on the seven areas where we as a business have the most impact on society: Energy consumption and CO emission 2 Waste water consumption and discharge Safety of our employees and installations Quality and availability of raw materials Supply chain responsibility Responsible beer consumption Impact on developing markets. Through focus, and the establishment of clear targets in each of these areas, we drive the continuous improvement in our sustainability performance. In 2007 we took a significant step, which reflected this philosophy and reinforced our long-standing commitment to responsible consumption, by becoming a founding company member of the European Forum on Alcohol and Health. This Forum brings together all stakeholder Alongside the Forum, we continued our participation in and membership of international industry groups such as the International Centre for Alcohol Policies (ICAP), Global Alcohol Producers Group and the Brewers of Europe. We also worked in local partnerships with other non-industry stakeholders to address specific issues associated with alcohol abuse. In 2007, we began the roll-out of the Heineken Supplier Code to our operating companies. Although it is still too early to report specific results, the first comments we received from the relevant markets are promising. All our Group suppliers representing a purchasing value of over 1.5 billion have indicated that they are in compliance with our Code and integration of the Supplier Code in regular quality audits has started. Like every energy consumer, we are facing the global energy challenge: increased cost for fossil fuels due to a larger demand and decreasing social acceptance of CO 2 emissions. To curb the increase of fuel consumption due to increased production, we have set a long-term target to improve efficiency of our energy consumption by 15 per cent in 2010 as compared to This target is integrated in our Total Productive Management programme and management systems, as a result of which the energy performance of each individual brewery is monitored on a quarterly basis.

23 21 We will never claim to be perfect or to have the balance exactly right. We are though pleased that in 2007, once again, our sustainability efforts were recognised by our continued inclusion in the Dow Jones Sustainability Index (first within our global industry category) and membership of the FTSE4Good index. Geographical distribution of personnel In numbers (pro rata) We realise that we do not have the answers to every question. In 2007 our role as a signatory to the UN Global Compact increasingly enabled us to learn from other organisations in other industry sectors in different parts of the world. More information about where we have and where we have not fully achieved our objectives can be found in our 2007 Sustainability Report, which will be published in April This report and other information can be found on our website and we invite you to read it and to let us know what you think. Personnel and organisation Our people are the basis of our success. Effective management, leadership and reward systems are essential to enabling growth of our pelple and our business. The programmes initiated in 2006, were continued in Based upon benchmark research, we started a project to enhance consistency and reliability of our Human Resources data across the Group and to align the information among a number of systems. We developed a technically improved, more focussed and in some areas a somewhat simplified performance management system which will become effective in This will better support us in developing good leaders and in employing the right people in the right job at the right time. Job Family Modelling was introduced for Senior Management jobs across the Group. Job Families Western Europe 14,737* Head office 747 Central and Eastern Europe 21,237 Americas 3,265 Africa and the Middle East 10,232 Asia Pacific 3,786 * in the Netherlands 3,909 form a global platform for consistent and transparent execution of major HR processes, including capability building, career pathing, performance management and job grading. The consistency and transparency provided by this platform allows us to become far more effective and efficient in the provision and execution of transactional HR operations. We continued to monitor the improving climate of our organisation and the level of employee engagement and were able to roll out a tool that can be used by the operating companies to give both management and employees an insight into how the Company climate and working conditions are perceived. In the year under review, undivided attention was given to the health and safety of our employees, in particular to the work safety conditions in different parts of the world. In 2007, the average number of employees (pro rata) decreased from 57,557 to 54,004.

24 22 Report of the Executive Board Regional review Western Europe Our region benefited from the success of our innovations: profit grew and the Heineken brand continued to gain share. DraughtKeg achieved an increase in sales and the roll-out of the Extra Cold programme was accelerated. We will continue to invest in innovation in order to create opportunities. Didier Debrosse President Heineken Western Europe Revenue 5.5 billion EBIT 410 million EBIT (beia) 665 million In Western Europe, Heineken realised good profit growth driven by the premiumisation of the beer market, higher prices and the delivery of cost savings resulting in an EBIT (beia) increase of 5.1 per cent. Revenue grew 1.9 per cent to 5,450 million. In 2007, Heineken continued to invest in its key brands and in innovation. In the first half of 2007, two additional filling lines for DraughtKeg were installed in the Netherlands, increasing production capacity to more than 1 million hectolitres. As a result, supply and demand were better aligned and DraughtKeg was able to achieve a significant increase in sales, doubling volume versus Additionally, the roll-out of the Extra Cold beer programme was accelerated, with the installation of Extra Cold fridges or draught installations in more than 22,000 outlets. Consolidated beer volume in Western Europe was 0.6 per cent lower at 31.9 million hectolitres. Higher volumes were achieved in Spain, Italy, the UK, Ireland and in the export markets in the Nordic region. However, lower volumes in France, the Netherlands and Switzerland offset these gains. Consolidated beer volume 31.9 million hectolitres Heineken volume in premium segment 7.5 million hectolitres Consolidated beer volume In millions of hectolitres

25 23 Accelerate efficiencies In this challenging environment the Heineken brand continued to gain market share, organically growing volume in the premium segment by 7 per cent. All countries in the region recorded higher volumes of the brand, with Spain, France, and Italy accounting for 67 per cent of the total increase. A new brewery in Seville Spain is a key market for Heineken. The beer market enjoys longterm growth in terms of volumes and profitability, driven by an increasing population, a strong on-trade and a healthy growth of premium beers. Heineken España, one of the most prominent players in the Spanish market, currently operates five breweries located in Arano, Jaen, Madrid, Seville and Valencia, brewing 11.4 million hectolitres consolidated beer volume across 20 brands. Capacity utilisation is high, running as high as 100 per cent in the peak of the summer season over the last few years. Capacity constraints increased at the brewery in Seville, which was located in the middle of a residential area, where expansion possibilities were lacking and vehicle access was limited. In 2005 Heineken España compared the cost of investing in a new brewery with the cost of expanding the existing brewery and on the basis of that decided to construct a greenfield brewery, just outside of the city. Construction started in early 2006 and the new brewery has been fully operational since January This new brewery in Seville is particularly important to Heineken: it is the first greenfield in the Western European beer industry landscape in the past 25 years and one of the largest breweries in the Group in terms of volume. It marks our strong commitment to the growing Spanish market as well as our continuous drive for cost efficiency gains and technical improvements. The brewery has a capacity of 4.5 million hectolitres and a technical capacity of 5.2 million hectolitres. It boasts an efficiency ratio which is twice that of the old brewery. Total investment (including the site itself) amounted to 220 million. Thanks to state-of-the-art technology and higher production volumes, the new brewery will generate annual savings before taxes of 25 million as of In August 2006, Heineken España sold the land and buildings of the old brewery, realising a book gain of 320 million before tax. The old site will be closed.

26 24 Report of the Executive Board Regional review Western Europe continued The Netherlands Consolidated beer volume 5.5 million hectolitres Market share 48.7 per cent Market position 1 Revenue of Heineken Netherlands was only fractionally down as the increase in selling prices across the portfolio compensated most of the effect of lower volumes. The Heineken brand maintained its market share, whilst Amstel brand volumes decreased, largely due to a higher-thanaverage price increase. Organic growth in EBIT (beia) was strong, driven by efficiency improvement across the supply chain. Innovation initiatives proceeded at fast pace in the Heineken brand s home market: Extra Cold beer installations are now available in 10 per cent of the on-trade outlets where Heineken s brands are served. The first of a new Amstel franchise bar, the Loca cafes was opened in 2007 with more to follow in A new cider-based drink, Jillz, was tested in two Dutch cities and resulted in positive consumer and on-trade reactions. A further roll-out is planned for Volume at Vrumona, the soft drinks company in the Netherlands, was lower due to unfavourable summer weather, however EBIT (beia) improved. France Consolidated beer volume 6.3 million hectolitres Market share 31.2 per cent Market position 2 EBIT (beia) grew driven by improvement in the price and sales mix and cost reduction. Revenue increased slightly. The Heineken brand increased its market share, posting 7 per cent growth on the back of continuous innovation and the introduction of new consumer packs. In the last quarter of 2007, the Heineken brand gained the leadership position in the off-trade segment. The Pelforth Blonde brand developed positively during the year. Total beer volume of Heineken France was lower, particularly in the on-trade due to the effects of mixed weather and lower volumes of low-priced beers. The one-way BeerTender, introduced in October 2006, has now sold more than 100,000 appliances. Italy Consolidated beer volume 5.7 million hectolitres Market share 31.1 per cent Market position 1 Volume of Heineken Italia increased, driven by the positive performances of its key brands Heineken and Birra Moretti. The Heineken brand grew by 5.4 per cent and reached the 1.5 million hectolitres mark; Moretti continued to grow, selling more than 2 million hectolitres, extending its leadership in the off-trade segment. The roll-out of Moretti 0/0, the alcohol-free beer is on track.

27 25 Both revenue and EBIT (beia) increased, driven by higher volumes, better prices implemented early in 2007, and an improvement in the sales mix. The Ten-Can, a 10-litre keg, which can be combined with the mobile Xtreme draught beer unit was successfully launched. Spain Consolidated beer volume 11.4 million hectolitres Market share 31.0 per cent Market position 1 Volume at Heineken España grew healthily and its market share improved. The Heineken brand was the main driver behind the good performance. Volume of the brand grew almost 8 per cent as a result of focused and innovative marketing, the successful nationwide introduction of DraughtKeg and the roll-out of the Extra cold beer programme. Cruzcampo, Heineken España s mainstream brand, grew 2 per cent in Andalusia, its home region. Cruzcampo lager benefited from the halo effect of the recently introduced Cruzcampo Light, which sold 60,000 hectolitres during the year. Revenue and EBIT (beia) increased as a result of the positive volume trend and a better sales and price mix. United Kingdom Consolidated beer volume 0.5 million hectolitres Market share 1.1 per cent Consolidated beer volume exceeded 0.5 million hectolitres. Volume of the Heineken brand increased 20 per cent, continuing its strong momentum and exceeding 0.4 million hectolitres in a market that was affected by exceptionally poor weather and the introduction of a smoking ban in the on-trade channel. Consumer acceptance of the premium positioning of Heineken is rising further also driven by the high-profile introduction of the DraughtKeg and the eye-catching continental pour advertising campaign. Marketing investment in the Heineken brand was at a high level and as a result, EBIT (beia) remained negative. Ireland Consolidated beer volume 1.1 million hectolitres Market share 22.2 per cent Market position 2 The Heineken brand continued to grow its volume in the Irish market by 3.5 per cent. Total volume of Heineken Ireland increased 2.7 per cent and, in combination with the positive price and sales mix effect, drove the growth in revenue and EBIT (beia). The greenfield brewery in Seville is now complete, and as planned, will fully replace the old brewery in the city in the first quarter of This will lead to significant savings in production and logistic costs.

28 26 Report of the Executive Board Regional review continued Central and Eastern Europe Across the region, we are obtaining leading market positions and brands. Fast-growing markets, new acquisitions and further top-line growth give us an excellent platform from which to develop both the Heineken brand as well as our local and regional brands. We are excellently positioned to build an increasingly profitable business. Nico Nusmeier President Heineken Central and Eastern Europe Revenue 3.7 billion EBIT 381 million EBIT (beia) 444 million Consolidated beer volume 51.1 million hectolitres Heineken volume 2.6 million hectolitres Consolidated beer volume In millions of hectolitres In 2007, beer consumption in Central and Eastern Europe was exceptionally strong as a result of a mild winter and spring. Consolidated volume increased organically by 8.3 per cent, with Russia, Poland and Romania as major contributors. Acquisitions in 2007 in the Czech Republic (Krusovice Brewery) and Germany (Schmucker Brewery) contributed 287,000 hectolitres. This growth in the region is driven in part by an increase in purchasing power and a structural shift from spirits to beer. Economic growth in new member states of the European Union and the development of a modern off-trade also continues to play an important role in the long-term growth of beer consumption of the region. With growing income levels across many markets, the interest in premium beers is increasing strongly. The Heineken brand added more than 400,000 hectolitres (+19 per cent) to its volume, thanks to initiatives such as the introduction of clear plastic labels in Romania and Hungary, the installation of 11,000 Extra Cold draught beer units, the introduction of DraughtKeg and innovative advertising campaigns. Russia, Greece and Poland were major drivers of growth of the Heineken brand. Revenue increased organically by 8.1 per cent, and fluctuations in currencies in Poland, Romania and Slovakia contributed 41 million to revenue (+1.2 per cent). EBIT (beia) increased 22 per cent to 444 million largely driven by higher volume, a positive price and sales mix and a modest increase in fixed costs

29 27 Accelerate top-line growth PET Packaging is a key element in Heineken s marketing and innovation strategy. New pack types create new consumption moments, build excitement around our brands, improved margins and higher volumes. In the world beer market, glass bottles are by far the most important pack type, accounting for 64 per cent of total volume. The bottled beer segment is still growing, driven by the increasing beer consumption in emerging markets. Beer in cans ranks second in terms of importance, with 20 per cent, whilst draught beer accounts for 11 per cent of world beer consumption. PET represents the remaining 4 per cent of world volumes, but its share is growing fast. PET is the acronym for PolyEthylene Terephthalate, which is a lightweight, colourless, transparent plastic. PET is difficult to break and is widely used for soft drinks and water; the first PET bottle was patented as early as PET is cheaper to produce than other types of packaging and can easily be recycled through incineration. Especially in Central and Eastern Europe, beer in PET bottles is well established. We estimate that beer in PET bottles accounts for more than 40 per cent of some markets such as Macedonia, and more than a third of volume in markets such as Romania and Bulgaria, and is swiftly growing in both Germany (6 per cent) and Croatia (7 per cent). PET bottles in Russia deserve special mention: they account for 47 per cent of the beer market and are growing strongly. PET is available in many sizes, ranging from 0.5-litre to 5-litre bottles. The most popular format, however, is 2.5-litre, which alone accounts for 25 per cent of the market. Heineken Russia s beer sales in PET account for more than half of its volume. All of our 10 breweries in Russia produce beer in PET. Heineken is very active in the PET segment in Central and Eastern Europe and has developed a high quality PET proposition named Top Star, which offers a unique look and feel to the packaging. Several leading brands in the region, such as Goldenbrau (Romania), Soproni (Hungary) and Bochkarev (Russia), have successfully upgraded this format.

30 28 Report of the Executive Board Regional review Central and Eastern Europe continued In 2007 and January 2008, Heineken continued the expansion of its business in the region through a series of targeted acquisitions. At the end of 2007 the Krusovice brewery was acquired in the Czech Republic, whilst the acquisition of the Rodic brewery in Serbia was announced. Early 2008, Heineken established a partnership with Efes Breweries International that will invest in the growing Uzbek beer market. In addition, both companies intend to merge the brewing operations in Serbia and Kazakhstan, leading to number two market positions in both countries. Poland Consolidated beer volume 11.8 million hectolitres Market share 33.0 per cent Market position 2 Beer volume increased 7.3 per cent, with a stronger performance in the high-end segments of the market. In particular the Heineken brand performed well, growing at 13 per cent and gaining share in the international premium segment. Żywiec, the national premium brand, grew high single digit driven by higher domestic volumes and an increase in export mainly to the USA and UK. As a result of its double digit volume growth, Warka s market share grew. Revenue of Grupa Żywiec saw a double-digit growth rate with volumes accounted for half of the increase and higher prices, a better sales mix and a positive currency effect accounting for the remainder. EBIT (beia) grew significantly, helped by costs savings in production and the introduction of a shared service centre. Russia Consolidated beer volume 15.0 million hectolitres Market share 12.8 per cent Market position 3 The winter and spring were exceptionally mild in Russia leading to exceptionally strong market growth. Beer volume of Heineken Russia grew 16 per cent, passing 15 million hectolitres. Total volume of the seven strategic brands, representing around 60 per cent of the portfolio, grew faster than the overall market increasing 18 per cent. Volume of the Heineken brand grew nearly 40 per cent. Amstel Pulse continued to develop well, driven by consistent marketing, the introduction of a 50cl bottle and the increase in numerical distribution. Ochota, our key brand in the mainstream segment and Three Bears (positioned at the top end of the economy segment) grew strongly. Volume of the Botchkarov brand was slightly lower. Revenue grew at a double-digit rate, despite the effect of the lower rouble against the euro. EBIT (beia) increased, driven by the effect of higher revenue that was only partially offset by the impact of higher input costs and marketing investments. Production capacity is being upgraded and expanded, and headcount at the breweries continued to reduce.

31 29 Austria Consolidated beer volume 4.5 million hectolitres Market share 49.8 per cent Market position 1 The beer market in 2007 was broadly stable. Beer volume of Brau Union Austria was stable as the growth of the Heineken and Gösser brands was offset by lower volume of low-priced beers. Volume of the Heineken brand, in particular, increased strongly by almost 20 per cent, partly driven by BeerTender volumes and the success of the introduction of the 50cl one-way bottle. BeerTender has now sold more than 40,000 appliances since its introduction in Domestic volume of the Gösser brand increased, mainly due to the introduction of Gösser Natur Radler in the flavoured speciality beer segment. Volume of the Zipfer brand remained stable. Heineken Austria increased prices in March and April, which together with the higher volume, resulted in an increase in revenue. Further efficiency improvements in the production and restructuring in all parts of the company drove a double digit increase in EBIT (beia). Greece Consolidated beer volume 3.5 million hectolitres Market share 74.9 per cent Market position 1 After several years of stagnation, the beer market show growth again in 2007 as a result of a mild winter, a hot summer, and higher tourist numbers. Athenian Brewery grew its beer volume organically by 5.4 per cent. Volume of the Heineken brand grew 10 per cent, benefiting from packaging innovations (DraughtKeg, BeerTender and Extra cold beer) and the marketing activation programmes around the Champions League soccer final in Athens. Domestic volume of the Heineken brand came close to one million hectolitres. Amstel, the leading mainstream brand in Greece, grew volume by 4 per cent, in part due to the successful introduction of Amstel Pulse, in both the On-trade and Off-trade channels. Revenue and EBIT (beia) grew at a double-digit rate. Germany Consolidated beer volume 3.6 million hectolitres Market share 6.9 per cent The German market declined in 2007 as a result of poor weather and challenging comparison with higher volumes of the World Cup Football year of Volume at Brau Holding International, Heineken s joint venture with the Schoerghuber Group, was 1 per cent lower. Volume of the Paulaner brand grew 8 per cent, driven by the success of its Weissbier and the strength of the exports to the USA, the UK and continental Europe. Volumes of the Kulmbacher and Karlsberg brands were lower. Revenue was lower, but EBIT (beia) grew as a result of strict cost control and improvement in sales mix.

32 30 Report of the Executive Board Regional review continued Americas I am very proud that we continued to maintain our strong position in the region. Heineken Premium Light greatly contributed to our success. The introduction of BeerTender to the US market expands our product range and further enhances consumers preference for our portfolio, with the Heineken brand as its centrepiece. Massimo von Wunster President Heineken Americas Revenue 2.0 billion Markets in the region developed well and saw continued growth. Consolidated beer volume grew 3.9 per cent, mainly driven by Argentina, Canada and the USA. With strong positions throughout the region, volume of the Heineken brand grew by 5.9 per cent to 9.1 million hectolitres. Both Canada and Brazil renewed the Heineken brand import and licence agreements respectively for 10 years. In the USA, its largest market, the brand is centrepiece of a combined Mexican and European beer portfolio, the two biggest categories in the import segment. Revenue increased 3.4 per cent to more than 2 billion, of which 8.8 per cent was an organic increase. EBIT 278 million EBIT (beia) 278 million Consolidated beer volume 13.7 million hectolitres Heineken volume 9.1 million hectolitres Consolidated beer volume In millions of hectolitres

33 31 Speed of implementation This was driven by price increases across the region and higher volumes in Argentina, Chile and the USA, which were only partly offset by the effect of the lower Chilean peso and Caribbean currencies. EBIT (beia) increased 4 per cent as the much better operating performance was in part offset by the effect of unfavourable exchange rate fluctuations against the euro. DraughtKeg DraughtKeg is one of the most successful innovations in the beer industry in the past few years. This unique product, developed and engineered by Heineken, is a 5-litre, CO 2 pressurised keg with a tap, which allows a perfect and portable draft beer experience. The keg is disposable, 100 per cent recyclable and is manufactured in lightweight steel. Beer can stay fresh for up to 30 days after opening. It was first introduced in France in April 2005 and is now available in more than 90 countries around the world. It sold more than 10 million units in In the USA, DraughtKeg was rolled out nationwide in June 2007 and contributed significantly to the growth of the Heineken brand. In August 2007, Heineken Premium Light was also introduced in the 5-litre DraughtKeg format. The introduction campaign included television, out-of-home and print advertising, as well as a targeted internet campaign, staged in a night club, which featured a DraughtKeg coming to life through a stunning metamorphosis. Heineken Premium Light DraughtKeg recorded a resounding success and quickly sold out. It ranked first amongst the new Stock Keeping Units (SKUs) of Sales of over 200,000 hectolitres in DraughtKeg format exceeded expectations in the Americas. Thanks to this successful performance, most of it achieved in the second half of 2007, the Americas region became the second biggest region for sales of DraughtKeg, after Western Europe.

34 32 Report of the Executive Board Regional review Americas continued USA Consolidated beer volume* 7.5 million hectolitres Market share* 39 per cent Market position* 2 * imported beer segment The total US beer market grew approximately 1 per cent in 2007 with import segment growth of 2.5 per cent, once again outperforming domestic beer growth. Over 70 per cent of the import beer growth was generated by Heineken USA. The speciality beers segment also showed further growth. Heineken USA grew volume of its combined portfolio of Dutch and Mexican import brands by 6 per cent despite a substantial price increase of 3.5 per cent at the start of 2007 and lower discounts which together translated into an average consumer price increase of around 5 6 per cent in the key trade channels. Beer sales volume, excluding the Femsa brands, grew 3.0 per cent at 7.7 million hectolitres whilst depletions sales by distributors to retailers increased 2.3 per cent. Sales volume for the Heineken franchise totalled 6.8 million hectolitres. Heineken Lager and Heineken Premium Light grew sales volume 2.7 per cent and 20 per cent respectively and depletions by 1 per cent and 27 per cent respectively. Both beers sold well in DraughtKeg across the USA and marketing investment behind both brands increased. Heineken Premium Light in cans was introduced in June Heineken Premium Light continues to unlock its long-term brand potential and repeatpurchase rates remain high. Tests of the BeerTender were successfully completed and the concept will be roll-out nation wide in A new advertising agency was appointed with the aim of further improving the marketing communication and image of the Heineken brand. Sales and depletions volume growth of the Mexican brands was 14 per cent, significantly exceeding segment growth. This excellent performance was driven by the rapid growth of the Dos Equis brand (+17 per cent) and the Tecate franchise (+13.6 per cent), the latter in part driven by the introduction of Tecate Light in selective regions of the USA. In April 2007, Heineken USA and Femsa announced a 10 year extension of their existing relationship in the USA starting 1 January Under the terms of the agreement, Heineken USA will be the exclusive importer, marketer and seller of the Femsa beer brands. Sales and depletions volume of Amstel Light were 11 per cent lower due to weak off-trade performance in the Northeast Region. Heineken USA has appointed a new advertising agency for the brand and will introduce a new proposition for the brand based on its history, high quality and Amsterdam origin in Revenue of Heineken USA grew 8 per cent organically driven by higher volumes and prices. During the year, Heineken USA successfully reorganised its sales force and further lowered costs in the supply chain. EBIT (beia) grew at a single-digit rate driven by higher prices, higher volumes and favourable shifts in the sales mix. There was a limited adverse effect due to the lower exchange rate of the dollar versus the euro was limited.

35 33 Canada Volume growth at Heineken Canada outpaced the overall beer market growth significantly. Despite price increases, volume of the Heineken brand grew 15 per cent, driven by the positive effects of the renewed import agreement, the strong efforts of our partner Coors-Molson Brewery Company, and the success of the DraughtKeg. Chile and Argentina Beer volumes of CCU, Heineken s joint venture with Quiñenco in Chile and Argentina, grew 4 per cent and 11 per cent respectively driven by good performance from the Heineken, Escudo and Schneider brands. Total Group beer volume of CCU in Chile and Argentina amounted to 7.6 million hectolitres. The soft drink, wine and spirits business also posted strong volume increases. Volume of the Heineken brand increased 24 per cent, gaining market share in the premium segment despite increased competition. EBIT (beia) grew organically by a double-digit rate, driven by higher volumes. The Caribbean Consolidated beer volume was lower and EBIT (beia) was stable in an environment that was characterised by lower tourist numbers, extreme weather conditions and a weak economy particularly in Puerto Rico. Locally produced and imported volume of the Heineken brand grew slightly, driven by the introduction of DraughtKeg and Heineken Premium Light in several markets.

36 34 Report of the Executive Board Regional review continued Africa and the Middle East 2007 was a year of unprecedented success for our region. Our current operations have delivered sterling results, whilst brand-building and marketing initiatives also boosted growth. Investments have been made in new operations and in the construction of new breweries. We are fully prepared to confront increasing and new competition. Tom de Man President Heineken Africa and the Middle East Revenue 1.4 billion The increasing worldwide demand for, and rising prices of, African minerals continues to drive economic development and improve purchasing power, making beer more affordable. Foreign investments in the region continue to grow and the expansion in infrastructure is opening up new markets. In a number of countries the emergence of a distinct middle class has increased the demand for international premium beers. Consolidated beer volume of the Heineken group grew 18 per cent to 15.7 million hectolitres driven by improved economic conditions and increased stability in the region. In Nigeria and the Democratic Republic of Congo (DRC) particularly, the beer market expanded rapidly and these two countries accounted for a substantial part of the regional volume growth. Bralima, our operating company in the DRC gained market share driven EBIT 329 million EBIT (beia) 329 million Consolidated beer volume 15.7 million hectolitres Heineken volume 1.6 million hectolitres Consolidated beer volume In millions of hectolitres

37 35 Focus on selective opportunities by growth of the Primus brand. In Nigeria, the combined market share of the Heineken Group increased 2.6 per cent. Across the region, volume of the Heineken brand grew almost 40 per cent to 1.6 million hectolitres. Volume growth was particularly strong in Nigeria, South Africa and the Middle East. Volume of Amstel in the region, excluding South Africa, grew 8 per cent. During the year, Heineken expanded several agricultural projects in the region with the aim of increasing the local supply of raw materials and reducing dependence on high-priced imported malt and barley. Heineken is growing part of its own grain requirements in Nigeria, Ghana, Sierra Leone, Rwanda and Egypt, whilst similar projects are under way in Burundi and the DRC. Greenfield brewery In Central Africa, increased political stability and the growing global demand for the region s raw materials, are driving economic development. The resulting increase in purchasing power is fuelling growth of the beer markets of Central Africa and is supporting the development of an emerging middle class. These dynamics are helping the Democratic Republic of Congo to develop quickly and particularly in the province of Katanga in the south, where new mines are opening, boosting purchasing power of the local population. The population of Katanga is approximately 12 million people and the capital of the province, Lumumbashi, is the largest city. Although there is higher purchasing power in Lumumbashi, average beer consumption per capita is only 4.2 litres, compared with 12 litres in the country s capital Kinshasa. The beer market is therefore expected to expand rapidly. It is this economic development which convinced Heineken s operating business in the country, Bralima, to build a greenfield brewery near Lumumbashi, with an annual brewing capacity of about 0.5 million hectolitres. The brewery will supply Lumumbashi and the Katanga province with Primus and other beers, considerably improving supply. Production of our local soft drink plant will also be transferred to the new brewery. The brewery will employ continuous brewing and fermenting, a state-of-the-art brewing technology, which enables a 25 per cent reduction in the amount invested in equipment.

38 36 Report of the Executive Board Regional review Africa and the Middle East continued Revenue in the region grew 20 per cent driven by strong volumes in particular in Nigeria, South Africa and Central Africa, and price and sale mix improvement, despite an adverse effect of 6 per cent as a result of weakening of local currencies against the euro. EBIT (beia) increased 41 per cent. Heineken is expanding its presence throughout Africa and the Middle East. Breweries are under construction in the Democratic Republic of Congo and Tunisia, whilst preparations are underway for the construction of a brewery in South Africa. At the start of 2008, Heineken acquired the second largest brewer in Algeria. Nigeria Consolidated beer volume 8.4 million hectolitres Market share 66.3 per cent Market position 1 Strong economic growth in the country continues, supported by high oil prices. The beer market increased approximately 12.5 per cent driving volume growth of both Nigerian Breweries and Consolidated Breweries. The combined volume grew more than 17 per cent to 8.4 million hectolitres and market share increased. Volume of the Heineken brand grew by 75 per cent, whilst volume of the Star and 33 Export brands grew by a double-digit rate in the growing lager segment. The introduction of the Fayrouz brand in Nigeria was well received by consumers and the brand produced good volumes in its first year with excellent potential for further growth. Revenue and EBIT (beia) increased substantially despite the effect of the weaker Nigerian naira. The increase was driven by strong volumes, price increases implemented at the end of 2006 and 2007 and efficiency improvements.

39 37 South Africa Brandhouse (the distribution joint venture between Heineken, Diageo and Namibian Breweries for South Africa) was expanded and reorganised to cater for the increase in business as a result of the addition of the Amstel brand to its portfolio. European-brewed Amstel in cans and one-way bottles is now fully available in the market. Although the temporary route to market is not profitable, it is a necessary interim step until the profitable local production commences. This is expected to start by the end of 2009 and until this point, volume of the Amstel brand will be temporarily lower. Heineken has identified potential locations in the Gauteng province for the new brewery in South Africa and construction is expected to commence shortly. Egypt Consolidated beer volume 1.1 million hectolitres Market share 91.0 per cent Market position 1 The beer market in Egypt continued its steady growth, driven by higher tourist numbers. Total volume (beer, soft drinks and Fayrouz) of Al Ahram grew in line with the market, driven by the Heineken and Sakara brands. Substantial cost savings were achieved in production and the number of stock-keeping units was reduced by 30 per cent following a review of the product portfolio. Revenue grew organically and EBIT (beia) increased substantially. Volume of the Heineken brand grew more than 70 per cent in South Africa.

40 38 Report of the Executive Board Regional review continued Asia Pacific Growing our business and expanding our portfolio, spearheaded by the Heineken brand, underpin our long-standing commitment to this important region. I am confident that we continue to grow and increase our share of the Asia Pacific profit pool, with the strategic benefit of our wide geographical spread, our winning portfolio and successful partnerships. Siep Hiemstra President Heineken Asia Pacific Revenue 597 million EBIT 100 million EBIT (beia) 100 million Consolidated beer volume 7.4 million hectolitres In a large part of the region, Heineken operates through Asia Pacific Breweries (APB), its joint venture with Fraser and Neave. Consolidated beer volume grew by over 1 million hectolitres in 2007, driven largely by growth in Vietnam, New Zealand and Cambodia as well as the first-time consolidation of acquisitions in Vietnam. Consolidated beer volume as reported in the first half of the year included 0.35 million hectolitres in relation with the Chinese brewing group DaFuHao. For the full-year 2007 DaFuHao is treated as an associated company, the beer volumes of the firsthalf of 2007 are excluded from the full-year number. Volume of the Heineken brand grew 11 per cent to 3.9 million hectolitres, driven by strong growth in Vietnam, Taiwan, South Korea, Malaysia, China and New Zealand. Volume of the Heineken brand was lower in Thailand where a weaker economy and trade and advertising restrictions held back growth. The Heineken brand extended its position as the leading international premium beer in the region. Tiger beer expanded its international footprint further through the expansion of the number of export markets and the start of local production in Mongolia. Heineken volume 3.9 million hectolitres Consolidated beer volume In millions of hectolitres

41 39 Accelerate top-line growth Revenue grew by a robust 6.7 per cent and EBIT (beia) increased 5.5 per cent, driven by better volume, strict cost control and a better sales and price mix. Profit growth was held back by the impact of weaker currencies against the euro, integration costs of recently acquired breweries and gestation expenses related to the greenfield breweries in the region. In addition, profit in 2006 was favourably affected by royalty restitutions. Breweries are under construction in India and Laos, whilst the brewery in Mongolia was completed in Vietnam Profitability in the Asian beer markets varies widely country by country. While China has a very low profitability, the countries of Southeast Asia, such as Vietnam, offer attractive profit pools. Vietnam is a fast-developing beer market, in which Asia Pacific Breweries (APB) recently achieved a leading market position, driven by acquisitions and an excellent organic growth rate. The Vietnamese beer market is particularly attractive as a result of significant increases in purchasing power and favourable demographics. After five years of double-digit volume growth, market volume reached a total of 18.0 million hectolitres in 2007, with a per capita consumption of 20.9 litres. This is in line with average consumption in the Asian region, but still far below the per capita consumption level in Thailand (31.3 litres) and South Korea (35.4 litres). The sound economic conditions are expected to drive another period of sustained growth in the Vietnamese beer market and a compound average volume growth in excess of 7 per cent is forecast for the period from 2007 to APB s investments in Vietnam date back to 1993, when the first brewery was constructed near Ho Chi Min City (in the southern part of the country). In 2003, a second brewery was completed in Hatay near Hanoi (in the north). In 2006, APB expanded its existing footprint in the region through the acquisition of the Foster s operations (two breweries) and the assets of the Quang Nam Brewery. Today APB operates a total of five breweries in the country. APB brews, markets and distributes a portfolio of brands, with a strong focus in the highly profitable premium segment, where it holds the undisputed leadership position with the Heineken and Tiger brands. Other well-known brands are Bivina, Anchor Draft and Biere LaRue.

42 40 Report of the Executive Board Regional review Asia Pacific continued Singapore Asia Pacific Breweries (Singapore) benefited from growth in the beer market driven by the good economy, better export volume and a rise in contract brewing volume. An influx of foreign brands expanded the beer market, but increased competition. In particular the Heineken and Tiger brands contributed to volume growth. Vietnam The strong economy in Vietnam continues to have a positive impact on beer consumption. The breweries of APB achieved strong volume growth, particularly in the southern and central regions of the country. The Heineken brand continued to outperform the market. The newly acquired brands LaRue and Foster s, the latter produced under licence, developed positively. EBIT (beia) grew driven by better prices and higher volume. The three breweries that were acquired at the end of 2006 and in 2007 in the central and southern part of the country have now been successfully integrated and synergies in costs, brand portfolio and distribution were realised. Cambodia Cambodia Brewery which is 80 per cent owned by APB, further consolidated its position in the market. As a result of good distribution and efficient and effective marketing programmes, results in terms of volume and profitability improved significantly in a market that is growing 15 per cent annually. Anchor and Tiger continues to be the leading brands in the market. China The market remains challenging with low selling prices and increase in input costs. The Heineken brand continues to perform well in China with 13 per cent growth despite of its 600 per cent price premium versus local mainstream beers as a consequence of low local beer prices. Thailand Growth in the beer market was mainly limited to the mainstream and low-priced segments of the market as a result of the economic uncertainties in the country and consumption, distribution and advertising restrictions. Volume of Thai Asia Pacific Breweries was lower, but volume of the Tiger brand grew at a double-digit rate.

43 41 Indonesia Volume of Multi Bintang Indonesia was marginally lower, but volume of the Heineken brand once again grew strongly. As a result of excellent execution in the market and improved efficiency, EBIT (beia) improved organically. Taiwan In Taiwan, volume of the Heineken brand grew 17 per cent and continued to improve its market share. Heineken is now the undisputed number one international premium beer in the country. South Korea Volume of the Heineken brand grew by more than 40 per cent as a result of increased penetration in the various distribution channels. Consumers awareness and preference for the brand also increased as a result of inaugural TV commercials in 2007 and the brand gained momentum as the leading international premium beer. Other markets in Asia Pacific region In the middle of 2007 the greenfield brewery in Ulaanbaatar, Mongolia with a capacity of 120,000 hectolitres came on stream. The brewery produces Tiger beer locally. Tiger has been in the market on an imported basis for the last 15 years. In addition, the local brand Sengur was launched. Volume increased substantially in India, but EBIT (beia) is still negative as a result of gestation losses of the greenfield brewery in Hyderabad which will be completed at the beginning of 2008, and the marketing investment in the launch of new brands on the market. Construction of a greenfield brewery in Laos that started in July 2006 is expected to be completed in the first quarter of 2008.

44 42 Report of the Executive Board Risk management Managing risks is explicitly on the agenda of management in order to protect the business from the effects of disasters, failures and reputational damage. Continuity and sustainability of the business is as important to the stakeholders as growing and operating it. Risk management and control system The Heineken risk management and control systems aim to ensure at a reasonable level of assurance, that the risks of the Company are identified and managed and that the operational and financial objectives are met, in compliance with applicable laws and regulations. A system of controls to ensure adequate financial reporting is included. Heineken s internal control system is based on the COSO Internal Control Framework. Risk appetite The Company is recognised by its drive for quality, consistency and financial discipline. Entrepreneurial spirit is encouraged across the Group to seek opportunities supporting continuous growth (like business development and innovation), whilst taking controlled risks. Risk profile Heineken is a single-product company, with a high level of commonality in its worldwide business operations spread over many mature and emerging markets. The worldwide activities are exposed to varying degrees of risk and uncertainty, some of which, if not identified and managed, may result in a material impact on a particular operating company, but may not materially affect the Group as a whole. Risk management Doing business inherently involves taking risks, and by managing these risks Heineken strives to be a sustainable and performance-driven company. Structured risk assessments are part of, amongst others, Heineken s Company-change programmes, business planning and performancemonitoring process, common process and system implementations, acquisitions and business integration activities. The risk management and control systems are considered to be in balance with Heineken s risk profile, although such systems can never provide absolute assurance. Following Heineken s continuing growth and changing risk profile, the Company s risk management and control systems are subject to continuous review and adaptations. Responsibilities The Executive Board, under the supervision of the Supervisory Board, has overall responsibility for Heineken s risk management and control systems. Regional and operating company management are responsible for managing performance, underlying risks and effectiveness of operations, within the rules set by the Executive Board, supported and supervised by Group departments. Heineken Company Rules In the year under review, the governance process of the Heineken Company Rules has been further structured. Also, compliance monitoring by Group departments has been further strengthened. From 2007, local management has been requested to sign a so-called Assurance Letter to confirm compliance with Company Rules in addition to compliance with certain matters with regard to financial reporting. Business planning and performance monitoring The main pillar of Heineken s internal governance activities is the business planning and performance monitoring process. Operating companies strategies, business plans, key risks and quarterly performance are discussed with Regional Management. Regional performance is discussed with the Executive Board. The approved business plans include clear objectives, performance indicators and target setting, which provide the basis for monitoring performance compared to business plan. These plans also contain an annual assessment of the main risks (including mitigation plans) and financial sensitivities. In 2007, Heineken started a Company-wide programme to create a more integrated management nformation environment for reporting to Regions and Group. Internal control in operating companies Heineken is progressing the Group-wide development and implementation of best practice processes supported by common IT systems. At the end of 2007, 69 per cent of Heineken s

45 43 operations (based on revenue) worked in accordance with the evolving Heineken Common System. Best practice key control frameworks, to ensure the integrity of the information processing in supporting the day-to-day transactions and financial and management reporting, are embedded and used for continuous controls monitoring and improvements. Code of Business Conduct and Whistle-blowing Local Codes of Business Conduct and whistleblowing procedures have been implemented group-wide based on Group policies applicable to majority-owned subsidiaries. On Group level continuous awareness building is supported and oversees the functioning of the Code. The Integrity Committee oversees the functioning of whistleblowing and issued two reports to the Executive Board and Audit Committee in the year under review on effectiveness of the procedure and reported cases. Supervision The Executive Board oversees the adequacy and functioning of the entire system of risk management and internal control, assisted by Group departments. Group Internal Audit provides independent assurance on the entire risk management and internal control system. The Assurance Meetings, at local and regional level, oversee the adequacy and operating effectiveness of the risk management and internal control systems in their respective environments. Regional Management and Group Internal Audit participate in the local meetings to ensure effective dialogue and transparency. The outcome and effectiveness of the risk management and internal control systems have been discussed with the Audit Committee. Financial reporting The risk management and control system over financial reporting contains clear accounting rules and a standard chart of accounts. The Heineken common systems, as implemented in almost all majority-owned subsidiaries in terms of revenue, support common accounting and regular financial reporting in standard forms. In 2007, the testing of key controls relevant for financial reporting were added to the Common Internal Audit Approach. The worldwide external audit activities which are based on local statutory requirements, and therefore more detailed than necessary for the audit of the Heineken N.V. consolidated figures provide additional assurance on fair presentation of financial reporting on operating company level. Within the parameters of their financial audit assignment, external auditors also report on internal control issues through their management letters and attend local and regional Assurance Meetings. Considering Heineken s risk management and control system described in this section, the financial reporting is adequately designed and worked effectively in the year under review in providing reasonable assurance that the 2007 financial statements do not contain any material inaccuracies. There are no indications that the risk management and control systems relating to financial reporting will not work properly in the current year. This statement cannot be construed as a statement in accordance with the requirements of Section 404 of the US Sarbanes-Oxley Act, which is not applicable to Heineken N.V. Main risks Under the explicit understanding that this is not an exhaustive list, Heineken s main risks are described below. It includes mitigation measures and where possible quantifying the potential impact. Risks concerning the Heineken brand and Company reputation, rising input costs and increasing legislation (like alcohol, excise duties and anti-trust) affecting the business, are considered the most significant risks. The main Company risks have been discussed with the full Supervisory Board.

46 44 Report of the Executive Board Risk management continued Strategic risks Heineken brand and Company reputation As both the Group and its most valuable brand carry the same name, reputation management is of utmost importance. Heineken enjoys a positive corporate reputation and our operating companies are well respected in their region. Constant management attention is directed towards enhancing Heineken s social, environmental and financial reputation. The Heineken brand is key to Heineken s growth strategy and is the most valuable asset of the Company. Anything that adversely affects consumer and stakeholder confidence in the Heineken brand or Company could have a negative impact on the overall business. The Company reputation and sales could be damaged by product integrity issues. Therefore, production and logistics are subject to rigorous quality standards and monitoring procedures, which were further strengthened in Brand perception is managed by strict marketing control procedures and, increasingly, by centrally managed marketing campaigns. A Code of Business Conduct and Whistle-blowing Procedure aim to prevent any unethical and irresponsible behaviour of the Company or its employees. Reference is made to Heineken s Sustainability Report 2007 for reviewing Heineken s priorities in the area of social responsibility supporting Company reputation. Pressure on alcohol An increasingly negative perception in society towards alcohol could prompt legislators to restrictive measures. Limitations in advertising could lead to a decrease in sales and damage the industry in general. Sales of Heineken products could materially decrease, in particular in Europe. Heineken s Alcohol Policy is based on the principle to brew, market, and sell beer in ways that have a positive impact on society at large. With this policy, Heineken promotes awareness of the advantages and disadvantages of alcohol, encouraging informed consumers to be accountable for their own actions. Markets are becoming more and more engaged to promote responsible consumption, in partnership with third parties. The Enjoy Heineken Responsibly programme (a responsibility message on back labels directing consumers to a dedicated website) is a key initiative in this respect. Heineken has signed up to the Charter of the EU Forum and posted commitments on actions in the area of consumer information, alcohol consumption at the workplace and commercial communication. Alcohol policy compliance monitoring was further strengthened in 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. In these markets, management focus is on product innovation, portfolio management and cost effectiveness in order to secure market position and profitability. Since Heineken s business in emerging markets is growing fast (autonomously and through acquisitions), the relative dependency on profitability from mature markets will further decline over time. Rising input costs Input costs have accelerated to unprecedented levels. The prices of raw materials (malted barley and maize) and packaging materials (glass bottles, aluminium cans and kegs) have risen significantly, as has the cost of transportation and energy. Inflation and pressure on labour costs are also expected in many markets. In addition changes in packaging mixes has put pressure on input costs. Central Purchasing is tasked with securing the best possible deals. Our own prices also need to increase to limit margin erosion. Pricing strategies are top priority in all our markets. This includes assessments of customer, consumer and competitor responses based on

47 45 different pricing scenarios, which will have different outcomes market by market. In principle, we will pass on increased input costs. The effect on volume developments is at present unclear. Stability of Africa & Middle East Region In the Africa & Middle East Region, volume growth is driven by economic growth in Nigeria and the Middle East and continued stability and economic growth in Central Africa. The Region is in most areas at peace, with some uncertainty in Nigeria. The situation in Lebanon remains fragile. The impact of the crisis in Kenia on our businesses in Central Africa is closely followed and still managable. Operational risks Change initiative overload Many change programmes and projects are running on Group, regional and local level. Examples are greenfield operations, creation of back office shared service centres, acceleration of implementing Heineken best practice processes based on common information systems, centralising IT and outsourcing of non-core activities. The scope and breadth of the organisational changes may threaten effectiveness of business operations. Company-wide strategic programmes are steered by the Executive Committee, whilst change projects at regional and local level have direct attention of the management teams. Since allocating sufficient management capacity to the many change projects in addition to managing the regular business is considered critical, priority setting is monitored closely. Clear target setting is in place on achieving the main change objectives. Risk management structures are overall well embedded, however further structuring is required. Sufficient programme and project management skills need to be ensured. Reorganisations from Fit2Fight Many reorganisation projects (amongst others, centralisation of back office activities, closure of breweries and other right and downsizing activities) have been realised, are underway or are in preparation. Highest impact is in the supply chain, wholesale business and support functions in Europe. The risk is that due to social unrest, the production quality and supply continuity would affected, which might negatively impact financial performance and Company reputation. The operating companies concerned manage reorganisation projects with care; the right speed, alignment with relevant industrial and external relations and consistent communication to employees. Contingency plans have been put in place. Acquisitions and business integration In the pursuit of further expansion, Heineken seeks to strike a balance between organic and acquired growth within the limits of a conservative financing structure. In acquisitions, specifically in emerging markets, Heineken will be 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. In order to mitigate these risks, Heineken has further strengthened its business development and integration activities, which includes significant involvement from relevant Group departments, operating companies and regional management in carrying out effective due diligence processes and preparing take charge and integration plans. The Heineken Common Systems Strategy is highly supportive to integrating acquired businesses. 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,

48 46 Report of the Executive Board Risk management continued one of Heineken s most profitable markets. Securing supply of fast-growing innovations like DraughtKeg is also considered critical, since we also depend on partnerships. Monitoring supply continuity risks was further structured in 2007, but requires embedding. Securing timely supply of raw and packaging materials is strongly coordinated by our central purchasing discipline. In 2007, the production infrastructure in Western Europe was evaluated. This resulted in strengthened central coordination with respect to production allocation and a corresponding realignment of our investment strategy. IT security Heineken s worldwide operations are increasingly reliant on information systems. Heineken has a strict IT security policy to ensure confidentiality, integrity and availability of information. In 2007 compliance monitoring was further structured by self-assessments and audits. The progressive centralisation of IT systems and infrastructure has a positive impact on ensuring IT security measures. Financial risks Currency risk Heineken operates internationally and reports in euros, which has proved to be a very strong currency over the past few years. Currency fluctuations, relating to the US dollar in particular could materially affect overall Company results, considering the size of export from the Euro-zone to mainly the US. Heineken has a clear policy on hedging transactional exchange risks, which postpones the impact on financial results. Translation exchange risks are not hedged. The sensitivity on the financial results with regard to currency risks are explained on page 117. Capital availability There could be insufficient capital generated in order to finance long-term growth. Sufficient access to capital is ensured to finance long-term growth and to keep pace with the consolidation of the global beer market. Financing strategies are under continuous evaluation. 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 Heineken and its operating companies are subject to a variety of local excise and other tax regulations. The EU Council did not adopt the Commission proposal to adapt the minimum excise rate for beer with the rate of inflation. This adjustment would have lead to increases in some European markets. In principle, Heineken 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 noncompliance, 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 are focused on timely discovery of such risks.

49 47 Financial review Results from operating activities In millions of EUR Revenue 12,564 11,829 Other income Raw materials, consumables and services 8,162 7,376 Personnel expenses 2,165 2,241 Amortisation, depreciation and impairments Total expenses 11,091 10,403 Results from operating activities 1,503 1,805 Share of profit of associates EBIT 1,528 1,832 Revenue and expenses Revenues increased by 6.2 per cent from 11.8 billion to 12.6 billion and by 7.3 per cent organically. Other revenues, which form part of revenues, increased slightly by 3 per cent from 241 million to 249 million and relates mainly to royalties, rental income and service to third parties. Consolidated beer volume rose by 7.9 million hectolitres to million hectolitres in 2007, representing an increase of 7.1 per cent. Organic growth in consolidated beer volume amounted to 6.5 per cent. Consolidated volumes of the Heineken brand in the premium segment of the market (including Heineken Premium Light) rose by 10 per cent or 2.2 million hectolitres to 24.7 million hectolitres in The volume increase, improvements in sales mix and higher selling prices drove growth in revenue of 735 million to 12.6 billion in All regions contributed to this strong performance. Strong volume growth of 4.2 per cent and improving sales and price mix of 3.1 per cent drove organic growth of 7.3 per cent. The negative effect of movements in exchange rates on revenue amounted to 171 million or 1.4 per cent and was mainly related to the US Dollar, Chilean Peso, Singapore Dollar and Nigerian Naira. Other income dropped to 30 million, mainly due to the gain in 2006 of 320 million, relating to the sale of land in Seville, Spain, The Fit2Fight fixed-cost ratio improved further to 30.7 per cent from 33.1 per cent in In 2007 Heineken delivered additional gross cost savings of 191 million, achieving 68 per cent of the forecast three-year plan cumulative amount. Exceptional restructuring charges related to Fit2Fight amounted to 57 million before tax. Costs of raw materials increased by 14.9 per cent, due to an increase in consolidated volume, higher commodity and energy prices and the shift towards innovative and more expensive packaging. The effect of higher commodity prices was limited to 8 per cent as a result of good timing of purchasing and the advantages of further centralisation of procurement. Marketing and selling expenses increased by 9 per cent as a result of additional focus on long-term brand-building across most regions and represented 13 per cent of revenue.

50 48 Report of the Executive Board Financial review continued Personnel expenses decreased by 3.4 per cent, including 30 million of exceptional restructuring charges related to our Fit2Fight initiative. As such, total expenses increased more than revenue and rose by 6.6 per cent to 11,091 million. The effect of movements in exchange rates had a marginally positive impact on total operating expenses of 1.3 per cent or 137 million. Results (beia) In millions of EUR EBIT 1,528 1,832 Amortisation of brands Exceptional items 307 (273) EBIT (beia) 1,846 1,569 In millions of EUR Net profit 807 1,211 Amortisation of brands Exceptional items 301 (291) Net profit (beia) 1, EBIT (beia) and Net profit (beia) In millions of EUR EBIT beia Net profit beia , Organic growth Changes in consolidation (1) (4) Effects of movements in exchange rates (36) (17) ,846 1,119 EBIT and net profit In 2007 EBIT amounted to 1,528 million compared with 1,832 million in 2006, heavily impacted by the EC fine of 219 million in 2007 compared with the exceptional gain on the sale of land in Seville in EBIT (beia) of 1,846 million compared favourably to the 2006 EBIT (beia) of 1,569 million, representing an organic growth of 20 per cent. Head office EBIT increased by 54 million from a loss of 24 million to a profit of 30 million in This strong improvement was achieved thanks to a combination of positive trends. Volume growth of the Heineken brand generated an increase in royalties. In addition, the increase in volume in innovative pack types (BeerTender, DraughtKeg, Xtreme Draught) led to lower marketing support costs from Head Office, and the global increase in malting fees boosted results of Maltery Albert (which is part of Head Office). Finally, the cost reductions related to Fit2Fight also contributed positively to the improvement.

51 49 A total amount of 64 million is recognised on EBIT level, relating to impairments of goodwill, brands and property, plant and equipment. 40 million relates to our joint venture, Brau Holding International in Germany, of which 36 million relates specifically to Karlsberg Brewery in which BHI holds a 45% stake, and the remaining 55% is held by Kulmbucher Brauerei A.G., and is treated as an exceptional item. Volume and long-term profitability of Karlsberg Brewery was severely affected by the introduction of a deposit on one-way pack types and the rise of input costs. By the end of 2007 management of Karlsberg was taken over by an experienced turnaround manager from the Heineken Group. Other impairments relate to various other entities, across various regions and are individually small and therefore not treated as exceptional items. EBIT as a proportion of revenue decreased to 12.2 per cent from 15.5 per cent, mainly due to aforementioned exceptional items. The average tax burden increased significantly from 22 per cent in 2006 to 31.7 per cent in In 2006 the average tax rate was positively affected by the low rate of tax on the sale of real estate in Spain. In 2007 the average tax rate was negatively impacted by the European Commission fine, which is treated as non-deductible. Without these exceptional tax gains, the tax burden would have been 26.2 per cent compared with 27.2 per cent in Basic earnings per share decreased from 2.47 to 1.65 as a result of lower net profit. Cash flow In millions of EUR Cash flow from operating activities 1,730 1,849 Cash flow used in operational investing activities (985) (727) Free operating cash flow 745 1,122 Cash flow used for acquisitions and disposals (278) (72) Cash flow from financing activities (656) (649) Net cash flow (189) 401 Cash flow and investments Cash flow from operating activities is below last year s performance with 119 million, mainly driven by the EC fine influencing profit, an increase in working capital investments of 177 million and higher changes in provisions of 50 million due to the restructuring activities in Western Europe, partly compensated by 42 million less interest paid. Purchase of property, plant and equipment was on a higher level compared with 2006, due to accelerated investments in capacity expansion mainly in Central and Eastern Europe and Africa and Middle East. Proceeds from the sale of property, plant and equipment amounted to 81 million versus 182 million last year, mainly due to the aforementioned sale of land and brewery site in Seville, Spain.

52 50 Report of the Executive Board Financial review continued A net amount of 278 million in 2007 was invested in acquisitions and expansion of existing interests, compared with 72 million in Heineken acquired Královský Pivovar Krušovice a.s. in the Czech Republic and CJSC Brewing Company Syabar, in Bobruysk, Belarus for a total amount of 241 million Net cash flow decreased significantly to million compared to million in This decline was mainly attributable to a lower operating cash flow and an increase in cash flow used for acquisitions. Although the cash flow used in financing activities is stable compared with last year, lower repayments of net borrowings of 132 million are offset by higher dividend payments of 153 million. EBIT performance In millions of EUR Property, plant & equipment In millions of EUR Investments Depreciation , , , , , , , , Financing structure In millions of EUR 2007 % 2006 % Total equity 5, , Deferred tax liabilities Employee benefits Provisions Loans and borrowings 2, , Other liabilities 3, , , , Total equity as a percentage of total assets Net debt/ebitda (beia) * * * (Dutch GAAP) * (Dutch GAAP)

53 51 Financing and liquidity As at 31 December 2007, total equity increased by 426 million to 5,946 million, whilst equity attributable to equity holders of the Company increased by 395 million to 5,404 million. The total recognised income and expense attributable to equity holders of the Company of 736 million was offset by dividend distribution of 333 million and purchase of own shares of 15 million. In millions of EUR EBIT 1,528 1,832 Depreciation and impairments P, P&E Amortisation and impairments intangible assets EBITDA 2,292 2,618 Exceptional items (adjusted for exceptional items in depreciation and amortisation) 276 (272) EBITDA (beia) 2,568 2,346 Financing ratios Our net-interest bearing debt position remains stable compared to last year at 1,926 million, which is in line with our free operating cash flow and taking into account higher acquisitions and dividends. Net debt/ebitda (beia) ratio is 0.75 and improved versus last year (0.82), driven by a higher EBITDA (beia). Our cash conversion rate dropped from 105 per cent in 2006 to 58 per cent in 2007, which was mainly driven by the lower free operating cash flow and high Net profit (beia) before minority interest. Profit appropriation Heineken N.V. s profit (attributable to shareholders of the Company) in 2007 amounted to 807 million. In accordance with Article 12, paragraph 7, of the Articles of Association, the Annual General Meeting of Shareholders will be invited to appropriate an amount of 343 million for distribution as dividend. This proposed appropriation corresponds to a dividend of 0.70 per share of 1.60 nominal value, on account of which an interim dividend of 0.24 was paid on 20 September The final dividend thus amounts to 0.46 per share. Netherlands withholding tax will be deducted from the final dividend at 15 per cent. It is proposed that the remaining 464 million be added to retained earnings.

54 52 Report of the Executive Board Dutch Corporate Governance Code Heineken N.V. endorses the principles of the Dutch Corporate Governance Code of December 2003 and applies virtually all best practice provisions. In particular, the structure of the Heineken Group and specifically the relationship between Heineken Holding N.V. and Heineken N.V. prevents Heineken N.V. from applying a small number of best practice provisions. The Annual Meeting of Shareholders of 20 April 2005 sanctioned the way Heineken deals with the Code and in particular the non-compliance with a limited number of best practice provisions. Below are the best practice provisions not (fully) applied, or applied with explanation. The full Comply or Explain report was published in February 2005 and is available at II.1.1 II.2.7 III.2.1 An Executive Board member is appointed for a maximum period of four years. A member may be reappointed for a term of not more than four years at a time. Members of the Executive Board who have been appointed before 31 December 2003 have been appointed for an indefinite period. This best practice provision cannot be applied, as it conflicts with the law. The maximum remuneration in the event of dismissal is one year s salary (the fixed remuneration component). If the maximum of one year s salary would be manifestly unreasonable for a member of the Executive Board who is dismissed during his first term of office, such board member shall be eligible for a severance pay not exceeding twice the annual salary. In the contracts of the members of the Executive Board there is no mention of a specific scheme in the event of dismissal. This best practice provision will not be applied as it conflicts with the law. All Supervisory Board members, with the exception of not more than one person, shall be independent within the meaning of best practice provision III.2.2. Heineken endorses the principle and Heineken considers the members of the Supervisory Board as independent. In a strictly formal sense, however, three members of the Supervisory Board do not meet the applicable criteria. III.2.2 A Supervisory Board member shall be deemed to be independent if the following criteria of dependence do not apply to him. The said criteria are that the Supervisory Board member concerned or his wife, registered partner or other life companion, foster child or relative by blood or marriage up to the second degree: a. has been an employee or member of the management board of the company (including associated companies as referred to in section 1 of the Disclosure of Major Holdings in Listed Companies Act (WMZ) 1996) in the five years prior to the appointment; Mr. De Jong was prior to his appointment in 2002 member of the Board of Directors of Heineken Holding N.V. for one year. According to this criterion Mr. De Jong would not be independent. With reference to criterion f., which contains an exception for management board positions in a group company, Heineken does not consider this as an impediment to Mr. De Jong being independent. b. receives personal financial compensation from the company, or a company associated with it, other than the compensation received for the work performed as a Supervisory Board member and in so far as this is not in keeping with the normal course of business; Mr. Das receives from Heineken Holding N.V. a financial compensation as Chairman of the Board of Directors of Heineken Holding N.V. Messrs. Van Lede and de Carvalho receive from Heineken Holding N.V. a compensation for attending the meetings of the Board of Directors of Heineken Holding N.V. These compensations are in keeping with the

55 53 normal course of business. No other Supervisory Board member receives personal financial compensation from the company, or a company associated with it, other than the compensation received from the work performed as a Supervisory Board member. c. has had an important business relationship with the company, or a company associated with it, in the year prior to the appointment. This includes the case where the Supervisory Board member, or the firm of which he is a shareholder, partner, associate or adviser, has acted as adviser to the company (consultant, external auditor, civil notary and lawyer) and the case where the supervisory board member is a management board member or an employee of any bank with which the company has a lasting and significant relationship; In a strict sense Mr. Das also would not be independent, as he was a partner in a firm which was appointed as a consultant to Heineken N.V. the year before his appointment in However, Heineken does not consider this as an impediment to Mr. Das being independent. e. holds at least ten per cent of the shares in the company (including the shares held by natural persons or legal entities which cooperate with him under an express or tacit, oral or written agreement); Mr. de Carvalho is married to Mrs. de Carvalho-Heineken (large shareholder and delegated member of the Board of Directors of Heineken Holding N.V.). Mrs. de Carvalho indirectly holds more than 10% of the shares in Heineken N.V. Heineken does not consider this an impediment to Mr. de Carvalho being independent. III.2.3 III.3.4 III.3.5 The report of the Supervisory Board shall state that, in the view of the Supervisory Board members, best practice provision III.2.1 has been fulfilled, and shall also state which Supervisory Board member is not considered to be independent, if any. As indicated in III.2.2, in a strictly formal sense, three members of the Supervisory Board do not meet the dependence criteria as set out in best practice provision III.2.2. However, Heineken does not consider this as an impediment to Messrs. De Jong, Das and de Carvalho being independent. The number of supervisory boards of Dutch listed companies of which an individual may be a member shall be limited to such an extent that the proper performance of his duties is assured; the maximum number is five, for which purpose the chairmanship of a supervisory board counts double. Heineken takes the view that the decision on whether to apply this best practice provision should also be guided by the Company s interest in terms of its ability to attract and retain skilled Supervisory Board members. Any departures for this provision will be mentioned in the annual report. A person may be appointed to the Supervisory Board for a maximum of three 4-year terms. Given the structure of the Heineken group, the maximum appointment period will not be applied to members who are related by blood or marriage to the Heineken family or who are members of the Board of Directors of Heineken Holding N.V. For all other members Heineken applies the best practice provision.

56 54 Report of the Executive Board Dutch Corporate Governance Code continued III.4.1 The Chairman of the Supervisory Board shall see to it that: a. the Supervisory Board members follow their induction and education or training programme; b. the Supervisory Board members receive in good time all information which is necessary for the proper performance of their duties; c. there is sufficient time for consultation and decision-making by the Supervisory Board; d. the committees of the Supervisory Board function properly; e. the performance of the Executive Board members and Supervisory Board members is assessed at least once a year; f. the Supervisory Board elects a Vice-Chairman; g. the Supervisory Board has proper contact with the Executive Board and the Works Council (or Central Works Council). Heineken applies this best practice provision, with the exception of a part of criterion g: contact with the Central Works Council. This relates to the structure of the group. The Central Works Council operates on the level of Heineken Nederlands Beheer B.V., a subsidiary with a separate Supervisory Board. III.5.11 The Remuneration Committee shall not be chaired by the Chairman of the Supervisory Board or by a former member of the Executive Board of the company, III.6.6 or by a Supervisory Board member who is a member of the management board of another listed company. Given the structure of the Heineken Group and the character of the Board of Directors of Heineken Holding N.V., Heineken will not apply this best practice provision to the extent that the Remuneration Committee can be chaired by a Supervisory Board member who is also a member of the Board of Directors of Heineken Holding N.V. Currently the Remuneration Committee is chaired by Mr. Das, who is chairman of the Board of Directors of Heineken Holding N.V. A delegated Supervisory Board member is a Supervisory Board member who has a special duty. The delegation may not extend beyond the duties of the Supervisory Board itself and may not include the management of the company. It may entail more intensive supervision and advice and more regular consultation with the Executive Board. The delegation shall be of a temporary nature only. The delegation may not detract from the role and power of the Supervisory Board. The delegated Supervisory Board member remains a member of the Supervisory Board. As regulated in the Articles of Association of Heineken N.V., the delegated Supervisory Board member, a position currently held by Mr. Das (Chairman of the Board of Directors of Heineken Holding N.V.) is consistent with this best practice provision, except insofar that the position is not temporary and is held for the term for which the member concerned is appointed by the General Meeting of Shareholders of Heineken N.V. Heineken considers that, as regulated by the Articles of Association of Heineken N.V., the post of delegated Supervisory Board member, which has been in existence since 1952, befits the structure of the Heineken Group.

57 55 III.7.3 The Supervisory Board shall adopt a set of regulations containing rules governing ownership of and transactions in securities by Supervisory Board members, other than securities issued by their own company. The regulations shall be posted on the company s website. A Supervisory Board member shall give periodic notice, but in any event at least once a quarter, of any changes in his holding of securities in Dutch listed companies to the compliance officer or, if the company has not appointed a compliance officer, to the Chairman of the Supervisory Board. A Supervisory Board member who invests exclusively in listed investment funds or who has transferred the discretionary management of his securities portfolio to an independent third party by means of a written mandate agreement is exempted from compliance with this last provision. This best practice provision will be applied, provided, however, that the periodic notice will be given only once per year. IV.3.8 The report of the General Meeting of Shareholders shall be made available, on request, to shareholders no later than three months after the end of the meeting, after which the shareholders shall have the opportunity to react to the report in the following three months. The report shall then be adopted in the manner provided for in the Articles of Association. A notarial record is made of the proceedings of the meeting, as provided for in the Articles of Association. Heineken considers it desirable to continue this practice. Therefore this best practice provision will be applied to the extent that it is consistent with a notarial record. The notarial record will be available no later than three months after the meeting. III.8.1 The Chairman of the management board shall not also be and shall not have been an executive director. The Chairman of the management board shall check the proper composition and functioning of the entire board. The management board shall apply chapter III.5 of this code. The committees referred to in chapter III.5 shall consist only of non-executive management board members. The majority of the members of the management board shall be nonexecutive directors and are independent within the meaning of best practice provision III.2.2. Heineken has a two-tier management structure. Principle III.8 and the best practice provisions do not apply to Heineken.

58 56 Report of the Executive Board Decree Article 10 Decree Article 10 Information Pursuant to Takeover Directive (Besluit Artikel 10 Overnamerichtlijn). The issued share capital of Heineken N.V. amounts to 783,959,350.40, consisting of 489,974,594 shares of 1.60 each. Each share carries one vote. The shares are listed on Euronext Amsterdam. The shares are freely transferable. Pursuant to the Financial Markets Supervision Act (Wet op het financieel toezicht) and the Decree on Disclosure of Major Holdings and Capital Interests in Securities-Issuing Institutions (Besluit melding zeggenschap en kapitaalbelang in uitgevende instellingen), the Financial Markets Authority has been notified about the following substantial shareholdings regarding Heineken N.V.: Mrs. C.L. de Carvalho-Heineken (indirectly per cent; the direct per cent shareholder is Heineken Holding N.V.); ING Group N.V. (indirectly 5.40 per cent; the direct 5.40 per cent shareholder is a subsidiary of ING Group N.V.). All shares carry equal rights. There are share-based long-term incentive plans for both the Executive Board members and senior management. Eligibility for participation is based on objective criteria. Each year, performance shares are awarded to the participants. Depending on the fulfilment of certain predetermined performance conditions during a three-year performance period, the performance shares will vest and the participants will receive real Heineken N.V. shares. The shares required for the share-based long-term incentive plans will be acquired by Heineken N.V. The transfer of shares to the participants requires the approval of the Supervisory Board of Heineken N.V. Shares repurchased by Heineken N.V. for the share-based long-term incentive plans do not carry any voting rights and dividend rights. As regards other Heineken N.V. shares, there are no restrictions on voting rights. Shareholders who hold shares on a predetermined record date are entitled to attend and vote at General Meetings of Shareholders. The record date for the Annual General Meeting of Shareholders of 17 April 2008 is 21 days before the Annual General Meeting of Shareholders, i.e. on 27 March As far as known to Heineken N.V., there is no agreement involving a shareholder of Heineken N.V. that could lead to a restriction of the transferability of shares or of voting rights on shares. There are no important agreements to which Heineken N.V. is a party and that will come into force, be amended or be terminated under the condition of a change of control over Heineken N.V. as a result of a public offer. There are no agreements of Heineken N.V. with Executive Board members or other employees that entitle them to any compensation rights upon termination of their employment after completion of a public offer on Heineken N.V. shares. Members of the Supervisory Board and the Executive Board are appointed by the General Meeting of Shareholders on the basis of a nonbinding nomination by the Supervisory Board. The General Meeting of Shareholders can dismiss members of the Supervisory Board and the Executive Board by a majority of the votes cast, if the subject majority at least represents one-third of the issued capital. The Articles of Association can be amended by resolution of the General Meeting of Shareholders in which at least half of the issued capital is represented and exclusively either at the proposal of the Supervisory Board or at the proposal of the Executive Board which has been approved by the Supervisory Board, or at the proposal of one or more Shareholders representing at least half of the issued capital.

59 57 On 20 April 2005, the Annual General Meeting of Shareholders authorised the Executive Board (which authorisation was last renewed on 19 April 2007 for the statutory maximum period of 18 months), to acquire own shares subject to the following conditions and with due observance of the law and the Articles of Association (which require the approval of the Supervisory Board): a. the maximum number of shares which may be acquired is the statutory maximum of 10 per cent of the issued share capital of Heineken N.V.; b. transactions must be executed at a price between the nominal value of the shares and 110 per cent of the opening price quoted for the shares in the Official Price List (Officiële Prijscourant) of Euronext Amsterdam on the date of the transaction or, in the absence of such a price, the latest price quoted therein; incentive plans for both the Executive Board members and senior management, but may also serve other purposes, such as acquisitions. A further renewal of the authorisation will be submitted for approval to the Annual General Meeting of Shareholders of 17 April Executive Board J.F.M.L. van Boxmeer D.R. Hooft Graafland Amsterdam, 19 February 2008 c. transactions may be executed on the stock exchange or otherwise. The authorisation to acquire own shares may be used in connection with the share-based longterm incentive plans for both the Executive Board members and senior management, but may also serve other purposes, such as acquisitions. A further renewal of the authorisation will be submitted for approval to the Annual General Meeting of Shareholders of 17 April On 20 April 2005, the Annual General Meeting of Shareholders also authorised the Executive Board (which authorisation was last renewed on 19 April 2007 for a period of 18 months) to issue (rights) to shares and to restrict or exclude shareholders pre-emption rights, with due observance of the law and Articles of Association (which require the approval of the Supervisory Board). The authorisation is limited to 10 per cent of Heineken N.V. s issued share capital, as per the date of issue. The authorisation may be used in connection with the share-based long-term

60 58 Report of the Supervisory Board To the shareholders During the year under review, the Supervisory Board performed its duties in accordance with the law and the Articles of Association of Heineken N.V. and supervised and advised the Executive Board on an ongoing basis. Financial statements and profit appropriation The Executive Board has submitted its financial statements for 2007 to the Supervisory Board. These financial statements can be found on pages 65 to 137 of this Annual Report. KPMG ACCOUNTANTS N.V. audited the financial statements. Their report appears on page 138. The Supervisory Board recommends that shareholders, in accordance with the Articles of Association, adopt these financial statements and, as proposed by the Executive Board, appropriate 343 million of the profit as dividend and add the remainder, amounting to 464 million, to retained earnings. The proposed dividend amounts to 0.70 per share of 1.60 nominal value, of which 0.24 was paid as an interim dividend on 20 September Supervisory Board composition and remuneration Mr. M.R. de Carvalho resigned by rotation from the Supervisory Board at the Annual General Meeting of Shareholders on 19 April Mr. de Carvalho was duly reappointed for a period of four years. As at the same date Mr. A.H.J. Risseeuw stepped down from the Supervisory Board as he reached the statutory age limit, based on the internal regulations of the Supervisory Board. The Supervisory Board currently consists of seven members. All members of the Supervisory Board comply with best practice provision III.3.4 of the Dutch Corporate Governance Code (maximum number of Supervisory Board seats). The General Meeting of Shareholders determines the remuneration of the members of the Supervisory Board. The 2005 Annual General Meeting of Shareholders resolved to adjust the remuneration of the Supervisory Board effective 1 January The detailed amounts are stated on page 125 of the financial statements. Corporate Governance The Annual General Meeting of Shareholders of 20 April 2005 sanctioned the way Heineken deals with the Dutch Corporate Governance Code of 9 December 2003, and in particular the noncompliance with a limited number of best practice provisions (see page 52), as a consequence of the special character of the Company. Since then there has been no change in the way Heineken N.V. deals with the Code. Meetings and activities of the Supervisory Board The Supervisory Board held eight meetings with the Executive Board, including meetings by telephone conference. The items discussed in the meetings included recurring subjects, such as the Company s strategy, the financial performance of the Group and the operating companies, acquisitions in particular the acquisition of part of Scottish & Newcastle large investment proposals, management changes and the reappointment of the external auditor. The external auditor attended the meeting in which the annual results were discussed. One meeting was held in New York, USA where the Regional President Americas and his management team presented the main developments in this region and the Management Team of Heineken USA presented an overview of the developments in the USA. In 2007 the Regional Presidents of Western Europe and Asia Pacific presented the main developments in their regions during the regular meetings of the Supervisory Board. Also a meeting was held on the developments of the Heineken brand. None of the members of the Supervisory Board were frequently absent. Two absences in two years or more is considered frequent.

61 59 Independence With regard to the independence of the Supervisory Board members, reference is made to the best practice provision III.2.2 of the Dutch Corporate Governance Code as contained in the Comply or Explain report of 21 February 2005 (see page 52). Committees The Supervisory Board has four committees, the Preparatory Committee, the Audit Committee, the Selection & Appointment Committee and the Remuneration Committee. Preparatory Committee Composition: Messrs. Van Lede (Chairman), Das and de Carvalho. The Preparatory Committee met eight times. The committee prepares decision-making by the Supervisory Board. Audit Committee Composition: Messrs. De Jong (Chairman), Hessels and Mrs. Fentener van Vlissingen. The members collectively have the experience and financial expertise to supervise the financial statements and the risk profile of Heineken N.V. The Audit Committee met three times to discuss regular topics, such as the annual and interim financial statements, risk management, the adequacy of internal control policies and internal audit programmes, the external audit scope, approach and fees, as well as reports from both the internal and external audits. The external auditor was appointed in the Annual General Meeting of 2003 for a five-year period. In 2007 an assessment was made, following a thorough review in The Audit Committee recommended to the Supervisory Board to re-appoint KPMG Accountants N.V. as the external auditors for Heineken N.V. for a further period of four years. The Supervisory Board will submit the recommendation for approval to the shareholders in the Annual General meeting of Shareholders on 17 April Selection & Appointment Committee Composition: Messrs. Van Lede (Chairman), Das, de Carvalho and Lord MacLaurin. The Selection & Appointment Committee met once. In this meeting the composition and the rotation schedule of the Supervisory Board were discussed. Remuneration Committee Composition: Messrs. Das (Chairman), Van Lede and de Carvalho. The Remuneration Committee met three times. The Remuneration Committee discussed the target setting and payout levels for the annual bonus and the long-term incentive plan for the Executive Board (Heineken N.V. shares). The Audit Committee also reviewed the achievement of targets for the annual bonus for the Executive Board and Senior Management and decided on the procedure for the assessment of the external auditor, in view of the reappointment. The CEO and the CFO attended all the meetings, as well as the external auditor, the Director Group Control & Accounting and the Group Internal Auditor.

62 60 Report of the Supervisory Board To the shareholders continued Remuneration Executive Board The Annual General Meeting of Shareholders adopted on 19 April 2007 a revised remuneration policy for the Executive Board. In 2006 a new pension scheme was introduced. Details of the policy and its implementation are described on page 62 of this report. The remuneration policy aims to ensure that highly qualified managers can be attracted and retained as members of the Executive Board. The package includes a base salary, an annual bonus and a long-term incentive scheme. Ensuring a balanced focus on both the short-term and long-term, performance variable pay is equally divided between short-term bonus and the long-term incentive. Every two years the policy is evaluated. Appreciation The Supervisory Board would like to take this opportunity to express its gratitude to the members of the Executive Board and all Heineken employees for their contribution to the results in Supervisory Board Heineken N.V. Van Lede De Jong Das de Carvalho Hessels Fentener van Vlissingen MacLaurin Amsterdam, 19 February 2008

63 61 Supervisory Board as at 19 February 2008 Cees (C.J.A.) van Lede (1942) Dutch; male. Appointed in 2002; latest reappointment in 2006; next reappointment in Chairman (2004). Profession: Company Director. Supervisory directorships Dutch stock listed companies: Royal Philips Electronics N.V. Other: Sara Lee Corporation, Air Liquide S.A., Air France/KLM, Senior Advisor Europe JP Morgan Plc., London. Jan Maarten (J.M.) de Jong (1945) Dutch; male. Appointed in 2002; latest reappointment in 2006; next reappointment in Vice-Chairman (2004). Profession: Banker. Supervisory directorships Dutch stock listed companies: Nutreco Holding N.V. Other: Banca Antonveneta SpA, Italy, CRH plc, Ireland, AON Groep Nederland B.V. Maarten (M.) Das (1948) Dutch; male. Appointed in 1994; latest reappointment in 2005; next reappointment in Delegated member (1995). Profession: Lawyer, Partner of Loyens & Loeff. No supervisory directorships Dutch stock listed companies. Other: Greenfee B.V. (Chairman) Other posts*: Heineken Holding N.V. (Chairman), L Arche Green N.V. (Chairman), Stichting Administratiekantoor Priores, LAC B.V. Michel (M.R.) de Carvalho (1944) British; male. Appointed in 1996; latest reappointment in 2007; next reappointment in Profession: Banker, Investment Banking (Vice- Chairman) Citigroup Inc., UK. No supervisory directorships Dutch stock listed companies. Jan Michiel (J.M.) Hessels (1942) Dutch; male. Appointed in 2001; latest reappointment in 2005; next reappointment in Profession: Company Director. Supervisory directorships Dutch stock listed companies: Royal Philips Electronics N.V., Fortis N.V. Other: NYSE Euronext (Chairman), S.C. Johnson Europlant B.V. (Chairman), Member International Advisory Board The Blackstone Group, USA, Netherlands Committee for Economic Policy Analysis (CPB) (Chairman). Annemiek (A.M.) Fentener van Vlissingen (1961) Dutch; female. Appointed in 2006; reappointment in Profession: Company Director. Supervisory directorships Dutch stock listed companies: Draka Holding N.V. Other: SHV Holdings N.V. (Chairman), De Nederlandsche Bank N.V. (member). Ian (I.C.) MacLaurin (1937) British; male. Appointed in 2006; reappointment in Profession: Company Director. No supervisory directorships Dutch stock listed companies. Other: Evolution Group Plc., Chartwell Group Ltd. (Chairman). If applicable, board memberships mentioned under Other only list other major board memberships. * Where relevant to performance of the duties of the Supervisory Board.

64 62 Report of the Supervisory Board Remuneration report The remuneration policy and structure reflects the strategic ambitions of the Company and takes into account internal and external circumstances. The policy seeks to maintain a tight focus on both short-term and long-term strategic results. The policy was adopted in the Annual General Meeting of Shareholders in 2005 and the revised policy was adopted in A review of the policy is conducted every two years. Remuneration Executive Board as from 2007 The remuneration package of the Executive Board includes a base salary, a short-term incentive and a long-term incentive. Base salary accounts for 33 per cent of the total remuneration package at target level for the CEO and 40 per cent for the CFO. Target percentage for each of annual bonus and long-term incentive is 100 per cent of base salary for the CEO and 75 per cent for the CFO. The equal division of variable pay between shortterm bonus and long-term incentive ensures a balanced focus, on both short-term and longterm performance. The Company aims to achieve consistency in the structure of the remuneration packages of both Executive Board members and senior Heineken executives. The variable elements in Executive Board members remuneration are more strongly emphasised than those of senior executives, reflecting the principle of increasing performance sensitivity in line with the impact on Group results. Both internal pay relativities and relevant market data are used to define the remuneration package for the Executive Board. For market data, a specific labour market is defined. Heineken operates in a highly international labour market and is headquartered in the Netherlands. Consequently, the reference for market data is primarily other Dutch multinational companies. To reflect the specific business of Heineken a minority of continental European companies that operate in the branded consumer products markets are included. The labour market peer group consists of the following companies: Akzo Nobel N.V., Koninklijke DSM N.V., Reed Elsevier N.V., Koninklijke Ahold N.V., Koninklijke KPN N.V., Koninklijke Numico N.V.*, TNT N.V., Unilever N.V., Koninklijke Philips Electronics N.V., InBev S.A., Henkel KGaA, L Oréal S.A., Nestlé S.A. * Replacement of Koninklijke Numico N.V., following its takeover, will be part of our next review in Base salary The members of the Executive Board are paid at the median of the labour market peer group. This represents 750,000 for the CEO and 550,000 for the CFO. Annual bonus The focus of the annual bonus is on annual operational performance. Organic net profit growth is the measure used to assess the operational performance of Heineken on a one-year basis and accounts for 75 per cent of the bonus opportunity. Each year, the Supervisory Board determines an ambitious, yet realistic organic net profit growth target. The threshold level of payout is set at 60 per cent of target. A linear payout curve applies. Part of the payout is subject to meeting an acceptable cash conversion rate. The remaining 25 per cent of the annual bonus is linked to yearly personal targets. The specific targets are commercially sensitive and cannot be disclosed. At target level, the annual bonus level for the CEO is 750,000 and for the CFO 412,500. The maximum payout will not exceed 1.5 times the target bonus level. Based on its overall assessment, the Supervisory Board awarded the maximum bonus, as in 2007 all targets were exceeded. This represents 1,125,000 for the CEO and 618,750 for the CFO. Long-term incentive The long-term incentive plan for the Executive Board, in effect since 1 January 2005, is a performance share plan. A similar plan was

65 63 implemented for senior management in Each year a number of performance shares are conditionally awarded, the vesting of which is subject to meeting a stretching performance target after three years. The value of the performance shares at target level for 2007 for the CEO is 750,000 and for the CFO 412,500. The performance condition is total shareholder return, measured over a three-year period, relative to a performance peer group. The performance peer group is different from the labour market peer group and includes companies with which Heineken competes for shareholder preference. It is composed of other brewers, but also includes European companies operating in the branded consumer products market. The performance peer group consists of the following companies: Anheuser-Busch Inc., Carlsberg A/S, InBev S.A., SABMiller plc, Scottish & Newcastle plc, Henkel KGaA, L Oréal S.A., LVMH S.A., Koninklijke Numico N.V.*, Nestlé S.A., Unilever N.V. * Following its take-over, Koninklijke Numico N.V. has been replaced in the performance peer group by Diageo Plc. This replacement shall have effect as of the plan period If, over a three-year period, Heineken performs better than the median of the peer group a proportion of the performance shares will vest. Below median, no performance shares will vest. At sixth position, 25 per cent of the target amount will vest. A linear vesting schedule applies, with 50 per cent of the target number vesting at fifth position and 75 per cent at fourth position. At third position, the target number will vest. If Heineken is ranked first, the maximum number of performance shares will vest. This is 1.5 times the target amount of shares. The vested shares are subject to a holding restriction of two years. For the LTIP performance period, Heineken was ranked at the end of 2007 as follows: Period : 5th Period : 3rd Period : 3rd Heineken is acquiring the shares that will be required for vesting. The Executive Board performance share allocation at target level is as follows: For the year starting 1 January 2005, based on the share price of at 31 December 2004, 17,224 performance shares for the CEO and 13,250 performance shares for the CFO. On the basis of the fulfilment of the performance condition (total shareholder return ranking for the LTIP performance period at third position), the performance shares will vest within 5 business days after the publication of the 2007 annual results as determined by the Supervisory Board in such a way that Mr Van Boxmeer is entitled to a gross amount (prorated to the time of appointment as CEO) of 14,244 (100 per cent of target) Heineken N.V. shares and Mr Hooft Graafland is entitled to a gross amount of 13,250 (100 per cent of target) Heineken N.V. shares. As Heineken N.V. will fulfill the tax payment obligations related to vesting, the amount of Heineken N.V. shares to be received by the CEO and CFO will be a net amount in shares. For the year starting 1 January 2006, based on the share price of at 31 December 2005, 15,777 performance shares for the CEO and 12,136 performance shares for the CFO. These will vest, subject to the fulfilment of the performance condition, in 2009.

66 64 Report of the Supervisory Board Remuneration report continued For the year starting 1 January 2007, based on the share price of at 31 December 2006, 20,816 performance shares for the CEO and 11,449 performance shares for the CFO. These will vest, subject to the fulfilment of the performance condition, in For the year starting 1 January 2008, based on the share price of at 31 December 2007, 16,960 performance shares for the CEO and 9,328 performance shares for the CFO. These will vest, subject to the fulfilment of the performance condition, in Pensions In 2006 a new pension policy was introduced for current and future members of the Executive Board, reflecting the Netherlands market and Netherlands legislative changes. The arrangement is based on the principle of defined contribution. Executive Board members can choose to participate in the Defined Contribution Plan or to allocate, within the fiscal rules, the amounts into a Capital Creation option. In the Defined Contribution Plan, apart from the survivor s pension, a separate lump sum of two times base salary will be paid in the event of death whilst in service. In the Capital Creation option the Executive Board member may elect to receive as income the Defined Contribution premium amounts from the pension scheme, less an amount equivalent to the employee contribution. Instead of a survivor s pension, a lump sum of, depending on age, ten, eight, six or four times base salary will be paid, in the event of death whilst in service. The retirement age is 65, but individual Executive Board members may retire earlier with a reduced level of benefit. Contribution rates are designed to enable the current Executive Board members to retire from the Company at the age of 62. Contracts The contracts of the Executive Board are for an indefinite period of time. The general notice period is six months for the Company and three months for the members of the Executive Board. There is no specific scheme in the event of dismissal. As stated in the Comply or Explain Report (February 2005), on the basis of the Dutch Corporate Governance Code, provision II.2.7 cannot be complied with as it conflicts with the law. Shares held by the Executive Board As at 31 December 2007, except for the aforementioned performance shares, the members of the Executive Board did not hold directly any of the Company s shares, convertible bonds or option rights. Mr. Hooft Graafland held 3,052 shares of Heineken Holding N.V. as per 31 December Remuneration Supervisory Board The amounts paid to the members of the Supervisory Board are stated on page 125 of the financial statements. These amounts came into force as per The General Meeting of Shareholders determines the remuneration of the Supervisory Board. Shares held by the Supervisory Board As at 31 December 2007, Mr. de Carvalho held 8 shares in Heineken N.V. The other Supervisory Board members do not hold any of the Company s shares, convertible bonds or option rights. As at 31 December 2007 Mr. Van Lede held 2,656 shares in Heineken Holding N.V. and Mr. de Carvalho held 8 shares in Heineken Holding N.V. Supervisory Board Heineken N.V. Amsterdam, 19 February 2008

67 Financial statements Consolidated income statement For the year ended 31 December In millions of EUR Note Revenue 5 12,564 11,829 Other income Raw materials, consumables and services 9 8,162 7,376 Personnel expenses 10 2,165 2,241 Amortisation, depreciation and impairments Total expenses 11,091 10,403 Results from operating activities 1,503 1,805 Interest income Interest expenses 12 (168) (185) Other net finance (expenses)/income 12 (26) 11 Net finance expenses (127) (122) Share of profit of associates (net of income tax) Profit before income tax 1,401 1,710 Income tax expenses 13 (429) (365) Profit 972 1,345 Attributable to: Equity holders of the Company (net profit) 807 1,211 Minority interest Profit 972 1,345 Weighted average number of shares basic ,353, ,712,594 Weighted average number of shares diluted ,974, ,974,594 Basic earnings per share ( ) Diluted earnings per share ( )

68 66 Financial statements Consolidated statement of recognised income and expense For the year ended 31 December 2007 In millions of EUR Note Foreign currency translation differences for foreign operations 12 (100) (84) Effective portion of change in fair value of cash flow hedge Net change in fair value of cash flow hedges transferred to the income statement 12 (36) Net change in fair value available-for-sale investments IFRS transitional adjustments prior year 22 (10) Net income and expense recognised directly in equity 22 (83) 4 Profit 972 1,345 Total recognised income and expense 889 1,349 Attributable to: Equity holders of the Company 736 1,246 Minority interest Total recognised income and expense 889 1,349

69 Consolidated balance sheet As at 31 December In millions of EUR Note Assets Property, plant & equipment 14 5,362 4,944 Intangible assets 15 2,541 2,449 Investments in associates Other investments Advances to customers Deferred tax assets Total non-current assets 9,124 8,760 Inventories 19 1, Other investments Trade and other receivables 20 1,873 1,779 Prepayments and accrued income Cash and cash equivalents ,374 Assets classified as held for sale Total current assets 3,844 4,237 Total assets 12,968 12,997 Equity Share capital Reserves Retained earnings 3,928 3,559 Equity attributable to equity holders of the Company 22 5,404 5,009 Minority interests Total equity 5,946 5,520 Liabilities Loans and borrowings 24 1,521 2,091 Employee benefits Provisions Deferred tax liabilities Total non-current liabilities 2,829 3,469 Bank overdrafts Loans and borrowings Trade and other payables 29 2,806 2,496 Tax liabilities Provisions Total current liabilities 4,193 4,008 Total liabilities 7,022 7,477 Total equity and liabilities 12,968 12,997

70 68 Financial statements Consolidated statement of cash flows For the year ended 31 December 2007 In millions of EUR Note Operating activities Profit 972 1,345 Adjustments for: Amortisation, depreciation and impairments Net interest (income)/expenses Gain on sale of property, plant & equipment, intangible assets and subsidiaries, joint ventures and associates 8 (30) (379) Investment income and share of profit of associates (41) (40) Income tax expenses Other non-cash items Cash flow from operations before changes in working capital and provisions 2,298 2,241 Change in inventories (140) (43) Change in trade and other receivables (175) 85 Change in trade and other payables Total change in working capital (33) 144 Change in provisions and employee benefits (53) (3) Cash flow from operations 2,212 2,382 Interest paid and received (96) (138) Dividend received Income taxes paid (413) (408) Cash flow used for interest, dividend and income tax (482) (533) Cash flow from operating activities 1,730 1,849 Investing activities Proceeds from sale of property, plant & equipment and intangible assets Purchase of property, plant & equipment 14 (1,123) (844) Purchase of intangible assets 15 (22) (33) Loans issued to customers and other investments (146) (166) Repayment on loans to customers Cash flow used in operational investing activities (985) (727) Acquisition of subsidiaries, joint ventures and minority interests, net of cash acquired 6 (245) (84) Acquisition of associates and other investments (89) (29) Disposal of subsidiaries, joint ventures and minority interests, net of cash disposed of Disposal of associates and other investments Cash flow used for acquisitions and disposals (278) (72) Cash flow used in investing activities (1,263) (799)

71 69 In millions of EUR Note Financing activities Proceeds from loans and borrowings Repayment of loans and borrowings (265) (582) Dividends paid (450) (297) Purchase own shares 22 (15) (14) Other (3) (18) Cash flow used in financing activities (656) (649) Net Cash Flow (189) 401 Cash and cash equivalents as at 1 January Effect of movements in exchange rates (5) (8) Cash and cash equivalents as at 31 December

72 70 Financial statements Notes to the consolidated financial statements 1. Reporting entity Heineken N.V. (the Company ) is a company domiciled in the Netherlands. The address of the Company s registered office is Tweede Weteringplantsoen 21, Amsterdam. The consolidated financial statements of the Company as at and for the year ended 31 December 2007 comprise the Company and its subsidiaries (together referred to as Heineken or the Group and individually as Heineken entities) and Heineken s interests in joint ventures and associates. A summary of the main subsidiaries, joint ventures and associates is included in note 34, 35 and 16. Heineken is primarily involved in brewing and selling of beer. 2. Basis of preparation (a) Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as endorsed by the EU and also comply with the financial reporting requirements included in Part 9 of Book 2 of the Dutch Civil Code. The Company presents a condensed income statement, using the facility of Article 402 of Part 9, Book 2, of the Dutch Civil Code. The financial statements have been prepared by the Executive Board of the Company and authorised for issue on 19 February 2008 and will be submitted for adoption to the Annual General Meeting of Shareholders on 17 April (b) Basis of measurement The consolidated financial statements have been prepared on the historical cost basis except for the following assets and liabilities: Available-for-sale investments are measured at fair value. Investments at fair value through profit and loss are measured at fair value. Derivative financial instruments are measured at fair value. Liabilities for equity-settled share-based payment arrangements are measured at fair value. The methods used to measure fair values are discussed further in note 4. (c) Functional and presentation currency These consolidated financial statements are presented in euro, which is the Company s functional currency. All financial information presented in euros has been rounded to the nearest million unless stated otherwise. (d) Use of estimates and judgements The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.

73 71 In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are described in the following notes: Note 6 Acquisitions and disposals of subsidiaries, joint ventures and minority interests. Note 15 Intangible assets. Note 18 Deferred tax assets and liabilities. Note 26 Employee benefits. Note 27 Share-based payments Long-Term Incentive Plan. Note 28 Provisions and 32 Contingencies. Note 30 Financial risk management and financial instruments. 3. Significant accounting policies The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements and have been applied consistently by Heineken entities. Certain comparative amounts have been reclassified or line items have been added in order to conform with current year s presentation, in accordance with IFRS 7, of the consolidated balance sheet, the consolidated statement of recognised income and expense, net finance expenses (see note 12), other investments (see note 17), prepayments and accrued income, trade and other receivables (see note 20) and financial risk management and financial instruments (see note 30). In addition certain comparative amounts in the consolidated statement of cash flows have been reclassified to conform with current year s presentation. (a) Basis of consolidation (i) Subsidiaries Subsidiaries are entities controlled by Heineken. Control exists when Heineken has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that currently are exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Accounting policies have been changed where necessary to ensure consistency with the policies adopted by Heineken. (ii) Associates Associates are those entities in which Heineken has significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20 and 50 per cent of the voting power of another entity. The consolidated financial statements include Heineken s share of the total recognised income and expenses of associates on an equity-accounted basis, from the date that significant influence commences until the date that significant influence ceases. When Heineken s share of losses exceeds the carrying amount of the associate, the carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that Heineken has an obligation or has made a payment on behalf of the associate. (iii) Joint ventures Joint ventures are those entities over whose activities Heineken has joint control, established by contractual agreement and requiring unanimous consent for strategic financial and operating decisions. The consolidated financial statements include Heineken s proportionate share of the entities assets, liabilities, revenue and expenses with items of a similar nature on a line-by-line basis, from the date that joint control commences until the date that joint control ceases. (iv) Transactions eliminated on consolidation Intra-Heineken balances and transactions, and any unrealised gains and losses or income and expenses arising from intra-heineken transactions, are eliminated in preparing the consolidated financial statements. Unrealised income arising from transactions with associates and joint ventures are eliminated to the extent of Heineken s interest in the entity. Unrealised expenses are eliminated in the same way as unrealised income, but only to the extent that there is no evidence of impairment.

74 72 Financial statements Notes to the consolidated financial statements continued 3. Significant accounting policies continued (b) Foreign currency (i) Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of Heineken entities at the exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss arising on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognised in the income statement, except for differences arising on the retranslation of available-for-sale (equity) investments and foreign currency differences arising on the retranslation of a financial liability designated as a hedge of a net investment. Non-monetary assets and liabilities denominated in foreign currencies that are measured at cost remain translated into the functional currency at historical exchange rates. (ii) Foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated to euro at exchange rates at the balance sheet date. The revenue and expenses of foreign operations are translated to euro at exchange rates approximating the exchange rates ruling at the dates of the transactions. Foreign currency differences are recognised directly in equity as a separate component. Since 1 January 2004, the date of transition to IFRS, such differences have been recognised in the translation reserve. The cumulative currency differences at the date of transition to IFRS were deemed to be zero. When a foreign operation is disposed of, in part or in full, the relevant amount in the translation reserve is transferred to the income statement. Foreign exchange gains and losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely in the foreseeable future, are considered to form part of a net investment in a foreign operation and are recognised directly in equity in the translation reserve. The following exchange rates, for most important countries in which Heineken has operations, were used whilst preparing these financial statements: Year-end Average In EUR CLP EGP NGN PLN RUB SGD USD ZAR

75 73 (iii) Hedge of net investment in foreign operation Foreign currency differences arising on the retranslation of a financial liability designated as a hedge of a net investment in a foreign operation are recognised directly in equity, in the translation reserve, to the extent that the hedge is effective. To the extent that the hedge is ineffective, such differences are recognised in profit or loss. When the hedged part of a net investment is disposed of, the associated cumulative amount in equity is transferred to profit or loss as an adjustment to the profit or loss on disposal. (c) Non-derivative financial instruments (i) General Non-derivative financial instruments comprise investments in equity and debt securities, trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables. Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs. Subsequent to initial recognition non-derivative financial instruments are measured as described below. Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of Heineken s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. Accounting for interest income, interest expenses and other net finance income and expenses are discussed in note 3r. (ii) Held-to-maturity investments If Heineken has the positive intent and ability to hold debt securities to maturity, they are classified as held-to-maturity. Debt securities are loans and long-term receivables and are measured at amortised cost using the effective interest method, less any impairment losses. Investments held-to-maturity are recognised or derecognised on the day they are transferred to or by Heineken. Held-to maturity investments includes loans to customers of Heineken. (iii) Available-for-sale investments Heineken s investments in equity securities and certain debt securities are classified as available-for-sale. Subsequent to initial recognition, they are measured at fair value and changes therein, except for impairment losses (see note 3i(i)), and foreign exchange gains and losses on available-for-sale monetary items (see note 3b(i)), are recognised directly in equity. When these investments are derecognised, the cumulative gain or loss previously recognised directly in equity is recognised in the income statement. Where these investments are interest-bearing, interest calculated using the effective interest method is recognised in the income statement. Available-for-sale investments are recognised or derecognised by Heineken on the date it commits to purchase or sell the investments. (iv) Investments at fair value through profit or loss An investment is classified as at fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. Investments are designated at fair value through profit or loss if Heineken manages such investments and makes purchase and sale decisions based on their fair value in accordance with Heineken s documented risk management or investment strategy. Upon initial recognition, attributable transaction costs are recognised in the income statement when incurred. Investments at fair value through profit or loss are measured at fair value, with changes therein recognised in the income statement. Investments at fair value through profit and loss are recognised or derecognised by Heineken on the date it commits to purchase or sell the investments.

76 74 Financial statements Notes to the consolidated financial statements continued 3. Significant accounting policies continued (v) Other Other non-derivative financial instruments are measured at amortised cost using the effective interest method, less any impairment losses. Included in non-derivative financial instruments are advances to customers. Subsequently the advances are amortised over the term of the contract as a reduction of revenue. (d) Derivative financial instruments (i) General Heineken uses derivatives in the ordinary course of business in order to manage market risks. Generally Heineken seeks to apply hedge accounting in order to minimise the effects of foreign currency fluctuations in the income statement. Derivatives that can be used are interest rate swaps, forward rate agreements, caps and floors, forward exchange contracts and options. Transactions are entered into with a limited number of counterparties with strong credit ratings. Foreign currency and interest rate hedging operations are governed by an internal policy and rules approved and monitored by the Executive Board. Derivative financial instruments are recognised initially at fair value, with attributable transaction costs recognised in the income statement when incurred. Derivatives for which hedge accounting is not applied are accounted for as instruments at fair value through profit or loss. When derivatives qualify for hedge accounting, subsequent measurement is at fair value, and changes therein accounted for as described in note 3d(ii). The fair value of interest rate swaps is the estimated amount that Heineken would receive or pay to terminate the swap at the balance sheet date, taking into account current interest rates and the current creditworthiness of the swap counterparties. (ii) Cash flow hedges Changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are recognised directly in equity to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are recognised in the income statement. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then hedge accounting is discontinued and the cumulative unrealised gain or loss recognised in equity is recognised in the income statement immediately. When a hedging instrument is terminated, but the hedged transaction still is expected to occur, the cumulative gain or loss at that point remains in equity and is recognised in accordance with the above-mentioned policy when the transaction occurs. When the hedged item is a non-financial asset, the amount recognised in equity is transferred to the carrying amount of the asset when it is recognised. In other cases the amount recognised in equity is transferred to the income statement in the same period that the hedged item affects the income statement. (iii) Economic hedges Hedge accounting is not applied to derivative instruments that economically hedge monetary assets and liabilities denominated in foreign currencies. Changes in the fair value of such derivatives are recognised in the income statement as part of foreign currency gains and losses.

77 75 (e) Share capital (i) Ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax effects. (ii) Repurchase of share capital (treasury shares) When share capital recognised as equity is repurchased, the amount of the consideration paid, which includes directly attributable costs, is net of any tax effects, and is recognised as a deduction from equity. Repurchased shares are classified as treasury shares and are presented in the reserve for own shares. When treasury shares are sold or reissued subsequently, the amount received is recognised as an increase in equity, and the resulting surplus or deficit on the transaction is transferred to or from retained earnings. (iii) Dividends Dividends are recognised as a liability in the period in which they are declared. (f) Property, Plant and Equipment (P, P and E) (i) Owned assets Items of property, plant and equipment are measured at cost less government grants received (refer (q)), accumulated depreciation (refer (iv)) and accumulated impairment losses (refer accounting policy 3i(ii)). Cost comprises the initial purchase price increased with expenditures that are directly attributable to the acquisition of the asset (like transports and non-recoverable taxes). The cost of self-constructed assets includes the cost of materials and direct labour and any other costs directly attributable to bringing the asset to a working condition for its intended use (like an appropriate proportion of production overheads), and the costs of dismantling and removing the items and restoring the site on which they are located. Borrowing costs related to the acquisition or construction of qualifying assets are recognised in the income statement when incurred. Spare parts that are acquired as part of an equipment purchase and only to be used in connection with this specific equipment are initially capitalised and amortised as part of the equipment. Where an item of property, plant and equipment comprises major components having different useful lives, they are accounted for as separate items of property, plant and equipment. (ii) Leased assets Leases in terms of which Heineken assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition P, P and E acquired by way of finance lease is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments at inception of the lease. Lease payments are apportioned between the outstanding liability and finance charges so as to achieve a constant periodic rate of interest on the remaining balance of the liability. Other leases are operating leases and are not recognised on Heineken s balance sheet. Payments made under operating leases are charged to the income statement on a straight-line basis over the term of the lease. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place.

78 76 Financial statements Notes to the consolidated financial statements continued 3. Significant accounting policies continued (iii) Subsequent expenditure The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item or recognised as a separate asset, as appropriate, if it is probable that the future economic benefits embodied within the part will flow to Heineken and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in the income statement when incurred. (iv) Depreciation Land is not depreciated as it is deemed to have an infinite life. Depreciation on other P, P and E is charged to the income statement on a straight-line basis over the estimated useful lives of items of property, plant and equipment, and major components that are accounted for separately. Assets under construction are not depreciated. The estimated useful lives are as follows: Buildings Plant and equipment Other fixed assets years years 5 10 years Where parts of an item of P, P and E have different useful lives, they are accounted for as separate items of P, P and E. The depreciation methods, residual value as well as the useful lives are reassessed, and adjusted if appropriate, annually. (v) Net gains on sale Net gains on sale of items of P, P and E are presented in the income statement as other income. Net gains are recognised in the income statement when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs can be estimated reliably, and there is no continuing management involvement with the P, P and E. (g) Intangible assets (i) Goodwill Goodwill arises on the acquisition of subsidiaries, associates and joint ventures and represents the excess of the cost of the acquisition over Heineken s interest in net fair value of the net identifiable assets, liabilities and contingent liabilities of the acquiree. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill arising on the acquisition of associates is included in the carrying amount of the associate. In respect of acquisitions prior to 1 October 2003, goodwill is included on the basis of deemed cost, being the amount recorded under previous GAAP. Goodwill on acquisitions purchased before 1 January 2003 has been deducted from equity. Goodwill arising on the acquisition of a minority interest in a subsidiary represents the excess of the cost of the additional investment over the carrying amount of the net assets acquired at the date of exchange. Goodwill is measured at cost less accumulated impairment losses (refer accounting policy 3i(ii)). Goodwill is allocated to cash-generating units for the purpose of impairment testing and is tested annually for impairment. Negative goodwill is recognised directly in the income statement.

79 77 (ii) Brands Brands acquired, separately or as part of a business combination, are capitalised as part of a brand portfolio if the portfolio meets the definition of an intangible asset and the recognition criteria are satisfied. Brand portfolios acquired as part of a business combination include the customer base related to the brand because it is assumed that brands have no value without a customer base and vice versa. Brand portfolios acquired as part of a business combination are valued at fair value based on the royalty relief method. Brands and brand portfolios acquired separately are measured at cost. Brands and brand portfolios are amortised on a straight-line basis over their estimated useful life. (iii) Software, research and development and other intangible assets Purchased software is measured at cost less accumulated amortisation (refer (v)) and impairment losses (refer accounting policy 3i(ii)). Expenditure on internally developed software is capitalised when the expenditure qualifies as development activities, otherwise it is recognised in the income statement when incurred. Expenditure on research activities, undertaken with the prospect of gaining new technical knowledge and understanding, is recognised in the income statement when incurred. Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditure is capitalised only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and Heineken intends to and has sufficient resources to complete development and to use or sell the asset. The expenditure capitalised includes the cost of materials, direct labour and overhead costs that are directly attributable to preparing the asset for its intended use. Borrowing costs related to the development of qualifying assets are recognised in the income statement when incurred. Other development expenditure is recognised in the income statement when incurred. Capitalised development expenditure is measured at cost less accumulated amortisation (refer (v)) and accumulated impairment losses (refer accounting policy 3i(ii)). Other intangible assets that are acquired by Heineken are measured at cost less accumulated amortisation (refer (v)) and impairment losses (refer accounting policy 3i(ii)). Expenditure on internally generated goodwill and brands is recognised in the income statement when incurred. (iv) Subsequent expenditure Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed when incurred. (v) Amortisation Intangible assets with a finite life are amortised on a straight-line basis over their estimated useful lives from the date they are available for use. The estimated useful lives are as follows: Brands Software Capitalised development costs years 3 years 3 years

80 78 Financial statements Notes to the consolidated financial statements continued 3. Significant accounting policies continued (vi) Gains and losses on sale Gains on sale of intangible assets are presented in the income statement as other income. Gains are recognised in the income statement when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs can be estimated reliably, and there is no continuing management involvement with the intangible assets. (h) Inventories (i) General Inventories are measured at the lower of cost and net realisable value, based on the First In First Out principle and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. (ii) Finished products and work in progress Finished products and work in progress are measured at manufacturing cost based on weighted averages and takes into account the production stage reached. Costs include an appropriate share of direct production overheads based on normal operating capacity. (iii) Other inventories and spare parts The cost of other inventories is based on weighted averages. Spare parts are valued at the lower of cost and net realisable value. Value reductions and usage of parts are charged to the income statement. Spare parts that are acquired as part of an equipment purchase and only to be used in connection with this specific equipment are initially capitalised and amortised as part of the equipment. (i) Impairment (i) Financial assets A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. An impairment loss in respect of an available-for-sale financial asset is calculated by reference to its current fair value. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognised in the income statement. Any cumulative loss in respect of an available-for-sale financial asset recognised previously in equity is transferred to the income statement. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost and available-for-sale financial assets that are debt securities, the reversal is recognised in the income statement. For available-for-sale financial assets that are equity securities, the reversal is recognised directly in equity.

81 79 (ii) Non-financial assets The carrying amounts of Heineken s non-financial assets, other than inventories (refer accounting policy (h)) and deferred tax assets (refer accounting policy (s)), are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset s recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, the recoverable amount is estimated at each reporting date. The recoverable amount of an asset or cash-generating unit is considered the value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a post-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the cash-generating unit ). The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to cash-generating units that are expected to benefit from the synergies of the combination. An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that largely are independent from other assets and groups. Impairment losses are recognised in the income statement. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. (j) Non-current assets held for sale Non-current assets (or disposal groups comprising assets and liabilities) that are expected to be recovered primarily through sale rather than through continuing use are classified as held for sale. Immediately before classification as held for sale, the assets (or components of a disposal group) are remeasured in accordance with Heineken s accounting policies. Thereafter the assets (or disposal group) are measured at the lower of their carrying amount and fair value less cost to sell. Any impairment loss on a disposal group first is allocated to goodwill, and then to remaining assets and liabilities on pro rata basis, except that no loss is allocated to inventories, financial assets, deferred tax assets and employee benefit assets, which continue to be measured in accordance with Heineken s accounting policies. Impairment losses on initial classification as held for sale and subsequent gains or losses on remeasurement are recognised in the income statement. Gains are not recognised in excess of any cumulative impairment loss. (k) Employee benefits (i) Defined contribution plans A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in thecurrent and prior periods. Obligations for contributions to defined contribution pension plans are recognised as an employee benefit expense in the income statement when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available.

82 80 Financial statements Notes to the consolidated financial statements continued 3. Significant accounting policies continued (ii) Defined benefit plans A defined benefit plan is a pension plan that is not a defined contribution plan. Typically defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. Heineken s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. Any unrecognised past service costs and the fair value of any plan assets are deducted. The discount rate is the yield at balance sheet date on AA-rated bonds that have maturity dates approximating the terms of Heineken s obligations and that are denominated in the same currency in which the benefits are expected to be paid. The calculations are performed annually by qualified actuaries using the projected unit credit method. Where the calculation results in a benefit to Heineken, the recognised asset is limited to the net total of any unrecognised actuarial losses and past service costs and the present value of any future refunds from the plan or reductions in future contributions to the plan. When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognised as an expense in the income statement on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognised immediately in the income statement. In respect of actuarial gains and losses that arise, Heineken applies the corridor method in calculating the obligation in respect of a plan. To the extent that any cumulative unrecognised actuarial gain or loss exceeds 10 per cent of the greater of the present value of the defined benefit obligation and the fair value of plan assets, that portion is recognised in the income statement over the expected average remaining working lives of the employees participating in the plan. Otherwise, the actuarial gain or loss is not recognised. (iii) Other long-term employee benefits Heineken s net obligation in respect of long-term employee benefits, other than pension plans, is the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value of any related assets is deducted. The discount rate is the yield at balance sheet date on high-quality credit-rated bonds that have maturity dates approximating the terms of Heineken s obligations. The obligation is calculated using the projected unit credit method. Any actuarial gains or losses are recognised in profit or loss in the period in which they arise. (iv) Termination benefits Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. Termination benefits are recognised as an expense when Heineken is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal, or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognised if Heineken has made an offer encouraging voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably. Benefits falling due more than 12 months after the balance sheet date are discounted to their present value.

83 81 (v) Share-based payment plan (long-term incentive plan) As at 1 January 2005 Heineken established a share plan for the Executive Board members (see note 27), as at 1 January 2006 Heineken also established a share plan for senior management members (see note 27). The share plan for the Executive Board is fully based on external performance conditions, while the plan for senior management members is for 25 per cent based on external market performance conditions and for 75 per cent on internal performance conditions. The grant date fair value of the share rights granted is recognised as personnel expenses with a corresponding increase in equity (equity-settled), over the period that the employees become unconditionally entitled to the share rights. The costs of the share plan for both the Executive Board and senior management members are spread evenly over the performance period. At each balance sheet date, Heineken revises its estimates of the number of share rights that are expected to vest, only for the 75 per cent internal performance conditions of the share plan of the senior management members. It recognises the impact of the revision of original estimates, if any, in the income statement, with a corresponding adjustment to equity. The fair value is measured at grant date using the Monte Carlo model taking into account the terms and conditions of the plan. (vi) Short-term benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term benefits if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. (l) Provisions (i) General A provision is recognised if, as a result of a past event, Heineken has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are measured at the present value of the expenditures to be expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as part of the net finance expenses. (ii) Restructuring A provision for restructuring is recognised when Heineken has approved a detailed and formal restructuring plan, and the restructuring has either commenced or has been announced publicly. Future operating costs are not provided for. The provision includes the benefit commitments in connection with early retirement, relocation and redundancy schemes. (iii) Onerous contracts A provision for onerous contracts is recognised when the expected benefits to be derived by Heineken from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, Heineken recognises any impairment loss on the assets associated with that contract.

84 82 Financial statements Notes to the consolidated financial statements continued 3. Significant accounting policies continued (m) Loans and borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Borrowings for which the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date, are classified as non-current liabilities. (n) Revenue (i) Products sold Revenue from the sale of products in the ordinary course of business is measured at the fair value of the consideration received or receivable, net of sales tax, excise duties, returns, customer discounts and other sales-related discounts. Revenue from the sale of products is recognised in the income statement when the amount of revenue can be measured reliably, the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of products can be estimated reliably, and there is no continuing management involvement with the products. (ii) Other revenue Other revenues are proceeds from royalties, rental income and technical services to third parties, net of sales tax. Royalties are recognised in the income statement on an accrual basis in accordance with the substance of the relevant agreement. Rental income and technical services are recognised in the income statement when the services have been delivered. (o) Other income Other income are gains from sale of P, P and E, intangible assets and (interests in) subsidiaries, joint ventures and associates, net of sales tax. They are recognised in the income statement when ownership has been transferred to the buyer. (p) Expenses (i) Operating lease payments Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives received are recognised in the income statement as an integral part of the total lease expense, over the term of the lease. (ii) Finance lease payments Minimum lease payments under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed. (q) Government grants Government grants are recognised at their fair value when it is reasonably assured that Heineken will comply with the conditions attaching to them and the grants will be received. Government grants relating to P, P and E are deducted from the carrying amount of the asset. Government grants relating to costs are deferred and recognised in the income statement over the period necessary to match them with the costs that they are intended to compensate.

85 83 (r) Interest income, interest expenses and other net finance income and expenses Interest income and expenses are recognised as they accrue, using the effective interest method unless collectibility is in doubt. Other net finance income comprises dividend income, gains on the disposal of available-for-sale investments, changes in the fair value of investments designated at fair value through profit or loss and held for trading investments and gains on hedging instruments that are recognised in the income statement. Dividend income is recognised in the income statement on the date that Heineken s right to receive payment is established, which in the case of quoted securities is the ex-dividend date. Other net finance expenses comprise unwinding of the discount on provisions, changes in the fair value of investments designated at fair value through profit or loss and held for trading investments, impairment losses recognised on investments, and losses on hedging instruments that are recognised in the income statement. Foreign currency gains and losses are reported on a net basis. (s) Income tax Income tax comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly to equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised using the balance sheet method, for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries and joint ventures to the extent that the Company is able to control the timing of the reversal of the temporary difference and they will probably not reverse in the foreseeable future. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Deferred tax assets are reviewed at each balance sheet date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. When an entity has a history of recent losses, the entity recognises a deferred tax asset arising from unused tax losses or tax credits only to the extent that the entity has sufficient taxable temporary differences or there is convincing other evidence that sufficient taxable profit will be available against which the unused tax losses or unused tax credits can be utilised by the entity.

86 84 Financial statements Notes to the consolidated financial statements continued 3. Significant accounting policies continued (t) Earnings per share Heineken presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise share rights granted to employees. (u) Cash flow statement The cash flow statement is prepared using the indirect method. Changes in balance sheet items that have not resulted in cash flows such as translation differences, fair value changes, equity-settled sharebased payments and other non-cash items, have been eliminated for the purpose of preparing this statement. Assets and liabilities acquired as part of a business combination are included in investing activities (net of cash acquired). Dividends paid to ordinary shareholders are included in financing activities. Dividends received are classified as operating activities. Interest paid is also included in operating activities. (v) Segment reporting A segment is a distinguishable component of Heineken that is engaged either in providing related products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. Segment information is presented in respect of the Group s business and geographical segments. Heineken s primary format for segment information is based on geographical segments. Inter-segment transfers or transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated result items comprise net finance expenses and income tax expenses. Unallocated assets comprise current other investments and cash call deposits. Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, and intangible assets other than goodwill. (w) Emission rights Emission rights are related to the emission of CO 2, which relates to the production of energy. Heineken has received a certain quantity of emission rights from the government for free for the first allocation period These rights are freely tradable. Bought emission rights and liabilities due to production of CO 2 are measured at cost, including any directly attributable expenditure. Emission rights received for free are also recorded at cost, i.e. with a zero value. (x) Recently issued IFRS (i) Standard and amendment effective in 2007 IFRS 7 Financial instruments: Disclosures and the complementary amendment to IAS 1 Presentation of financial statements Capital disclosures is effective as from comparative disclosures have been amended accordingly. For a description of the changes due to this standard, refer to note 3 significant accounting policies.

87 85 (ii) New standards and interpretations not yet adopted The following new standards and interpretations to existing standards relevant to Heineken are not yet effective for the year ended 31 December 2007, and have not been applied in preparing these consolidated financial statements: IAS 23 (Amendment) Borrowing costs (effective from 1 January 2009). The amendment to the standard is still subject to endorsement by the EU. It requires an entity to capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use or sale) as part of the cost of that asset. The option of immediately expensing those borrowing costs will be removed. The revised IAS 23 will constitute a change in accounting policy for Heineken. In accordance with the transitional provisions the Company will apply the revised IAS 23 to qualifying assets for which capitalisation of borrowing costs commences on or after the effective date. IFRS 8 Operating segments (effective from 1 January 2009). The standard is still subject to endorsement by the EU. IFRS 8 replaces IAS 14 and aligns segment reporting with the requirements of the US standard SFAS 131, Disclosures about segments of an enterprise and related information. The new standard requires a management approach, under which segment information is presented on the same basis as that used for internal reporting purposes. The Company is currently assessing the impact. IFRIC 13 Customer loyalty programmes (effective from 1 July 2008). The interpretation is still subject to endorsement by the EU. IFRIC 13 clarifies that where goods or services are sold together with a customer loyalty incentive (for example, loyalty points or free products), the arrangement is a multiple-element arrangement and the consideration receivable from the customer is allocated between the components of the arrangement in using fair values. The Company is currently assessing the impact, but it is not expected that it will have a material impact. IFRIC 14 IAS 19 The limit on a defined benefit asset, minimum funding requirements and their interaction (effective from 1 January 2008). The interpretation is still subject to endorsement by the EU. IFRIC 14 provides guidance on assessing the limit in IAS 19 on the amount of the surplus that can be recognised as an asset. It also explains how the pension asset or liability may be affected by a statutory or contractual minimum funding requirement. It is not expected that the IFRIC will have a material impact on Heineken s accounts. IFRIC 11 IFRS 2 Group and Treasury Share Transactions (effective for annual periods beginning on or after 1 March 2007). IFRIC 11 requires a share-based payment arrangement in which an entity receives goods or services as consideration for its own equity instruments to be accounted for as an equity-settled share-based payment transaction, regardless of how the equity instruments are obtained. Based on the fact that the LTIP of Heineken is already accounted for as equity-settled, it is not expected that this IFRIC will have an impact.

88 86 Financial statements Notes to the consolidated financial statements continued 4. Determination of fair values (i) General A number of Heineken s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability. (ii) Property, plant and equipment The fair value of property, plant and equipment recognised as a result of a business combination is based on the quoted market prices for similar items. (iii) Intangible assets The fair value of brands acquired in a business combination is based on the relief of royalty method. The fair value of other intangible assets is based on the discounted cash flows expected to be derived from the use and eventual sale of the assets. (iv) Inventories The fair value of inventories acquired in a business combination is determined based on its estimated selling price in the ordinary course of business less the estimated costs of completion and sale, and a reasonable profit margin based on the effort required to complete and sell the inventories. (v) Investments in equity and debt securities The fair value of financial assets at fair value through profit or loss, held-to-maturity investments and available-for-sale financial assets is determined by reference to their quoted bid price at the reporting date. The fair value of held-to-maturity investments is determined for disclosure purposes only. (vi) Trade and other receivables The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date. (vii) Derivative financial instruments The fair value of forward exchange contracts is based on their listed market price, if available. If a listed market price is not available, then fair value is in general estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate (based on inter-bank interest rates). The fair value of interest rate swaps is estimated by discounting the difference between cash flows resulting from the contractual interest rates of both legs of the transaction, taking into account current interest rates and the current creditworthiness of the swap counterparties. (viii) Non-derivative financial instruments Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. For finance leases the market rate of interest is determined by reference to similar lease agreements. (ix) Interest rates The interest rates used to discount estimated cash flows were as follows: Derivatives 0%-11.0% 0%-7.0% Non-derivative financial instruments, assets 0.4%-3.8% 0.4%-2.9% Non-derivative financial instruments, liabilities 4.0%-5.0% 4.0%-5.0% Finance leases 3.8%-10.5% 8.0%-13.0%

89 87 5. Segment reporting General Segment information is presented only in respect of geographical segments consistent with Heineken s management and internal reporting structure. Over 80 per cent of the Heineken sales consist of beer. The risks and rewards in respect of sales of other beverages do not differ significantly from beer, as such no business segments are reported. 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 on consolidated level diverse. Therefore 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. Therefore no secondary segment information is provided. Geographical segments In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers. Export revenue and results are also allocated to the regions. Most of the production facilities are located in Europe. Sales to the other regions are charged at transfer prices with a surcharge for cost of capital. Segment assets are based on the geographical location of the assets. Heineken distinguishes the following geographical segments: Western Europe Central and Eastern Europe The Americas Africa and the Middle East Asia Pacific Head Office/eliminations

90 88 Financial statements Notes to the consolidated financial statements continued 5. Segment reporting continued Geographical segments Central and Western Europe Eastern Europe The Americas In millions of EUR Revenue Third party revenue 1 4,814 4,752 3,668 3,337 2,043 1,975 Interregional revenue Total revenue 5,450 5,351 3,686 3,359 2,043 1,975 Other income Results from operating activities Net finance expenses Share of profit of associates (6) Income tax expenses Profit Attributable to: Equity holders of the Company (net profit) Minority interest Beer volumes 2 Consolidated volume 31,910 32,100 51,114 46,925 13,718 13,197 Minority interests 6,397 6,433 3,792 3,555 Licences Interregional volume 11,223 10, Group volume 43,446 43,001 57,867 53,627 17,733 16,924 Segment assets 3,778 4,046 5,586 5,238 1,170 1,176 Investment in associates Total segment assets 3,785 4,055 5,602 5,252 1,244 1,231 Unallocated assets Total assets Segment liabilities 3,664 3,583 3,432 2, Total equity Total equity and liabilities Purchase of P, P and E Acquisition of goodwill Purchases of intangible assets Depreciation of P, P and E Impairment and reversal of impairment of P, P & E Amortisation intangible assets Impairment intangible assets Includes other revenue of 249 million in 2007 and 241 million in For volume definitions see Glossary.

91 89 Head Office/ Africa and the Middle East Asia Pacific Eliminations Consolidated ,412 1, ,564 11, (658) (624) 1,416 1, (628) (598) 12,564 11,829 3 (16) (24) 1,503 1,805 (127) (122) (429) (365) 972 1, , ,345 15,668 13,281 7,418 6, , ,905 1, ,060 4,157 16,293 15,070 1,586 3, ,055 4,970 2 (11,581) (10,865) 18,300 17,706 13,411 11,552 (11,581) (10,865) 139, ,945 1,358 1, ,390 12, ,395 1, ,604 12, ,968 12, (1,599) (512) 7,022 7,477 5,946 5,520 12,968 12, , (3)

92 90 Financial statements Notes to the consolidated financial statements continued 6. Acquisitions and disposals of subsidiaries, joint ventures and minority interests Krušovice and Syabar acquisition On 4 September 2007 Heineken acquired Králowský Pivovar Krušovice a.s. in the Czech Republic from Radeberger Gruppe KG. The transaction was funded from existing cash resources. On 28 December 2007, Heineken acquired the Cypriot holding company of the CJSC Brewing Company Syabar, in Bobruysk, Belarus. Heineken acquired Syabar s Cypriot holding company from a consortium led by Detroit Investments Limited (Cyprus) and from the International Finance Corporation, an affiliate of the World Bank. The transaction was funded from existing cash resources. Due to the competitive sensitivity and the non-disclosure agreements with the parties involved, the acquisition prices of the Krušovice and Syabar acquisition are not individually disclosed. Effect of Krušovice and Syabar acquisition The Krušovice and Syabar acquisition had the following effect on Heineken s assets and liabilities on acquisition date. Preacquisition Recognised carrying Fair value values on In millions of EUR Note amounts adjustments acquisition Property, plant & equipment Intangible assets Other investments 8 8 Inventories 7 7 Trade and other receivables, prepayments and accrued income Cash and cash equivalents 2 2 Minority interests (2) (2) Loans and borrowings (9) (9) Provisions 28 (1) (1) Deferred tax liabilities 18 (1) (13) (14) Current liabilities (32) (32) Net identifiable assets and liabilities Goodwill on acquisition Consideration paid, satisfied in cash 240 Cash acquired (2) Net cash outflow 238 The fair values of assets and liabilities have been determined on a provisional basis, as not all information was available on the balance sheet date. The amount of goodwill paid relates to synergies Heineken expects to realise. With respect to the Krušovice acquisition, the synergies to be achieved are a result of a stronger presence in the Czech market a growth expected that the potential growth opportunities will be realised with the appropriate commercial investments. Furthermore, it is expected that cost synergies will be realised due to more efficient purchasing, sourcing and selling, as a result of the integration of these activities within the region Central and Eastern Europe. With respect to the Syabar acquisition, the synergies to be achieved are a result of a stronger presence in the Belarus market, also it is expected that the Belarus market will become a fast-growing market and by way of this acquisition a platform is established from which it is expected that both the Heineken brand and imported Russian brands will grow. Furthermore, it is expected that cost synergies will be realised resulting from more efficient purchasing, sourcing and selling due to the integration of these activities within the region Central and Eastern Europe.

93 91 The contribution of these acquisitions in 2007 to results from operating activities was 1 million and to revenue 12 million. If both acquisitions had occurred on 1 January 2007, management estimates that consolidated results from operating activities would have been 6 million higher and consolidated revenue would have been 49 million higher. In determining these amounts, management has assumed that the fair value adjustments that arose on the date of the acquisitions would have been the same if the acquisitions had occurred on 1 January Other acquisitions and disposals In addition to the acquisitions of Krušovice and Syabar, there were various other minor acquisitions and disposals during In 2007 wholesalers in France, Spain and the Netherlands were acquired. In Vietnam and Germany breweries were acquired. Disposals during the year concerned a number of wholesalers in Italy and Austria. Furthermore our joint venture in Chile sold the majority of shares of a subsidiary, which held investments in brands. Effect of other acquisitions and disposals Other acquisitions and disposals had the following effect on Heineken s assets and liabilities on acquisition date. Total other Total acquisitions disposals In millions of EUR Note Property, plant & equipment 14 6 (11) Intangible assets 15 (11) Investments in associates 7 Other investments 9 (2) Deferred tax assets 18 (3) Inventories 2 (2) Trade and other receivables, prepayments and accrued income 1 (12) Cash and cash equivalents 2 (1) Minority interests (6) Loans and borrowings 2 Employee benefits 26 1 Current liabilities (35) 36 Net identifiable assets and liabilities (8) (9) Goodwill on acquisitions (4) Consideration paid/(received), satisfied in cash 9 (13) Cash disposed of/(acquired) (2) 1 Net cash outflow/(inflow) 7 (12) The fair values of assets and liabilities of some acquisitions have been determined on a provisional basis, as not all information was available yet on the balance sheet date. The contribution in 2007 of the other acquisitions to results from operating activities and to revenue was immaterial. If the acquisitions had occurred on 1 January 2007, management estimates that consolidated results from operating activities and consolidated revenue would not have been materially different. Aquisition of minority interests In 2007, Heineken increased its ownership in Heineken Spain. The Group recognised an increase in goodwill of 6 million.

94 92 Financial statements Notes to the consolidated financial statements continued 7. Assets classified as held for sale Assets classified as held for sale represent land and buildings following the commitment of Heineken to a plan to sell the land and buildings. During 2007, part of the assets classified as held for sale have been sold. Efforts to sell the remaining assets have commenced and are expected to be completed during In millions of EUR Property, plant & equipment Other income In millions of EUR Net gain on sale of P, P and E Net gain on sale of intangible assets 10 Net gain on sale of subsidiaries, joint ventures and associates The net gain on sale of P, P and E in 2006 is for 320 million relating to the sale of a brewery site in Seville, Spain. 9. Raw materials, consumables and services In millions of EUR Raw materials Non-returnable packaging 1,592 1,439 Goods for resale 1,604 1,531 Inventory movements (51) (11) Marketing and selling expenses 1,627 1,493 Transport expenses Energy and water Repair and maintenance EC fine 219 Other expenses 1, ,162 7,376 For more details regarding the EC fine, refer to note 32.

95 Personnel expenses In millions of EUR Note Wages and salaries 1,488 1,490 Compulsory social security contributions Contributions to defined contribution plans Expenses related to defined benefit plans Increase in other long-term employee benefits 9 10 Equity-settled share-based payment plan Other personnel expenses ,165 2,241 The average number of employees during the year was: The Netherlands 3,909 4,315 Other Western Europe 11,575 12,080 Central and Eastern Europe 18,749 20,220 The Americas 1,797 1,785 Africa and the Middle East 9,516 11,504 Asia Pacific 893 1,035 Heineken N.V. and subsidiaries 46,439 50,939 Central and Eastern Europe 4,983 5,061 The Americas 4,440 4,323 Africa and the Middle East 1, Asia Pacific 5,787 4,666 Joint ventures 1 16,824 14,709 Central and Eastern Europe 2,488 2,526 The Americas 1,468 1,429 Africa and the Middle East Asia Pacific 2,893 2,333 Joint ventures employees pro rata 7,565 6,618 54,004 57,557 1 Employees of joint ventures are stated at 100%. 11. Amortisation, depreciation and impairments In millions of EUR Note Property, plant &equipment Intangible assets

96 94 Financial statements Notes to the consolidated financial statements continued 12. Net finance expenses Recognised in the income statement In millions of EUR Interest income on unimpaired held-to-maturity investments 6 10 Interest income on impaired held-to-maturity investments 1 Interest income on available-for-sale investments 1 1 Interest income on cash and cash equivalents Interest income Interest expenses (168) (185) Dividend income on available-for-sale investments Net gain on disposal of investments held for trading 1 Net change in fair value of derivatives (4) 10 Net foreign exchange loss (37) (11) Unwinding discount on provisions (1) (2) Other net finance income (26) 11 Net finance expenses (127) (122) Recognised directly in equity In millions of EUR Foreign currency translation differences for foreign operations (100) (84) Effective portion of changes in fair value of cash flow hedges Net change in fair value of cash flow hedges transferred to the income statement (36) Net change in fair value of available-for-sale investments 2 48 (83) 14 Recognised in: Fair value reserve 2 48 Hedging reserve Translation reserve (100) (84) (83) 14

97 Income tax expenses Recognised in the income statement In millions of EUR Current tax expense Current year Over provided in prior years (30) (26) Deferred tax expense Change in previously unrecognised temporary differences (1) (55) Origination and reversal of temporary differences 37 (6) Change in tax rate 4 10 (Benefit)/charge of tax losses recognised (7) 3 Under/(over)provided in prior years (48) Total income tax expenses in the income statement Reconciliation of effective tax rate In millions of EUR Profit before income tax 1,401 1,710 Net gain on sale of subsidiaries, joint ventures and associates (3) (18) Income from associates (25) (27) Dividend income (16) (13) Taxable profit 1,357 1,652 % 2007 % 2006 Income tax using the Company s domestic tax rate Effect of tax rates in foreign jurisdictions (3.0) (50) Effect of non-deductible expenses Effect of tax incentives and exempt income (2.7) (36) (3.2) (53) Change in previously unrecognised temporary differences (0.1) (2) (3.3) (55) Effect of recognition of previously unrecognised tax losses (0.1) (2) (0.3) (4) Current year losses for which no deferred tax asset is recognised Effect of change in tax rates Under/(over) provided in prior years (0.9) (12) (1.6) (26) Other reconciling items In 2007 the tax effect related to the fine of the European Commission of 219 million has been included in non-deductible expenses. In 2006 within various countries it was agreed with the tax authorities to fiscally amortise goodwill. This benefit was capitalised in 2006 and explains the decrease in change in previously unrecognised temporary differences. Deferred tax (debit)/credit recognised directly in equity In millions of EUR Note Relating to changes in fair value recognised directly in equity 18 (5) (14) (5) (14)

98 96 Financial statements Notes to the consolidated financial statements continued 14. Property, plant and equipment Land and Plant and Other Under In millions of EUR Note buildings equipment fixed assets construction Total Cost Balance as at 1 January ,725 5,093 2, ,074 Changes in consolidation 88 (125) Purchases Transfer of completed projects under construction (221) Transfer to assets classified as held for sale (70) (6) (76) Disposals (150) (214) (198) (562) Effect of movements in exchange rates (39) (76) (30) (7) (152) Balance as at 31 December ,621 4,907 3, ,146 Balance as at 1 January ,621 4,907 3, ,146 Changes in consolidation Purchases ,123 Transfer of completed projects under construction (422) Transfer to/from assets classified as held for sale 12 (3) (1) 8 Disposals (32) (156) (347) 1 (534) Effect of movements in exchange rates (27) (58) (25) (9) (119) Balance as at 31 December ,780 5,146 3, ,710 Depreciation and impairment losses Balance as at 1 january 2006 (1,339) (2,724) (1,944) (6,007) Changes in consolidation 11 8 (9) 10 Depreciation charge for the year 11 (75) (251) (380) (706) Impairment losses 11 (10) (24) (3) (37) Reversal impairment losses Transfer to assets classified as held for sale Disposals Effect of movements in exchange rates Balance as at 31 December 2006 (1,249) (2,803) (2,150) (6,202) Balance as at 1 January 2007 (1,249) (2,803) (2,150) (6,202) Changes in consolidation Depreciation charge for the year 11 (74) (252) (368) (694) Impairment losses 11 (8) (23) (12) (43) Reversal impairment losses Transfer to/from assets classified as held for sale (4) 2 (2) Disposals Effect of movements in exchange rates Balance as at 31 December 2007 (1,297) (2,874) (2,177) (6,348) Carrying amount As at 1 January ,386 2,369 1, ,067 As at 31 December ,372 2,104 1, ,944 As at 1 January ,372 2,104 1, ,944 As at 31 December ,483 2,272 1, ,362

99 97 Impairment losses In 2007 a total impairment loss of 43 million was charged to the income statement. These impairment losses related to various entities of which a total of 20 million related to impairments of the Karlsberg Brewery in Germany held by our joint venture, Brau Holding International, in Germany. Security Property, plant & equipment totalling 68 million (2006: 131million) has been pledged to the authorities in a number of countries as security for the payment of taxation, particularly excise duties on beers, nonalcoholic beverages and spirits and import duties. Property, plant and equipment under construction Property, plant & equipment under construction mainly relates to expansion of the brewing capacity in the Netherlands, Spain, Russia, Poland and Congo.

100 98 Financial statements Notes to the consolidated financial statements continued 15. Intangible assets Software, research and development In millions of EUR Note Goodwill Brands and other Total Cost Balance as at 1 January , ,521 Changes in consolidation Purchases/internally developed Disposals (1) (1) Effect of movements in exchange rates 7 (1) (2) 4 Balance as at 31 December , ,637 Balance as at 1 January , ,637 Changes in consolidation Purchases/internally developed Disposals (1) (1) Effect of movements in exchange rates (38) (2) (40) Balance as at 31 December , ,777 Amortisation and impairment losses Balance as at 1 January 2006 (14) (20) (107) (141) Amortisation charge for the year 11 (11) (17) (28) Impairment losses 11 (17) (1) (1) (19) Balance as at 31 December 2006 (31) (32) (125) (188) Balance as at 1 January 2007 (31) (32) (125) (188) Amortisation charge for the year 11 (11) (20) (31) Impairment losses 11 (18) (3) (21) Disposals 1 1 Effect of movements in exchange rates Balance as at 31 December 2007 (49) (44) (143) (236) Carrying amount As at 1 January , ,380 As at 31 December , ,449 As at 1 January , ,449 As at 31 December , ,541

101 99 Impairment tests for cash-generating units containing goodwill The aggregate carrying amounts of goodwill allocated to each cash-generating unit are as follows: In millions of EUR Brau Union 1,250 1,116 Russia Compania Cervecerias Unidas (CCU) ,012 1,906 Various other entities ,292 2,195 Goodwill has been tested for impairment as at 31 December The recoverable amounts exceed the carrying amount of the cash-generating units including goodwill, except for cash-generating units (various other entities) where an impairment loss of 18 million was charged to the income statement. This mainly relates to impairments of goodwill on the Karlsberg Brewery in Germany for a total amount of 13 million. The recoverable amounts of the cash-generating units are based on value-in-use calculations. Value-inuse was determined by discounting the future post-tax cash flows generated from the continuing use of the unit using a post-tax discount rate. The key assumptions used for the value in use calculations are as follows: Cash flows were projected based on actual operating results and the three-year business plan. Cash flows for a further seven-year period were extrapolated using expected annual per country volume growth rates, which are based on external sources. Management believes that this forecasted period is justified due to the long-term nature of the beer business and past experiences. The beer price growth per year after the first three-year period is assumed to be at specific per country expected annual long-term inflation, based on external sources. Cash flows after the first ten-year period were extrapolated using expected annual long-term inflation, based on external sources, in order to calculate the terminal recoverable amount. A per cash-generating unit specific post-tax Weighted Average Cost of Capital (WACC) was applied in determining the recoverable amount of the units. The WACC s used are presented in the table below, accompanied by the expected volume growth rates and the expected long-term inflation: Brau union Russia CCU Other Post-tax WACC 8.7% 13.1% 9.4% 6.4%-17.4% Expected annual long-term inflation 2.9% 6.8% 3.4% 1.3%-8.7% Expected volume growth rates % 2.8% 3.1% -0.3%-4.4% The values assigned to the key assumptions represent management s assessment of future trends in the beer industry and are based on both external sources and internal sources (historical data).

102 100 Financial statements Notes to the consolidated financial statements continued 16. Investments in associates Heineken has the following investments in associates, direct or indirect through subsidiaries or joint ventures: Ownership Ownership Country Cervecerias Costa Rica S.A. Costa Rica 25.0% 25.0% Brasserie Nationale d Haïti Haïti 23.3% 23.3% Guinness Ghana Breweries Ltd. Ghana 20.0% 20.0% Sierra Leone Brewery Sierra Leone 42.5% 42.5% Guinness Anchor Berhad 1,2 Malaysia 10.7% 10.7% Thai Asia Pacific Brewery Co. Ltd. 1,2 Thailand 14.7% 14.7% Jiangsu DaFuHao Breweries Co. Ltd. 1,2 China 22.5% 22.5% 1 Indirect through joint ventures. 2 The reporting date of the financial statements of these associates is 30 September. Heineken s share in the profit of associates for the year ended 31 December 2007 was 25 million (2006: 27 million). Guinness Anchor Berhad is listed on the Malaysian stock exchange. Fair value as at 31 December 2007 amounted to 37 million (2006: 42 million). Heineken is considered to have significant influence in Guinness Anchor Berhad and Thai Asia Pacific Brewery Co. Ltd. indirectly via Heineken s interest in Asia Pacific Investment Pte. Ltd.

103 Other investments In millions of EUR Note Non-current other investments Held-to-maturity investments Available-for-sale investments Current other investments Investments held for trading Financial assets held for trading Derivatives used for hedging Included in held-to-maturity investments are loans to customers with a carrying amount of 145 million as at 31 December 2007 (2006: 180 million). Effective interest rates range from 3 to 10 per cent. 139 million (2006: 168 million) matures between one and five years and 6 million (2006: 12 million) after five years. In 2006, deferred payments in relation to the sale of a brewery site in Seville, Spain, amounting to 147 million were included in held-to-maturity investments and is included in trade and other receivables as at 31 December Within available-for-sale investments, debt securities (which are interest-bearing) with a carrying amount of 26 million (2006: 24 million) are included. Sensitivity analysis equity price risk An amount of 76 million as at 31 December 2007 (2006: 84 million) of available-for-sale investments and investments held for trading is listed on stock exchanges. A 1 per cent increase in the share price at the reporting date would have increased equity by 1 million (2006: 1 million) an equal change in the opposite direction would have decreased equity by 1 million (2006: 1 million).

104 102 Financial statements Notes to the consolidated financial statements continued 18. Deferred tax assets and liabilities Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following items: Assets Liabilities Net In millions of EUR Property, plant & equipment (388) (387) (367) (366) Intangible assets (45) (41) Investments 3 9 (2) (2) 1 7 Inventories (2) Loans and borrowings 1 (3) 1 (3) Employee benefits Provisions Other items (92) (58) 6 14 Tax losses carry-forwards (2) Tax assets/(liabilities) (527) (486) (142) (76) Set-off of tax (49) (15) Net tax assets/(liabilities) (478) (471) (142) (76) Tax losses carry-forwards Heineken has losses carry-forwards for an amount of 193 million (2006: 119 million) as per 31 December 2007 which expire in the following years: In millions of EUR After 2012 respectively 2011 but not unlimited Unlimited Recognised as deferred tax assets gross (71) (42) Unrecognised gross Unrecognised net The tax losses expire in different years. Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable profit will be available against which Heineken can utilise the benefits thereof. The increase of 45 million in unrecognised gross tax losses mainly relates to impairments taken for which it is uncertain that they will be recovered by future profits.

105 103 Movement in temporary differences during the year Effect of Balance Balance Changes movements 31 1 January in in foreign Recognised Recognised December In millions of EUR 2006 consolidation exchange in income in equity 2006 Property, plant & equipment (360) (3) 9 (13) 1 (366) Intangible assets (15) Investments 14 (6) (1) 7 Inventories 9 (1) 2 10 Loans and borrowings 3 (6) (3) Employee benefits 139 (1) (3) 135 Provisions (1) 78 Other items 24 (7) 1 9 (13) 14 Tax losses carry-forwards 19 (1) (7) 11 (107) (10) 7 48 (14) (76) Effect of Balance Balance Changes movements 31 1 January in in foreign Recognised Recognised December In millions of EUR 2007 consolidation exchange in income in equity 2007 Property, plant & equipment (366) (4) 7 (4) (367) Intangible assets 38 (9) (9) 20 Investments 7 (6) 1 Inventories Loans and borrowings (3) Employee benefits 135 (1) (21) 113 Provisions 78 (5) (21) 52 Other items 14 (3) (5) 6 Tax losses carry-forwards (76) (17) 7 (51) (5) (142) 19. Inventories In millions of EUR Raw materials Work in progress Finished products Goods for resale Non-returnable packaging Other inventories , In millions of EUR Inventories measured at net realisable value In 2007 the write-down of inventories to net realisable value amounted to 12 million (2006: 8 million). The write-downs are included in expenses for raw materials, consumables and services.

106 104 Financial statements Notes to the consolidated financial statements continued 20. Trade and other receivables In millions of EUR Note Trade receivables due from associates and joint ventures 9 22 Trade receivables 1,416 1,388 Other receivables including current part loans to customers ,873 1,779 Included in other receivables including current part loans to customers, is a deferred payment in relation to the sale of a brewery site in 2006 in Seville, Spain, amounting to 153 million. With respect to this deferred payment, Heineken España received bank guarantees from several banks to cover this deferred payment by the buyer, due in March A net impairment loss of 19 million (2006: 3 million) in respect of trade receivables was included in expenses for raw materials, consumables and services. 21. Cash and cash equivalents In millions of EUR Note Bank balances Call deposits Cash and cash equivalents ,374 Bank overdrafts 24 (282) (747) Cash and cash equivalents in the statement of cash flows Heineken set up notional cash pools in The structure facilitates interest and balance compensation of cash and bank overdrafts. This notional pooling did not meet the strict set-off rules under IFRS in 2006, and as a result, the cash and bank overdraft balances have been reported gross on the balance sheet. On a netted pro forma basis cash and cash equivalents and overdraft balances would have been 401 million lower, resulting in 973 million cash and cash equivalents and 346 million bank overdraft balances as at 31 December In 2007 the set-off rules under IFRS have been met.

107 Total equity Equity attributable to equity Trans- Fair Other Reserve holders Share lation Hedging value legal for own Retained of the Minority Total In millions of EUR Note capital reserve reserve reserve reserves shares earnings Company interests equity Balance as at 1 January (21) ,617 3, ,514 Net recognised income and expense (52) (6) (4) 35 (31) 4 Profit 110 1,101 1, ,345 Transfer to retained earnings (37) 37 Dividends to shareholders (196) (196) (101) (297) Purchase minority shares (30) (30) Purchase own shares (14) (14) (14) Share-based payments Changes in consolidation (6) (6) Balance as at 31 December (14) 3,559 5, ,520 Balance as at 1 January (14) 3,559 5, ,520 Net recognised income and expense (89) (19) (71) (12) (83) Profit Transfer to retained earnings 4 (4) Dividends to shareholders (333) (333) (117) (450) Purchase minority shares (13) (13) Purchase own shares (15) (15) (15) Share-based payments Changes in consolidation 8 8 Balance as at 31 December (29) 3,928 5, ,946 Share capital Ordinary shares In millions of EUR On issue as at 1 January Issued for cash On issue as at 31 December As at 31 December 2007, the issued share capital comprised 489,974,594 ordinary shares (2006: 489,974,594). The ordinary shares have a par value of All issued shares are fully paid. The Company s authorised capital amounts to 2.5 billion, comprising of 1,562,500,000 shares. The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. In respect of the Company s shares that are held by Heineken (see next page), rights are suspended.

108 106 Financial statements Notes to the consolidated financial statements continued 22. Total equity continued Translation reserve The translation reserve comprises foreign currency differences arising from the translation of the financial statements of foreign operations of the Group (excluding amounts attributable to minority interests). Hedging reserve This reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments where the hedged transaction has not yet occurred. Heineken considers this a legal reserve. Fair value reserve This reserve comprises the cumulative net change in the fair value of available-for-sale investments until the investment is derecognised or impaired. Heineken considers this a legal reserve. Other legal reserves These reserves relate to the share of profit of joint ventures and associates over the distribution of which Heineken does not have control. The movement in these reserves reflects retained earnings of joint ventures and associates minus dividends received. In case of a legal or other restriction which causes that retained earnings of subsidiaries cannot be freely distributed, a legal reserve is recognised for the restricted part. Reserve for own shares The reserve for the Company s own shares comprises the cost of the Company s shares held by Heineken. As at 31 December 2007, Heineken held 800,000 of the Company s shares (2006: 410,000). Dividends The following dividends were declared and paid by Heineken: In millions of EUR Final dividend previous year 0.44, respectively 0.24 per qualifying ordinary share Interim dividend current year 0.24, respectively 0.16 per qualifying ordinary share Total dividend declared and paid As approved during the Annual General Meeting of Shareholders in April 2007, Heineken renewed its dividend policy by reinforcing the relationship between dividend payments and the annual development of net profit before exceptional items and amortisation of brands. Heineken s dividend policy targets a payout of 30 to 35% of net profit before exceptional items and amortisation of brands. After the balance sheet date the Executive Board proposed the following dividends. The dividends, taken into account the interim dividends declared and paid, have not been provided for. In millions of EUR per qualifying ordinary share (2006: 0.60) Prior-year adjustments in 2006 In 2006, BHI recognised IFRS transitional adjustments, which should have been reflected in the 2004 Heineken IFRS opening balance sheet. The prior-year estimation error, with a negative impact of 10 million, is not considered material and was recognised in equity in 2006.

109 Earnings per share Basic earnings per share The calculation of basic earnings per share as at 31 December 2007 is based on the profit attributable to ordinary shareholders of the Company (net profit) of 807 million (2006: 1,211 million) and a weighted average number of ordinary shares basic outstanding during the year ended 31 December 2007 of 489,353,315 (2006: 489,712,594). Basic earnings per share for the year amounts to 1.65 (2006: 2.47). Weighted average number of shares basic In thousands of shares Number of shares basic as at 1 January 489,564, ,974,594 Effect of own shares held (211,279) (262,000) Weighted average number of shares basic as at 31 December 489,353, ,712,594 Diluted earnings per share The calculation of diluted earnings per share as at 31 December 2007 was based on the profit attributable to ordinary shareholders of the Company (net profit) of 807 million (2006: 1,211 million) and a weighted average number of ordinary shares basic outstanding after adjustment for the effects of all dilutive potential ordinary shares of 489,974,594 (2006: 489,974,594). Diluted earnings per share for the year amounted to 1.65 (2006: 2.47). 24. Loans and borrowings This note provides information about the contractual terms of Heineken s interest-bearing loans and borrowings. For more information about Heineken s exposure to interest rate risk and foreign currency risk, refer to note 30. Non-current liabilities In millions of EUR Secured bank loans Unsecured bank loans Unsecured bond issues 1,143 1,341 Finance lease liabilities 16 6 Non-current interest-bearing liabilities 1,501 2,059 Non-current non-interest-bearing liabilities ,521 2,091 Current interest-bearing liabilities In millions of EUR Current portion of secured bank loans Current portion of unsecured bank loans Current portion of unsecured bond issues Current portion of finance lease liabilities 2 1 Total current portion of non-current interest-bearing liabilities Deposits from third parties Other current interest-bearing liabilities 2 17 Bank overdrafts ,155 1,241

110 108 Financial statements Notes to the consolidated financial statements continued 24. Loans and borrowings continued Net interest-bearing debt position In millions of EUR Non-current interest-bearing liabilities 1,501 2,059 Current portion of non-current interest-bearing liabilities Deposits from third parties and other current interest-bearing liabilities ,374 2,553 Bank overdrafts ,656 3,300 Cash, cash equivalents and investments held for trading (730) (1,386) Net interest-bearing debt position 1,926 1,914 Terms and debt repayment schedule Terms and conditions of outstanding loans were as follows: Face Carrying Face Carrying Nominal value amount value amount In millions of EUR Currency interest rate % Repayment Secured bank loans EUR various various Secured bank loans USD Secured bank loans various various various Unsecured bank loans EUR various various Unsecured bank loans PLN Unsecured bank loans CLP Unsecured bank loans EGP Unsecured bank loans various various various Unsecured bond issues EUR Unsecured bond issues EUR Unsecured bond issues EUR Unsecured bond issues CLP Unsecured bond issues various various various Deposits from third parties and other current interest-bearing liabilities various various various Finance lease liabilities various various various ,378 2,374 2,558 2,553 Committed facilities: the Heineken N.V. 2 billion Revolving Credit Facility was not utilised as at 31 December 2007 (31 December 2006: not utilised). 25. Finance lease liabilities Finance lease liabilities are payable as follows: Future Present value Future Present value minimum of minimum minimum of minimum lease lease lease lease payments Interest payments payments Interest payments In millions of EUR Less than one year Between one and five years More than five years

111 Employee benefits In millions of EUR Present value of unfunded obligations Present value of funded obligations 2,571 2,734 Total present value of obligation 2,916 3,043 Fair value of plan assets (2,535) (2,397) Present value of net obligation Actuarial gains (losses) not recognised 171 (78) Recognised liability for defined benefit obligations Other long-term employee benefits Plan assets comprise: In millions of EUR Equity securities 1, Government bonds Properties and real estate Other plan assets ,535 2,397 Liability for defined benefit obligations Heineken makes contributions to a number of defined benefit plans that provide pension benefits for employees upon retirement in a number of countries being mainly: the Netherlands, Greece, Austria, Germany, Italy, France, Spain and Nigeria. In other countries the pension plans are defined contribution plans and/or similar arrangements for employees. Other long-term employee benefits mainly relate to long-term bonus plans, termination benefits and jubilee benefits. Movements in the present value of the defined benefit obligations In millions of EUR Note Defined benefit obligations as at 1 January 3,043 3,121 Changes in consolidation and reclassification 6 (1) (1) Effect of movements in exchange rates (4) (2) Benefits paid (98) (97) Current service costs and interest on obligation (see next page) Past service costs 1 2 Effect of any curtailment or settlement 4 6 Actuarial gains (235) (195) Defined benefit obligations as at 31 December 2,916 3,043

112 110 Financial statements Notes to the consolidated financial statements continued 26. Employee benefits continued Movements in the present value of plan assets In millions of EUR Fair value of plan assets as at 1 January 2,397 2,268 Effect of movements in exchange rates (3) (3) Contributions paid into the plan Benefits paid (98) (97) Expected return on plan assets Actuarial gains Fair value of plan assets as at 31 December 2,535 2,397 Actual return on plan assets Expense recognised in the income statement In millions of EUR Note Current service costs Interest on obligation Expected return on plan assets (129) (118) Actuarial gains and losses recognised 2 1 Past service costs 1 2 Effect of any curtailment or settlement Principal actuarial assumptions as at the balance sheet date Western and Central Africa and the Asia and Eastern Europe Americas Middle East Pacific Discount rate as at 31 December Expected return on plan assets as at 1 January Future salary increases Future pension increases Medical cost trend rate Assumptions regarding future mortality rates are based on published statistics and mortality tables. The overall expected long-term rate of return on assets is 5.3% (2006: 5.9%). Assumed healthcare cost trend rates have a significant effect on the amounts recognised in profit or loss. A one per centage point change in assumed healthcare cost trend rates would have the following effects: 1 percentage 1 percentage In millions of EUR point increase point decrease Effect on the aggregate service and interest costs 9 (9) Effect on defined benefit obligation 142 (142) The Group expects the 2008 contributions to be paid for the defined benefit plans to be in line with 2007 and 2006, excluding the impact of acquisitions.

113 111 Historical information In millions of EUR Present value of the defined benefit obligation 2,916 3,043 3,121 Fair value of plan assets (2,535) (2,397) (2,268) Deficit in the plan Experience adjustments arising on plan liabilities (4) (159) Experience adjustments arising on plan assets Share-based payments Long-Term Incentive Plan On 1 January 2005 Heineken established a performance-based share plan (Long-Term Incentive Plan LTIP) for the Executive Board. On 1 January 2006 a similar LTIP was established for senior management. The Long-Term Incentive Plan for the Executive Board includes share rights, which are conditionally awarded to the Executive Board each year and are subject to Heineken s Relative Total Shareholder Return (RTSR) performance in comparison with the TSR performance of a selected peer group. The LTIP share rights conditionally awarded to senior management each year is for 25 per cent subject to Heineken s RTSR performance and for 75 per cent subject to internal performance conditions. At target performance, 100 per cent of the shares will vest. At maximum performance 150 per cent of the shares will vest. The performance period for share rights granted in 2005 was from 1 January 2005 to 31 December The performance period for share rights granted in 2006 is from 1 January 2006 to 31 December The performance period for share rights granted in 2007 is from 1 January 2007 to 31 December The vesting date for the Executive Board is within five business days, and for senior management the latest of 1 April and 20 business days, after the publication of the annual results of 2007, 2008 and 2009 respectively. As Heineken N.V. will fulfil the tax payment obligations related to vesting on behalf of the individual employees, the amount of Heineken N.V. shares to be received by the Executive Board and senior management will be a net amount. The terms and conditions of the share rights granted are as follows: Based on Contractual Grant date/employees entitled Number share price Vesting conditions life of rights Share rights granted to Continued service Executive Board in , and RTSR performance 3 years Share rights granted to Continued service Executive Board in , and RTSR performance 3 years Continued service, 75% Share rights granted to internal performance senior management conditions and 25% in , RTSR performance 3 years Share rights granted to Continued service Executive Board in , and RTSR performance 3 years Continued service, 75% Share rights granted to internal performance senior management conditions and 25% in , RTSR performance 3 years 749,536 The number of shares in the table above is based on target performance.

114 112 Financial statements Notes to the consolidated financial statements continued 27. Share-based payments Long-Term Incentive Plan continued Based on the expectations in relation to RTSR performance and internal performance additional shares will be expected to be vested, amounting to 121,018 shares. The expenses relating to these expected additional grants are recognised in profit and loss during the vesting period. The number and weighted average share price per share is as follows: Weighted Number Weighted Number average share of share average share of share price 2007 rights 2007 price 2006 rights 2006 Outstanding as at 1 January , ,724 Granted during the year , ,147 Forfeited during the period (52,920) Outstanding as at 31 December , ,871 The fair value of services received in return for share rights granted is based on the fair value of shares granted, measured using the Monte Carlo model, with following inputs: Executive Executive Senior Senior Board Board management management In EUR Fair value at grant date 486, ,519 9,524,037 8,814,436 Expected volatility 20.1% 22.4% 20.1% 22.4% Expected dividends 1.2% 1.5% 1.2% 1.5% Personnel expenses In millions of EUR Note Share rights granted in Share rights granted in Total expense recognised as personnel expenses Provisions In millions of EUR Note Restructuring Other Total Balance as at 1 January Changes in consolidation Provisions made during the year Provisions used during the year (108) (6) (114) Provisions reversed during the year (23) (16) (39) Effect of movements in exchange rates (1) (1) Unwinding of discounts 1 1 Balance as at 31 December Non-current Current Restructuring The provision for restructuring of 171 million mainly relates to restructuring programmes in the Netherlands, France, Spain and Italy. During the year, 46 million (2006: 102 million) restructuring expenses relating to Fit2Fight have been recognised.

115 113 Other provisions Included are, amongst others, provisions formed for onerous contracts ( 22 million), surety provided ( 26 million), litigations and claims ( 55 million) and environmental provisions ( 17 million). 29. Trade and other payables In millions of EUR Note Trade payables due to associates and joint ventures 6 9 Other trade payables 1,164 1,030 Returnable packaging deposits Taxation and social security contributions Dividend Interest Derivatives used for hedging Other payables Accruals and deferred income ,806 2, Financial risk management and financial instruments Overview Heineken has exposure to the following risks from its use of financial instruments, as they arise in the normal course of Heineken s business: Credit risk Liquidity risk Market risk This note presents information about Heineken s exposure to each of the above risks, Heineken s objectives, policies and processes for measuring and managing risk, and Heineken s management of capital. Further quantitative disclosures are included throughout these consolidated financial statements. The Executive Board, under the supervision of the Supervisory Board, has overall responsibility for Heineken s risk management and control systems. Regional and subsidiary company management are responsible for managing performance, underlying risks and effectiveness of operations, within the Rules set by the Executive Board, supported and supervised by Group departments. Heineken s risk management policies are established to identify and analyse the risks faced, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group s activities. Heineken, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and responsibilities. The Executive Board oversees the adequacy and functioning of the entire system of risk management and internal control, assisted by Group departments. Group Internal Audit provides independent assurance on the entire risk management and internal control system. The Assurance Meetings at subsidiary companies and regional level, oversee the adequacy and operating effectiveness of the risk management and internal control system. Regional management and Group Internal Audit participate in these meetings to ensure effective dialogue and transparency. The outcome and effectiveness of the risk management and internal control systems have been discussed with the Audit Committee of the Supervisory Board.

116 114 Financial statements Notes to the consolidated financial statements continued 30. Financial risk management and financial instruments continued Credit risk 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 investment securities. 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 balance sheet. Loans to customers Heineken s exposure to credit risk is mainly influenced by the individual characteristics of each customer. The demographics of Heineken s customer base, including the default risk of the industry and country in which customers operate, have less of an influence on credit risk. Geographically there is no concentration of credit risk. 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 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 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. 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 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 on consolidated level diverse, as such 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.

117 115 Investments Heineken limits its exposure to credit risk, except for held-to-maturity investments as disclosed in note 17, by only investing in liquid securities and only with counterparties that have a credit rating of at least single A or equivalent. Guarantees Heineken s policy is to avoid issuing guarantees where possible unless this leads to substantial savings for the Group. In cases where Heineken does provide guarantees, such as to banks for loans (by third parties), Heineken aims to receive security from the third party. The Company has issued a joint and several liability statement to the provisions of Section 403, Part 9, Book 2 of the Dutch Civil Code with respect to legal entities established in the Netherlands. Exposure to credit risk The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was: In millions of EUR Note Held-to-maturity investments Investments held for trading Available-for-sale investments Interest rate swaps used for hedging: assets 17 4 Forward exchange contracts used for hedging: assets Trade and other receivables 20 1,873 1,779 Cash and cash equivalents ,374 3,145 3,818 The maximum exposure to credit risk for trade and other receivables at the reporting date by geographic region was: In millions of EUR Western Europe Central and Eastern Europe The Americas Africa and the Middle East Asia Pacific Head Office/eliminations ,873 1,779 Impairment losses The ageing of trade and other receivables at the reporting date was: Gross Impairment Gross Impairment In millions of EUR Not past due 1,363 (7) 1,385 (8) Past due 0 30 days 292 (33) 177 (6) Past due days 182 (23) 177 (47) More than 120 days 244 (145) 248 (147) 2,081 (208) 1,987 (208)

118 116 Financial statements Notes to the consolidated financial statements continued 30. Financial risk management and financial instruments continued The movement in the allowance for impairment in respect of trade and other receivables during the year was as follows: In millions of EUR Balance as at 1 January Impairment loss recognised Allowance used (12) (10) Allowance released (30) (36) Effect of movements in exchange rates (7) Balance as at 31 December The movement in the allowance for impairment in respect of held-to-maturity investments during the year was as follows: In millions of EUR Balance as at 1 January Changes in consolidation 2 Impairment loss recognised Allowance used (19) (2) Balance as at 31 December Impairment losses recognised for trade and other receivables and held-to-maturity investments are part of the other non-cash items in the consolidated statement of cash flows. The impairment loss of 38 million in respect of held-to-maturity investments and the impairment loss of 49 million in respect of trade receivables were included in expenses for raw materials, consumables and services. An impairment loss of 38 million in respect of held-to-maturity investments was recognised during the current year of which 25 million related to loans to customers. Heineken has no collateral in respect of these impaired investments. The allowance accounts in respect of trade and other receivables and held-to-maturity investments are used to record impairment losses, unless Heineken is satisfied that no recovery of the amount owing is possible, at that point the amount considered irrecoverable is written off against the financial asset. Liquidity risk Liquidity risk is the risk that Heineken will not be able to meet its financial obligations as they fall due. Heineken s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to Heineken s reputation. Strong cash flow generation and sufficient access to capital is ensured to finance long-term growth and to keep pace with the consolidation of the global beer market. Financing strategies are under continuous evaluation. Strong cost and cash management and controls over investment proposals are in place to ensure effective and efficient allocation of financial resources. In addition, the Heineken N.V. 2 billion Revolving Credit Facility was not utilised as at 31 December 2007 (31 December 2006: not utilised).

119 117 Contractual maturities The following are the contractual maturities of non-derivative financial liabilities and derivative financial assets and liabilities, including interest payments and excluding the impact of netting agreements: 2007 Carrying Contractual 6 months 6-12 More than In millions of EUR amount cash flows or less months 1-2 years 2-5 years 5 years Non-derivative financial liabilities Secured bank loans 77 (80) (6) (9) (11) (52) (2) Unsecured bank loans 595 (609) (185) (117) (79) (220) (8) Unsecured bond issues 1,359 (1,609) (23) (246) (55) (619) (666) Finance lease liabilities 18 (19) (1) (2) (1) (4) (11) Non-interest-bearing liabilities 20 (20) (12) (7) (1) Deposits from third parties and other current interest-bearing liabilities 325 (327) (324) (3) Bank overdrafts 282 (282) (282) Trade and other payables 2,806 (2,823) (2,646) (163) (4) (3) (7) Derivative financial assets and liabilities Forward exchange contracts used for hedging accounting: Outflow 36 (1,492) (707) (586) (199) Inflow (104) 1, ,414 (5,701) (3,436) (513) (152) (905) (695) The total carrying amount of derivatives are included in current other investments (note 17) and trade and other payables (note 29) Carrying Contractual 6 months 6-12 More than In millions of EUR amount cash flows or less months 1-2 years 2-5 years 5 years Non-derivative financial liabilities Secured bank loans 92 (96) (7) (16) (18) (54) (1) Unsecured bank loans 801 (827) (30) (146) (287) (357) (7) Unsecured bond issues 1,343 (1,667) (22) (43) (265) (641) (696) Finance lease liabilities 7 (10) (1) (2) (3) (4) Non-interest-bearing liabilities 32 (34) (5) (23) (4) (2) Deposits from third parties and other current interest-bearing liabilities 310 (310) (310) Bank overdrafts 747 (749) (749) Trade and other payables 2,496 (2,496) (2,281) (195) (3) (1) (16) Derivative financial assets and liabilities Interest rate swaps used for hedging net 12 (12) (1) (11) Forward exchange contracts used for hedging accounting: Outflow 2 (1,234) (514) (451) (269) Inflow (43) 1, ,799 (6,167) (3,382) (393) (595) (1,071) (726) The total carrying amount of derivatives are included in current other investments (note 17) and trade and other payables (note 29).

120 118 Financial statements Notes to the consolidated financial statements continued 30. Financial risk management and financial instruments continued Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect Heineken s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, whilst optimising the return on risk. Heineken uses derivatives in the ordinary course of business, and also incurs financial liabilities, in order to manage market risks. Generally Heineken seeks to apply hedge accounting in order to minimise the effects of foreign currency fluctuations in the income statement. Derivatives that can be used are interest rate swaps, forward rate agreements, caps and floors, forward exchange contracts and options. Transactions are entered into with a limited number of counterparties with strong credit ratings. Foreign currency and interest rate hedging operations are governed by an internal policy and rules approved and monitored by the Executive Board. Foreign currency risk Heineken is exposed to foreign currency risk on sales, purchases and borrowings that are denominated in a currency other than the respective functional currencies of Heineken entities. The main currency that gives rise to this risk is the US Dollar. In managing foreign currency risk Heineken aims to reduce the impact of short-term fluctuations on earnings. Over the longer term, however, permanent changes in foreign exchange rates would have an impact on profit. Heineken hedges up to 90 per cent of its mainly intra-heineken US Dollar cash flows on the basis of rolling cash flow forecasts in respect of forecasted sales and purchases. Cash flows in other foreign currencies are also hedged on the basis of rolling cash flow forecasts. Heineken mainly uses forward exchange contracts to hedge its foreign currency risk. The majority of the forward exchange contracts have maturities of less than one year after the balance sheet date. Where necessary, the forward exchange contracts are rolled over at maturity. The Company 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, as the underlying currency positions are generally considered to be long-term in nature. It is Heineken s policy to provide intra-heineken financing in the functional currency of subsidiaries where possible to prevent foreign currency exposure on subsidiary level. The resulting exposure at Group level is hedged by means of forward exchange contracts. Intra-Heineken financing is mainly in US Dollars, Russian Rubles and Polish Zloty. The principal amounts of Heineken s Chilean Peso, Polish Zloty and Egyptian Pound bank loans and bond issues are used to hedge local operations, which generate cash flows that have the same respective functional currencies. Corresponding interest on these borrowings is also denominated in currencies that match the cash flows generated by the underlying operations of Heineken. This provides an economic hedge and no derivatives are entered into. In respect of other monetary assets and liabilities denominated in currencies other than the functional currencies of the Company and the various foreign operations, Heineken ensures that its net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short-term imbalances.

121 119 Exposure to foreign currency risk Heineken s exposure for the USD was as follows based on notional amounts: In millions USD USD Loans and held-to-maturity investments Trade and other receivables Cash and cash equivalents 5 33 Secured bank loans (35) Bank overdrafts (3) Trade and other payables (8) (16) Gross balance sheet exposure Estimated forecast sales next year 1,051 1,147 Estimated forecast purchases next year (163) (201) Gross exposure 1,157 1,179 Cash flow hedging forward exchange contracts (890) (978) Other hedging forward exchange contracts (161) (178) Net exposure Included in the USD amounts are intra-heineken cash flows. The loans represent intra-heineken financing. The following significant exchange rates applied during the year: Reporting date Average rate mid-spot rate In EUR USD Sensitivity analysis A 10 per cent strengthening of the euro against the US Dollar as at 31 December would have increased (decreased) equity and profit by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for Equity Profit or loss In millions of EUR USD (6) (3) A 10 per cent weakening of the euro against the US Dollar as at 31 December would have had the equal but opposite effect on the basis that all other variables remain constant. Interest rate risk In managing interest rate risk, Heineken aims to reduce the impact of short-term fluctuations on earnings. Over the longer term, however, permanent changes in interest rates would have an impact on profit. Heineken opts for a well-balanced mix of fixed and variable interest rates in its financing operations, combined with the use of interest rate instruments. Currently, Heineken s interest rate position is predominantly fixed rather than floating. Interest rate instruments that can be used are interest rate swaps, forward rate agreements, caps and floors. Swap maturity follows the maturity of the related loans and borrowings and have swap rates ranging from 5.0 to 5.5 per cent (2006: from 3.4 to 5.5 per cent).

122 120 Financial statements Notes to the consolidated financial statements continued 30. Financial risk management and financial instruments continued Interest rate risk Profile At the reporting date the interest rate profile of Heineken s interest-bearing financial instruments was as follows: In millions of EUR Fixed rate instruments Financial assets Financial liabilities (1,779) (1,797) Interest rate swaps floating to fixed 40 (82) (1,676) (1,847) Variable rate instruments Financial assets 810 1,522 Financial liabilities (878) (1,503) Interest rate swaps fixed to floating (40) 70 (108) 89 Fair value sensitivity analysis for fixed rate instruments During 2007, Heineken did not account for any fixed rate financial assets and liabilities at fair value through profit or loss. Therefore a change in interest rates at the reporting date would not affect profit or loss or equity. Cash flow sensitivity analysis for variable rate instruments A change of 100 basis points in interest rates constantly applied during the reporting period would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis is performed on the same basis for Profit or loss Equity 100 bp 100 bp 100 bp 100 bp In millions of EUR increase decrease increase decrease 31 December 2007 Variable rate instruments (1) 1 (1) 1 Interest rate swaps fixed to floating Cash flow sensitivity (net) (1) 1 (1) 1 31 December 2006 Variable rate instruments (1) 1 (1) 1 Interest rate swaps fixed to floating 1 (1) 1 (1) Cash flow sensitivity (net)

123 121 Other market price risk Management of Heineken monitors the mix of debt and equity securities in its investment portfolio based on market expectations. Material investments within the portfolio are managed on an individual basis. The primary goal of Heineken s investment strategy is to maximise investment returns in order to partially meet its unfunded defined benefit obligations management is assisted by external advisors in this regard. Commodity risk is the risk that changes in commodity price will affect Heineken s income. The objective of commodity risk management is to manage and control commodity risk exposures within acceptable parameters, whilst optimising the return on risk. So far, commodity trading by the Company is limited to the sale of surplus CO 2 emission rights. Heineken does not enter into commodity contracts other than to meet Heineken s expected usage and sale requirements. Cash flow hedges The following table indicates the periods in which the cash flows associated with derivatives that are cash flow hedges are expected to occur. Expected 6 More Carrying cash months than 5 In millions of EUR amount flows or less months years years years Interest rate swaps used for hedging, net liabilities Forward exchange contracts: Assets (104) 1, Liabilities 36 (1,492) (707) (586) (199) (68) Expected 6 More Carrying cash months than 5 In millions of EUR amount flows or less months years years years Interest rate swaps used for hedging, net liabilities 12 (12) (1) (11) Forward exchange contracts: Assets (43) 1, Liabilities 2 (1,121) (514) (338) (269) (29) (11) The periods in which the cash flows associated with derivatives that are cash flow hedges are expected to impact the income statement is on average two months earlier than the occurrence of the cash flows as in above table. Capital management There were no major changes in Heineken s approach to capital management during the year. The Executive Board s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of business and acquisitions. Capital is herein defined as equity attributable to equity holders of the Company (total equity minus minority interests). Heineken is not subject to externally imposed capital requirements other then the legal reserves explained in note 22. Shares are purchased to meet the requirements under the Long-Term Incentive Plan as further explained in note 27. As approved in the Annual General Meeting of Shareholders in April 2007, Heineken renewed its dividend policy as further explained in note 22.

124 122 Financial statements Notes to the consolidated financial statements continued 30. Financial risk management and financial instruments continued Fair values The fair values of financial assets and liabilities, together with the carrying amounts shown in the balance sheet, are as follows: Carrying Fair Carrying Fair amount value amount value In millions of EUR Held-to-maturity investments Available-for-sale investments Advances to customers Investments held for trading Loans and receivables 1,873 1,879 1,779 1,781 Cash and cash equivalents ,374 1,374 Interest rate swaps used for hedging: Assets 4 4 Liabilities (16) (16) Forward exchange contracts used for hedging: Assets Liabilities (36) (36) (2) (2) Bank loans (672) (675) (893) (877) Unsecured bond loans (1,359) (1,364) (1,343) (1,374) Finance lease liabilities (18) (18) (7) (7) Non-current non-interest-bearing liabilities (20) (20) (32) (32) Deposits from third parties and other current liabilities (325) (325) (310) (310) Trade and other payables excluding dividend, interest and derivatives (2,710) (2,713) (2,423) (2,401) Bank overdrafts (282) (282) (747) (747) (2,058) (2,062) (1,775) (1,766) Basis for determining fair values The significant methods and assumptions used in estimating the fair values of financial instruments reflected in the table above are discussed in note 4.

125 Off-balance sheet commitments Less than 1-5 More than Total In millions of EUR Total 1 Year Years 5 Years 2006 Guarantees to banks for loans (by third parties) Other guarantees Guarantees Lease & operational lease commitments Property, plant and equipment ordered Raw materials purchase contracts Other off-balance sheet obligations Off-balance sheet obligations 1, ,246 Committed bank facilities 2, ,043 2,411 Heineken leases buildings, cars and equipment. During the year ended 31 December million (2006: 133 million) was recognised as an expense in the income statement in respect of operating leases and rent. Other off-balance sheet obligations mainly include rental, service and sponsorship contracts. Committed bank facilities are credit facilities on which commitment fee is paid as compensation for the bank s requirement to reserve capital. The bank is obliged to provide the facility under the terms and conditions of the agreement. Of the total guarantees, off-balance sheet obligations and committed bank facilities, an amount of 288 million is related to joint ventures. 32. Contingencies The Netherlands Heineken is involved in an antitrust case initiated by the European Commission for alleged violations of the EU competition laws. By decision of 18 April 2007 the European Commission stated that Heineken, and other brewers operating in the Netherlands, restricted competition in the Dutch market during the period This decision follows an investigation by the European Commission that commenced in March Heineken fully cooperated with the authorities in this investigation. As a result of its decision, the European Commission has imposed a fine on Heineken of 219 million. All cartel decisions by the European Commission may be appealed against before the European Court of First Instance and then before the Court of Justice of the European Communities in Luxembourg. These two courts are empowered to annul decisions in whole or in part and to reduce or increase fines, where this is deemed appropriate. On 4 July 2007 Heineken filed an appeal with the European Court of First Instance against the decision of the European Commission as Heineken disagrees with the findings of the European Commission. Pending appeal, Heineken was obliged to pay the fine to the European Commission. This imposed fine is treated as an expense in our 2007 annual report. The European Commission filed its defence on 22 November Heineken will file its statement of reply in March After the European Commission will have filed its reply by rejoinder, Heineken is entitled to request for oral pleadings before the Court. A final decision by the European Court is expected thereafter.

126 124 Financial statements Notes to the consolidated financial statements continued 32. Contingencies continued USA Heineken USA and Heineken N.V. (and in certain cases other Heineken companies and Heineken Holding N.V.) were named as defendants in purported class action lawsuits filed in nine states. The lawsuits claim that Heineken companies, along with other producers and distributors of alcoholic beverages, had unlawfully advertised and marketed its products to underage people. Heineken has been defending vigorously against these accusations, as Heineken companies advertise and market their products lawfully to people of legal drinking age. In November 2007, Heineken reached agreement with the plaintiffs of the lawsuits to finally end all of the plaintiffs underage drinking cases. 33. Related parties Identity of related parties Heineken has a related party relationship with its associates (refer note 16 and 33), joint ventures (refer note 33 and 35), Heineken Holding N.V., Heineken pension funds (refer note 26) and with its key management personnel (Executive Board and the Supervisory Board). Key management remuneration In millions of EUR Executive Board Supervisory Board Executive Board The remuneration of the members of the Executive Board comprises a fixed component and a variable component. The variable component is made up of a Short-Term Incentive Plan and a Long-Term Incentive Plan. The Short-Term Incentive Plan is based on an organic profit growth target and specific year targets as set by the Supervisory Board. For the Long-Term Incentive Plan we refer to note 27. The separate remuneration report is stated on page 62. As at 31 December 2007 and as at 31 December 2006, the members of the Executive Board did not hold any of the Company s shares, bonds or option rights, other than under the Long-Term Incentive Plan aforementioned. D.R. Hooft Graafland held 3,052 shares of Heineken Holding N.V. as at 31 December 2007 (2006: 3,052 shares). Executive Board Short-Term Long-Term Other Fixed Incentive Incentive deferred Salary Plan Plan Benefits Pension Plan Total In thousands of EUR * J.F.M.L. van Boxmeer , ,477 1,557 D.R. Hooft Graafland ,623 1,304 M.J. Bolland , ,177 Total 1,300 1,511 1,744 1, , ,100 6,038 1 Stepped down from the Executive Board on 1 August Mr. Bolland was compensated with an amount of 2,550,000. * Comparatives have been adjusted to include pension entitlements related to the Short-Term Incentive Plan.

127 125 Supervisory Board The individual members of the Supervisory Board received the following remuneration: In thousands of EUR C.J.A. van Lede J.M. de Jong M. Das M.R. de Carvalho A.H.J. Risseeuw J.M. Hessels I.C. MacLaurin A.M. Fentener van Vlissingen Total Only M.R. de Carvalho held 8 shares of Heineken N.V. as at 31 December 2007 (2006: 8 shares). As at 31 December 2007 and 2006, the Supervisory Board members did not hold any of the Company s bonds or option rights. C.J.A. van Lede and M.R. de Carvalho (2006: three Supervisory Board members) together held 2,664 shares of Heineken Holding N.V. as at 31 December 2007 (2006: 9,508 shares). 1 Stepped down from the Supervisory Board on 19 April Other related party transactions Balance outstanding Transaction value as at 31 December In millions of EUR Sale of products and services Joint ventures Associates Raw materials, consumables and services Goods for resale joint ventures 4 1 Other expenses joint ventures Heineken Holding N.V. In 2007 an amount of 572,000 (2006: 551,000) was paid to Heineken Holding N.V. for management services for the Heineken Group. This payment is based on an agreement of 1977 as amended in 2001, providing that Heineken N.V. reimburses Heineken Holding N.V. for its administration costs. Best practice provision III.6.4 of the Dutch Corporate Governance Code of 9 December 2003 has been observed in this regard.

128 126 Financial statements Notes to the consolidated financial statements continued 34. Heineken entities Control of Heineken The shares and options of the Company are traded on Euronext Amsterdam, where the Company is included in the main AEX index. Heineken Holding N.V. Amsterdam has an interest of per cent in the issued capital of the Company. The financial statements of the Company are included in the consolidated financial statements of Heineken Holding N.V. A declaration of joint and several liability pursuant to the provisions of Section 403, Part 9, Book 2, of the Dutch Civil Code has been issued with respect to legal entities established in the Netherlands marked with a below. Significant subsidiaries Ownership interest Country of incorporation Heineken Nederlands Beheer B.V. The Netherlands 100% 100% Heineken Brouwerijen B.V. The Netherlands 100% 100% Heineken Nederland B.V. The Netherlands 100% 100% Heineken International B.V. The Netherlands 100% 100% Heineken Supply Chain B.V. The Netherlands 100% 100% Amstel Brouwerij B.V. The Netherlands 100% 100% Amstel Internationaal B.V. The Netherlands 100% 100% Vrumona B.V. The Netherlands 100% 100% Invebra Holland B.V. The Netherlands 100% 100% B.V. Beleggingsmaatschappij Limba The Netherlands 100% 100% Brand Bierbrouwerij B.V. The Netherlands 100% 100% Beheer- en Exploitatiemaatschappij Brand B.V. The Netherlands 100% 100% Heineken CEE Holdings B.V. The Netherlands 100% 100% Heineken CEE Investments B.V. The Netherlands 100% Brasinvest B.V. The Netherlands 100% 100% Heineken Beer Systems B.V. The Netherlands 100% 100% Heineken France S.A. France 100% 100% Heineken España S.A. Spain 98.6% 98.5% Heineken Italia S.p.A Italy 100% 100% Athenian Brewery S.A. Greece 98.8% 98.8% Brau Union AG Austria 100% 100% Brau Union Österreich AG Austria 100% 100% Grupa Żywiec S.A. 1 Poland 61.7% 61.8% Heineken Ireland Ltd. 2 Ireland 100% 100% Heineken Hungária Myrt. Hungary 99.6% 99.6% Heineken Slovensko a.s. Slovakia 100% 100% Heineken Switzerland AG Switzerland 100% 100% Karlovacka Pivovara d.o.o. Croatia 100% 100% Mouterij Albert N.V. Belgium 100% 100% Ibecor S.A. Belgium 100% 100% Affligem Brouwerij BDS N.V. Belgium 100% 100% LLC Heineken Breweries Russia 100% 100% Dinal LLP Kazakhstan 99.9% 99.9% Heineken USA Inc. United States 100% 100% Starobrno a.s. Czech Republic 97.6% 97.6% Králowský Pivovar Krušovice a.s. Czech Republic 100% Heineken Romania S.A. Romania 96.3% 96.3%

129 127 Significant subsidiaries continued Ownership interest Country of incorporation JSC KPBN Shikhan Russia 99.8% 99.3% LLC Volga Brewing Company Russia 100% 100% LLC Patra Russia 100% 100% LLC Heineken Brewery Baikal Russia 100% 100% LLC Heineken Brewery Siberia Russia 100% 100% LLC Company PIT, Kaliningrad Russia 100% 100% LLC PIT Novotroitsk Russia 100% 100% JSC Amur-Pivo Russia 100% 98.8% CJSC Brewing Company Syabar Belarus 96.0% Commonwealth Brewery Ltd. Bahamas 53.2% 53.2% Windward and Leeward Brewery Ltd. St Lucia 72.7% 72.7% Cervecerias Baru-Panama S.A. Panama 74.9% 74.9% Nigerian Breweries Plc. Nigeria 54.1% 54.1% Al Ahram Beverages Company S.A.E. Egypt 99.9% 99.9% Brasserie Lorraine S.A. Martinique 83.1% 83.1% Surinaamse Brouwerij N.V. Surinam 76.1% 76.1% Consolidated Breweries Ltd. Nigeria 50.1% 50.1% Grande Brasserie de Nouvelle Calédonie S.A. New Caledonia 87.3% 87.3% Brasserie Almaza S.A.L. Lebanon 67.0% 67.0% Brasseries, Limonaderies et Malteries Bralima S.A.R.L. R.D. Congo 95.0% 95.0% Brasseries et Limonaderies du Rwanda Bralirwa S.A. Rwanda 70.0% 70.0% Brasseries et Limonaderies du Burundi Brarudi S.A. Burundi 59.3% 59.3% Brasseries de Bourbon S.A. Réunion 85.7% 85.6% P.T. Multi Bintang Indonesia Tbk. Indonesia 84.5% 84.5% 1 Excluding treasury shares (will be cancelled in the course of 2008). 2 In accordance with article 17 of the Republic of Ireland Companies (Amendment) Act 1986, the Company issued an irrevocable guarantee for the year ended 31 December 2007 and 2006 regarding the liabilities of Heineken Ireland Ltd. and Heineken Ireland Sales Ltd., as referred to in article 5(c) of the Republic of Ireland Companies (Amendment) Act 1986.

130 128 Financial statements Notes to the consolidated financial statements continued 35. Significant interests in joint ventures Heineken has interests in the following joint ventures: Ownership interest Country of incorporation BrauHolding International GmbH and Co KgaA Germany 49.9% 49.9% Zagorka Brewery A.D. Bulgaria 50.0% 49.0% Pivara Skopje A.D Macedonia 50.0% 27.6% Brasseries du Congo S.A. Congo 50.0% 50.0% Asia Pacific Investment Pte. Ltd. Singapore 50.0% 50.0% Asia Pacific Breweries (Singapore) Pte. Ltd. Singapore 41.9% 41.9% Shanghai Asia Pacific Brewery Ltd. China 44.6% 44.6% Hainan Asia Pacific Brewery Ltd. China 46.0% 46.0% South Pacific Brewery Ltd. Papua New Guinea 31.8% 31.8% Vietnam Brewery Ltd. Vietnam 25.2% 25.2% Cambodia Brewery Ltd. Cambodia 33.5% 33.5% DB Breweries Ltd. New Zealand 41.9% 41.9% Compania Cervecerias Unidas S.A. Chile 33.1% 33.1% Tempo Beverages Ltd. Israel 40.0% 40.0% Asia Pacific Brewery (Lanka) Ltd. Sri Lanka 25.2% 25.2% Société de Production et de Distribution des Boissons SPDB Tunesia 49.9% 49.9% Heineken Lion Australia Pty. Australia 50.0% 50.0% Via joint ventures Heineken is able to jointly govern the financial and operating policies of the above mentioned companies. Consequently, Heineken proportionally consolidates these companies.

131 129 Reporting date The reporting date of the financial statements of all Heineken entities and joint ventures disclosed are the same as for the Company, except for: Asia Pacific Breweries (Singapore) Pte. Ltd., Shanghai Asia Pacific Brewery Ltd., Hainan Asia Pacific Brewery Ltd., South Pacific Brewery Ltd., Heineken Lion Australia Pty., Vietnam Brewery Ltd., and Cambodia Brewery Ltd., which have a 30 September reporting date. Included in the consolidated financial statements are the following items that represent Heineken s interests in the assets and liabilities, revenue and expenses of the joint ventures: In millions of EUR Non-current assets Current assets Non-current liabilities (364) (328) Current liabilities (479) (441) Net assets Revenue 1,373 1,295 Expenses (1,244) (1,155) Results from operating activities

132 130 Financial statements Notes to the consolidated financial statements continued 36. Subsequent events Acquisition of Tango Sarl On 14 January 2008, Heineken announced and completed the acquisition of Tango Sarl in Algeria. Heineken acquired 100% of the shares from the Group Mehri. The transaction has been funded from existing cash resources. Due to the competitive sensitivity and the non-disclosure agreements with the parties involved, the acquisition price is not disclosed. Based on the timing of this acquisition and the local timing of the year-end closing and the subsequent IFRS changes involved, it is considered impracticable to disclose the information required according to IFRS Tango Sarl employs 350 employees and operates a modern brewing facility in Algiers. The brewery has been operational since 2001 and has a production capacity of 750,000 hectolitres. The brand portfolio consists of the leading national mainstream beer brand Tango, and two brands in the economy segment, Samba and Fiesta. Acquisition of Rodic In December 2007, Heineken announced the acquisition of the Rodic Brewery, in Novi Sad, Serbia. On 12 February 2008 this acquisition was completed by way of acquiring 100% of the shares. Heineken aims to combine its operations in Serbia with the operations of Efes Breweries International. Based on the timing of this acquisition and the local timing of the year-end closing and the subsequent IFRS changes involved, it is considered impracticable to disclose the information required according to IFRS The Rodic Brewery was established in 2003 and employs 282 employees. The Rodic Brewery facility is a state-of-the-art, 1.5 million hectolitre brewery, located in Novi Sad, northern Serbia. The company s portfolio consists of the beer brands MB Premium, MB Pils and Master. Announcement of joint venture with Efes Breweries On 28 January 2008, Heineken announced the establishment of a joint venture with Efes Breweries International to invest in the Uzbek beer market through the acquisition of breweries. Under the terms of the agreement, Heineken and Efes Breweries International will hold 40% and 60% of the shares in the joint venture, respectively, with Efes Breweries International responsible for operational management. In addition, Heineken and Efes Breweries International have also announced that they intend to combine their operations in the Kazakh and Serbian beer markets. Both of these transactions are subject to the customary regulatory approvals and are expected to be completed in the first half of 2008.

133 131 Announcement of recommended cash offer for Scottish and Newcastle plc On 25 January 2008, the boards of Sunrise Acquisitions Limited (the company jointly owned by Heineken N.V. and Carlsberg A/S) and Scottish and Newcastle plc ( S&N ) announced that they have reached an agreement on the terms of a recommended cash offer ( the Offer ) for the entire issued and to be issued share capital of S&N. Under the terms of the offer, S&N shareholders will receive 800 pence in cash for each share. The offer is subject to the approval of Heineken N.V. and Heineken Holding N.V. ( Heineken Holding ) shareholders. S&N has received irrevocable undertakings from the controlling family shareholders in respect of all of their own beneficial holdings of Heineken shares and Heineken Holding shares to vote in favour of (or procure the voting in favour of) any such resolutions that may be necessary to approve, effect and implement the Offer by Sunrise Acquisitions Limited to be proposed at the Heineken Shareholders Meeting and the Heineken Holding Shareholders Meeting. The approval of the European Commission and certain other competition authorities will also be required. Subject to the satisfaction of the Conditions, it is expected that the Scheme will become effective during the first half of In anticipation of the contemplated acquisition of S&N, banks committed to a new multicurrency acquisition facility for an amount of 3.85 billion for Heineken s part of the financing of the offer, for any re-financing of existing debt of the companies to be acquired by Heineken as well as for related transaction costs. The facility consists of a 1.1 billion tranche with a maturity of one year (extendable to two years), and a 2.75 billion five year tranche. Interest is based on EURIBOR/LIBOR plus a margin. No financial covenants apply; there is only an incurrence covenant. The combination of this new credit facility, and the 2 billion existing facility, largely exceeds the estimated enterprise value (including assumed debt) of the S&N s businesses to be acquired by Heineken of 4.5 billion ( 6.1 billion). If the Offer is accepted by the Scheme Shareholders, Heineken will gain control over S&N s businesses in the United Kingdom and Ireland, Portugal, Finland, Belgium, United States and India. Following completion of the offer, S&N s share of BBH Russian Breweries, as well as the French, Greek, Chinese and Vietnamese operations are transferred to Carlsberg A/S. The remaining businesses, principally the UK and Ireland, Portuguese, Finnish, Belgian, US and Indian operations, will be seperated as soon as possible and in any event within 12 months after the Effective Date.

134 132 Financial statements Heineken N.V. balance sheet Before appropriation of profit as at 31 December 2007 In millions of EUR Note Fixed assets Financial fixed assets 37 6,560 6,160 Total fixed assets 6,560 6,160 Trade and other receivables 3 Cash and cash equivalents 1 3 Total current assets 1 6 Total assets 6,561 6,166 Shareholders equity Issued capital Translation reserve 7 96 Hedging reserve Fair value reserve Other legal reserves Reserve for own shares (29) (14) Retained earnings 3,121 2,348 Net profit 807 1,211 Total shareholders equity 38 5,404 5,009 Liabilities Loans and borrowings 39 1,096 1,096 Total non-current liabilities 1,096 1,096 Trade and other payables Tax payable Total current liabilities Total liabilities 1,157 1,157 Total shareholders equity and liabilities 6,561 6,166

135 Heineken N.V. income statement For the year ended 31 December In millions of EUR Note Share of profit of participating interests, after income tax ,190 Other profit after income tax (33) 21 Net profit 807 1,211

136 134 Financial statements Notes to Heineken N.V. financial statements Reporting entity The financial statements of Heineken N.V. (the Company ) are included in the consolidated statements of Heineken. Basis of preparation The Company financial statements have been prepared in accordance with the provisions of Part 9, Book 2, of the Dutch Civil Code. The Company uses the option of Article of Part 9, Book 2, of the Dutch Civil Code to prepare the Company financial statements, using the same accounting policies as in the consolidated financial statements. Valuation is based on recognition and measurement requirements of accounting standards adopted by the EU (i.e., only IFRS that is adopted for use in the EU at the date of authorisation) as explained further in the notes to the consolidated financial statements). Significant accounting policies Financial fixed assets Participating interests (subsidiaries, joint ventures and associates) are measured on the basis of the equity method. Shareholders equity The translation reserve and other legal reserves are previously formed under and still recognised and measured in accordance with the Dutch Civil Code. Profit of participating interests The share of profit of participating interests consists of the share of the Company in the results of these participating interests. Results on transactions, where the transfer of assets and liabilities between the Company and its participating interests and mutually between participating interests themselves, are not recognised.

137 Financial fixed assets Loans to Participating participating In millions of EUR interests interest Total Balance as at 1 January ,598 3,721 5,319 Loans converted into share capital 815 (815) Profit of participating interests 1,190 1,190 Dividend payments by participating interests (232) 232 Effect of movements in exchange rates (52) (52) Changes in hedging and fair value adjustments Cash receipts (1) (1) Repayments (393) (393) Balance as at 31 December ,415 2,745 6,160 Balance as at 1 January ,415 2,745 6,160 Profit of participating interests Dividend payments by participating interests (224) 224 Effect of movements in exchange rates (89) (89) Changes in hedging and fair value adjustments Cash receipts (6) (6) Repayments (363) (363) Balance as at 31 December ,954 2,606 6,560

138 136 Financial statements Notes to Heineken N.V. financial statements continued 38. Shareholders equity Fair Other Reserve Issued Translation Hedging value legal for own Retained Shareholders In millions of EUR capital reserve reserve reserve reserves shares earnings Net profit equity Balance as at 1 January (21) , ,969 Net recognised income and expense 1 (52) (6) (4) 35 Profit 110 (110) 1,211 1,211 Transfer to retained earnings (37) 798 (761) Dividends to shareholders (196) (196) Purchase own shares (14) (14) Share-based payments 4 4 Balance as at 31 December (14) 2,348 1,211 5,009 Balance as at 1 January (14) 2,348 1,211 5,009 Net recognised income and expense 1 (89) (19) (71) Profit 89 (89) Transfer to retained earnings 4 1,207 (1,211) Dividends to shareholders (333) (333) Purchase own shares (15) (15) Share-based payments 7 7 Balance as at 31 December (29) 3, ,404 For more details on reserves, please refer to note 22 of the consolidated financial statements. For more details on LTIP, please refer to note 27 of the consolidated financial statements. 1 Net recognised income and expense is explained in note 22 of the consolidated financial statements.

139 Loans and borrowings Terms and debt repayment schedule Nominal 1 year More than In millions of EUR interest rate Total or less years years 5 years 2006 Unsecured Bond loan in EUR 4.4% Bond loan in EUR 5.0% , , Off balance sheet commitments Less than 1-5 More than Total In millions of EUR Total 1 Year Years 5 Years 2006 Committed bank faciliity 2,000 2,000 2, Third Heineken Third Heineken parties companies parties companies Declarations of joint and several liability 1,067 1,364 Fiscal unity The Company is part of the fiscal unity of Heineken in the Netherlands. Based on this the Company is liable for the tax liability of the fiscal unity in the Netherlands. 41. Other disclosures Remuneration We refer to note 33 of the consolidated financial statements for the remuneration and the incentives of the Executive Board members and the Supervisory Board. The Executive Board members are the only employees of the Company. Participating interests For the list of direct and indirect participating interests, we refer to notes 16, 34 and 35 to the consolidated financial statements. Amsterdam, 19 February 2008 Executive Board Supervisory Board Van Boxmeer Van Lede Hooft Graafland De Jong Das de Carvalho Hessels Fentener van Vlissingen MacLaurin

140 138 Other information Auditor s report To: Annual General Meeting of Shareholders of Heineken N.V. Report on the financial statements We have audited the 2007 financial statements of Heineken N.V., Amsterdam as set out on pages 65 to 137. The financial statements consist of the consolidated financial statements and the Company financial statements. The consolidated financial statements comprise the consolidated balance sheet as at 31 December 2007, the income statement, statement of recognised income and expense and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes. The Company financial statements comprise the Company balance sheet as at 31 December 2007, the Company income statement for the year then ended and the notes. Management s responsibility The Executive Board is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 of the Netherlands Civil Code, and for the preparation of the report of the Executive Board in accordance with Part 9 of Book 2 of the Netherlands Civil Code. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor s responsibility Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in accordance with Dutch law. This law requires that we comply with ethical requirements and plan and perform our audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

141 139 Opinion with respect to the consolidated financial statements In our opinion, the consolidated financial statements give a true and fair view of the financial position of Heineken N.V. as at 31 December 2007, and of its result and its cash flow for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 of the Netherlands Civil Code. Opinion with respect to the Company financial statements In our opinion, the Company financial statements give a true and fair view of the financial position of Heineken N.V. as at 31 December 2007, and of its result for the year then ended in accordance with Part 9 of Book 2 of the Netherlands Civil Code. Report on other legal and regulatory requirements Pursuant to the legal requirement under 2:393 sub 5 part e of the Netherlands Civil Code, we report, to the extent of our competence, that the report of the Executive Board as set out on pages 6 to 57 is consistent with the financial statements as required by 2:391 sub 4 of the Netherlands Civil Code. KPMG ACCOUNTANTS N.V. J.F.C. van Everdingen RA Amsterdam, 19 February 2008

142 140 Other information Appropriation of profit Appropriation of profit Article 12, paragraph 7, of the Articles of Association stipulates: Of the profits, payment shall first be made, if possible, of a dividend of six per cent of the issued part of the authorised share capital. The amount remaining shall be at the disposal of the General Meeting of Shareholders. It is proposed to appropriate 343 million of the profit for payment of dividend and to add 464 million to the retained profits. Civil code Heineken N.V. is not a structuurvennootschap within the meaning of Sections of the Netherlands Civil Code. Heineken Holding N.V., a company listed on the Euronext Amsterdam, holds per cent of the issued shares of Heineken N.V. Authorised capital The Company s authorised capital amounts to 2.5 billion.

143 141 Shareholder information Investor relations Heineken takes a proactive role in maintaining an open dialogue with shareholders and bondholders, providing accurate and complete information in a timely and consistent way. We do this through press releases, the Annual Report, presentations, webcasts, regular briefings and open days with analysts, fund managers and shareholders. Ownership structure Heading the Heineken Group, Heineken Holding N.V. is no ordinary holding company. Since its formation in 1952, the objective of Heineken Holding N.V., pursuant to its Articles of Association has been to manage and/or supervise the Heineken Group and to provide services to the Heineken Group. The role Heineken Holding N.V. has performed for the Heineken Group since 1952 has been to safeguard its continuity, independence and stability and create conditions for controlled, steady growth of the activities of the Heineken Group. This stability has enabled the Heineken Group to rise to its present position as the brewer with the widest international presence and one of the world s largest brewing groups. Every Heineken N.V. share held by Heineken Holding N.V. is matched by one share issued by Heineken Holding N.V. The net asset value of one Heineken Holding N.V. share is therefore identical to the net asset value of one Heineken N.V. share. The dividend payable on the two shares is also identical. Historically, however, Heineken Holding N.V. shares have traded at a lower price due to technical factors that are market-specific. Neither Heineken N.V. nor Heineken Holding N.V. are a structuurvennootschap within the meaning of the Dutch Civil Code. On 2 March 2007, Heineken Holding N.V. s principal long-term shareholders L Arche Holding S.A. (the Heineken family s holding company, that owned per cent of the shares), LAC B.V. (the Heineken family s holding company, that owned 1.97 per cent of the shares) and Greenfee B.V. (the holding company of the Hoyer family, that owned 6.81 per cent of the shares ) combined their shareholdings in a new company called L Arche Green N.V. The holding companies of the Heineken family hold per cent of L Arche Green N.V. L Arche Green N.V. holds per cent of the Heineken Holding N.V. shares. In addition, Mrs de Carvalho-Heineken owns a direct 0.03 per cent stake in Heineken Holding N.V. Heineken Holding N.V. still holds per cent of the Heineken N.V. issued shares. Pursuant to the Financial Markets Supervision Act (Wet op financieel toezicht) and the Decree on Disclosure of Major Holdings and Capital Interests in Securities-Issuing Institutions (Besluit melding zeggenschap en kapitaalbelang in uitgevende instellingen), the Financial Markets Authority has been notified about the following substantial shareholding regarding Heineken N.V.: ING Group N.V. (5.40 per cent indirectly through a subsidiary). Heineken N.V. shares and options Heineken N.V. shares are traded on Euronext Amsterdam, where the Company is included in the main AEX Index. Prices for the ordinary shares may be accessed on Bloomberg under the symbols HEIA NA and HEIO NA and on the Reuters Equities 2000 Service under HEIA.AS and HEIO.AS. The ISIN code is NL Options on Heineken N.V. shares are listed on Euronext.Liffe. Additional information is available on the website: In 2007, the average daily trading volume of Heineken N.V. shares was 1,668,921 shares. Right to add agenda items Shareholders who, alone or together, represent at least 1 per cent of Heineken N.V. s issued capital or

144 142 Other information Shareholder information continued Share distribution comparison year-on-year Heineken N.V. shares* Based on Free float: Excluding shares of Heineken Holding N.V. in Heineken N.V. who hold shares with a market value of 50 million have the right to request items to be placed on the agenda of the General Meeting of Shareholders. Requests to place items on the agenda must be received by Heineken N.V. at least 60 days before the date of the General Meeting of Shareholders. Heineken N.V. reserves the right to refuse to place an item on the agenda if its inclusion would be contrary to the Company s material interest. Based on million shares in free float North America 30.7% UK/Ireland 14.9% Netherlands 14.3% Europe (ex. Netherlands) 14.5% Rest of the world 2.3% Undisclosed 23.3% * Source: Capital Precision, based on best estimate January 2008 Heineken N.V. share price In EUR, Euronext Amsterdam after restatement for recapitalisation and share split Share price range Year-end price Average trade in 2007: 1,668,921 shares per day Market capitalisation On 31 December 2007, there were 489,974,594 shares of 1.60 nominal value in issue. At a yearend price of on 31 December 2007, the market capitalisation of Heineken N.V. on the balance sheet date was 21.7 billion. Year-end price December 2007 High November 2007 Low January 2007 Dividend per share (proposed) In EUR after restatement for recapitalisation and share split Heineken N.V. share price In EUR, Euronext Amsterdam after restatement for recapitalisation and share split

145 143 Heineken Holding N.V. shares The ordinary shares of Heineken Holding N.V. are traded on Euronext Amsterdam. The shares are listed under ISIN code NL In 2007, the average daily trading volume of Heineken Holding N.V. shares was 257,636 shares. Share distribution comparison yearon-year Heineken Holding N.V. shares* Based on Free float: Excluding shares of L Arche Green N.V. in Heineken Holding N.V. Right to add agenda items Shareholders who, alone or together, represent at least 1 per cent of Heineken Holding N.V. s issued capital or who hold shares with a market value of at least 50 million have the right to request items to be placed on the agenda of the General Meeting of Shareholders. Requests to place items on the agenda must be received by Heineken Holding N.V. at least 60 days before the date of the General Meeting of Shareholders. Heineken Holding N.V. reserves the right to refuse to place an item on the agenda if its inclusion would be contrary to the Company s material interest. Based on 101 million shares in free float North America 48.1% UK/Ireland 15.2% Netherlands 2.1% Europe (ex. Netherlands) 6.3% Rest of the world 0.4% Undisclosed 27.9% * Source: Capital Precision, based on best estimate January 2008 Market capitalisation On 31 December 2007, there were 245,011,848 ordinary shares of 1.60 nominal value in issue and 250 priority shares of 2.00 nominal value in issue. At a year-end price of on 31 December 2007, the market capitalisation of Heineken Holding N.V. on balance sheet date was 9.5 billion. Year-end price December 2007 High July 2007 Low January 2007 Heineken Holding N.V. share price In EUR, Euronext Amsterdam after restatement for recapitalisation and share split Share price range Year-end price Average trade in 2007: 257,636 shares per day

146 144 Other information Shareholder information continued Financial calendar in 2008 for both Heineken N.V. and Heineken Holding N.V. Announcement of 2007 results 20 February Publication of Annual Report 19 March Annual General Meeting of Shareholders, Amsterdam 17 April Quotation ex-final dividend 21 April Final dividend 2007 payable 25 April Announcement of half-year results August Quotation ex-interim dividend 28 August Interim dividend 2008 payable 3 September Bonds Heineken N.V. bonds are listed on the Luxembourg Stock Exchange. Two bond loans were issued on 4 November One was issued for 500 million with an annual coupon of per cent, maturing on 4 February 2010 and listed under ISIN code XS Contacting Heineken N.V. and Heineken Holding N.V. Further information on Heineken N.V. is obtainable from the Group Corporate Relations and/or Investor Relations department, telephone or by [email protected]. Further information on Heineken Holding N.V. is obtainable by telephone or fax Information is also obtainable from the Investor Relations department, telephone or by [email protected]. The website also carries further information about both Heineken N.V. and Heineken Holding N.V. Another one was issued for 600 million with a annual coupon of 5.00 per cent, maturing on 4 November 2013 and listed under ISIN code XS

147 Other information 145 Countries and brands As at 31 December 2007 Reach At Heineken we aim to be a leading brewer in each of the markets in which we operate and to have the world s most prominent brand portfolio. The tables in this chapter show our breweries and brands worldwide. 1. Western Europe Heineken is Western Europe s largest and leading beer brewer. We have market leadership positions in the Netherlands, Spain and Italy and we are the number two player in France, Ireland and Switzerland. Heineken, and in some cases Amstel, are also brewed under licence or imported into several other Western European markets. 2. Central and Eastern Europe Heineken is the largest brewing group in Central Europe, leading in Greece, Austria, Romania, Slovakia, Bulgaria and Macedonia. We are the number two player in Poland, Croatia and Belarus. Heineken has strong market positions in Russia, Germany, Hungary, Serbia and the Czech Republic. Heineken, and in some cases Amstel, are also brewed under licence or imported into several other Central and Eastern European markets. 3. The Americas Heineken has built a strong position in the Americas, with exports to the USA, Central America and the Caribbean. Heineken also owns a number of breweries in the Caribbean and Central America and has interests in and licensing agreements with several breweries in Central and South America. The agreement of Heineken USA and FEMSA of Mexico makes Heineken the exclusive national importer, marketer and seller of FEMSA s brands for ten years. Our interest in CCU has strengthened our position in Chile and Argentina. 4. Africa and the Middle East Heineken is also very successful in Africa and the Middle East. We have owned breweries and have enjoyed substantial market positions in several African countries for more than 50 years. In Africa we brew a variety of local brands and in some countries Heineken and Amstel beer are also brewed locally. Most of the operating companies also produce and market soft drinks. 5. Asia Pacific Underpinning our position in the region is our Singapore-based joint venture with Fraser & Neave, Asia Pacific Breweries (APB). It operates 32 breweries in Singapore, Malaysia, Thailand, Vietnam, Cambodia, China, New Zealand, Papua New Guinea, India and Sri Lanka. Heineken is brewed at several of APB s breweries throughout the region. In addition, we have our own breweries in Indonesia and on New Caledonia. We also import Heineken into the region. Heineken beer has a strong market position, particularly in Thailand, Vietnam, Australia, New Zealand, Singapore and Taiwan. In the first quarter of 2008, two greenfield breweries will be operational in Laos and India. Geographical distribution of Consolidated beer volume In millions of hectolitres % Western Europe 31,910 32,100 (0.6) Central and Eastern Europe 51,114 46, The Americas 13,718 13, Africa and the Middle East 15,668 13, Asia Pacific 7,418 6, Consolidated beer volume 119, ,

148 146 Other information Countries and brands continued As at 31 December 2007 Western Europe Country Company Brewery location Brands Belgium Affligem Brouwerij BDS (100%) Opwijk Affligem France Heineken France (100%) Marseille, Mons-en-Baroeul, Schiltigheim, St. Omer Heineken, Adelscott, Amstel, Buckler, Desperados, Doreleï, 33 Export, Fischer tradition, Kriska, Murphy s Irish Stout, Pelforth, St. Omer Ireland Heineken Ireland (100%) Cork Heineken, Amstel, Coors Light, Murphy s Irish Stout Italy Heineken Italia (100%) Aosta, Bergamo, Cagliari, Massafra, Messina Netherlands Heineken Nederland (100%) Brand Bierbrouwerij (100%) s-hertogenbosch, Zoeterwoude Wijlre Spain Heineken España (98.6%) Arano, Jaen, Madrid, Seville, Valencia Heineken, Amstel, Birra Messina, Birra Moretti, Budweiser, Classica von Wunster, Dreher, Ichnusa, McFarland, Murphy s Irish Stout, Prinz, Sans Souci Heineken, Amstel, Lingen s Blond, Murphy s Irish Red, Wieckse Witte, Brand Heineken, Amstel, Buckler, Cruzcampo, Guinness, Kaliber, Legado de Yuste, Murphy s Irish Red Switzerland Heineken Switzerland (100%) Chur Heineken, Amstel, Calanda, Ittinger, Murphy s Irish Stout

149 147 Central and Eastern Europe Country Company Brewery location Brands Austria Brau Union Österreich (100%) Göss, Puntigam, Schladming, Schwechat, Wieselburg, Zipf Heineken, Edelweiss, Gösser, Kaiser, Puntigamer, Schlossgold, Schwechater, Wieselburger, Zipfer Belarus Brewing Company Syabar (96%) Babruysk Syabar, Bobrov Bulgaria Zagorka Brewery (50%) Stara Zagora Heineken, Amstel, Ariana, Stolichno, Zagorka Croatia Karlovacka Pivovara (100%) Karlovac Heineken, Desperados, Karlovačko Czech Republic Starobrno (97.6%) Kralovsky Pivovar Krušovice Brno, Znojmo Krušovice Heineken, Amstel, Hostan, Starobrno, Zlaty Bazant Krušovice (100%) Germany Paulaner Brauerei (25%) Kulmbacher Brauerei (31.4%) Karlsberg (22.5%) Fürstlich Fürstenbergische Brauerei (49.9%) Hoepfner Brauerei (49.9%) Schmucker Brauerei (49.8%) Würzburger Hofbräu (31.4%) Munich, Rosenheim Chemnitz, Kulmbach, Plauen Homburg, Koblenz Donaueschingen Karlsruhe Mossautal, Odenwald Würzburg, Poppenhausen Hacker-Pschorr, Paulaner, Paulaner Weissbier Kulmbacher, Mönchshof, Sternquell-pils Desperados, Karlsberg, Mixery, UrPils Bären Pilsner, Fürstenberg, Riegeler, QOWAZ Arnegger, Edel-Weizen, Export, Goldköpfle, Grape, Hefe Weißbier, Hoepfner Pilsner, Jubelbier, Keller- Weißbier, Kräusen, Leicht, Maibock, Porter, Radler Schmucker, Odenwälder Zwickel Würzburger Hofbräu, Werner Bräu, Lohrer Bier, Wächtersbacher Greece Athenian Brewery (98.8%) Athens, Patras, Thessaloniki Heineken, Alfa, Amstel, Buckler, Desperados, Fischer McFarland, Murphy s Irish Stout, Zorbas Hungary Heineken Hungaria (99.6%) Martfü, Sopron Heineken, Amstel, Buckler, Gösser, Kaiser, Schlossgold, Soproni Ászok, Talléros, Zlaty Bazant Kazakhstan Dinal (99.9%) Almaty Heineken, Amstel, Tian Shan Macedonia Pivara Skopje (50%) Skopje Heineken, Amstel, Gorsko, Skopsko

150 148 Other information Countries and brands continued As at 31 December 2007 Central and Eastern Europe continued Country Company Brewery location Brands Poland Grupa Żywiec (61.7%) Bydgoszcz, Cieszyn, Elblag, Lezajsk, Warka, Żywiec Romania Heineken Romania (96.3%) Bucuresti, Constanta, Craiova, Hateg, Miercurea Ciuc Russia Heineken Breweries (100%) St. Petersburg (2) Heineken Brewery Siberia (100%) Shikhan Brewery (99.8%) Volga Brewery (100%) Patra (100%) Heineken Brewery Baikal (100%) PIT Kaliningrad (100%) PIT Novotroitsk (100%) Amur-Pivo (100%) Novosibirsk Sterlitamak Nizhnyi Novgorod Ekaterinburg Irkutsk Kaliningrad Novotroitsk Chabarovsk Heineken, Krȯlewskie, Kujawiak, Lezajsk, Specjal, Strong, Tatra, Warka Jasne Pelne, Żywiec, Budweiser Heineken, Bucegi, Ciuc, Gambrinus, Golden Brau, Gösser, Schlossgold, Silva Heineken, Amstel, Botchkarov, Ochota, Zlaty Bazant, Bud, Kirin, Guinness, Kilkenny, Buckler, Stepan Razin, Kalinkin, Ordinar Sobol, Zhigulevskoye Sedoy Ural, Shikhan, Solyanaya Pristan Okskoye, Rusich, Volga Patra, Strelets, Zhigulevskoye Zhigulevskoye, Yantarnoe, Rizhkoye, Kumanda, Gubernatorskoye, Brandmayor PIT, Docter Diesel, Ostmark, Three Bears, Gösser, Bitburger, Buckler PIT, Docter Diesel, Three Bears, Gösser PIT, Amur-Pivo, Docter Diesel, Three Bears Slovakia Heineken Slovensko (100%) Hurbanovo Heineken, Amstel, Corgon, Gemer, Kelt, Martiner, Zlaty Bazant

151 149 The Americas Country Company Brewery location Brands Argentina Companias Cervecerias Unidas Argentina (30.7%) Salta, Santa Fe Heineken, Budweiser, Cordoba, Rosario, Salta, Santa Fe, Schneider Bahamas Commonwealth Brewery (53.2%) Nassau Heineken, Guinness, Kalik, Vitamalt Chile Companias Cervecerias Antofagasta, Santiago, Heineken, Cristal, Escudo Unidas (33.1%) Temuco Costa Rica Cervecería Costa Rica (25%) San José Heineken, Bavaria, Imperial, Pilsen, Rock Ice Dominican Republic Cervecería Nacional Dominicana (9.3%) Santo Domingo Presidente Haiti Brasserie Nationale d Haïti (23.3%) Port-au-Prince Guinness, Malta, Prestige Jamaica Desnoes & Geddes (15.5%) Kingston Heineken, Dragon Stout, Guinness, Red Stripe Martinique Brasserie Lorraine (83.1%) Lamentin Heineken, Lorraine, Malta, Porter Nicaragua Consorcio Cervecero Managua Heineken, Bufalo, Tona, Victoria Centroamericano (12.4%) Panama Cervecerias Barú-Panama (74.9%) Panama City Heineken, Crystal, Guinness, Panama, Soberana, Budweiser St. Lucia Windward & Leeward Vieux-Fort Heineken, Guinness, Piton Brewery (72.7%) Surinam Surinaamse Brouwerij (76.1%) Paramaribo Heineken, Parbo Affiliated company (non-consolidated).

152 150 Other information Countries and brands continued As at 31 December 2007 Africa and the Middle East Country Company Brewery location Brands Burundi Brarudi (59.3%) Bujumbura, Gitega Amstel, Primus Cameroon Brasseries du Cameroun (8.8%) Bafoussam, Douala, Garoua, Yaoundé Amstel, Dynamalt, Mützig Congo Brasseries du Congo (50%) Brazzaville, Pointe Noire Amstel, Guinness, Maltina, Mützig, Ngok, Primus, Turbo King Democratic Republic of Congo Bralima (95%) Boma, Bukavu, Kinshasa, Kisangani, Mbandaka Amstel, Guinness, Maltina, Mützig, Primus, Turbo King Egypt Al Ahram Beverages Company (99.9%) Badr, El Obour, Sharkí Heineken, Birell, Fayrouz, Meister, Sakara, Stella Ghana Guinness Ghana Accra, Kumasi Amstel Malt, Guinness, Gulder, Star Breweries Ltd. (20%) Israel Tempo Beverages Limited (40%) Netanya Heineken, Gold Star, Maccabee, Malt Star, Nesher Jordan General Investment (10.8%) Zerka Amstel Lebanon Almaza (67%) Beirut Almaza, Laziza Morocco Brasseries du Maroc (2.2%) Casablanca, Fès, Tanger Heineken, Amstel Namibia Namibia Breweries (14.5%) Windhoek Heineken, Beck s, Guinness, Killkenny, Windhoek Nigeria Nigerian Breweries (54.1%) Aba, Ama, Ibadan, Kaduna, Lagos Heineken, Amstel Malta, Gulder, Legend, Maltina, Star Consolidated Breweries (50.1%) Jjebu Ode, Owe Omamma 33 Export, Hi-malt Réunion Brasseries de Bourbon (85.7%) Saint Denis Bourbon, Dynamalt Rwanda Bralirwa (70%) Gisenyi, Kigali Amstel, Guinness, Mützig, Primus Sierra Leone Sierra Leone Brewery (42.5%) Freetown Heineken, Guinness, Maltina, Star South Africa ** Johannesburg Tunisia Société de Production et de Tunis Distribution des Boissons (49.99%) Heineken Affiliated company (non-consolidated). ** Under construction.

153 151 Asia Pacific Country Company Brewery location Brands Cambodia Cambodia Brewery (33.5%) Phnom Penh ABC Extra Stout, Anchor, Gold Crown, Tiger China India Shanghai Asia Pacific Brewery (44.6%) Hainan Asia Pacific (46%) Kingway Brewery (9.9%) Jiangsu Da Fu Hao Breweries (22.5%) Guangzhou Asia Pacific Brewery (46%)** Asia Pacific Breweries (Aurangabad) (31.9%) Asia Pacific Breweries Pearl Private (28.1%)** Shanghai Haikou Shantou, Shenzhen Nantong, Tongzhou, Qidong, Yancheng Guangzhou Chowgule Hyderabad Heineken, Reeb, Tiger Anchor, Aoke, Tiger Kingway BBOSS, Tongzhou, Changjiang Cannon 10000, Arlem Indonesia Multi Bintang Indonesia (84.5%) Sampang Agung, Tangerang Heineken, Bintang, Guinness, Bintang Zero, Green Sands Laos Lao Asia Pacific Breweries (28.5%)** Malaysia Guinness Anchor Berhad (10.7%) Kuala Lumpur Heineken, Anchor, Baron s, Guinness, Kilkenny, Tiger, Lion, Malta, Anglia Mongolia Asia Pacific Breweries (23.1%) Ulaan baatar Tiger New Caledonia Grande Brasserie de Nouvelle Calédonie (87.3%) Noumea New Zealand DB Breweries (41.9%) Greymouth, Mangatainoka, Otahuhu, Timaru Papua New Guinea Heineken, Number One, Desperados Heineken, Amstel, DB Draught, Export Gold, Export Dry, Tiger, Erdinger, Sol, Budejovicky Budvar, Monteith s, Tui South Pacific Brewery (31.8%) Lae, Port Moresby Niugini Ice Beer, South Pacific Export Lager, SP Lager Singapore Asia Pacific Breweries (41.9%) Singapore Heineken, ABC Extra Stout, Anchor, Baron s, Tiger, Gold Crown, Sol Sri Lanka Asia Pacific Brewery (Lanka) (25.2%) Mawathagama Archipelago, Bisonxxtra, Kings Lager, Pilsener, Stout Thailand Thai Asia Pacific Brewery (14.7%) Bangkok Heineken, Tiger, Cheers Vietnam Vietnam Brewery (25.2%) Hatay Brewery (41.9%) Foster's Da Nang Co (41.9%) Foster's Tien Giang (25.2%) Ho Chi Minh City Hatay Heineken, Bivina, Tiger, Coors Light Heineken, Anchor Draft, Tiger Coors Light, Foster's, Bier Larue Affiliated company (non-consolidated). ** Under construction

154 152 Other information Historical summary Dutch Dutch Dutch Dutch Dutch Dutch Dutch IFRS IFRS IFRS IFRS GAAP GAAP GAAP GAAP GAAP GAAP GAAP Revenue and profit In millions of EUR Revenue 12,564 11,829 10,796 10,062 10,005 9,255 8,482 7,637 6,766 5,973 5,347 Results from operating activities 1,503 1,805 1,249 1,348 1,248 1,222 1,282 1, Results from operating (beia) 1,821 1,543 1,363 1,355 1,329 1,327 1,282 1, as % of revenue as % of total assets EBITDA/net interest expenses Net profit 807 1, Net profit (beia) 1, as % of equity attributable to equity holders of the Company Dividend proposed as % of net profit Bonus shares In millions of EUR Increase in share capital Cash payment 16 Distribution from reserves Percentage increase Per share of In millions of EUR Cash flow from operating activities Net profit (beia) Dividend proposed Equity attributable to equity holders of the Company Bonus shares (par value) Cash payment 0.06 Cash flow statement In millions of EUR Cash flow from operating activities 1,730 1,849 1,872 1,611 1,520 1,638 1,184 1,165 1, Dividend (450) (294) (271) (243) (243) (241) (187) (168) (160) (112) (114) Investing (1,263) (799) (1,194) (1,795) (1,671) (2,081) (1,973) (783) (1,503) (527) (728) Financing (206) (355) (321) (123) (125) 1, (39) 335 (13) 80 Net cash flow (189) (550) (519) 549 (549) 175 (293) Adjusted for the 5:4 share split in All years prior to 2005 have been restated using the current number of issued shares of 489,974,594.

155 153 Dutch Dutch Dutch Dutch Dutch Dutch Dutch IFRS IFRS IFRS IFRS GAAP GAAP GAAP GAAP GAAP GAAP GAAP Financing In millions of EUR Share capital Reserves and retained earnings 4,620 4,225 3,185 2,472 2,595 2,383 1,853 1,974 1,685 1,907 1,588 Equity attributable to equity holders of the Company 5,404 5,009 3,969 3,256 3,379 3,167 2,637 2,758 2,396 2,618 2,299 Minority interest Total equity 5,946 5,520 4,514 3,733 3,862 3,899 3,030 3,139 2,520 2,866 2,555 Employee benefits Provisions (incl. deferred tax liabilities) , , Non-current liabilities 1,521 2,091 2,233 2,638 2,642 2,721 1, Current liabilities (excl. provisions) 4,050 3,886 3,652 3,001 2,666 2,910 2,555 2,235 1,892 1,860 1,460 Liabilities 5,571 5,977 5,885 5,639 5,308 5,631 3,770 3,032 2,767 2,350 1,982 Total equity and liabilities 12,968 12,997 11,829 10,777 10,418 10,897 7,781 7,195 6,263 5,986 5,270 Equity attributable to equity holders of the Company/(employee benefits, provisions, and liabilities) Employment of capital In millions of EUR P, P & E 5,362 4,944 5,067 4,773 5,127 4,995 4,094 3,592 3,250 2,964 2,605 Intangible fixed assets 2,541 2,449 2,380 1,837 1,720 1, Financial fixed assets 1,221 1,367 1,104 1, , Total non-current assets 9,124 8,760 8,551 7,645 7,626 7,268 4,968 4,136 3,865 3,386 3,095 Inventories 1, Trade and other receivables 1,873 1,779 1,787 1,646 1,309 1,379 1,270 1,192 1, Cash and other current assets 964 1, , , , Current assets 3,844 4,237 3,278 3,132 2,792 3,629 2,813 3,059 2,398 2,600 2,175 Total assets 12,968 12,997 11,829 10,777 10,418 10,897 7,781 7,195 6,263 5,986 5,270 Total equity/total non-current assets Current assets/ Current liabilities Dutch Dutch Dutch Dutch Dutch Dutch Dutch IFRS IFRS IFRS IFRS GAAP GAAP GAAP GAAP GAAP GAAP GAAP Revenue 10,293 9,333 8,107 7,149 6,272 Adjustments: Excise duties (1,282) (1,226) (1,093) (984) (819) Variable selling expenses (529) (300) (248) (192) (106) Correction adjustment 2002/1996 (170) Revenue 12,564 11,829 10,796 10,062 10,005 9,255 8,482 7,637 6,766 5,973 5,347

156 154 Other information Glossary Definitions of terms and phrases used in this report Beia Before exceptional items and amortisation of brands. Cash conversion ratio Free operating cash flow/net profit (beia) before deduction of minority interests. Depletions Sales by distributors to the retail trade. Dividend payout Proposed dividend as percentage of net profit (beia). Earnings per share Basic Net profit divided by the weighted average number of shares basic during the year. Diluted Net profit divided by the weighted average number of shares diluted during the year EBIT Earnings before interest and taxes and net finance expenses. EBITDA Earnings before interest and taxes and net finance expenses before depreciation and amortisation. Effective tax rate Taxable profit adjusted for share of profit of associates, dividend income and impairments of other investments. Fit2Fight Cost saving programme aimed at reducing the fixed cost base versus 2005 by 450 million by Fixed costs under Fit2Fight Fixed costs under Fit2Fight include personnel costs, depreciation and amortisation, repair and maintenance costs and other fixed costs. Exceptional items are excluded from these costs. Fixed costs ratio Fixed costs under Fit2Fight as a percentage of revenue. Free operating cash flow This represents the total of cash flow from operating activities, and cash flow from operational investing activities. Gearing Net debt/shareholders equity. Net debt Non-current and current interest-bearing loans and borrowings and bank overdrafts less investments held for trading and cash. Net profit Profit after deduction of minority interests (profit attributable to equity holders of the Company). Organic growth Growth excluding the effect of foreign exchange rate movements, consolidation changes, exceptional items, amortisation of brands and changes in accounting policies.

157 155 Organic volume growth Increase in consolidated volume, excluding the effect of the first time consolidation of acquisitions. Profit Total profit of the Group before deduction of minority interests. All brand names mentioned in this Annual Report, including those brand names not marked by an, represent registered trade marks and are legally protected. Region A region is defined as Heineken s managerial classification of countries into geographical units. Revenue Net realised sales proceeds in Euros. Top-line growth Growth in net revenue. Volume Amstel volume The group beer volume of the Amstel brand. Consolidated beer volume 100 per cent of beer volume produced and sold by fully consolidated companies and the share of beer volume brewed and sold by proportionately consolidated jointventure companies. Group beer volume The part of the total Group volume that relates to beer. Heineken volume The Group beer volume of the Heineken brand. Heineken volume in premium segment The Group beer volume of the Heineken brand in the premium segment (Heineken volume in the Netherlands is excluded). Total beer volume The Group beer volume in a country. Total group volume 100 per cent of beer, soft drinks and other beverages volume produced and sold by fully consolidated companies and by proportionately consolidated joint-venture companies as well as the volume of Heineken s brands produced and sold under licence by third parties. Weighted average number of shares Basic Weighted average number of issued shares adjusted for the weighted average of own shares purchased in the year. Diluted Weighted average number of basic shares after adjustment for the effects of all dilutive own shares purchased.

158 156 Other information Reference information A Heineken N.V. publication Heineken N.V. P.O. Box AA Amsterdam The Netherlands telephone fax Copies of the Annual Report and further information are obtainable from the Group Corporate Relations department via Production and editing Heineken N.V. Group Corporate Relations Text Heineken International Translation into Dutch V V H Business Translations, Utrecht, the Netherlands Photography Andreas Pohlmann, Munich The packshot company Ltd, London Heineken International Graphic design and electronic publishing Addison Corporate Marketing Ltd, London Printing Boom & van Ketel Grafimedia, Haarlem, the Netherlands Binding and distribution Hexspoor, Boxtel, the Netherlands Paper 9lives 55 silk 300 gms cover 9lives 55 silk 135 gms inside pages lives 55 silk 100 gms inside pages lives 55 is produced by an ISO accredited manufacturer and is certified as an FSC mixed sources product. It is produced with 55% recycled fibre from both pre- and post-consumer sources, together with 45% virgin elementary chlorine free (ECF) fibre sourced from well-managed forests. This Report is available in the Dutch language as well. In the event of any discrepancy between language versions, the English version prevails. More from Heineken online:

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