avatar Heineken Holding N.V. Finance, Insurance, And Real Estate

Pages

  • Page 1

    2017 Ann Established in Amsterdam HEINEKEN HOLDING N.V. ANNUAL REPORT 2017


  • Page 2

    2017 Established in Amsterdam HEINEKEN HOLDING N.V. ANNUAL REPORT 2017


  • Page 3

    PROFILE Heineken Holding N.V., which holds 50.005% of the issued share capital of Heineken N.V., heads the HEINEKEN group. The object of Heineken Holding N.V. pursuant to its Articles of Association is to manage or supervise the management of the HEINEKEN group and to provide services for Heineken N.V. It seeks to promote the continuity, independence and stability of the HEINEKEN group, thereby enabling Heineken N.V. to grow in a controlled and steady manner and to pursue its long-term policy in the interest of all stakeholders. Heineken Holding N.V. does not engage in operational activities itself. These have been assigned within the HEINEKEN group to Heineken N.V. and its subsidiaries and associated companies. Heineken Holding N.V.’s income consists almost exclusively of dividends received on its interest in Heineken N.V. Every Heineken N.V. share held by Heineken Holding N.V. is matched by one share issued by Heineken Holding N.V. The dividend payable on the two shares is identical. Heineken Holding N.V. ordinary shares are listed on Euronext Amsterdam. This Annual Report can be downloaded from www.heinekenholding.com


  • Page 4

    CONTENTS page 4 Shareholder information 9 Board of Directors REPORT OF THE BOARD OF DIRECTORS 10 Policy principles 10 Activities 11 Review of 2017 11 Heineken N.V. performance in 2017 and outlook 12 Financial statements and appropriation of profit 12 Corporate governance statement 16 Board of Directors 16 The General Meeting of Shareholders 18 Further information pursuant to the Article 10 Takeover Directive Decree 20 Information pursuant to the decree on the disclosure of non-financial information 20 Statement of the Board of Directors FINANCIAL STATEMENTS 2017 22 Heineken Holding N.V. balance sheet 23 Heineken Holding N.V. income statement 24 Notes to the balance sheet as at 31 December 2017 and the income statement for 2017 of Heineken Holding N.V. 28 Consolidated income statement 29 Consolidated statement of comprehensive income 30 Consolidated statement of financial position 32 Consolidated statement of cash flows 34 Consolidated statement of changes in equity 35 Notes to the consolidated financial statements OTHER INFORMATION 109 Rights of holders of priority shares 109 Provisions of the Articles of Association concerning appropriation of profit 109 Remuneration of the Board of Directors 109 Shares held by the Board of Directors 110 Independent Auditor’s Report


  • Page 5

    SHAREHOLDER INFORMATION Heineken Holding N.V. share price Nationality Heineken Holding N.V. shareholders in € in % Euronext Amsterdam Based on 101.2 million shares in free float (excluding the holding of L’Arche Green N.V. 90 and FEMSA in Heineken Holding N.V.) 82.49 80 2017 70 60 2016 50 40 2017 2016 Americas 40.2 38.8 30 United Kingdom/Ireland 27.6 22.0 Netherlands 0.9 1.4 Rest of Europe 8.5 9.9 20 Rest of the world 3.4 4.3 Retail 4.5 4.7 Unidentified 14.9 18.9 10 100.0 100.0 0 Source: CMi2i estimate based on available information December 2017 2009 2008 2010 2016 2014 2015 2012 2013 2017 2011 share price range year-end price Average trade in 2017: 97,774 shares per day H E I N E K E N H O L D I N G N . V . A N N U A L R E P O R T 2 0 17 4


  • Page 6

    S H A R E H O L D E R I N F O R M AT I O N HEINEKEN HOLDING N.V. Dividend per ordinary share in € Heineken Holding N.V. ordinary shares are traded 2008 0.62 on Euronext Amsterdam. Heineken Holding N.V.’s ordinary 2009 0.65 shares are also trading Over-the-Counter (OTC) in the USA 2010 0.76 as American Depositary Receipts (ADRs). The ratio between 2011 0.83 Heineken Holding N.V. ADRs and the ordinary Dutch (€ 2012 0.89 denominated) shares is 2:1, i.e. two ADRs represent one 2013 0.89 Heineken Holding N.V. ordinary share. Deutsche Bank Trust 2014 1.10 Company Americas acts as depositary bank for Heineken 2015 1.30 Holding N.V.'s ADR programme. 2016 1.34 In 2017, the average daily trading volume of Heineken 2017 1.47 (proposed) Holding N.V. shares was 97,774 shares. Market capitalisation Shares in issue and outstanding as at 31 December 2017: 288,030,168 ordinary shares of €1.60 nominal value; 250 priority shares of €2 nominal value. At a year-end price of €82.49 on 29 December 2017, the market capitalisation of Heineken Holding N.V. as at the balance sheet date was €23.8 billion. Year-end price €82.49 29 December 2017 Highest closing price €83.90 27 July 2017 Lowest closing price €64.98 31 January 2017 Substantial shareholdings Pursuant to the Financial Supervision Act (Wet op het financieel toezicht) and the Decree on Disclosure of Major Holdings and Capital Interests in Issuing Institutions (Besluit melding zeggenschap en kapitaalbelang in uitgevende instellingen Wft), the Netherlands Authority for the Financial Markets (AFM) has been notified of the following substantial shareholdings (i.e. of 3% or more) regarding Heineken Holding N.V.: • 1 November 2006: Mrs C.L. de Carvalho-Heineken (52.01%, including a 50.005% shareholding by L’Arche Holding S.A.)*; • 30 April 2010: Voting Trust (FEMSA), through its affiliate CB Equity LLP (14.94%)*; • 1 July 2013: Gardner Russo & Gardner LLC (a capital and voting interest of 3.78%, held directly). * The AFM register for substantial shareholdings is no longer up-to-date. For the present situation reference is made to the organisation chart on page 13. H E I N E K E N H O L D I N G N .V. A N N U A L R E P O R T 2 0 17 5


  • Page 7

    S H A R E H O L D E R I N F O R M AT I O N Heineken N.V. share price Nationality Heineken N.V. shareholders in € in % Euronext Amsterdam Based on 238.3 million shares in free float (excluding the holding of Heineken Holding N.V. 90 and FEMSA in Heineken N.V.) 86.93 80 2017 70 60 2016 50 40 2017 2016 Americas 32.8 39.8 30 United Kingdom/Ireland 15.3 14.6 Netherlands 3.8 2.3 Rest of Europe 14.7 19.0 20 Rest of the world 5.0 6.3 Retail 2.1 2.5 Unidentified 26.3 15.5 10 100.0 100.0 0 Source: CMi2i estimate based on available information December 2017 2009 2008 2010 2016 2014 2015 2012 2013 2017 2011 share price range year-end price Average trade in 2017: 654,537 shares per day H E I N E K E N H O L D I N G N .V. A N N U A L R E P O R T 2 0 17 6


  • Page 8

    S H A R E H O L D E R I N F O R M AT I O N HEINEKEN N.V. Financial calendar in 2018 for both Heineken Holding N.V. and Heineken N.V. The shares of Heineken N.V. are traded on Euronext Announcement of 2017 results 12 February Amsterdam, where the company is included in the AEX Index. Publication of Annual Report 19 February Heineken N.V.’s shares are also trading Over-the-Counter Trading update first quarter 2018 18 April (OTC) in the USA as American Depositary Receipts (ADRs). Annual General Meeting The ratio between Heineken N.V. ADRs and the ordinary of Shareholders, Amsterdam2 19 April Dutch (€ denominated) shares is 2:1, i.e. two ADRs represent Quotation ex-final dividend 2017 23 April one Heineken N.V. share. Deutsche Bank Trust Company Final dividend 2017 payable 2 May Americas acts as depositary bank for Heineken N.V.'s ADR Announcement of half-year results 2018 30 July programme. Quotation ex-interim dividend 2018 1 August Options on Heineken N.V. shares are listed on Euronext Interim dividend 2018 payable 9 August Amsterdam. Trading update third quarter 2018 24 October In 2017, the average daily trading volume of Heineken N.V. 2 Shareholders Heineken Holding N.V. are entitled to attend the meetings shares was 654,537 shares. of shareholders in Heineken N.V., to put questions at those meetings and to participate in the discussions. Market capitalisation Shares outstanding as at 31 December 2017: Contact Heineken Holding N.V. and Heineken N.V. 570,194,195 shares of €1.60 nominal value Further information on Heineken Holding N.V. is available (excluding own shares held by Heineken N.V.). by telephone +31 20 622 11 52. At a year-end price of €86.93 on 29 December 2017, Information on Heineken Holding N.V. and Heineken N.V. the market capitalisation of Heineken N.V. as at the balance is also available from the Investor Relations department, sheet date was €49.6 billion. telephone +31 20 523 95 90, or by e-mail: Year-end price €86.93 29 December 2017 investors@heineken.com. Highest closing price €89.20 27 July 2017 Further shareholder information is also available on the Lowest closing price €69.23 31 January 2017 website www.heinekenholding.com. Substantial shareholdings Pursuant to the Financial Supervision Act (Wet op het financieel toezicht) and the Decree on Disclosure of Major Holdings and Capital Interests in Issuing Institutions (Besluit melding zeggenschap en kapitaalbelang in uitgevende instellingen Wft), the Netherlands Authority for the Financial Markets (AFM) has been notified of the following substantial shareholdings (i.e. of 3% or more) regarding Heineken N.V.: • 1 November 2006: Mrs C.L. de Carvalho-Heineken (indirectly 50.005% through L’Arche Holding S.A.; the direct 50.005% shareholder is Heineken Holding N.V.)1; • 19 September 2017: Voting Trust (FEMSA), through its affiliate CB Equity LLP (8.63%) (initial notification: 30 April 2010). 1 The AFM register for substantial shareholdings is no longer up-to-date. For the present situation reference is made to the organisation chart on page 13. H E I N E K E N H O L D I N G N .V. A N N U A L R E P O R T 2 0 17 7


  • Page 9

    S H A R E H O L D E R I N F O R M AT I O N Bondholder information On 29 March 2017, HEINEKEN placed USD1.1 billion of long 10-year In 2008, HEINEKEN established a Euro Medium Term Note 144A/RegS US Notes with a coupon of 3.50%, and USD650 million (EMTN) programme which was last updated in March 2017. of 30-year 144A/RegS US Notes with a coupon of 4.35%. The programme allows Heineken N.V. to issue Notes for In 2015, HEINEKEN has launched a €1.0 billion Euro Commercial a total amount of up to €15 billion. Currently, approximately Paper (ECP) programme to facilitate its cash management operations €8.7 billion is outstanding under the programme. and to further diversify its funding sources. There was no ECP in issue Heineken N.V. was assigned solid investment grade as per 31 December 2017. credit ratings by Moody’s Investors Service and Standard & Poor’s in 2012. The ratings from both agencies, Baa1/P-2 and BBB+/A-2 respectively, have ‘stable’ outlooks as per the date of the 2017 Annual Report. In 2017 the following notes were placed under HEINEKEN's Euro Medium Term Note programme: • SGD150 million 5-year Notes with a floating rate coupon (February 2017); • EUR500 million 15-year Notes with a coupon of 2.02% (May 2017); • EUR800 million 12-year Notes with a coupon of 1.50% (October 2017). Traded Heineken N.V. Notes Issue date Total face value Interest rate (%) Maturity ISIN code EUR EMTN 2018 18 April 2013 EUR100 million 1.250 18 April 2018 XS0918766550 EUR EMTN 2019 19 March 2012 EUR850 million 2.500 19 March 2019 XS0758419658 EUR EMTN 2020 2 August 2012 EUR1,000 million 2.125 4 August 2020 XS0811554962 EUR EMTN 2021 4 April 2013 EUR500 million 2.000 6 April 2021 XS0911691003 EUR EMTN 2021 10 September 2015 EUR500 million 1.250 10 September 2021 XS1288852939 144A/RegS 2023 3 April 2012 USD750 million 3.400 1 April 2022 US423012AA16 144A/RegS 2023 10 October 2012 USD1,000 million 2.750 1 April 2023 US423012AD54 EUR EMTN 2023 23 October 2015 EUR140 million 1.700 23 October 2023 XS1310154536 EUR EMTN 2024 19 March 2012 EUR500 million 3.500 19 March 2024 XS0758420748 EUR EMTN 2024 7 December 2015 EUR460 million 1.500 7 December 2024 XS1330434389 EUR EMTN 2025 2 August 2012 EUR750 million 2.875 4 August 2025 XS0811555183 EUR EMTN 2025 20 October 2015 EUR225 million 2.000 20 October 2025 XS1309072020 EUR EMTN 2026 4 May 2016 EUR800 million 1.000 4 May 2026 XS1401174633 EUR EMTN 2027 29 November 2016 EUR500 million 1.375 29 January 2027 XS1527192485 144A/RegS 2028 29 March 2017 USD1,100 million 3.500 29 January 2028 US423012AF03 EUR EMTN 2029 30 January 2014 EUR200 million 3.500 30 July 2029 XS1024136282 EUR EMTN 2029 3 October 2017 EUR800 million 1.500 3 October 2029 XS1691781865 EUR EMTN 2032 12 May 2017 EUR500 million 2.020 12 May 2032 XS1611855237 EUR EMTN 2033 15 April 2013 EUR180 million 3.250 15 April 2033 XS0916345621 EUR EMTN 2033 19 April 2013 EUR100 million 2.562 19 April 2033 XS0920838371 144A/RegS 2042 10 October 2012 USD500 million 4.000 1 October 2042 US423012AE38 144A/RegS 2047 29 March 2017 USD650 million 4.350 29 March 2047 US423012AG85 The EMTN programme and the above Heineken N.V. Notes issued thereunder are listed on the Luxembourg Stock Exchange. Traded Heineken Asia Pacific Pte. Ltd.* Notes Issue date Total face value Interest rate (%) Maturity ISIN code SGD MTN 2020 3 March 2009 SGD21.75 million 3.780 3 March 2020 SG7V34954621 SGD MTN 2022 7 January 2010 SGD16.25 million 4.000 7 January 2022 SG7U93952517 The above Heineken Asia Pacific Pte. Ltd.* Notes are listed on the Singapore Exchange. * After a name change, Heineken Asia Pacific Pte. Ltd. is currently registered as Heineken Asia MTN Pte. Ltd. H E I N E K E N H O L D I N G N .V. A N N U A L R E P O R T 2 0 17 8


  • Page 10

    BOARD OF DIRECTORS Mr M. Das (1948) Mrs C.L. de Carvalho-Heineken (1954) Non-executive director (Chairman) Executive director Dutch nationality Dutch nationality Appointed in 1994; reappointed in 2017* Appointed in 1988; reappointed in 2015* Profession: Lawyer Profession: Company director Supervisory board seats (or non-executive board No supervisory board seats (or non-executive board memberships) in Large Dutch Entities**: Heineken N.V. memberships) in Large Dutch Entities** (Delegated Member); Greenchoice B.V. (Chairman) Other positions***: L’Arche Green N.V.; Stichting Other positions***: L’Arche Green N.V. (Chairman); Administratiekantoor Priores; L’Arche Holding B.V. Stichting Administratiekantoor Priores; L’Arche Holding B.V.; Greenfee B.V. (Chairman) Mr M.R. de Carvalho (1944) Executive director Mr J.A. Fernández Carbajal (1954) English nationality Non-executive director Appointed in 2015* Mexican nationality Profession: Vice-Chairman Citigroup Investment Banking Appointed in 2010; reappointed in 2014* EMEA and Chairman Citigroup Private Bank EMEA Profession: Executive Chairman of the Board of Fomento Supervisory board seats (or non-executive board Económico Mexicano, S.A.B. de C.V. (FEMSA) memberships) in Large Dutch Entities**: Heineken N.V. Supervisory board seats (or non-executive board Other positions***: L’Arche Green N.V. memberships) in Large Dutch Entities**: Heineken N.V. Other positions***: Coca-Cola FEMSA, S.A.B. de C.V. (Chairman); Tecnológico de Monterrey (Chairman); Fundación FEMSA (Chairman); participates on the Board of Industrias Peñoles, S.A.B. de C.V.; founding member of the Mexican chapter of the Woodrow Wilson Center; Term Member of the MIT Corporation Mrs C.M. Kwist (1967) Non-executive director Dutch nationality Appointed in 2011*; reappointed in 2015* Profession: Consultant in brand management, marketing and communication No supervisory board seats (or non-executive board memberships) in Large Dutch Entities** Other positions***: Greenfee B.V.; L’Arche Green N.V. Mr A.A.C. de Carvalho (1984) Non-executive director Dutch and English nationality Appointed in 2013*; reappointed in 2017* * For the maximum period of four years. ** Large Dutch Entities are Dutch N.V.s, B.V.s or Foundations (that are Profession: Company director required to prepare annual accounts pursuant to Chapter 9 of Book No supervisory board seats (or non-executive board 2 of the Dutch Civil Code or similar legislation) that meet two of the memberships) in Large Dutch Entities** following criteria (on a consolidated basis) on two consecutive balance Other positions***: Director Lagunitas Brewing Company sheet dates: (i) The value of the assets (according to the balance sheet with the explanatory notes and on the basis of acquisition and manufacturing costs) exceeds €20 million; (ii) The net turnover exceeds €40 million; (iii) The average number of employees is at least 250. *** Under ‘Other positions’, other functions are mentioned that may be relevant to performance of the duties of the Board of Directors. H E I N E K E N H O L D I N G N .V. A N N U A L R E P O R T 2 0 17 9


  • Page 11

    REPORT OF THE BOARD OF DIRECTORS Gap between Heineken Holding N.V. ACTIVITIES and Heineken N.V. share price in € The Board of Directors met with the Preparatory Committee Euronext Amsterdam of the Supervisory Board of Heineken N.V. on seven occasions in 2017. 90 The strategic plan, including the sustainability strategy as described in the Heineken N.V. Annual Report, page 133 80 and further, and the annual plan of Heineken N.V. were presented to the Board of Directors. 70 A recurrent element in all the meetings was the discussion of the results of Heineken N.V.: volumes, revenues and 60 operating profit organic growth, consolidation effects and foreign exchange effects were reviewed by region. The 50 Chairman/CEO of the Executive Board of Heineken N.V. outlined conditions in various markets and the development 40 of the brand portfolio in the different regions, paying special attention in all cases to the development of the Heineken® 30 brand. Important developments affecting the HEINEKEN business 20 in various countries were discussed, such as the political and economic situation in Nigeria, The Democratic Republic 10 of Congo, Egypt and Brazil. Matters that were also discussed during the year included 0 proposals for acquisitions, investments, disposals and other opportunities for Heineken N.V. such as the completion of the 2009 2008 2010 2016 2014 2015 2012 2013 2017 2011 acquisition of 1,900 pubs from Punch Taverns in the UK, the acquisition of Brasil Kirin, obtaining the full ownership Heineken Holding N.V. close of Lagunitas Brewing Company in the US and the agreement with Sligro related to the distribution and sales of beer, cider Heineken N.V. close and other products in The Netherlands. Other items on the agenda included renewal of the credit facilities, bond issues and dividend policy of Heineken N.V. Heineken N.V.’s developments in cash flows, funding ratios and share price were also addressed. The composition of the Supervisory Board and the Executive Board of Heineken N.V. and management development were also recurring items on the agenda. POLICY PRINCIPLES There were informal discussions during the year regarding current business matters on which the opinion of the Board Heineken Holding N.V. has played an important role in the of Directors had been sought. HEINEKEN group for over sixty years. The company seeks In addition to the meetings with the Preparatory to promote the continuity, independence and stability of the Committee of the Supervisory Board of Heineken N.V. HEINEKEN group. This creates the conditions which enable as described above, the Board of Directors also met Heineken N.V. to pursue its long-term policy in the interest separately on two occasions to discuss, among other things, of the shareholders, the staff and other stakeholders. the Report of the Board of Directors and the financial The company’s policy has been successful. Thanks statements for 2016 and the first half of 2017. At the in part to its unique and stable structure, the HEINEKEN meeting of the Board of Directors at which the Report group now has the widest international presence of all the of the Board of Directors and the financial statements were world’s brewing groups and the Heineken® brand is one of the discussed, Deloitte Accountants B.V., the external auditors, best-known international premium lagers. gave a comprehensive report on their activities. There are H E I N E K E N H O L D I N G N .V. A N N U A L R E P O R T 2 0 17 10


  • Page 12

    REPORT OF THE BOARD OF DIREC TORS no non-executive members of the Board of Directors who HEINEKEN N.V. PERFORMANCE IN 2017 have been frequently absent from meetings. AND OUTLOOK Mrs C.L. de Carvalho-Heineken, executive director, travelled to the Ivory Coast for the opening of a brewery. In Jamaica Performance she visited a brewery. In the United States of America she Heineken N.V. posted a net profit of €1,935 million in 2017. attended a meeting of distributors. The good performance in the first half continued during the second part of the year. Revenue (beia) per REVIEW OF 2017 hectolitre continued to improve organically in all regions, excluding Asia Pacific due to negative mix effects. Full year Share price operating profit (beia) increased 9.3% organically, a slightly The share price of the Heineken Holding N.V. share has lower pace than the first part of the year (1H17: 11.7%) increased from €66.14 at the beginning of the year to €82.49 as HEINEKEN's commercial investments increased during the on 29 December. The gap between the Heineken N.V. and second half as planned. Heineken Holding N.V. share prices moved between 5% and HEINEKEN continued to invest in key developing markets 8% through the year, ending at 5.11% on 29 December. with the expansion of production capacity in Mexico, Price movements are shown in the graph on page 10. More Cambodia, Vietnam, Ethiopia and Haiti, the opening of a information regarding the shares can be found on page 5 of new brewery in Ivory Coast and the announcement of the this report. construction of a new brewery in Mozambique. Revenue (beia) increased 5.0% organically, with a 2.9% Interest in Heineken N.V. increase in total volume and a 2.1% increase in revenue The nominal value of our company’s interest (beia) per hectolitre. In 2017 the underlying price mix impact in Heineken N.V. as at 31 December 2017 was €461 million was 2.5%. In the second half revenue (beia) increased 4.3% (31 December 2016: €461 million). (1H17: 5.7%), with volume growth of 3.5% (1H17: 2.3%), The nominal value of the ordinary shares issued by our revenue (beia) per hectolitre was up 0.8% (1H17: 3.4%) and company as at the same date was also €461 million. underlying price mix impact of 1.7%. Reported revenue (beia) As at 31 December 2017, our company’s interest per hectolitre declined -4.6% mainly due to the dilutive effect in Heineken N.V. represented 50.005% of the issued capital of the acquisition of Brasil Kirin. (being 50.514% of the outstanding capital) of Heineken N.V. More information on the performance and sustainability is provided in Heineken N.V.’s Annual Report. Results With regard to the company’s balance sheet and income Outlook statement, the Board of Directors has the following • Economic conditions are expected to remain volatile and comments. HEINEKEN has assumed a negative impact from currency The Board of Directors has elected to avail itself of the comparable to 2017. option given by Section 362, subsection 8, of Book 2 of the • HEINEKEN expects further organic revenue and profit Dutch Civil Code of using the same accounting policies for growth. the valuation of assets and liabilities and determination • Excluding major unforeseen macro economic and of results in the company financial statements as those used political developments HEINEKEN expects to deliver for the preparation of the consolidated financial statements an operating profit margin expansion of around 25 bps. of Heineken Holding N.V. Since the interest in Heineken N.V. This includes a residual dilutive effect from the acquisition is measured using the net asset value method, the equity of Brasil Kirin and excludes the one-time benefit of IFRS attributable to the equity holders of Heineken Holding N.V., 15 implementation. amounting to €6,633 million, shown in the consolidated • HEINEKEN expects an average interest rate (beia) broadly statement of financial position, is equal to the shareholders’ in line with 2017 (2017: 3.0%), and an effective tax rate equity shown in the company balance sheet less the priority (beia) of around 28% (2017: 27.6%). shares. • Capital expenditure related to property, plant and Our company’s 50.514% share in Heineken N.V.’s 2017 profit equipment should be slightly above €2 billion (2017: of €1,935 million is recognised as income of €977 million €1.7 billion). in the 2017 company income statement. This share in Heineken N.V.’s profit consists of both distributed and retained earnings for 2017. H E I N E K E N H O L D I N G N .V. A N N U A L R E P O R T 2 0 17 11


  • Page 13

    REPORT OF THE BOARD OF DIREC TORS FINANCIAL STATEMENTS AND Governance Code which has been amended APPROPRIATION OF PROFIT on 8 December 2016 and that applies to the financial year starting on 1 January 2017 (the "Code"). Deviations The Board of Directors will submit the financial statements from the Code are explained in accordance with the for 2017 to the General Meeting of Shareholders. These Code’s “comply or explain” principle. The Code is available financial statements, on pages 22 to 108 of this report, have at www.commissiecorporategovernance.nl. been audited by Deloitte Accountants B.V., whose report can While Heineken Holding N.V. endorses the principles of the be found on page 110. Code, the structure of the HEINEKEN group, and in particular Heineken N.V. proposes to distribute a dividend for the relationship between Heineken Holding N.V. and 2017 of €1.47 per share of €1.60 nominal value, of which Heineken N.V., prevents Heineken Holding N.V. from applying €0.54 per share of €1.60 nominal value has already been paid a number of the Code’s best-practice provisions, as further as interim dividend. explained below. At the General Meeting of Shareholders With the approval of the meeting of priority share- on 20 April 2005, the departure from the Dutch Corporate holders, the Board of Directors has resolved to vote Governance Code of 9 December 2003 was put to the vote at the General Meeting of Shareholders of Heineken N.V. and approved. The departure from the Dutch Corporate in favour of Heineken N.V.’s dividend proposal. On that Governance Code as revised in 2008 was discussed at the basis, the dividend payable to our company for 2017 totals General Meeting of Shareholders on 22 April 2010. The €423.4 million in cash, of which €155.5 million has already departure from the Code as revised in 2016 will be discussed been received by way of interim dividend. The final dividend at the upcoming General Meeting of Shareholders due will therefore be €267.9 million. on 19 April 2018. In accordance with the provisions of Article 10, paragraph 9, of the Articles of Association, an interim Structure of the HEINEKEN group dividend of €0.54 per share of €1.60 nominal value was distributed to holders of ordinary shares on 10 August Organisational structure 2017. Pursuant to the provisions of Article 10 of the Heineken Holding N.V. has a 50.005% interest in the issued Articles of Association, a final dividend of €0.93 per share share capital of Heineken N.V. Both companies are listed of €1.60 nominal value currently in issue will be payable on Euronext Amsterdam. to holders of ordinary shares from 2 May 2018. Like the As at 31 December 2017 L’Arche Green N.V., a company holders of Heineken N.V. shares, holders of ordinary shares owned by the Heineken family and the Hoyer family, holds will therefore receive a total dividend for 2017 of €1.47 per a 52.599% (31 December 2016: 51.709%) interest of the share of €1.60 nominal value. A total of €423.4 million will issued share capital of Heineken Holding N.V. The Heineken be distributed to holders of ordinary shares and a total of €20 family holds 88.86% of the issued share capital of L’Arche (4% of the nominal value of €2 per share) will be distributed Green N.V. and the remaining 11.14% is held by the Hoyer as dividend to holders of priority shares. family. Mrs C.L. de Carvalho-Heineken also owns a direct 0.03% stake in Heineken Holding N.V. FEMSA, through its CORPORATE GOVERNANCE STATEMENT affiliate CB Equity LLP, holds a 12.262% interest of the issued share capital of Heineken Holding N.V. In combination with Introduction its Heineken N.V. shareholding this represents a 14.76% In this statement, Heineken Holding N.V. addresses its economic interest in the HEINEKEN group. Of the issued corporate governance structure and explains which best share capital of Heineken Holding N.V. 35.139% is held practice provisions of the Dutch Corporate Governance by public shareholders. Code the company does not apply, and why. This report The company has issued 250 priority shares, 50% of which also includes the information that the company is required are held by Stichting Administratiekantoor Priores, the other to disclose pursuant to the Dutch governmental decree 50% being held by Stichting Beheer Prioriteitsaandelen on Article 10 Takeover Directive and the governmental decree Heineken Holding N.V. A full description of rights conferred on Corporate Governance. by the outstanding priority shares in the share capital of Heineken Holding N.V. is given in the paragraph headed Dutch Corporate Governance Code ‘Further Information pursuant to the Article 10 Takeover The company is required to comply with, among Directive Decree’ and the ‘Other Information’ section other regulations, the revised Dutch Corporate (page 109) of this Annual Report. H E I N E K E N H O L D I N G N .V. A N N U A L R E P O R T 2 0 17 12


  • Page 14

    REPORT OF THE BOARD OF DIREC TORS Policy principles and activities Heineken Holding N.V.’s governance structure Standing at the head of the HEINEKEN group, Heineken Holding N.V. is managed by its Board of Directors, Heineken Holding N.V. is not an ordinary holding company whose activities are directed towards implementing the as already set forth in the profile on page 2. Since its policy principles outlined above. Heineken Holding N.V. formation in 1952, Heineken Holding N.V.’s main object has a one-tier board management structure. The Board pursuant to its Articles of Association has been to manage of Directors comprises two executive members (uitvoerende or supervise the management of the HEINEKEN group and bestuurders) and four non-executive members to provide services for Heineken N.V., in accordance with the (niet-uitvoerende bestuurders). The Board of Directors has policy principles outlined above. not installed committees. Heineken Holding N.V. does not engage in operational Within Heineken Holding N.V., there are established rules activities itself and it employs no staff. The operational governing the disclosure of holdings of and transactions activities have been assigned within the HEINEKEN group in Heineken Holding N.V. and Heineken N.V. shares and other to Heineken N.V. and its subsidiaries and associated securities that are applicable to the Board of Directors and, companies. Within the HEINEKEN group, the primary where required, other persons directly associated with the duties of Heineken N.V.’s Executive Board are to initiate and company. These rules are available on the company’s website. implement corporate strategy and to manage Heineken N.V. The Board of Directors has rules regarding its functioning and its related companies. It is supervised in the performance and internal organisation. The Articles of Association of its duties by Heineken N.V.’s Supervisory Board. and the rules of the Board of Directors, which provide Heineken Holding N.V.’s income consists almost exclusively more information on the Board of Directors and the of dividends received on its interest in Heineken N.V. Every company's governance structure, are available on the Heineken N.V. share held by Heineken Holding N.V. is matched company’s website. by one share issued by Heineken Holding N.V. The dividend payable on both shares is identical. Compliance with the Code Heineken Holding N.V. intends to preserve its existing structure and policy principles as described above and does L’Arche therefore not apply those best-practice provisions of the FEMSA Public Green N.V. Code which are inconsistent with this structure or these policy 52.599% 35.139%* principles. As stated in the Code, there should be a basic recognition that corporate governance must be tailored to a Heineken company-specific situation and therefore that non-applica- 12.262% Public Holding N.V. tion of individual provisions by a company may be justified. Board of Directors Given the specific structure and policy principles of Heineken 50.005% 41.363% Holding N.V., Heineken Holding N.V. does not apply the best practice provisions described below. Most of these 8.632% Heineken N.V. Public best-practice provisions are fulfilled by Heineken N.V. instead. Heineken Holding N.V. complies with the other best-practice provisions of the Code. Supervisory Board Long-term value creation and culture Executive Board The development of and the manner of implementing HEINEKEN's strategy aimed at long-term value creation Regional Management Group Departments as well as enabling a culture aligned with such strategy is pursued by Heineken N.V. The operational activities for Operating Companies pursuing such strategy are performed by Heineken N.V. Values for maintaining a culture within the HEINEKEN group Legal entities * Including the 0.03% aligned with its strategy for long-term value creation are set stake held directly and carried out at the level of Heineken N.V. as well. Although by C.L. de Carvalho-Heineken Management Heineken Holding N.V. seeks to promote the continuity, independence and stability of the HEINEKEN group, thereby Public shareholders enabling Heineken N.V. to grow in a controlled and steady H E I N E K E N H O L D I N G N .V. A N N U A L R E P O R T 2 0 17 13


  • Page 15

    REPORT OF THE BOARD OF DIREC TORS manner and to pursue its long-term policy in the interest Supervisory Board of Heineken N.V. Heineken Holding N.V. of all stakeholders, Heineken Holding N.V. does not have therefore does not apply best practice provision 2.1.1 of the a long-term value creation strategy nor an aligned culture Code. itself as it manages or supervises the HEINEKEN group, but does not engage in any operational activities and employs Diversity no staff. Heineken Holding N.V. therefore does not apply The importance of diversity is recognised by Heineken best practice provisions 1.1.1 up to and including 1.1.4 and Holding N.V. as described in the diversity policy for the Board 2.5.1, 2.5.2 and 2.5.4 of the Code. As to Heineken N.V., this of Directors, which considers the elements of a diverse is described in the Heineken N.V. Report of the Executive composition in terms of nationality, gender, age, expertise Board, page 9 and further. and experience. The purpose of this policy is to achieve a diverse composed Board of Directors on all aforemen- Risk management tioned subjects. Pursuant to the Act on Management As Heineken Holding N.V. does not perform operational and Supervision, which came into force on 13 April 2017, management activities, it does not have, unlike executive boards and supervisory boards of large Dutch Heineken N.V., an internal risk management and control public companies, such as Heineken Holding N.V., are system to control any risks following from such management deemed to have a balanced composition if they consist and operational activities. Heineken Holding N.V. does of at least 30% female and 30% male members. Currently, therefore not apply best practice provisions 1.2.1 up to and the executive members of the Board of Directors are one including 1.2.3, 1.4.1 up to and including 1.4.3 (i) and (ii) female and one male member and is therefore deemed to be and 1.5.1 up to and including 1.5.4 of the Code. Therefore balanced within the meaning of Dutch law. Assuming that the Board will not provide the statement pursuant to best the (re)appointments of the non-executive members of the practice provision 1.4.3 (i) and (ii). As to Heineken N.V., Board of Directors as described on page 16 are confirmed, the the risk management and control system for the business non-executive members will consist of three female and three is described in the Heineken N.V. Report of the Executive male members and will therefore be deemed to be balanced Board, page 19 and further. Note 30 to the consolidated within the meaning of Dutch law as well. financial statements of Heineken Holding N.V. itemises the specific financial risks and explains the control system Independence relating to those risks. Based on the current state of affairs, Heineken Holding N.V. endorses the principle that the it is justified that the financial reporting is prepared on a composition of the Board of Directors shall be such that its going concern basis and the Annual Report states those members are able to act critically and independently of one material risks and uncertainties that are relevant to the another and of any particular interests. expectation of the company's continuity for the period Given the structure of the HEINEKEN Group, the company of twelve months after the preparation of the Annual Report. is of the opinion that, in the context of promoting the continuity, independence and stability of the HEINEKEN Internal audit function Group, thereby enabling Heineken N.V. to grow in a controlled An internal audit function in relation to internal risk and steady manner and to pursue its long-term policy in the management and control is not present at the level interest of all stakeholders, it is in its best interest and that of Heineken Holding N.V. as reviews of internal key processes, of its stakeholders that the Board of Directors includes a fair projects and systems, based on HEINEKEN’s strategic and adequate representation of persons who are related priorities and most significant risk areas, are performed by blood or marriage to the late Mr A.H. Heineken, or who by Heineken N.V. Heineken Holding N.V. does therefore not are representatives of FEMSA or the Hoyer family, even apply best practice provisions 1.3.1 up to and including if those persons would not, formally speaking, be considered 1.3.6 of the Code. As to Heineken N.V., this is described in the ‘independent’ within the meaning of best practice provision Heineken N.V. Report of the Executive Board, page 19 and 2.1.8 of the Code. further. Currently, the four non-executive members of the Board of Directors do not qualify as ‘independent’ as per best Profile practice provision 2.1.8 of the Code pursuant to which The Board of Directors does not have a separate profile for Heineken Holding N.V. does not comply with best practice its non-executive members due to the specific governance provision 2.1.7 sub i and ii of the Code. These four structure of the Board of Directors and aligns with the non-executive members do in a strictly formal sense not meet objectives as referred to in the profile of the members of the several criteria for being ‘independent’ as set out in the Code. H E I N E K E N H O L D I N G N .V. A N N U A L R E P O R T 2 0 17 14


  • Page 16

    REPORT OF THE BOARD OF DIREC TORS Pursuant to best practice provision 2.1.8 sub i, for the company, the Board of Directors feels that it has Mr A.A.C. de Carvalho is not considered independent a sufficient view on the performance, working methods, as he is a relative by blood of the executive procedures and functioning of the Board of Directors and its members of the company. In addition, pursuant individual members. The company therefore does not apply to best practice provision 2.1.8 sub vi of the Code, best practice provisions 2.2.6 up to and including 2.2.8 of the Mr A.A.C. de Carvalho is not considered independent being Code. the son of Mrs C.L. de Carvalho-Heineken, the latter having a shareholding of at least 10% in the company. Committees Mr M. Das does not qualify as independent pursuant The Board of Directors has not installed committees as it to best practice provision 2.1.8 sub iii, as he had an important does not have more than four non-executive members business relationship with Heineken Holding N.V. as advisor and the establishment of such committees does not fit the of the company in the year prior to his appointment. specific structure of Heineken Holding N.V. as described Mr M. Das is also not independent within the meaning of best above. Heineken Holding N.V. does therefore not apply best practice provision 2.1.8 sub vii of the Code as he is a member practice provisions 2.3.2 up to and including 2.3.5 and related of the management board of L'Arche Green N.V., an entity provisions. Although Heineken Holding N.V. does not have that holds at least 10% of the shares in the company. any committees itself, the relevant findings of the various Mr J.A. Fernández Carbajal is a representative of FEMSA, committees of the Supervisory Board of Heineken N.V. are which through its affiliate CB Equity LLP, has a shareholding shared with Heineken Holding N.V. as the Board of Directors in Heineken Holding N.V. of at least 10%, pursuant to which of Heineken Holding N.V. meets with the Preparatory he is not considered independent on the basis of best practice Committee of Heineken N.V. on several occasions. provision 2.1.8 sub vii of the Code. Furthermore, Mr M. Das and Mr M.R. de Carvalho have Mrs C.M. Kwist is not independent within the meaning a double function as they are both a member of the Board of best practice provision 2.1.8 sub vii of the Code, as she is a of Directors of Heineken Holding N.V. as well a member of the member of the management board of L'Arche Green N.V., Supervisory Board of Heineken N.V. an entity that has a shareholding in Heineken Holding N.V. of at least 10%. She is also a representative of the Hoyer Chairman of the Board of Directors family, the family that together with the Heineken family Due to the specific structure not all tasks of the chairman owns L’Arche Green N.V. that are listed in best practice provision 2.3.6 are applied Heineken Holding N.V. does not comply with best practice or applicable. provision 2.1.9 of the Code as Mr M. Das, the chairman of the Board of Directors (i) used to be a former (executive) member Misconduct and irregularities of the Board of Directors prior to the implementation of the Due to no operational activities at the level of Heineken one-tier management structure, and (ii) is not considered Holding N.V., a monitoring of suspected misconduct independent pursuant to best practice provisions 2.1.8 sub iii or irregularities cannot be performed on this level. Heineken and vii of the Code, as described above. Holding N.V. does therefore not apply best practice The Board of Directors has ascertained that the provisions 2.6.1 up to and including 2.6.4 of the Code. As to non-executive members in fact act critically and inde- Heineken N.V., this is described in the Heineken N.V. Report pendently. However, Heineken Holding N.V. does not comply of the Executive Board, page 19 and further. with best practice provision 2.1.7 sub i and ii and 2.1.9 of the Code and the company does therefore not apply best Conflict of interest practice provision 2.1.10 of the Code, to the extent that this In 2017, no transactions were reported under which provision provides that the report of the Board of Directors a member of the Board of Directors had a conflict of interest shall state that best practice provisions 2.1.7 through 2.1.9 of that was of material significance. the Code have been fulfilled. Remuneration policy Evaluation Remuneration of the members of the Board of Directors was The Board of Directors does not conduct sessions to evaluate enabled by an amendment to the Articles of Association its own functioning, and that of its individual members. in 2001. The policy on the remuneration of members of the Considering the governance structure of Heineken Board of Directors was approved by the General Meeting Holding N.V. and the activities of the Board of Directors of Shareholders in 2005. Under this policy, the members H E I N E K E N H O L D I N G N .V. A N N U A L R E P O R T 2 0 17 15


  • Page 17

    REPORT OF THE BOARD OF DIREC TORS of the Board of Directors receive the same remuneration A non-binding nomination, drawn up by the meeting as the members of the Supervisory Board of Heineken N.V. of holders of priority shares, will be submitted to the For 2018, this means €90,000 a year for the chairman Annual General Meeting of Shareholders to reappoint and €60,000 a year for the other members of the Board Mr J.A. Fernández Carbajal as of 19 April 2018 for a period of Directors. Given the specific structure of Heineken of four years. In addition, the meeting of holders of priority Holding N.V. certain best practice provisions under the shares will submit non-binding nominations to the Annual remuneration related principles (3.1, 3.2 and 3.4) that are General Meeting of Shareholders on 19 April 2018 to appoint inconsistent with the company’s remuneration policy are not Mrs A.M. Fentener van Vlissingen and Mrs L.L.H. Brassey applied or are considered to be not applicable. as non-executive members of the Board of Directors. More information on how this policy was applied can be found in the notes to the consolidated financial THE GENERAL MEETING OF SHAREHOLDERS statements (see note 33). The Annual General Meeting of Shareholders shall be held BOARD OF DIRECTORS each year within six months of the end of the financial year, the agenda for which shall, inter alia, include: (i) The Board of Directors consists of six members: consideration of the Management Report, (ii) consideration Mr M. Das, non-executive director (chairman), and adoption of the financial statements, (iii) discharge executive directors Mrs C.L. de Carvalho-Heineken of the members of the Board of Directors in respect of their and Mr M.R. de Carvalho, and non-executive directors management and (iv) announcement of the appropriation Mr J.A. Fernández Carbajal, Mrs C.M. Kwist and of profit and dividend. General Meetings of Shareholders shall Mr A.A.C. de Carvalho. be held in Amsterdam. The members of the Board of Directors are appointed by the General Meeting of Shareholders from a non-binding Notice of meeting list of candidates drawn up by the meeting of priority Pursuant to the prevailing provisions of the law, the Board shareholders. The General Meeting of Shareholders may of Directors shall give at least forty-two (42) days’ notice appoint one or two of the members as executive director, of General Meetings of Shareholders (excluding the who shall be charged in particular with the day-to-day date of the meeting, but including the date of the notice management and the preparation and implementation of meeting). of the Board of Directors’ resolutions. The General Meeting The Board of Directors is obliged to convene a General of Shareholders may suspend and/or dismiss members of the Meeting of Shareholders at the request of shareholders who Board of Directors by a resolution adopted by an absolute together own at least 25% of the issued share capital. Such majority of the votes cast which represents at least one-third meeting shall be held within eight weeks of receipt of the of the issued capital. An executive member of the Board request and shall consider the matters specified by those of Directors may also be suspended by the Board of Directors. requesting the meeting. The relevant executive director shall not participate in decision-making on his suspension. A resolution to suspend Right of shareholders to place items on agenda an executive director shall require a unanimous vote by all An item that one or more holders of shares which alone the members of the Board of Directors except the member or together (i) represent at least 1% of the issued capital whose suspension is the subject of the motion. A suspension or (ii) have a value of at least €50 million have requested imposed by the Board of Directors may be lifted at any time to be placed on the agenda shall be included in the notice by the General Meeting of Shareholders. of meeting or announced in a similar manner, provided that At the Annual General Meeting of Shareholders the Board of Directors receives the request in writing, which on 20 April 2017 Mr M. Das and Mr A.A.C. de Carvalho request is to be furnished with reasons or accompanied were reappointed as non-executive members of the by a proposal for a resolution, not later than the 60th day Board of Directors for the maximum period of four years. before the date of the General Meeting of Shareholders. In addition, the Board of Directors has reappointed If shareholders have requested that an item be placed on the Mr M. Das as Chairman of the Board of Directors. agenda, they shall explain this to the meeting and answer In accordance with the current rotation schedule, any questions thereon. Mr J.A. Fernández Carbajal will stand down at the Annual Best-practice provision 4.1.6 of the Code states: General Meeting of Shareholders on 19 April 2018. "A shareholder should only exercise the right to put items on the agenda after they have consulted with the H E I N E K E N H O L D I N G N .V. A N N U A L R E P O R T 2 0 17 16


  • Page 18

    REPORT OF THE BOARD OF DIREC TORS management board on this. If one or more shareholders tion. The Board of Directors may impose certain conditions intend to request that an item be put on the agenda on the use of electronic communications, which will in that that may result in a change in the company’s strategy, case be stated in the notice of meeting. for example as a result of the dismissal of one or several management board or supervisory board members, the Attendance register management board should be given the opportunity All persons present at a General Meeting of Shareholders to stipulate a reasonable period in which to respond (the entitled to vote or otherwise entitled to attend, or their response time). The opportunity to stipulate the response representatives, shall sign the attendance register, stating the time should also apply to an intention as referred to above number of shares and votes they represent. for judicial leave to call a general meeting pursuant to Section 2:110 of the Dutch Civil Code. The relevant Chairman of the General Meeting of Shareholders shareholder should respect the response time stipulated All General Meetings of Shareholders shall be presided over by the management board, within the meaning of best by the chairman of the Board of Directors or, in his absence, practice provision 4.1.7." by one of the members of the Board of Directors present Pursuant to best-practice provision 4.1.7 of the Code, if the at the meeting, to be appointed by the latter in consultation. Board of Directors stipulates a response time, such period If none of the members of the Board of Directors is present, may not exceed 180 days from the date on which the Board the meeting shall appoint its own chairman. of Directors is informed by one or more shareholders of their intention to place an item on the agenda to the date of the Voting General Meeting of Shareholders at which the item is to Adoption of resolutions at each General Meeting be considered. The Board of Directors shall use the response of Shareholders shall require an absolute majority of the time for further deliberation and constructive consultation. votes cast, except where a larger majority is required by law A response time may be stipulated only once for any given or the Articles of Association. General Meeting of Shareholders and may not apply Each share confers the entitlement to cast one vote. Blank to an item in respect of which the response time has been votes shall be deemed not to have been cast. previously stipulated. When convening a General Meeting of Shareholders, the Board of Directors may determine that votes cast electron- Record date ically in advance of the meeting are to be equated to votes For each General Meeting of Shareholders, a record date cast in the course of the meeting. Such votes may not be cast for the exercise of the voting rights and attendance at the prior to the record date. A shareholder who has voted elec- meeting shall apply. This record date is the 28th day prior tronically in advance of a General Meeting of Shareholders to the date of the meeting. The record date shall be included shall still be entitled to attend and address the meeting, in the notice of meeting, as well as the manner in which either in person or represented by a proxy appointed those entitled to attend and/or vote at the meeting can in writing. be registered and the manner in which they may exercise Once cast, a vote cannot be retracted. their rights. Persons who are entitled to vote at and/or attend the General Meeting of Shareholders are those in whom Minutes those rights are vested on the record date. Minutes shall be kept of the proceedings of General Meetings of Shareholders by a secretary appointed by the Attendance by proxy or electronic communication chairman. The minutes shall be adopted by the chairman All shareholders are entitled, either in person or represented and the secretary and shall be signed by them in evidence by a proxy appointed in writing, to attend the General thereof. If a notarial record is made of the proceedings of a Meeting of Shareholders, to address the meeting and General Meeting of Shareholders, it shall be co-signed by the to exercise their voting rights. If shareholders wish to exercise chairman of the meeting. Shareholders shall be provided their rights through a proxy appointed in writing, the on request with copies of the minutes of the General Meeting instrument appointing the proxy must be received by the of Shareholders not later than three months after the end company no later than the date stated for that purpose of the meeting and shall be given three months in which in the notice of the meeting. The Board of Directors may to comment on these minutes. determine that the powers set out in the previous sentence may also be exercised by means of electronic communica- H E I N E K E N H O L D I N G N .V. A N N U A L R E P O R T 2 0 17 17


  • Page 19

    REPORT OF THE BOARD OF DIREC TORS Resolutions to be adopted by the General Meeting of Priority shares Shareholders The company has issued 250 priority shares, 50% of which The General Meeting of Shareholders has authority to adopt are held by Stichting Administratiekantoor Priores, the other resolutions concerning among others the following matters: 50% being held by Stichting Beheer Prioriteitsaandelen (i) issue of shares by the company or rights attaching Heineken Holding N.V. A full description of rights conferred to shares (and authorisation of the Board of Directors by the priority shares is given in the paragraph headed to resolve that the company issues shares or rights attaching ‘Further Information pursuant to the Article 10 Takeover to shares), (ii) authorisation of the Board of Directors Directive Decree’ and the ‘Other Information’ section to resolve that the company acquires its own shares, (iii) (page 109) of this Annual Report. cancellation of shares and reduction of the share capital, but only after a motion of the meeting of priority shareholders, FURTHER INFORMATION PURSUANT TO THE (iv) appointment of members of the Board of Directors from ARTICLE 10 TAKEOVER DIRECTIVE DECREE a non-binding list of candidates drawn up by the meeting of priority shareholders, (v) the remuneration policy for the Shares Board of Directors, (vi) suspension and dismissal of members Heineken Holding N.V.’s issued capital (the ‘Capital’) consists of the Board of Directors, (vii) adoption of the financial of 288,030,168 ordinary shares (representing 99.99% of the statements, (viii) discharge of the members of the Board Capital) with a nominal value of €1.60 each and 250 priority of Directors in respect of their management, (ix) the profit shares (representing 0.01% of the Capital) with a nominal reservation and distribution policy, (x) a substantial change value of €2 each. in the corporate governance structure, (xi) (re)appointment The priority shares are registered. The meeting of the external auditor, (xii) amendment of the Articles of holders of priority shares has the right to draw up a of Association and (xiii) winding-up of the company. Board non-binding list of candidates for each appointment of a of Directors’ resolutions on any material change in the nature member of the Board of Directors by the General Meeting or identity of the company or enterprise shall be subject of Shareholders. The approval of the meeting of the to the approval of the meeting of priority shareholders holders of priority shares is required for resolutions of the and the General Meeting of Shareholders, in any event Board of Directors relating to the exercise of voting rights including resolutions relating to (a) transfer of all or virtually on shares in public limited liability companies and other all of the company’s enterprise to a third party, (b) entry legal entities and the way in which such votes are to be into or termination of a lasting cooperation between cast. Pursuant to Section 107a of Book 2 of the Dutch Civil the company or a subsidiary and another legal entity Code and the Articles of Association, the approval of both or partnership or as general partner in a limited partnership the meeting of the holders of priority shares and the or general partnership where such cooperation or termination General Meeting of Shareholders is required for resolutions thereof has material significance for the company and of the Board of Directors relating to any material change (c) acquisition or disposal by the company or a subsidiary in the nature or identity of the company or the enterprise, of an interest in the capital of another company amounting in any event including and subject to the statutory limits, to one third or more of the company’s assets as disclosed resolutions relating to the transfer of all or virtually all in its consolidated statement of financial position and notes of the company’s enterprise to a third party, entry into thereto according to its most recently adopted financial or termination of a lasting cooperation between the statements. company or a subsidiary and another legal entity or relating to the acquisition or disposal by the company or a subsidiary Provision of information of a substantial interest in the capital of another company. The Board of Directors shall provide the General Meeting Shares are issued pursuant to a resolution of the General of Shareholders with all the information it may require, Meeting of Shareholders, without prejudice to its right unless there are compelling reasons to withhold it in the to delegate that authority. Such a resolution shall be valid company’s interest. If the Board of Directors withholds only if prior or simultaneous approval is given by resolution information on the grounds of the company’s interest, it shall of the meeting of holders of shares of the same class as that give its reasons for doing so. to which the issue relates, except in the case where the company is obliged pursuant to Article 10 of the Articles of Association to distribute stock dividend or bonus shares or grant pre-emptive rights to shareholders. Fully paid H E I N E K E N H O L D I N G N .V. A N N U A L R E P O R T 2 0 17 18


  • Page 20

    REPORT OF THE BOARD OF DIREC TORS ordinary shares in its own capital may only be acquired by the Unless FEMSA’s economic interest in the HEINEKEN group company for no consideration or if (a) the shareholders’ were to fall below 14%, the current FEMSA control structure equity minus the purchase price is not less than the sum were to change or FEMSA were to be subject to a change of the paid-in and called portion of the capital and the of control, FEMSA is entitled to have two representatives reserves prescribed by law and (b) the nominal amount on the Supervisory Board of Heineken N.V., one of whom will of own shares which the company acquires, holds or keeps be vice-chairman, who also serves as the FEMSA representa- in pledge or which are held by a subsidiary does not exceed tive on the Board of Directors of Heineken Holding N.V. half of the issued capital. Appointment and dismissal of Board of Directors Substantial shareholdings The members of the Board of Directors are appointed by the Pursuant to the Financial Supervision Act (Wet op het General Meeting of Shareholders from a non-binding list financieel toezicht) and the Decree on Disclosure of Major of candidates drawn up by the meeting of priority share- Holdings and Capital Interests in Issuing Institutions (Besluit holders. melding zeggenschap en kapitaalbelang in uitgevende Members of the Board of Directors may be suspended instellingen Wft), the Netherlands Authority for the or dismissed by the General Meeting of Shareholders at any Financial Markets (AFM) needs to be notified on substantial time by a resolution adopted by an absolute majority of the shareholdings (i.e. of 3% or more). votes cast which represents at least one-third of the issued There were no changes in 2017 notified on substantial capital. An executive member of the Board of Directors may shareholdings in the share capital of Heineken Holding N.V. also be suspended by the Board of Directors. The relevant For the present situation reference is made to the organisa- executive director shall not participate in decision-making tion chart on page 13. on his suspension. A resolution to suspend an executive director shall require a unanimous vote by all members of the Restrictions related to shares Board of Directors except the member whose suspension There are no restrictions on the voting rights on ordinary is the subject of the motion. A suspension imposed by the shares. Heineken Holding N.V. has no staff share plan Board of Directors may be lifted at any time by the General or option plan. Meeting of Shareholders. Persons who hold shares on a predetermined record date may attend and exercise their voting rights at General Amendment of the Articles of Association Meetings of Shareholders. The record date for the General The Articles of Association may be amended by a resolution Meeting of Shareholders on 19 April 2018 has been set adopted by the General Meeting of Shareholders only 28 days before the General Meeting of Shareholders, i.e. on a motion of the meeting of priority shareholders and on 22 March 2018. only if at least half of the issued capital is represented. Upon completion (on 30 April 2010) of the acquisition A resolution to amend the Articles of Association must of the beer operations of Fomento Económico in all cases be stated in the notice of meeting and a copy Mexicano, S.A.B. de C.V. (FEMSA), CB Equity LLP (belonging of the resolution, containing the literal text of the proposed to the FEMSA group) received Heineken Holding N.V. (and amendment, must be deposited simultaneously at the Heineken N.V.) shares. Pursuant to the Corporate Governance company’s offices for inspection by shareholders. If the Agreement of 30 April 2010 concluded between Heineken required capital is not represented at the meeting, a second Holding N.V., Heineken N.V., L’Arche Green N.V., FEMSA General Meeting of Shareholders must be held within eight and CB Equity LLP the following applies. Subject to certain weeks of that meeting, at which a resolution to amend the exceptions, FEMSA, CB Equity LLP, and any member of the Articles of Association may be adopted irrespective of the FEMSA group shall not increase its shareholding in Heineken capital represented. Holding N.V. above 20% and shall not increase its holding in the HEINEKEN group above a maximum of 20% economic Acquisition of own shares interest (such capped percentages referred to as the ‘Voting The Annual General Meeting of Shareholders Ownership Cap’). Subject to certain exceptions, FEMSA, on 20 April 2017 extended, for the statutory maximum CB Equity LLP and any member of the FEMSA group may period of 18 months, commencing on 20 April 2017, the not exercise any voting rights in respect of any shares bene- authorisation to acquire own shares subject to the following ficially owned by it, if and to the extent that such shares are in excess of the applicable Voting Ownership Cap. H E I N E K E N H O L D I N G N .V. A N N U A L R E P O R T 2 0 17 19


  • Page 21

    REPORT OF THE BOARD OF DIREC TORS conditions and with due observance of the law and the Holding N.V. itself does not engage in operational activities Articles of Association: and does not employ staff. a the maximum number of shares which may be acquired Therefore it does not have any policies regarding measures is 10% of the issued share capital of the company at any on (i) environmental, social and employee matters, (ii) time during the period of authorisation; ensuring that human rights are respected, and (iii) preventing b transactions must be executed at a price between the corruption and bribery. nominal value of the shares and 110% of the opening price Heineken N.V. does have such policies in place which quoted for the shares in the Official Price List (Officiële are reflected in the Heineken N.V. Sustainability Review Prijscourant) of Euronext Amsterdam on the date of the on page 133 and further. Heineken Holding N.V. as a holding transaction or, in the absence of such a price, the latest company of Heineken N.V., recognises the importance price quoted therein; of corporate social responsibility within the HEINEKEN Group c transactions may be executed on the stock exchange and supervises Heineken N.V. on the application thereof. As a or otherwise. result of the nature of its activities, Heineken Holding N.V. has 2 no information to disclose on non-financial key performance Issue of shares indicators relevant to these activities. The Annual General Meeting of Shareholders on 20 April 2017 furthermore extended, for a period of 18 STATEMENT OF THE BOARD OF DIRECTORS months, commencing on 20 April 2017, the authorisation to issue shares or grant rights to subscribe for shares, with In accordance with Article 5:25c paragraph 2 sub c of the due observance of the law and the Articles of Association. Financial Supervision Act, we confirm that, to the best of our The authorisation is limited to 10% of the issued share knowledge, capital of the company on the date of issue. • the financial statements in this Annual Report 2017 The Annual General Meeting of Shareholders give a true and fair view of our assets and liabilities, our on 20 April 2017 also extended, for a period of 18 months, financial position as at 31 December 2017, and the results commencing on 20 April 2017, the authorisation to restrict of our consolidated operations for the financial year 2017; or exclude shareholders’ pre-emptive rights in relation and to the issue of shares or the granting of rights to subscribe • the Report of the Board of Directors includes a fair for shares, with due observance of the law and the Articles review of the position as at 31 December 2017 and the of Association. development and performance during the financial year 2017 of Heineken Holding N.V. and the undertak- Change of control ings included in the consolidation taken as a whole, and The company is not a party to material agreements which describes the principal risks that Heineken Holding N.V. are in any way subject to or affected by a change of control faces. over the company following a public offer as referred to in Section 5:70 of the Financial Supervision Act. There are Amsterdam, 9 February 2018 no agreements under which Heineken Holding N.V. is liable to make any payment to members of the Board of Directors Board of Directors or employees on termination of employment following Mr M. Das a public offer as referred to in Section 5:70 of the Financial Mrs C.L. de Carvalho-Heineken Supervision Act. Mr M.R. de Carvalho Mr J.A. Fernández Carbajal INFORMATION PURSUANT TO THE DECREE Mrs C.M. Kwist ON THE DISCLOSURE OF NON-FINANCIAL Mr A.A.C. de Carvalho INFORMATION As a holding company, Heineken Holding N.V.'s main object is to manage or supervise the management of the HEINEKEN group and to provide services for Heineken N.V. The policy principles of Heineken Holding N.V. are set out in the first paragraph on page 10 of this Annual Report. Heineken H E I N E K E N H O L D I N G N .V. A N N U A L R E P O R T 2 0 17 20


  • Page 22

    2017 FINANCIAL STATEMENTS 2017


  • Page 23

    HEINEKEN HOLDING N.V. BALANCE SHEET Before appropriation of profit As at 31 December In millions of € Note 2017 2016 ASSETS Financial fixed assets Participating interest in Heineken N.V. I 6,633 6,598 Current assets Cash II — — 6,633 6,598 EQUITY AND LIABILITIES Shareholders’ equity Issued capital: Priority shares — — Ordinary shares 461 461 461 461 Share premium 1,257 1,257 Translation reserve (1,574) (920) Hedging reserve 58 — Fair value reserve 167 132 Other legal reserves 482 420 Retained earnings 4,805 4,469 Profit for the year 977 779 III 6,633 6,598 Current liabilities Other payables — — 6,633 6,598 H E I N E K E N H O L D I N G N .V. A N N U A L R E P O R T 2 0 17 22


  • Page 24

    HEINEKEN HOLDING N.V. INCOME STATEMENT For the year ended 31 December In millions of € Note 2017 2016 Personnel expenses — — Total expenses — — Interest income — — Interest expenses — — Other net finance income/(expenses) — — Net finance expenses — — Share in result of participating interest in Heineken N.V. after income tax IV 977 779 Profit before income tax — — Income tax income/(expense) V — — Profit 977 779 F I N A N C I A L S TAT E M E N T S 2 0 17 23


  • Page 25

    NOTES TO THE BALANCE SHEET AS AT 31 DECEMBER 2017 AND THE INCOME STATEMENT FOR 2017 OF HEINEKEN HOLDING N.V. Reporting entity Heineken Holding N.V. (the 'Company') is a company domiciled in the Netherlands. 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 Section 362, subsection 8, of Part 9, Book 2, of the Dutch Civil Code to prepare the Company financial statements on the basis of the same accounting principles as those applied for the consoli- dated 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. The amounts disclosed in the notes to the balance sheet and income statement are in millions of Euro, unless otherwise indicated. The financial statements have been prepared by the Board of Directors of the Company and authorised for issue on 9 February 2018 and will be submitted for adoption to the Annual General Meeting of Shareholders on 19 April 2018. Significant accounting policies Financial fixed assets Participating interests in entities over which the Company has control are incorporated in the Company financial statements, using the net asset value method of accounting. Shareholders’ equity The translation reserve and other legal reserves are recognised in accordance with the Dutch Civil Code. Profit of participating interests The share in the result of participating interests consists of the share of the Company in the result of these participating interests. H E I N E K E N H O L D I N G N .V. A N N U A L R E P O R T 2 0 17 24


  • Page 26

    N O T E S T O T H E B A L A N C E S H E E T A S AT 3 1 D E C E M B E R 2 0 17 A N D T H E I N C O M E S TAT E M E N T F O R 2 0 17 O F H E I N E K E N H O L D I N G N .V. NOTE I PARTICIPATING INTEREST IN HEINEKEN N.V. The interest of Heineken Holding N.V. in Heineken N.V. is 50.005% of the issued capital (being 50.514% (2016: 50.560%) of the outstanding capital following the purchase of own shares by Heineken N.V.). The nominal value of the Heineken N.V. shares held by the Company amounted to €461 million as at 31 December 2017 (€461 million as at 31 December 2016). The market capitalisation of the participating interest in Heineken N.V. as at 31 December 2017 amounted to €25.0 billion (31 December 2016: €20.5 billion). Balance as at 1 January 2016 6,750 50.560% of the profit of Heineken N.V. 779 Dividend payments received by Heineken Holding N.V. (398) Movements in translation reserve (411) Movements cash flow hedges 23 Movements fair value adjustments 71 Actuarial gains and losses (128) Purchase own shares by Heineken N.V. (21) Share-based payments by Heineken N.V. 7 Movement because of changes in consolidation by Heineken N.V. (74) Balance as at 31 December 2016 6,598 Balance as at 1 January 2017 6,598 50.514% of the profit of Heineken N.V. 977 Dividend payments received by Heineken Holding N.V. (392) Movements in translation reserve (654) Movements cash flow hedges 58 Movements fair value adjustments 35 Actuarial gains and losses 33 Movements in retained earnings (27) Purchase own shares by Heineken N.V. — Negative dilution (6) Share-based payments by Heineken N.V. 11 Balance as at 31 December 2017 6,633 NOTE II CASH This item relates to the balances as at balance sheet date on a current account and a deposit account relating to the priority shares. F I N A N C I A L S TAT E M E N T S 2 0 17 25


  • Page 27

    N O T E S T O T H E B A L A N C E S H E E T A S AT 3 1 D E C E M B E R 2 0 17 A N D T H E I N C O M E S TAT E M E N T F O R 2 0 17 O F H E I N E K E N H O L D I N G N .V. NOTE III SHAREHOLDERS’ EQUITY Issued Share Translation Hedging Fair value Other legal Retained Profit for Total In millions of € capital premium reserve reserve reserve reserves earnings the year equity1 Balance as at 1 January 2016 461 1,257 (509) (23) 61 360 4,186 957 6,750 Other comprehensive income2 — — (411) 23 71 — (128) — (445) Profit for the year — — — — — 77 (77) 779 779 Total comprehensive income — — (411) 23 71 77 (205) 779 334 Transfer of profit to retained earnings — — — — — — 957 (957) — Transfer between reserves — — — — — (17) 17 — — Dividends to shareholders — — — — — — (398) — (398) Purchase own shares by Heineken N.V. — — — — — — (21) — (21) Share-based payments by Heineken N.V. — — — — — — 7 — 7 Changes in consolidation by Heineken N.V. — — — — — — (74) — (74) Balance as at 31 December 2016 461 1,257 (920) 0 132 420 4,469 779 6,598 Balance as at 1 January 2017 461 1,257 (920) 0 132 420 4,469 779 6,598 Other comprehensive income2 — — (654) 54 35 — 33 — (532) Profit for the year — — — — — 77 (77) 977 977 Total comprehensive income — — (654) 54 35 77 (44) 977 445 Transfer of profit to retained earnings — — — — — — 779 (779) — Transfer between reserves — — — — — (15) 15 — — Dividends to shareholders — — — — — — (392) — (392) Purchase own shares by Heineken N.V. — — — — — — — — — Negative dilution — — — — — — (6) — (6) Share-based payments by Heineken N.V. — — — — — — 11 — 11 Changes in consolidation/transfers within equity by Heineken N.V. — — — 4 — — (27) — (23) Balance as at 31 December 2017 461 1,257 (1,574) 58 167 482 4,805 977 6,633 1 Total equity attributable to equity holders of Heineken Holding N.V. 2 Net income recognised directly in equity is explained in the consolidated statement of comprehensive income. For further explanation reference is made to note 22 to the consolidated financial statements. NOTE IV SHARE IN RESULT OF PARTICIPATING INTEREST IN HEINEKEN N.V. AFTER INCOME TAX Included here is the share in the profit of Heineken N.V. for 2017, being 50.514% of €1,935 million (2016: 50.560% of €1,540 million). NOTE V OTHER REVENUES AND EXPENSES AFTER INCOME TAX Expenses made to manage and provide services to Heineken N.V. amounting to €714 thousand (2016: €1,160 thousand) are reimbursed by Heineken N.V. to Heineken Holding N.V. in accordance with the management agreement. The remuneration of the Board of Directors is disclosed in note 33 to the consolidated financial statements. H E I N E K E N H O L D I N G N .V. A N N U A L R E P O R T 2 0 17 26


  • Page 28

    N O T E S T O T H E B A L A N C E S H E E T A S AT 3 1 D E C E M B E R 2 0 17 A N D T H E I N C O M E S TAT E M E N T F O R 2 0 17 O F H E I N E K E N H O L D I N G N .V. NOTE VI AUDITOR FEES Other expenses in the consolidated financial statements include €10.1 million of fees in 2017 for services provided by Deloitte Accountants B.V. and its member firms and/or affiliates (2016: €9.8 million). Fees for audit services include the audit of the financial statements of Heineken Holding N.V. and its subsidiaries. Fees for other audit services include review of interim financial statements, sustainability, subsidy and other audits. Fees for tax services include tax compliance and tax advice. Fees for other non-audit services include agreed-upon procedures and advisory services. Fees for tax and other non-audit services are related to the network outside the Netherlands and are in accordance with local independence regulation. Deloitte Other Deloitte member Accountants B.V. firms and affiliates Total In millions of € 2017 2016 2017 2016 2017 2016 Audit of Heineken Holding N.V. and its subsidiaries 2.8 2.6 6.3 6.2 9.1 8.8 Other audit services 0.5 0.4 0.3 0.3 0.8 0.7 Tax services — — — 0.1 — 0.1 Other non-audit services — — 0.2 0.2 0.2 0.2 3.3 3.0 6.8 6.8 10.1 9.8 Amsterdam, 9 February 2018 Board of Directors Mr M. Das Mrs C.L. de Carvalho-Heineken Mr M.R. de Carvalho Mr J.A. Fernández Carbajal Mrs C.M. Kwist Mr A.A.C. de Carvalho F I N A N C I A L S TAT E M E N T S 2 0 17 27


  • Page 29

    CONSOLIDATED INCOME STATEMENT For the year ended 31 December In millions of € Note 2017 2016 Revenue 5 21,888 20,792 Other income 8 141 46 Raw materials, consumables and services 9 (13,540) (13,003) Personnel expenses 10 (3,550) (3,263) Amortisation, depreciation and impairments 11 (1,587) (1,817) Total expenses (18,677) (18,083) Operating profit 3,352 2,755 Interest income 12 72 60 Interest expenses 12 (468) (419) Other net finance income/(expenses) 12 (123) (134) Net finance expenses (519) (493) Share of profit of associates and joint ventures and impairments thereof (net of income tax) 16 75 150 Profit before income tax 2,908 2,412 Income tax expense 13 (755) (673) Profit 2,153 1,739 Attributable to: Equity holders of Heineken Holding N.V. (net profit) 977 779 Non-controlling interests in Heineken N.V. 958 761 Non-controlling interests in Heineken N.V. group companies 218 199 Profit 2,153 1,739 Weighted average number of ordinary shares – basic 23 288,030,168 288,030,168 Weighted average number of ordinary shares – diluted 23 288,030,168 288,030,168 Basic earnings per ordinary share (€) 23 3.39 2.70 Diluted earnings per ordinary share (€) 23 3.39 2.70 H E I N E K E N H O L D I N G N .V. A N N U A L R E P O R T 2 0 17 28


  • Page 30

    CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 December In millions of € Note 2017 2016 Profit 2,153 1,739 Other comprehensive income, net of tax: Items that will not be reclassified to profit or loss: Actuarial gains and losses 24 64 (252) Items that may be subsequently reclassified to profit or loss: Currency translation differences 24 (1,485) (908) Recycling of currency translation differences to profit or loss 24 59 — Effective portion of net investment hedges 24 26 44 Effective portion of changes in fair value of cash flow hedges 24 109 6 Effective portion of cash flow hedges transferred to profit or loss 24 (3) 41 Net change in fair value available-for-sale investments 24 68 140 Share of other comprehensive income of associates/joint ventures 24 (7) — Other comprehensive income, net of tax 24 (1,169) (929) Total comprehensive income 984 810 Attributable to: Equity holders of Heineken Holding N.V. 445 334 Non-controlling interests in Heineken N.V. 436 326 Non-controlling interests in Heineken N.V. group companies 103 150 Total comprehensive income 984 810 F I N A N C I A L S TAT E M E N T S 2 0 17 29


  • Page 31

    CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 31 December In millions of € Note 2017 2016 ASSETS Non-current assets Property, plant and equipment 14 11,117 9,232 Intangible assets 15 17,670 17,424 Investments in associates and joint ventures 16 1,841 2,166 Other investments and receivables 17 1,113 1,077 Advances to customers 277 274 Deferred tax assets 18 768 1,011 32,786 31,184 Current assets Inventories 19 1,814 1,618 Trade and other receivables 20 3,496 3,052 Prepayments 399 328 Current tax assets 64 47 Cash and cash equivalents 21 2,442 3,035 Assets classified as held for sale 7 33 57 8,248 8,137 41,034 39,321 H E I N E K E N H O L D I N G N .V. A N N U A L R E P O R T 2 0 17 30


  • Page 32

    C O N S O L I D AT E D S TAT E M E N T O F F I N A N C I A L P O S I T I O N As at 31 December In millions of € Note 2017 2016 EQUITY Share capital 22 461 461 Share premium 22 1,257 1,257 Reserves (867) (368) Retained earnings 5,782 5,248 Equity attributable to equity holders of Heineken Holding N.V. 6,633 6,598 Non-controlling interests in Heineken N.V. 22 6,688 6,640 Non-controlling interests in Heineken N.V. group companies 22 1,200 1,335 14,521 14,573 LIABILITIES Non-current liabilities Loans and borrowings 25 12,301 10,954 Tax liabilities — 3 Employee benefits 26 1,289 1,420 Provisions 28 970 302 Deferred tax liabilities 18 1,495 1,672 16,055 14,351 Current liabilities Bank overdrafts and commercial papers 21 1,265 1,669 Loans and borrowings 25 1,947 1,981 Trade and other payables 29 6,756 6,224 Current tax liabilities 310 352 Provisions 28 178 154 Liabilities associated with assets classified as held for sale 7 2 17 10,458 10,397 26,513 24,748 41,034 39,321 F I N A N C I A L S TAT E M E N T S 2 0 17 31


  • Page 33

    CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 31 December In millions of € Note 2017 2016 OPERATING ACTIVITIES Profit 2,153 1,739 Adjustments for: Amortisation, depreciation and impairments 11 1,587 1,817 Net interest expenses 12 396 359 Gain on sale of property, plant and equipment, intangible assets and subsidiaries, joint ventures and associates 8 (141) (46) Investment income and share of profit and impairments of associates and joint ventures and dividend income on available- for-sale and held-for-trading investments (84) (161) Income tax expenses 13 755 673 Other non-cash items 314 332 Cash flow from operations before changes in working capital and provisions 4,980 4,713 Change in inventories (185) (20) Change in trade and other receivables (241) (228) Change in trade and other payables 495 328 Total change in working capital 69 80 Change in provisions and employee benefits (125) (73) Cash flow from operations 4,924 4,720 Interest paid (463) (441) Interest received 98 70 Dividends received 109 118 Income taxes paid (786) (749) Cash flow related to interest, dividend and income tax (1,042) (1,002) Cash flow from operating activities 3,882 3,718 H E I N E K E N H O L D I N G N .V. A N N U A L R E P O R T 2 0 17 32


  • Page 34

    C O N S O L I D AT E D S TAT E M E N T O F C A S H F L O W S For the year ended 31 December In millions of € Note 2017 2016 INVESTING ACTIVITIES Proceeds from sale of property, plant and equipment and intangible assets 187 116 Purchase of property, plant and equipment (1,696) (1,757) Purchase of intangible assets (137) (109) Loans issued to customers and other investments (259) (219) Repayment on loans to customers 54 24 Cash flow (used in)/from operational investing activities (1,851) (1,945) Free operating cash flow 2,031 1,773 Acquisition of subsidiaries, net of cash acquired (1,047) (9) Acquisition of/additions to associates, joint ventures and other investments (93) (68) Disposal of subsidiaries, net of cash disposed of 10 15 Disposal of associates, joint ventures and other investments 16 — Cash flow (used in)/from acquisitions and disposals (1,114) (62) Cash flow (used in)/from investing activities (2,965) (2,007) FINANCING ACTIVITIES Proceeds from loans and borrowings 3,268 1,670 Repayment of loans and borrowings (3,205) (1,001) Dividends paid (1,011) (1,031) Purchase own shares and share issuance by Heineken N.V. — (31) Acquisition of non-controlling interests (18) (294) Other — 15 Cash flow (used in)/from financing activities (966) (672) Net cash flow (49) 1,039 Cash and cash equivalents as at 1 January 1,366 282 Effect of movements in exchange rates (140) 45 Cash and cash equivalents as at 31 December 21 1,177 1,366 F I N A N C I A L S TAT E M E N T S 2 0 17 33


  • Page 35

    CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Non- Non- controlling controlling interests in Other interests in Heineken Share Share Translation Hedging Fair value legal Retained Heineken N.V. group Total In millions of € Note capital premium reserve reserve reserve reserves earnings Equity* N.V. companies equity Balance as at 1 January 2016 461 1,257 (509) (23) 61 360 5,143 6,750 6,785 1,535 15,070 Profit — — — — — 77 702 779 761 199 1,739 Other comprehensive income 24 — — (411) 23 71 — (128) (445) (435) (49) (929) Total comprehensive income — — (411) 23 71 77 574 334 326 150 810 Transfer to retained earnings — — — — — (17) 17 — — — — Dividends to shareholders — — — — — — (398) (398) (388) (261) (1,047) Purchase own shares by Heineken N.V. 22 — — — — — — (21) (21) (18) 8 (31) Share-based payments by Heineken N.V. — — — — — — 7 7 6 — 13 Acquisition of non-controlling interests in Heineken N.V. group companies without a change in control 6 — — — — — — (74) (74) (71) (144) (289) Changes in consolidation — — — — — — — — — 47 47 Balance as at 31 December 2016 461 1,257 (920) — 132 420 5,248 6,598 6,640 1,335 14,573 Balance as at 1 January 2017 461 1,257 (920) — 132 420 5,248 6,598 6,640 1,335 14,573 Profit — — — — — 77 900 977 958 218 2,153 Other comprehensive income 24 — — (654) 54 35 — 33 (532) (522) (115) (1,169) Total comprehensive income — — (654) 54 35 77 933 445 436 103 984 Transfer to retained earnings — — — — — (15) 15 — — — — Dividends to shareholders — — — — — — (392) (392) (383) (245) (1,020) Purchase own shares by Heineken N.V. 22 — — — — — — — — — — — Negative dilution (6) (6) 6 — — Share-based payments by Heineken N.V. — — — — — — 11 11 11 — 22 Acquisition of non-controlling interests in Heineken N.V. group companies without a change in control 6 — — — — — — (23) (23) (22) 28 (17) Changes in consolidation/transfers within equity by Heineken N.V. — — — 4 — — (4) — — (21) (21) Balance as at 31 December 2017 461 1,257 (1,574) 58 167 482 5,782 6,633 6,688 1,200 14,521 * Equity attributable to equity holders of Heineken Holding N.V. H E I N E K E N H O L D I N G N .V. A N N U A L R E P O R T 2 0 17 34


  • Page 36

    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. REPORTING ENTITY Heineken Holding N.V. (the ‘Company’) is a company domiciled in the Netherlands. The address of the Company’s registered office is Tweede Weteringplantsoen 5, Amsterdam. The consolidated financial statements of the Company as at and for the year ended 31 December 2017 comprise Heineken Holding N.V., Heineken N.V., its subsidiaries (together referred to as ‘HEINEKEN’) and HEINEKEN’s interest in joint ventures and associates. The Company is registered in the Trade Register of Amsterdam No. 33078624. HEINEKEN is primarily involved in the brewing and selling of beer and cider. Led by the Heineken® brand, HEINEKEN has a portfolio of more than 300 international, regional, local and speciality beers and ciders. 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 European Union (EU) and also comply with the financial reporting requirements included in Part 9 of Book 2 of the Dutch Civil Code. All standards and interpretations issued by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) effective year-end 2017 have been adopted by the EU. Consequently, the accounting policies applied by the Company also comply fully with IFRS as issued by the IASB. The consolidated financial statements have been prepared by the Board of Directors of the Company and authorised for issue on 9 February 2018 and will be submitted for adoption to the Annual General Meeting of Shareholders on 19 April 2018. (b) Basis of measurement The consolidated financial statements have been prepared on the historical cost basis unless otherwise indicated. The methods used to measure fair values are discussed further in notes 3 and 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 Euro has been rounded to the nearest million unless stated otherwise. (d) Use of estimates and judgements The preparation of consolidated 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 estimates are revised and in any future periods affected. F I N A N C I A L S TAT E M E N T S 2 0 17 35


  • Page 37

    N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Information about assumptions and estimation uncertainties and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements are described in the following notes and related accounting policies: Note 5 Operating segments, particularly the estimation of discount accruals in revenue at the end of the year based on the individual customer agreements. Note 6 Acquisitions and disposals of subsidiaries, particularly with regard to the identification and valuation of acquired assets and liabilities. Note 15 Intangible assets, particularly the assumptions used in goodwill impairment testing. Note 18 Deferred tax assets and liabilities, particularly with regard to the assessment of the recoverability of past tax losses. Note 26 Employee benefits, particularly with regard to assumptions for discount rates, future pension increases and life expectancy to calculate the defined benefit obligation. Note 28 Provisions and note 32 Contingencies, particularly with regard to estimating the likelihood and timing of potential cash outflows relating to claims and litigations. Note 29 Trade and other payables, particularly with regard to the estimation of sales discounts and the estimation of circulation times and market losses in determining the returnable packaging deposit liability. Note 30 Financial risk management and financial instruments, particularly with regard to the estimation of the recoverability of loans and advances to customers and trade receivables. (e) Changes in accounting policies HEINEKEN has adopted the following new standards and amendments to standards, including any consequential amendments to other standards, with a date of initial application of 1 January 2017: • Disclosure Initiative (amendments to IAS 7) • Recognition of deferred tax assets for unrealised losses (amendments to IAS 12) • Annual Improvements to IFRS's 2014-2016 Cycle - amendments to IFRS 12 These changes had no significant impact on the disclosures or amounts recognised in HEINEKEN’s consolidated financial statements. 3. SIGNIFICANT ACCOUNTING POLICIES General 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. (a) Basis of consolidation (i) Business combinations Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to HEINEKEN. HEINEKEN controls an entity when it has power over the investee, is exposed or has the right to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. H E I N E K E N H O L D I N G N .V. A N N U A L R E P O R T 2 0 17 36


  • Page 38

    N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S HEINEKEN measures goodwill at the acquisition date as the fair value of the consideration transferred plus the fair value of any previously held equity interest in the acquiree and the recognised amount of any non-controlling interests in the acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed. When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss. Costs related to the acquisition, other than those associated with the issue of debt or equity securities, that HEINEKEN incurs in connection with a business combination are expensed as incurred. Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent considerations are recognised in profit or loss. Contingent liabilities assumed in a business combination are recognised at fair value even if it is not probable that an outflow will be required to settle the obligation. After initial recognition and until the liability is settled, cancelled or expired, the contingent liability is measured at the higher of the amount that would be recognised in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets and the initial liability amount. (ii) Acquisitions of non-controlling interests Acquisitions of non-controlling interests are accounted for as transactions with owners in their capacity as owners and therefore no goodwill is recognised as a result. Adjustments to non-controlling interests arising from transactions that do not involve the loss of control are based on a proportionate amount of the net assets of the subsidiary. (iii) Subsidiaries Subsidiaries are entities controlled by HEINEKEN. HEINEKEN controls an entity when it has power over the investee, is exposed or has the right to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. 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 of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by HEINEKEN. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests, even if doing so causes the non-controlling interests to have a deficit balance. (iv) Loss of control Upon the loss of control, HEINEKEN derecognises the assets and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. Any resulting gain or loss is recognised in profit or loss. If HEINEKEN retains any interest in the previous subsidiary, such interest is measured at fair value at the date that control is lost. Subsequently, it is accounted for as an equity-accounted investee or as an available-for-sale financial asset, depending on the level of influence retained. (v) Interests in equity-accounted investees HEINEKEN’s investments in associates and joint ventures are accounted for using the equity method of accounting. Investments in associates are those entities in which HEINEKEN has F I N A N C I A L S TAT E M E N T S 2 0 17 37


  • Page 39

    N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S significant influence, but no control or joint control, over the financial and operating policies. Joint ventures are the arrangements in which HEINEKEN has joint control, whereby HEINEKEN has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities. Investments in associates and joint ventures are recognised initially at cost. The cost of the investment includes transaction costs. The consolidated financial statements include HEINEKEN’s share of the profit or loss and other comprehensive income, after adjustments to align the accounting policies with those of HEINEKEN, from the date that significant influence or joint control commences until the date that significant influence or joint control ceases. When HEINEKEN’s share of losses exceeds the carrying amount of the associate or joint venture, including any long-term investments, 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 or joint venture. (vi) 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 consoli- dated financial statements. Unrealised gains arising from transactions with equity-accounted associates and JVs are eliminated against the investment to the extent of HEINEKEN’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. (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 reporting 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 reporting 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. Non-monetary items in a foreign currency that are measured at cost are translated into the functional currency using the exchange rate at the date of the transaction. Foreign currency differences arising on retranslation are recognised in profit or loss, 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, which are recognised in other comprehensive income. (ii) Foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to Euro at exchange rates at the reporting date. The income and expenses of foreign operations, excluding foreign operations in hyperinflationary economies, are translated to Euro at exchange rates approximating to the exchange rates H E I N E K E N H O L D I N G N .V. A N N U A L R E P O R T 2 0 17 38


  • Page 40

    N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S ruling at the dates of the transactions. Group entities, with a functional currency being the currency of a hyperinflationary economy, first restate their financial statements in accordance with IAS 29, Financial Reporting in Hyperinflationary Economies. The related income, costs and balance sheet amounts are translated at the foreign exchange rate ruling at the balance sheet date. In 2017 HEINEKEN did not have any foreign operations in hyperinflationary economies. Foreign currency differences are recognised in other comprehensive income and are presented within equity in the translation reserve. However, if the operation is not a wholly owned subsidiary, the relevant proportionate share of the translation difference is allocated to the non-controlling interests. When a foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. When HEINEKEN disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non-controlling interests. When HEINEKEN disposes of only part of its investment in an associate or joint venture that includes a foreign operation while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss. 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 in other comprehensive income, and are presented within equity in the translation reserve. The following exchange rates, for the most important countries in which HEINEKEN has operations, were used while preparing these consolidated financial statements: Year-end Year-end Average Average In € 2017 2016 2017 2016 Brazilian Real (BRL) 0.2517 0.2915 0.2774 0.2592 Great Britain Pound (GBP) 1.1271 1.1680 1.1410 1.2209 Mexican Peso (MXN) 0.0425 0.0463 0.0469 0.0484 Nigerian Naira (NGN) 0.0025 0.0030 0.0027 0.0036 Polish Zloty (PLN) 0.2398 0.2260 0.2349 0.2292 Russian Ruble (RUB) 0.0144 0.0156 0.0152 0.0135 Singapore Dollar (SGD) 0.6241 0.6564 0.6417 0.6547 United States Dollar (USD) 0.8338 0.9487 0.8854 0.9036 Vietnamese Dollar in 1,000 (VND) 0.0367 0.0417 0.0389 0.0404 (iii) Hedge of net investments in foreign operations Foreign currency differences arising on the translation of a financial liability designated as a hedge of a net investment in a foreign operation are recognised in other comprehensive income to the extent that the hedge is effective and regardless of whether the net investment is held directly or through an intermediate parent. These differences are presented within equity in the translation reserve. 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 relevant amount in the translation reserve is transferred to profit or loss as part of 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. F I N A N C I A L S TAT E M E N T S 2 0 17 39


  • Page 41

    N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 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. If HEINEKEN has a legal right to offset financial assets with financial liabilities and if HEINEKEN intends either to settle on a net basis or to realise the asset and settle the liability simultaneously, financial assets and liabilities are presented in the statement of financial position as a net amount. The right of set-off is available today and not contingent on a future event and it is also legally enforceable for all counterparties in a normal course of business, as well as in the event of default, insolvency or bankruptcy. Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts and commercial papers form an integral part of HEINEKEN’s cash management and are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. Accounting policies for interest income, interest expenses and other net finance income and expenses are discussed in note 3(r). (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. (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 – other than impairment losses (see note 3i(i)) and foreign currency differences on available-for-sale monetary items (see note 3b(i)) – are recognised in other comprehensive income and presented within equity in the fair value reserve. When these investments are derecognised, the relevant cumulative gain or loss in the fair value reserve is transferred to profit or loss. Where these investments are interest-bearing, interest calculated using the effective interest method is recognised in profit or loss. Available-for-sale investments are recognised or derecognised by HEINEKEN on the date it commits to purchase or sell the investments. (iv) Other Other non-derivative financial instruments are measured at amortised cost using the effective interest method, less any impairment losses. (d) Derivative financial instruments (including hedge accounting) (i) General HEINEKEN uses derivatives in the ordinary course of business in order to manage market risks. Generally, HEINEKEN applies hedge accounting in order to minimise the effects of foreign currency, interest rate or commodity price fluctuations in profit or loss. Derivatives that can be used are interest rate swaps, forward rate agreements, caps and floors, commodity swaps, spot and forward exchange contracts and options. Transactions are entered into with a limited number of counterparties with strong credit ratings. Foreign currency, interest rate and commodity hedging operations are governed by internal policies and rules approved and monitored by the Executive Board of Heineken N.V. H E I N E K E N H O L D I N G N .V. A N N U A L R E P O R T 2 0 17 40


  • Page 42

    N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Derivative financial instruments are recognised initially at fair value, with attributable transaction costs recognised in profit or loss as 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 3b(iii), 3d(ii) or 3d(iii). (ii) Cash flow hedges Changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are recognised in other comprehensive income and presented in the hedging reserve within equity to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are recognised in profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, hedge accounting is discontinued. The cumulative unrealised gain or loss previously recognised in other comprehensive income and presented in the hedging reserve in equity is recognised in profit or loss 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 other comprehensive income 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 other comprehensive income is transferred to the carrying amount of the asset when it is recognised. In other cases, the amount recognised in other comprehensive income is transferred to the same line of profit or loss in the same period that the hedged item affects profit or loss. (iii) Fair value hedges Changes in the fair value of a derivative hedging instrument designated as a fair value hedge are recognised in profit or loss. The hedged item is also stated at fair value in respect of the risk being hedged; the gain or loss attributable to the hedged risk is recognised in profit or loss and adjusts the carrying amount of the hedged item. If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortised to profit or loss over the period to maturity. (iv) Separable embedded derivatives Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and the combined instrument is not measured at fair value through profit or loss. Changes in the fair value of separable embedded derivatives are recognised immediately in profit or loss. (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 recognised as a deduction from equity. Repurchased shares are classified as treasury shares and are presented in the reserve for own shares. F I N A N C I A L S TAT E M E N T S 2 0 17 41


  • Page 43

    N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 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 (i) Owned assets Items of property, plant and equipment (P, P & E) are measured at cost less government grants received (refer to (q)), accumulated depreciation (refer to (iv)) and accumulated impairment losses (3i(ii)). Cost comprises the initial purchase price increased with expenditures that are directly attrib- utable to the acquisition of the asset (such as 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 (refer to 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 capitalised as part of the cost of that asset. Cost also may include transfers from equity of any gain or loss on qualifying cash flow hedges of foreign currency purchases of P, P & E. Spare parts that are acquired as part of an equipment purchase and only to be used in connection with this specific equipment or purchased software that is integral to the func- tionality of the related equipment are capitalised and amortised as part of that equipment. In all other cases, spare parts are carried as inventory and recognised in the income statement as consumed. Where an item of P, P & E comprises major components having different useful lives, they are accounted for as separate items (major components) of P, P & E. Returnable bottles and kegs in circulation are recorded within P, P & E and a corresponding liability is recorded in respect of the obligation to repay the customers’ deposits. Deposits paid by customers for returnable items are reflected in the consolidated statement of financial position within current liabilities. (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 & 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 in HEINEKEN’s statement of financial position. Payments made under operating leases are charged to profit or loss 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. H E I N E K E N H O L D I N G N .V. A N N U A L R E P O R T 2 0 17 42


  • Page 44

    N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S (iii) Subsequent expenditure The cost of replacing a part of an item of P, P & E 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 P, P & E are recognised in profit or loss when incurred. (iv) Depreciation Depreciation is calculated over the depreciable amount, which is the cost of an asset, or other amount substituted for cost, less its residual value. Land, except for financial leases on land over the contractual period, is not depreciated as it is deemed to have an infinite life. Depreciation on other P, P & E is charged to profit or loss on a straight-line basis over the estimated useful lives of items of P, P & E, and major components that are accounted for separately, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Assets under construction are not depreciated. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that HEINEKEN will obtain ownership by the end of the lease term. The estimated useful lives for the current and comparative years are as follows: ▪ Buildings 30 - 40 years ▪ Plant and equipment 10 - 30 years ▪ Other fixed assets 3 - 10 years Where parts of an item of P, P & E have different useful lives, they are accounted for as separate items of P, P & E. The depreciation methods and residual value as well as the useful lives are reassessed, and adjusted if appropriate, at each financial year-end. (v) Gains and losses on sale Net gains on sale of items of P, P & E are presented in profit or loss as other income. Net losses on sale are included in depreciation. Net gains and losses are recognised in profit or loss 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 & 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 and joint ventures is included in the carrying amount of the associates and joint ventures. Goodwill is measured at cost less accumulated impairment losses (refer to accounting policy 3i(ii)). Goodwill is allocated to individual or groups of cash-generating units (CGUs) for the purpose of impairment testing and is tested annually for impairment. Negative goodwill is recognised directly in profit or loss as other income. F I N A N C I A L S TAT E M E N T S 2 0 17 43


  • Page 45

    N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S (ii) Brands Brands acquired, separately or as part of a business combination, are capitalised if they meet the definition of an intangible asset and the recognition criteria are satisfied. Strategic brands are well-known international/local brands with a strong market position and an established brand name. Brands are amortised on an individual basis over the estimated useful life of the brand. (iii) Customer-related, contract-based intangibles and reacquired rights Customer-related and contract-based intangibles are capitalised if they meet the definition of an intangible asset and the recognition criteria are satisfied. If the amounts are not material, these are included in the brand valuation. The relationship between brands and customer-re- lated intangibles is carefully considered so that brands and customer-related intangibles are not both recognised on the basis of the same cash flows. Reacquired rights are identifiable intangible assets recognised in an acquisition that represent the right an acquirer previously has granted to the acquiree to use one or more of the acquirer’s recognised or unrecognised assets. Customer-related and contract-based intangibles acquired as part of a business combination are valued at fair value. Customer-related and contract-based intangibles acquired separately are measured at cost. Customer-related, contract-based intangibles and reacquired rights are amortised over the remaining useful life of the customer relationships or the period of the contractual arrange- ments. (iv) Software, research and development and other intangible assets Purchased software is measured at cost less accumulated amortisation (refer to (vi)) and impairment losses (refer to accounting policy 3i(ii)). Expenditure on internally developed software is capitalised when the expenditure qualifies as development activities, otherwise it is recognised in profit or loss when incurred. Expenditure on research activities, undertaken with the prospect of gaining new technical knowledge and understanding, is recognised in profit or loss when incurred. Development activities involve a plan or design for the production of new or substantially improved products, software 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, and capitalised borrowing costs. Other development expenditure is recognised in profit or loss when incurred. Capitalised development expenditure is measured at cost less accumulated amortisation (refer to (vi)) and accumulated impairment losses (refer to accounting policy 3i(ii)). Other intangible assets that are acquired by HEINEKEN and have finite useful lives are measured at cost less accumulated amortisation (refer to (vi)) and impairment losses (refer to accounting policy 3i(ii)). Expenditure on internally generated goodwill and brands is recognised in profit or loss when incurred. (v) 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. H E I N E K E N H O L D I N G N .V. A N N U A L R E P O R T 2 0 17 44


  • Page 46

    N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S (vi) Amortisation Amortisation is calculated over the cost of the asset, or other amount substituted for cost, less its residual value. 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, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. The estimated useful lives are as follows: ▪ Strategic brands 40 - 50 years ▪ Other brands 15 - 25 years ▪ Customer-related and contract-based intangibles 5 - 20 years ▪ Reacquired rights 3 - 12 years ▪ Software 3 - 7 years ▪ Capitalised development costs 3 years Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. (vii) Gains and losses on sale Net gains on sale of intangible assets are presented in profit or loss as other income. Net losses on sale are included in amortisation. Net gains and losses are recognised in profit or loss 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. The cost of inventories is based on the weighted average cost formula, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in 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 taking 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 profit or loss. 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 depreciated as part of the equipment. F I N A N C I A L S TAT E M E N T S 2 0 17 45


  • Page 47

    N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S (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 that can be estimated reliably. Evidence of impairment may include indications that the debtors or a group of debtors are experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation, and where observable data indicates that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. 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 char- acteristics. All impairment losses are recognised in profit or loss. Any cumulative loss in respect of an available-for-sale financial asset recognised previously in other comprehensive income and presented in the fair value reserve in equity is transferred to profit or loss. 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 profit or loss. For available-for-sale financial assets that are equity securities, the reversal is recognised in other comprehensive income. (ii) Non-financial assets The carrying amounts of HEINEKEN’s non-financial assets, other than inventories (refer to accounting policy (h)) and deferred tax assets (refer to accounting policy (s)), are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. For goodwill and intangible assets that are not yet available for use, the recoverable amount is estimated each year at the same time. For the purpose of impairment testing, assets that cannot be tested individually 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-gener- ating unit, ‘CGU’). The recoverable amount of an asset or CGU is the higher of an asset’s fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the acquirer’s CGUs, or groups of CGUs expected to benefit from the synergies of the combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored on regional, sub-regional or country level depending on the characteristics of the acquisition, the synergies to be achieved and the level H E I N E K E N H O L D I N G N .V. A N N U A L R E P O R T 2 0 17 46


  • Page 48

    N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S of integration. An impairment loss is recognised in profit or loss if the carrying amount of an asset or its CGU exceeds its recoverable amount. Impairment losses recognised in respect of a CGU are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amounts 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. Goodwill that forms part of the carrying amount of an investment in an associate and joint venture is not recognised separately, and therefore is not tested for impairment separately. Instead, the entire amount of the investment in an associate and joint venture is tested for impairment as a single asset when there is objective evidence that the investment in an associate may be impaired. (j) Assets or disposal groups classified as held for sale 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 measured at the lower of their carrying amount and fair value less costs of disposal. Any impairment loss on a disposal group is first allocated to goodwill, and then to remaining assets and liabilities on a pro rata basis, except that no loss is allocated to inventories, financial assets, deferred tax assets and employee defined benefit plan 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 profit or loss. Gains are not recognised in excess of any cumulative impairment loss. Intangible assets and P, P & E once classified as held for sale are not amortised or depreciated. In addition, equity accounting of equity-accounted investees ceases once classified as held for sale. (k) Employee benefits (i) Defined contribution plans A defined contribution plan is a post-employment benefit plan (pension plan) under which HEINEKEN pays fixed contributions into a separate entity. HEINEKEN 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 the current and prior periods. Obligations for contributions to defined contribution pension plans are recognised as an employee benefit expense in profit or loss in the periods during which services are rendered by employees. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available. Contributions to a defined contribution plan that are due more than 12 months after the end of the period in which the employee renders the service are discounted to their present value. F I N A N C I A L S TAT E M E N T S 2 0 17 47


  • Page 49

    N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S (ii) Defined benefit plans A defined benefit plan is a post-employment benefit plan (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. The fair value of any defined benefit plan assets is deducted. The discount rate is the yield at balance sheet date on high-quality credit-rated bonds that have maturity dates approximating to 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. When the calculation results in a benefit to HEINEKEN, the recognised asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. In order to calculate the present value of economic benefits, consideration is given to any minimum funding requirements that apply to any plan in HEINEKEN. An economic benefit is available to HEINEKEN if it is realisable during the life of the plan, or on settlement of the plan liabilities. When the benefits of a plan are changed, the expense or benefit is recognised immediately in profit or loss. HEINEKEN recognises all actuarial gains and losses arising from defined benefit plans immediately in other comprehensive income and all expenses related to defined benefit plans in personnel expenses and other net finance income and expenses in profit or loss. (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 to the terms of HEINEKEN’s obligations. The obligation is calculated using the projected unit credit method. Any actuarial gains and 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 HEINEKEN 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 redundan- cies 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. H E I N E K E N H O L D I N G N .V. A N N U A L R E P O R T 2 0 17 48


  • Page 50

    N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S (v) Share-based payment plan (LTV) HEINEKEN has a performance-based share plan (Long-Term Variable award (LTV)) for both the Executive Board of Heineken N.V. and senior management (refer to note 27). The grant date fair value, adjusted for expected dividends, 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 of Heineken N.V. and senior management members are spread evenly over the performance period, during which vesting conditions are applicable subject to continued services. The total amount to be expensed is determined taking into consideration the expected forfeitures. At each balance sheet date, HEINEKEN revises its estimates of the number of share rights that are expected to vest, for the 100 per cent internal performance conditions of the running share plans for the senior management members and the Executive Board of Heineken N.V. It recognises the impact of the revision of original estimates (only applicable for non-market performance conditions, if any) in profit or loss, with a corresponding adjustment to equity. (vi) Matching share entitlement The Executive Board of Heineken N.V. is entitled to matching shares (refer to note 33). The grant date fair value of the matching shares is recognised as personnel expenses in the income statement as it is deemed an equity-settled share-based payment. (vii) Short-term employee 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 HEINEKEN 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 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 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 losses are not provided for. The provision includes the benefit commitments in connection with early retirement and redundancy schemes. F I N A N C I A L S TAT E M E N T S 2 0 17 49

  • View More

Get the full picture and Receive alerts on lawsuits, news articles, publications and more!