Heineken Annual Report 2004

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Heineken N.V. Annual Report 2004


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Heineken N.V. Annual Report 2004

Annual Report

04


2 > Heineken N.V. Annual Report 2004

This report is available in Dutch and in English.

Both versions can be downloaded from www.heinekeninternational.com



Contents

5 Profile

7 Key Figures 2004

8 Executive Board

10 Supervisory Board

12 Report of the Supervisory Board

Report of the Executive Board

22 Chairman’s Message

26 Outlook 2005

28 Operational Review

28 Brand Strategy

29 Heineken

31 Amstel

32 Innovation, Research & Development

33 Investor Relations

33 Sustainability

36 Personnel and Organisation

37 The 2004 Heineken Prizes

38 Regional Review

40 Western Europe

48 Central and Eastern Europe

52 The Americas

56 Africa and the Middle East

60 Asia Pacific

66 Governance

71 Financial Review

Financial Statements

80 Consolidated Balance Sheet

81 Consolidated Profit and Loss Account

82 Consolidated Cash Flow Statement

83 Notes to the Consolidated Balance Sheet,

Profit and Loss Account and Cash Flow

Statement for 2004

86 Notes to the Consolidated Balance Sheet

96 Notes to the Consolidated Profit and

Loss Account

100 Segmented Information

103 Notes to the Consolidated Cash Flow

Statement

104 Participating Interests

106 Balance Sheet of Heineken N.V.

107 Profit and Loss Account of Heineken N.V.

108 Notes to the Balance Sheet and Profit and Loss Account of Heineken N.V. for 2004

Other Information

116 Auditor’s Report

116 Appropriation of Profit

116 Special Rights pursuant to the Articles of Association

116 Authorised Capital

116 Events after Balance Sheet date

117 Information for Shareholders

120 Historical Summary

122 Operating Companies and Participating

Interests





Profile

Heineken is one of the world’s leading brewers in terms of sales volume and profitability and we have the widest presence of all international brewers through a global network of distributors and breweries. In volume terms, we are the largest brewer and beverage distributor in Europe, where we realise more than half of our sales. We balance a strong position in stable and profitable markets such as Europe and North America with a growing presence in rapidly expanding beer markets such as China and Russia. We employ more than 60,000 people.

The Heineken brand, available in almost every country on the planet, is the world’s most valuable international premium beer brand. In addition, we own and manage one of the world’s leading portfolio of beer brands comprising other international premium, local and specialty brands.

Origins

The Heineken family entered the beer business in 1864, when Gerard Adriaan Heineken bought a brewery in the heart of Amsterdam. Over the past 140 years, four generations of the Heineken family have built and expanded the brand and the company in Europe and around the world. It is thanks to the leadership of Gerard, Henry, Alfred ‘Freddy’ Heineken and Charlene de Carvalho-Heineken,

Chairman of the Board of Directors of Heineken Holding N.V., that Heineken is one of the world’s leading brewing groups.

Goal and market strategy

Heineken’s goal is to grow the business in a sustainable and consistent manner, while constantly improving profitability. The strategy to achieve this has four elements:

• Strive to reach a leading position in attractive markets.

• Focus on capturing an ever-growing share of the premium and specialty beer market segments.

• Work to improve efficiency and cut costs in operations.

• Grow through selective acquisitions, so long as they create shareholder value.

Brands

Heineken owns and manages one of the world’s leading portfolios of beer brands. Our principal international brands are Heineken and Amstel. Heineken is positioned as a premium brand, except for our home market in the Netherlands, and its appeal is growing in many markets. Heineken is the leading beer brand in Europe and Amstel is the third largest. In Europe, Amstel is positioned in the mid-priced mainstream segment, the largest segment of the market, and is available in more than

90 countries around the world. includes Cruzcampo, Z ywiec, Birra Moretti, Murphy’s and Star. We have a limited presence in the low-priced segment of the market and our international and local brands include lagers, specialty beers, light beers (low-calorie beers) and alcohol-free beers.

Distribution

Heineken is the largest beer and beverage distributor in Western Europe. In every market where we are active, we strive for comprehensive coverage through alliances with independent distributors or via our own beverage wholesalers. Often, our wholesalers also distribute wine, spirits and soft drinks to the on-trade. In some markets, we also produce soft drinks.


6 > Heineken N.V. Annual Report 2004 > Profile

Innovation

Heineken works to continually meet consumers’ changing needs. This can be seen in the area of marketing communication, packaging and dispense systems, where we are a recognised leader.

We also work to further improve the quality, safety and cost structure of processes and products.

This includes innovation in brewing technology and supply chain management, which reinforces the competitiveness of our global brand portfolio.

Sustainability

Heineken is committed to conducting business responsibly and ethically. We continuously take our initiatives to combat alcohol abuse, misuse and focused resources and energy on setting even higher standards in the social and environmental areas of our business.

Ownership structure and stock exchange listing

A 50.005% interest in Heineken N.V. is held by Heineken Holding N.V. The shares of both companies are listed on Euronext Amsterdam. Options of both shares are traded on the Euronext.Liffe options exchange. L’Arche Holding S.A., a Swiss company owned by the Heineken family in turn holds a

50.005% interest in Heineken Holding N.V.

Standing at the head of the Heineken group, Heineken Holding N.V. is not an ordinary holding company. Since its formation in 1952, Heineken Holding N.V.’s objective pursuant to its Articles of Association, has been to manage and/or supervise the Heineken group and to provide services to the Heineken group.

The role Heineken Holding N.V. has performed for the Heineken group since 1952 has been to safeguard its continuity, independence and stability and create conditions for controlled, steady growth of the Heineken group’s activities. The stability provided by this structure has enabled the

Heineken group to rise to its present position as the brewer with the widest international presence and one of the world’s largest brewing groups.

Every Heineken N.V. share held by Heineken Holding N.V. is matched by one share issued by

Heineken Holding N.V. The net asset value of one Heineken Holding N.V. share is therefore identical to the net asset value of one Heineken N.V. share. The dividend payable on the two shares is also identical.

However, historically, Heineken Holding N.V. shares have traded at a lower price due to technical factors that are market-specific.



Key Figures 2004

2004

Results > in millions of euros

Net turnover

Operating profit

Ebitda

2

Net profit

Dividend

Cash flow from operating activities

Balance sheet > in millions of euros

Total assets

Group equity

Shareholders’ equity

Issued capital

Per share of €1.60

1

Number of shares issued


Net profit

Ebitda 2

CEPS 3

Dividend (proposed)


Net turnover > in millions of euros

(including interregional sales)

Western Europe

Central and Eastern Europe

The Americas

Africa and the Middle East

Asia Pacific

Tangible fixed assets > in millions of euros

Investments less disposals

Depreciation and value adjustments

Staff > in numbers

Average number of employees of whom employed by Dutch operating companies

Ratios

Operating profit as % of net turnover

Operating profit as % of total assets

Net profit as % of shareholders’ equity

Dividend as % of net profit

Group equity/other borrowed capital

Group equity/fixed assets

Current assets/current liabilities

Interest coverage ratio

1

Restated for the

5:4 share split in 2004.

2

Operating profit plus amortisation, depreciation and value adjustments.

10,005

1,248

2,021

537

173

1,520

10,418

3,862

3,379

784

489,974,594

3.10

1.10

4.12

1.26

0.40

6.90

6,348

1,894

1,514

890

470

637

645

61,732

4,885

12.5

12.0

15.9

32.2

0.59

0.51

1.05

11.2

2003

10,897

3,899

3,167

784

391,979,675

3.34

1.63

3.81

1.69

0.32

6.46

9,255

1,222

1,866

798

157

1,637

6,560

1,145

1,501

876

467

611

560

61,271

5,256

Change (%)

13.2

11.2

25.2

19.7

0.56

0.54

1.25

13.3

3

Net profit per share before amortisation of goodwill.

8.1

2.1

8.3

– 32.7

10.2

– 7.1

– 4.4

– 0.9

6.7

–

–

– 7.1

– 32.7

8.3

– 25.4

9.4

6.8

4.3

15.2

0.8

– 7.1

– 3.2

65.4

0.9

1.6

0.6



Executive Board

> as at 21 February 2005

Thony (A.) Ruys

(1947)

Dutch nationality; male

1993 Member of the Executive Board

1996 Vice-Chairman

2002 Chairman

Joined Heineken in 1993 after a career with

Unilever N.V. in the Netherlands and abroad.

Areas of responsibility

• Corporate Human Resources

& Organisation Development

• Corporate Communication

• Corporate Affairs

• Corporate Legal & Business Affairs

• Group Internal Audit

• Corporate Secretariat

• Proseco

• Asia Pacific

Supervisory directorships

• Gtech Holdings Corporation, USA

• Sara Lee/DE International B.V., Netherlands

Marc (M.J.) Bolland

(1959)



Joined Heineken in 1986 and has held various positions in the Netherlands and abroad.


• Corporate Brands

• Corporate Commercial Excellence

• Latin & Central America

• Caribbean

• Heineken USA (incl. Canada)

• Heineken España

• Heineken France

• Heineken Italia

• Beer Systems


• Manpower Inc., USA (as per July 2004)

Jean-François (J.F.M.L.) van Boxmeer

(1961)

Belgian nationality; male




• Corporate Production, Policy & Control

• Heineken Technical Services

• North-West Europe

• Sub-Saharan Africa

• Middle East & North Africa

• Heineken Brouwerijen

• Heineken Nederland Supply

• Heineken Nederlands Beheer

• Vrumona

• Heineken Brewery Russia

• Athenian Brewery

• CIS Countries and Kazakhstan


9 > Heineken N.V. Annual Report 2004 > Executive Board

René (D.R.) Hooft Graafland

(1955)





• Corporate Finance

• Corporate Control & Accounting

• Corporate Information Technology

• Corporate Business Development

• Corporate Internal Services


• McGregor Fashion Group N.V., Netherlands

Karl (K.) Büche

(1946)

Austrian nationality; male


Joined Heineken in 2004

Since 1972 he has held various positions in Brau Union A.G.


• Brau Union A.G.

- Z ywiec, Poland

- Other Central European Countries


• Allgemeine Sparkasse Oberösterreich

Bank AG, Austria (Deputy Chairman)

• ÖIAG Industrieholding AG, Austria



Supervisory Board

> as at 21 February 2005

Cees (C.J.A.) van Lede

(1942)


Appointed in 2002; next reappointment in 2006

Chairman (2004)

Profession: Company Director


Dutch stock listed companies:

• Akzo Nobel N.V.

• Royal Philips Electronics N.V.

• Reed Elsevier Group

Other:

• Sara Lee Corporation

• Air Liquide S.A.

• Air France / KLM

Jan Maarten ( J.M.) de Jong

(1945)



Vice-Chairman (2004)

Profession: Banker



• Nutreco Holding N.V.

Other:

• Banca Antonveneta SpA, Italy

• CRH plc, Ireland

• AON Groep Nederland, B.V.

Maarten (M.) Das

(1948)


Appointed in 1994

Latest reappointment in 2001; next reappointment in 2005

Delegated Member (1995)

Profession: Lawyer

Partner of Loyens & Loeff N.V.


Dutch stock listed companies: none

Other:

• Greenfee B.V. (Chairman)

Other posts: *

• Heineken Holding N.V. (Chairman)

• Stichting Administratiekantoor Priores

• LAC B.V.

Michel (M.R.) de Carvalho

(1944)

British nationality; male

Appointed in 1996

Latest reappointment in 2003; next reappointment in 2007

Profession: Banker

Investment Banking (Vice-Chairman)

Citigroup Inc., United Kingdom


Dutch stock listed companies: none

Other: none

* Where relevant to performance of the duties of Supervisory Director.


11 > Heineken N.V. Annual Report 2004 > Supervisory Board

Ton (A.H.J.) Risseeuw

(1936)


Appointed in 2000

Latest reappointment in 2004; will retire in 2007




• KPN N.V. (Chairman)

• Samas-Groep NV (Chairman)

Other:

• TNO

• Blokker Holding B.V.

• Intergamma B.V.

• Groeneveld B.V.

Jan Michiel ( J.M.) Hessels

(1942)






• Euronext N.V. (Chairman)

• Royal Philips Electronics N.V.

• Fortis N.V.

• Royal Vopak N.V. (until April 2005)

Other:

• Amsterdam Schiphol Group N.V.

• Schiphol Area Development

Company – SADC (Chairman)

• S.C. Johnson Europlant N.V. (Chairman)

Board memberships mentioned under ‘Other’ only list other major board memberships.

The Supervisory Board members do not hold shares in Heineken N.V.



Report of the Supervisory Board

To the shareholders

Financial statements and profit appropriation

The Executive Board has submitted its financial statements for 2004 to the Supervisory Board.

These financial statements can be found on pages 80-113 of this annual report. KPMG Accountants N.V.

audited the financial statements. Their report appears on page 116.

The Supervisory Board recommends that shareholders, in accordance with the Articles of

Association, adopt these financial statements and, as proposed by the Executive Board, appropriate

€196 million of the profit as dividend and add the remainder, amounting to €341 million, to retained profits. The proposed dividend amounts to €0.40 per share of €1.60 nominal value, of which €0.16 was paid as interim dividend on 21 September 2004. The dividend for 2003 was €0.40. In the Annual

General Meeting of Shareholders of 29 April 2004 the proposal to split the shares by issuing five new shares of €1.60 nominal value for every four existing shares of €2.00 value was approved.

Supervisory Board and Executive Board changes and appointments

Annual General Meeting of Shareholders 2004

Messrs. H. de Ruiter and A.H.J. Risseeuw resigned by rotation from the Supervisory Board in the

Annual General Meeting of Shareholders on 29 April 2004. Mr. Risseeuw was eligible for immediate reappointment and was duly reappointed. Mr. De Ruiter retired in view of reaching the age limit

(as laid down in the regulations of the Supervisory Board). We thank Mr. De Ruiter for his contributions over many years, especially in relation to his chairmanship of the Audit Committee.

It was announced that Mr. C.J.A. van Lede, with effect from 30 April 2004, would take over the chairmanship from Mr. J.M. de Jong. Mr. De Jong assumed the vice-chairmanship and the chairmanship of the Audit Committee.

Mr. K. Büche was appointed a member of the Executive Board with effect from 1 May 2004.

Annual General Meeting of Shareholders 2005

Messrs. M. Das and J.M. Hessels will resign by rotation from the Supervisory Board at the Annual

General Meeting of Shareholders on 20 April 2005. Both are eligible for immediate reappointment for a period of four years. The Supervisory Board proposes to reappoint Messrs. Hessels and Das and binding nominations for their appointment will be submitted to the Annual General Meeting of

Shareholders on 20 April 2005. Furthermore, it is proposed to reappoint Mr. Das as delegated member.

All members of the Supervisory Board will comply with best practice provision III.3.4 of the Dutch

Corporate Governance Code (maximum number of Supervisory Board seats) as per 1 May, 2005.

Consultation and decision making

The Supervisory Board held six joint meetings with the Executive Board. The items discussed included a number of recurring subjects, such as the company’s strategy, the financial position and results, the operating companies’ policies and business plans, acquisitions and other large investment proposals and management development.

Other subjects included the evaluation of completed investment plans, interest rate and exchange rate risks, and the assessment of the structure and operation of the internal risk management and control systems. The external auditor attended the meeting in which the year results were discussed.

In 2004 particular attention was devoted to the remuneration policy for the Executive Board, corporate governance, including a proposed revision of the Articles of Association and to marketing.

One meeting was held in Austria, where the management team of Brau Union presented an overview of the developments in its markets.


13 > Heineken N.V. Annual Report 2004 > Report of the Supervisory Board

At three meetings the Executive Board was not present while the Supervisory Board discussed and decided on the proposal for the remuneration policy for the Executive Board, the functioning of the Executive Board and its members as well as the profile, composition and competence of the

Supervisory Board and the functioning of the Supervisory Board and its members.

Independence

With regard to the independence of the Supervisory Board members, please refer to the comments made regarding best practice provision III.2.2 of the Dutch Corporate Governance Code as contained in the ‘Comply or Explain’ report.

Committees

The Supervisory Board has four committees, the Preparatory Committee, the Audit Committee, the Selection & Appointment Committee and the Remuneration Committee.

The regulations of the committees are posted on the Company’s website and are available on request in written form.

Preparatory Committee

Composition: Messrs. Van Lede (chairman), Das and de Carvalho.

The Preparatory Committee met six times. The committee prepares decision making by the

Supervisory Board.

Audit Committee

Composition: Messrs. De Jong (chairman), Risseeuw and Hessels. The members collectively have the experience and financial expertise to supervise the financial statements and the risk profile of

Heineken N.V. The Chairman of the Executive Board and the member of the Executive Board responsible for Finance and Control & Accounting attend all meetings, as do the external auditor, the

Director Control & Accounting and the Group Internal Auditor. The Audit Committee met three times.

In the meetings the regular topics were discussed, such as the annual and half year results, the risk profile and risk management and the reports from the Group Internal Auditor and the external auditor.

Remuneration Committee

Composition: Messrs. Das (chairman), Van Lede and de Carvalho.

The Remuneration Committee met six times to discuss a revised policy for the remuneration of the

Executive Board. The policy, stated in this report, will be submitted to the Annual General Meeting of Shareholders for adoption.

Selection & Appointment Committee

Composition: Messrs. Van Lede (chairman), Das and de Carvalho.

The Selection & Appointment Committee met in conjunction with the Remuneration Committee.

In these meetings the composition of the Supervisory Board was discussed. Furthermore, the committee prepared the evaluation of the Executive Board and Supervisory Board, for discussion in a separate full Supervisory Board meeting.

Corporate Governance

The Dutch Corporate Governance Code was reviewed in detail and Heineken endorses the Code’s principles and applies virtually all best practice provisions. In particular, the structure of the Heineken

Group – and specifically the relationship between Heineken Holding N.V. and Heineken N.V. – prevent

Heineken N.V. from applying a small number of best practice provisions.



In a separate section of the annual report, a detailed overview is submitted on how Heineken N.V.

applies the Dutch Corporate Governance Code: the ‘Comply or Explain’ report.

The existing regulations for the Executive Board, Supervisory Board and its committees were adapted according to the Dutch Corporate Governance Code and, where necessary new regulations have been made. By the end of 2004 the different regulations were published on the website.

Articles of Association

A proposal for the amendment of the Articles of Association will be submitted to the Annual General

Meeting of Shareholders on 20 April 2005. The amendments take account of the changes in Dutch

Company Law and the Dutch Corporate Governance Code of 9 December 2003.

Remuneration policy of the Executive Board

General

This report sets out the policy as applied in 2004. It also outlines the proposed policy as from 2005, including a new long term incentive. The remuneration policy of Heineken was reviewed in 2004 to ensure that business objectives are most effectively met, to be in line with the culture and values of the company and to comply with the highest standards of good corporate governance.

The proposed remuneration policy will emphasize performance related pay. The total remuneration of the Executive Board will be competitive if ambitious performance targets on the short and long-term are met. In combination with performance targets for variable pay elements, fixed salary levels will be adjusted for the first time since 1999. The proposed remuneration policy is subject to shareholder adoption and the proposed long-term incentive is subject to shareholder approval, as this is a share-based plan.

Remuneration policy as applied in 2004

The remuneration of the members of the Executive Board consists of a base salary, an annual profit-sharing bonus and a long-term bonus. The Supervisory Board determined the level and structure of the remuneration package for the last time in 1999.

For the Executive Board, at target level of performance, fixed salary accounts on average for 42% of the total remuneration package. This is in line with the policy to focus on variable, performancerelated remuneration.

The base salary was determined in 1999 on the basis of internal pay ratios and market data.

There have been no subsequent adjustments. The 2004 annual base salary for the Chairman is

€543,000 and for the members of the Executive Board €358,000.

The annual bonus is related to the dividend distribution, expressed as a percentage of the nominal value of the shares. A basic sum, €32,521 for the Chairman and €19,781 for each member of the

Executive Board, is multiplied by the number of percentage points by which the dividend exceeds 6%.

Based on the performance over 2004, the bonuses payable to the Executive Board will be €617,899 for the Chairman and €375,839 for the members of the Executive Board.

The long-term bonus is paid whenever Heineken N.V. makes an issue of bonus shares or undertakes a share split, which in the past has averaged once every three years. It is calculated on the same basic sums as for the annual bonus but, instead of the dividend distribution, it is related to the actual net profit in the period to which the bonus refers (in the past, therefore, generally three years).

One-third of the net profit is expressed as a percentage of the nominal share capital (share splits being treated as recapitalisations) and the basic sum is multiplied by the number of percentage points by which this exceeds 6%. The annual bonuses paid in the period concerned are deducted from the figure calculated on this basis. In 2004, the payment for the period 2001-2003 amounted to €897,412 for the Chairman and €534,087 for the members of the Executive Board.



Pension arrangements

The pension arrangement is executed by the Stichting Pensioenfonds Heineken.

Executive Board members: Messrs. Bolland, Van Boxmeer and Hooft Graafland

The pension arrangement for these Executive Board members is based on a hybrid system combining final pay and defined contribution elements. The pension benefit age is 65. Between age 62 and 65 a pre-pension is payable accrued at a rate of 1.081% of the salary up to €43,807 (2004) and 1.0135% for fixed salary in excess of this ceiling.

Up to a fixed salary of €43,807 (2004), a final pay arrangement is applicable. The underlying accrual rate is 2.25% per annum. For fixed salary in excess of the ceiling a defined contribution promise is applicable. Death after retirement benefits are financed out of accrued old age pension effectively reducing the old age pension accrual to 1.75% if a partner benefit is accrued.

The employee contribution amounts to 2% of fixed salary in excess of €43,807 (2004).

Chairman and Mr. Büche

The pension arrangements for Mr. Ruys, Chairman, and Mr. Büche are based on a defined benefit plan.

The Chairman has a pension arrangement that equates to a pension benefit of 65% of fixed salary at the date of retirement. The employee contribution amounts to 2% of fixed salary in excess of €43,807

(2004). The partner pension is 70% of the old age pension.

Mr. Büche has a pension arrangement under the Austrian Brau Union Pension Fund, that currently equates to a benefit of 78% of fixed salary at the date of retirement. The partner pension is 50% of the old age pension.

Valuation of individual Pension Liabilities

The table below provides an overview of the pension expense per individual Executive Board member assessed in accordance with the funding system currently used in the Netherlands and Austria respectively. These are deemed to equal the finance cost to the company as referred to in the Dutch

Corporate Governance Code.

Pension expense per Executive Board member (accrued locally)

> in euros

Ruys

Bolland

147,500

91,200

Van Boxmeer

Hooft Graafland

86,400

92,700

Büche 102,500

The pension policy is under review.

Loans

Heineken’s policy is not to provide loans to its Chairman and Executive Board members.

There are currently no loans outstanding.

Employment contracts

Employment contracts for the Chairman and the members of the Executive Board are entered into for an indefinite period of time. The contract for Mr. Büche will end in 2006. There are no specified notice periods and no exit arrangements included.

Payments to former members of the Executive Board in 2004

In 2004 Mr. Vuursteen was entitled to a long-term bonus payment of €401,092 for the period

2001-2002 and Mr. Lubsen was entitled to a long-term bonus payment of €375,839. With respect to past Executive Board members an amount of €240,000 was paid on behalf of pensions.



Remuneration policy as from 2005

As from 2005, a new remuneration policy will be introduced. The remuneration policy is subject to shareholder adoption. It will take into account both company specific circumstances and the social context in determining the timing of implementation.

The policy aims to ensure that highly qualified managers can be attracted and retained as members of the Executive Board. The remuneration package is composed as such that it provides a strong focus on the strategic short and long-term performance of the Company.

Remuneration structure

The remuneration package of the Executive Board will include a base salary, an annual bonus and a long-term incentive. With the remuneration policy fully implemented, the fixed salary will account for 45% of the total remuneration package. The variable remuneration is divided equally between short-term and long-term. This will ensure a balanced focus, on both short-term and long-term performance.

The company aims at consistency in the structure of the remuneration packages of both Executive

Board members and senior Heineken executives. The performance-related elements in Executive

Board members’ remuneration will be emphasized more strongly than those of senior executives, reflecting the principle of increasing performance sensitivity in line with the ability to impact on group results.

To determine the remuneration package for the members of the Executive Board, internal pay relativities and relevant market data have been used. For internal pay relativities, it was assessed what differential would fairly reflect the different levels of responsibility between the Executive

Board and senior executives.

For the market reference, a specific labour market was defined. The remuneration package of the

Chairman will be based on a premium of 30% above the remuneration level of the other members of the Executive Board.

Heineken operates in a highly international labour market peer group and is headquartered in the Netherlands. Consequently, the main reference for market competitive salary levels will be primarily other Dutch multinational companies (75%). To reflect the specific business of Heineken a minority of Continental European companies that operate in the market of branded consumer products will be included (25%).

Heineken Labour Market Peer Group

• Akzo Nobel (NL)

• DSM (NL)

• Reed Elsevier (NL)

• Royal Ahold (NL)

• Royal KPN (NL)

• Royal Numico (NL)

• TPG (NL)

• Unilever (NL)

• VNU (NL)

• Wolters Kluwer (NL)

• Inbev (B)

• Henkel (G)

• L’Oreal (F)

• Nestlé (CH)



The remuneration comparisons were scaled to reflect a similar size of Heineken, a technique commonly used by independent remuneration experts. It is planned to move salary levels of the members of the Executive Board to the median market level. The current salary levels are significantly below the median market level.

Base salary

For the members of the Executive Board, the remuneration policy envisages a base salary that is at the median level of the labour market peer group. The base salary for the Chairman will be set 30% above the base salary for the members of the Executive Board. The Supervisory Board intends to adjust base salaries towards policy levels in 2006, i.e. for the Executive Board members to €525,000 and for the Chairman to €680,000. In 2005, the base salary levels will be adjusted by 16.7% in line with the Consumer Price Index (CBS) since 1999 to €418,000 for the Executive Board Members and to

€634,000 for the Chairman.

Short-term incentive

A new short-term incentive will be introduced. At target level, the short-term incentive level for the

Chairman will be €422,500 and for the members of the Executive Board €325,000. The maximum pay-out will not exceed 1.4 times the target bonus level.

The emphasis of the short-term incentive will be on annual operational performance.

Organic net profit growth will be the strategic measure to assess the operational performance of Heineken on a one year basis and accounts for 75% of the bonus opportunity. Organic net profit growth is defined as growth in net profit excluding exchange rate effects, changes in consolidation, amortisation of goodwill, exceptional items and changes in accounting policies.

Each year, the Supervisory Board will determine an ambitious, yet realistic organic net profit growth target. The threshold level of pay-out is set at 60% of targeted performance. A linear pay-out curve applies. Part of the pay-out will be subject to meeting an acceptable cash conversion rate.

The remaining 25% of the annual bonus will be linked to special yearly targets.

The specific targets qualify as commercially sensitive information and cannot be disclosed.

Long-term incentive

A new long-term incentive for the Executive Board will be presented for shareholder approval.

It will be a performance based share plan and a similar plan will also be implemented for senior management in 2006.

Each year, a number of shares will be conditionally awarded, subject to meeting a stretching performance target after three years. The value of shares that will be conditionally awarded equals

€325,000 for the members of the Executive Board and €422,500 for the Chairman. Based on the share price as per 31 December 2004 (€24.53), this corresponds to 13,250 shares for the members of the

Executive Board and 17,225 shares for the Chairman. When conditionally awarded, the value of one share is not discounted for the performance linkage.

The performance condition will be total shareholder return, measured over a three year period.

The total shareholder return will be measured relative to a performance peer group. If, over a three year period, Heineken performs better than the median of the peer group the Executive Board will be rewarded with shares. These shares will be subject to a holding restriction of two years. Below median, no shares will be awarded. At sixth position, 25% of the target number will be awarded. A linear vesting schedule applies, with 50% of the target amount vesting at fifth position and 75% at fourth position.

At third position, the target amount will vest. If Heineken is ranked first, the maximum number of shares will vest. This is 1.5 times the target amount of shares. Heineken is currently ranked eleventh.

The performance peer group is different from the labour market peer group and includes companies with which Heineken competes for shareholder preference. It is composed of other brewers, but also includes European companies that operate in the branded consumer products market.



Performance Peer Group

• Anheuser-Busch

• Carlsberg

• InBev

• SABMiller

• Scottish & Newcastle

• Henkel

• L’Oreal

• LVMH/PPR

• Nestlé

• Numico

• Unilever

Employment contracts

New contracts of employment will be agreed with the Executive Board. These contracts will include a notice period of 3 months for the Board member and 6 months for the Company. In the new contracts, similar to the previous contracts, there will be no appointment period and exit arrangement.

This is not in line with the Dutch Corporate Governance Code. Best practice provision II.1.1, governing the appointment period of Executive Board members, and provision II.2.7, governing the exit arrangement for Executive Board members, cannot be complied with for as long as compliance to these provisions implies a violation of Dutch Law.

Appreciation

The Supervisory Board would like to express its thanks to the Executive Board and all the employees for their contribution and commitment in the year 2004.

Amsterdam, 21 February 2005 Supervisory Board

Van Lede

De Jong

Das de Carvalho

Risseeuw

Hessels




20 > Heineken N.V. Annual Report 2004 > Enjoyment

Enjoyment: A value enshrined in the nature and culture of our company.

Responsibly consumed, our brands fit with and add to the pleasures of life.

E N J O Y M E N T

> www.enjoyheinekenresponsibly.com


>

Report of the Executive Board


22 > Heineken N.V. Annual Report 2004 > Report of the Executive Board

Chairman’s Message

Building the future today

From left to right > Jean François van Boxmeer > Karl Büche > Thony Ruys > Marc Bolland > René Hooft Graafland

€

1,248 Operating profit million, +2.1%

€

537 Net profit million, –32.7%

€

791

Net profit

(excl. exceptional items and amortisation of goodwill) million, –1.9%

€

10

121.8

Total beer sales million hectolitres, +11.8%

Net turnover billion, +8.1%

22.8

Heineken beer sales million hectolitres, +3.1%


23 > Heineken N.V. Annual Report 2004 > Report of the Executive Board > Chairman’s Message

I N 2 0 0 4 , W E A G A I N D E M O N S T R AT E D H O W H E I N E K E N H A S B E E N A B L E T O R E M A I N O N E O F T H E W O R L D ’ S

L E A D I N G C O N S U M E R A N D C O R P O R AT E B R A N D S F O R M O R E T H A N 1 3 0 Y E A R S . I T WA S A Y E A R I N W H I C H

W E N O T O N LY C O N F R O N T E D D I R E C T LY T H E C H A L L E N G E S I N M A N Y O F O U R M A R K E T S T O D E L I V E R

O R G A N I C P R O F I T G R O W T H , B U T A L S O C O N T I N U E D T O F O C U S O N B U I L D I N G T H E L O N G - T E R M F U T U R E

O F O U R B R A N D S A N D B U S I N E S S .

This approach has been both a philosophy and a differentiator versus our competitors since

Heineken was founded in 1864. It has enabled us to provide our shareholders with above average returns for the sector over the long-term, and has built Heineken into the world’s most valuable international beer brand.

Against this background our 2004 results showed progress, particularly the organic growth in net profit of 8.1%, in turnover of 1.4% and in volumes of 1.5%. There were, though, a number of factors that adversely affected the development of our profit, most notably the write-down in the value of our 20% stake in Kaiser, a negative exchange rate effect and the non-recurrence of large exceptional items occuring in 2003. There were pressures too on margins due to shifts in drinking occasions

(less on-premise), shifts in packaging (less draft) and the increasing strength of our retail customers.

The consolidation of the industry in 2004 was also a notable feature and will continue to be so in the future. We will, as we have always done, continue to play our part in this process.

Western Europe remained probably our most challenging trading environment. During the year, markets were under pressure due to a combination of declining consumption, increased competition and poor weather. In this context we focused on increasing our share of the markets through strong, creative marketing and on ensuring that we maximised our efficiency across all of our operations.

In 2004, our cultural and structural change programme, ‘Taking Heineken to the Next Level’ has given us greater clarity on how and where we should focus our energies to build the platforms on which future growth will be built.

Driving performance

> DRIVING THE GROW TH OF OUR BRANDS

AND IMPROVING OUR FINANCIAL PERFORMANCE

Innovation is a core part of our brands’ growth strategy. It is fuelled by the needs of the consumer and is an important driver of growth. In 2005, we will again introduce a number of innovations across liquid, packaging and format that will serve to further endorse our leadership credentials.

Building ‘next generation’ sales and marketing excellence will be critical for delivering future organic growth. We are gaining a better insight into the needs of the consumer and into which brands will deliver the greatest value for consumers, trade partners and shareholders. In 2004, we saw positive progress with portfolio reviews conducted in several key markets and we will continue this approach in the coming year.

Growing the Heineken brand , the ‘jewel in our crown’, will always be one of our highest strategic priorities and we are committed to extending the brand’s clear leadership of the international premium segment. Driving marketing efficiency and effectiveness and finding new, high-profile ways to engage consumers has been a key focus in 2004. It will again be highly evident in 2005 as we aim to put even greater distance between the Heineken brand and others trying to establish their international credentials.



Rigorous cash f low management has delivered more than €500 million of additional cash over the last 18 months. Next to strict working capital management, we will continue to boost our cash flow through specific focus on reducing capital invested in areas including commercial fixed assets, on-premise loans and technical investments.

Cost reduction was again high on our agenda in 2004. During the year we took the tough, but necessary decisions to close 6 breweries. Alongside this, we increased the focus on the reduction of other areas of our cost base. This is a continuing driver of our ability to remain globally competitive.

Shaping the business

> ENSURING THAT ACQUISITIONS, PARTNERSHIPS

AND DISTRIBUTION STRATEGIES CREATE VALUE

Acquisitions will be as much a feature of our future as they have been of our past.

In 2004, we were again active. As a strategic move we strengthened our positions in fast growing markets such as China and Russia in particular and we also increased our share in several existing operations. Moving forward, where the right opportunities to create value exist, we will continue to build our business in the world’s high growth beer markets.

Partnerships too have long been a feature of the way that we do business and 2004 was no exception. In the USA we concluded an agreement with FEMSA in Mexico, to distribute their strongly growing brands. In South Africa, we launched Brandhouse, a joint venture business with Diageo and Namibia Breweries; in Australia, we entered into a joint venture with Lion Nathan. Each of these partnerships will help to build and strengthen our position in these important markets.

Integration of Brau Union into the business is on track in terms of both timing and the delivery of the savings and synergies we said we would generate. This has been a significant achievement that lays the foundation for future success. We believe the Central and Eastern European beer markets will be a strong source of growth and the measures we are putting in place now across that part of the

Heineken organisation will secure both our leadership position in many markets and our longer-term profit growth.

Net profit > in millions of euros

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

301

297

345

445

516

621

767

795

798

537

Group volume > in millions of hectolitres

2000

2001

2002

2003

2004

74.8

81.0

84.8

99.0

112.6



Building a challenging and supportive culture

> RELEASING THE POTENTIAL OF OUR EMPLOYEES

AND BUILDING A TRUE PERFORMANCE BASED CULTURE

Performance management and leadership development go hand in hand. Last year we began to truly unlock the value in developing strong leadership capability within the business through a global performance management system amongst our most senior executives. As we move into

2005, we will have a consistent way of setting, measuring and ultimately achieving personal and professional development objectives.

Becoming a learning organisation was a commitment we made in 2004. We established ‘passion for learning’ as one of our four ways of working. We believe embedding this philosophy will help us maintain our edge and encourage us to attempt new and different approaches to long-standing issues and challenges.

Responsibility and sustainability

The year 2004 ended with a tragedy in Asia on a massive human and geographic scale. We take great pride in the way in which our people have responded, raising money in a variety of ways. Alongside this, we as an organisation have made a significant donation, our Indonesian operation has provided vitamin-enriched soft drinks to the disaster areas and we have identified how best to focus our efforts in order to play a part in the long-term task of re-constructing communities and, ultimately, lives.

Elsewhere in the business, during 2004, we demonstrated our approach to responsibility and sustainability in other ways. We extended our pioneering AIDS programme, which offers free voluntary testing and medical care for employees and their families, to Asia; we published an award winning sustainability report covering the years 2002 and 2003; we developed and launched a

Code of Business Conduct, and we revised our already stringent approach to responsible marketing.

All of these initiatives are critical components of both our business and our culture and underpin everything we do.

Global initiatives, local delivery

As you read through the rest of this report We hope you will recognise how some of the platforms for growth have taken shape and how we have managed the balance between providing returns now and securing growth in the future.

We have the people, the talent and the desire to continue this growth and we are proud of, and grateful for what each and every one of our employees has contributed to our performance this year.

Together, we are passionately committed to ensuring that Heineken remains, as now, one of the world’s great consumer and corporate brands.

Amsterdam, 21 February 2005

Thony Ruys

Chairman of the Executive Board



Outlook 2005

Profit forecast

For the year 2005 we expect a further organic growth in net profit. Worldwide, the premium segment of the beer market will continue to capture an increasing share of the market, benefiting sales volume of the Heineken brand in particular, and contributing to an improvement in sales mix and results across the business.

Heineken expects further organic growth in net profit for the year 2005. Taking into account the impact of the increase in marketing and innovation spend, the full benefits of which will be realised in the medium-term, this growth will not exceed mid-single digits.

Heineken’s long-term profit forecast is positive, as a result of the strength of its brand portfolio, its consistent and intensified spend on innovation and in the Heineken brand, its strong distribution structure and the focus on efficiency improvements.

However, as we stated in February and September 2004, the continued currency impact, particularly of the US dollar, is expected to outweigh predicted organic profit growth and contributions from new acquisitions. This may result in a decrease in net profit for the full year before exceptional items and brand and goodwill amortisation.

Heineken will apply IFRS in full in 2005 and restate its 2004 financial statements accordingly. The profit outlook for the full year 2005 has been prepared, based on the assumed IFRS impact.

In 2004, and over the last few years, Heineken has consistently built the platforms for future profit growth. We have expanded our position in developing beer markets, we have increased our presence through acquisitions and partnerships in the premium segment of a number of important beer markets, we have strengthened our brands and brand portfolios and we have lowered our cost base.

We will increase our marketing investments, particularly in the USA and Western Europe, and we will work on further expanding our business in 2005.

We are positive on the long-term growth in sales and profit of our company. However, the adverse impact of currency movements on net profit, in particular of the US dollar, will exceed the organic profit growth and the positive contribution of newly acquired businesses.

With the expected slow improvement in the economic situation, and hopefully better weather


27 > Heineken N.V. Annual Report 2004 > Report of the Executive Board > Outlook 2005 in Europe, a continuing modest growth of the imported beer segment in the United States and a further increase of beer consumption in emerging markets, we expect again to increase our sales volume in 2005.

The most challenging trading environment in 2004 was Western Europe. In 2005 we believe the gradual improvement in the economy will have a positive effect on the traffic in the on-trade and result in a lessening of the promotion pressure in the off-trade. Our sales volume in emerging markets will be positively affected by the increase of purchasing power of the local populations as well as by shifts away from traditional drinks towards beer. In the USA the addition of the brands of the Mexican brewer FEMSA to our existing portfolio will add to our sales volume and profitability. Heineken has in the recent past expanded its presence in growing beer markets such as Central Europe, Russia,

China and parts of Africa.

Uncertainty remains in the field of government actions in the form of excise duty increases, advertising limitations and smoking bans in the on-trade. In the short-term, government intervention can have a disruptive effect on the beer market and our sales volume.

Worldwide, the premium segment of the beer market is expected to develop well and to capture an increasing part of the market. Our flagship brand Heineken will benefit from this development and will contribute to the improvement in our sales mix and operating result, although part of this effect will be undone by a shift of beer sales from the on-trade to the lower margin off-trade sales channel. The efforts of our operating companies in their markets to strengthen their portfolio of local and international brands will also have a beneficial effect on the product mix. Innovation and new marketing initiatives will fuel the further growth of our key brands.

We will continue to reduce cost and increase efficiency at our breweries, in our distribution network and in other areas of the business. The unlocking of the identified synergies at Brau Union, in Central Europe, and at the newly acquired companies will also contribute to our profitability.

Increasing competition, also from premium spirits and wine, and the introduction of our new home draft beer systems and other packaging innovations, will require higher marketing investments.

The cost of raw material and packaging materials are expected to increase in line with inflation.

Investments

Investments in tangible fixed assets in 2005 are expected to total around €850 million. Most of the investments are related to replacement of equipment. In 2005, the start of building the new brewery in Seville accounts for a capital expenditure in 2005 of €102 million.

These investments will in principle be financed from cash flow, supplemented where necessary with available credit facilities.

In 2005 we will invest an additional €100 million in sales, marketing and innovation initiatives.

Our acquisition of a participating interest in Würzburger Hofbräu A.G. announced in early 2005 involves a net cash outflow of €17 million, which will be financed from existing cash reserves.

Heineken will continue to seek continuous improvements and efficiency gains. In Central Europe the streamlining of our operations will continue, while in Western Europe a number of larger reorganisations are in progress. Therefore we expect that, on a like-for-like basis, the downward trend in the number of employees will continue.



Operational Review

Brand strategy

> BUILDING A WINNING BRAND PORTFOLIO CENTRED AROUND HEINEKEN

Our brand strategy is to build a strong portfolio that combines the power of local and international brands and which has Heineken at its centre. The consistent growth of our brands requires solid creative brand management, which we coordinate centrally. By carefully balancing our brand portfolios and achieving optimal distribution and coverage, we aim to build and sustain strong positions in local markets.

For the Heineken and Amstel brands, we develop and maintain central guidelines and standards for brand style, brand value and brand development. At a central level we also support local management of the entire brand portfolios, through benchmarking programmes designed to optimise marketing, sales and distribution.

Commercial Excellence

> ORGANIC GROW TH IS CRITICAL FOR THE FUTURE OF OUR BUSINESS

In 2004 we launched a global strategic initiative – ‘Building Winning Portfolios!’. This long-term initiative is aimed at systematically reviewing and improving the strength of portfolios in a number of key markets and identifying those brands, that create value. Where unmet consumer needs are identified, we are accelerating the introduction of new, consumer-relevant brand propositions.

In 2005 we will have completed reviews across the majority of key markets. In parallel, there is also a strong focus on building the excellence required in sales and marketing to execute the portfolio plans.

To leverage our global strength and to accellerate organic growth we made good progress in optimising operating companies’ commercial policies. We did this through sharing knowledge and experience and developing excellent brand and portfolio management skills alongside world-class channel, sales and distribution processes. Measuring and monitoring how well we are performing is critical to success. Given this, we paid special attention in 2004 to improving the effectiveness of commercial spend. The result will be reallocations of commercial spend, increased return on commercial investment and finally, performance improvement and value creation.

In addition, we introduced a global standard for measuring brand performance. This ‘Heineken

Brand Dashboard’, is a new system for measuring and reporting all essential key performance indicators on sales, marketing and finance relating to the Heineken brand. This tool will make it easier to diagnose brand health issues and to have a consistent view of the most successful growth drivers for the Heineken brand across the business. Further extensions of the ‘dashboard’ to track and manage other brands in the same way are planned in 2005.

At the end of 2004, our most senior commercial managers exchanged ideas and received demonstrations of best practice at a two-day workshop – ‘Impact 2005’. These two days resulted in a common understanding of the goals and priorities as well as in concrete plans to leverage our portfolio strength in all our key markets. It is an indication of how we intend to operate and build our capability in the future.

Brands

In 2004, our total beer volume was made up as follows: Heineken brand 18.7%, Amstel 9.1% and other beer brands 72.2%. In addition to Heineken and Amstel, our international brands comprise a collection of specialty beers to satisfy the consumer’s growing demand for variety. Sales of these high margin products allow us to drive improvement in the sales mix.


29 > Heineken N.V. Annual Report 2004 > Report of the Executive Board > Operational Review

Total Heineken sales > in millions of hectolitres

2000

2001

2002

2003

2004

21.6

22.4

22.9

22.1

22.8

Heineken

> THE WORLD’S MOST VALUABLE INTERNATIONAL PREMIUM BEER BRAND

Heineken is Europe’s leading beer brand and is the world’s most valuable international premium beer brand. In 2004, the Heineken brand once again reinforced its position in virtually all markets.

Sales of Heineken beer worldwide increased 3.1% to 22.8 million hectolitres.

The strongest growth markets in Europe for Heineken in 2004 were Russia, Poland and Spain. In the more established European markets – France, Italy, the Netherlands, Ireland and Greece – Heineken was able to maintain or strengthen its position. In the United Kingdom, where the brand was withdrawn and fully re-launched early 2003, it continues to achieve growth in volume and distribution.

With new business structures and dramatically improved distribution in Central and Eastern Europe, the brand was able to make good progress across the region, including a move to production in

Romania in December, a highly successful relaunch in Austria and strong growth throughout the year in Poland.

Strong growth was also achieved in several markets in the Asia Pacific region, particularly Vietnam,

New Zealand and Taiwan. In China, thanks to our new local production strategy and increased focus, we saw a substantial improvement compared with 2003, which was a difficult year. In August,

Heineken’s position in Australia was strengthened through a sales and marketing joint-venture with

Lion Nathan, Australia’s second-largest brewer.

In South America, Heineken achieved strong volume growth in Chile and Argentina and also grew in Puerto Rico. In North America, USA and Canada, we accomplished another year of growth.

In Heineken’s main markets in Africa, the Heineken brand continued to perform well. Brandhouse, the new joint-venture with Diageo and Namibia Breweries, is supporting growth in South Africa, and will be an important platform for future growth. South Africa saw strong brand growth during the year. In Nigeria, we began local production of the Heineken brand following a long ban on imported beers.



Increasing value through creative marketing and communication

The premium positioning of the Heineken brand is crucial to our growth strategy. Maintaining this positioning requires a combination of the highest quality brewing process delivering the highest quality beer and creative and compelling marketing.

As the brand extends its global market share, and its positioning becomes more consistent, our marketing is becoming increasingly international. However, within the marketing mix, there will always be a requirement for locally driven campaigns and support. In 2004 we developed a new universal tagline for Heineken advertising – ‘Heineken. Meet you there.’ – and redesigned the www.heineken.com

website. In addition, we developed a new label with a silver rim to be used internationally and made the decision at the end of 2004 to issue every Heineken bottle and can with a back label promoting responsible drinking.

Centrally, we developed a number of high-profile, quality television campaigns with universal appeal, featuring high profile, comtemporary celebrities. The latest in this series features the actor

Brad Pitt, in a chase with paparazzi following his purchase of a six-pack of Heineken. The advert was officially launched early 2005 during the half-time ‘Superbowl’ break in the USA. It will be made available in major Heineken countries as of the second quarter of 2005.

National advertising continues to play a prominent role in promoting our brands. In 2004, we tapped into our national advertising experience in Italy, Russia, Poland and the Netherlands to produce a number of international co-productions. Such joint ventures help to enhance and reinforce the brand’s international credentials.

Sponsorship

Our sponsorship strategy for the Heineken brand is to build brand equity through relevant associations with high-impact, high-profile sports and music events, films and the world of Hollywood.

Film

For the Heineken brand we continue also to seek association with ‘blockbuster’ movies with a relevant demographic profile. We find this particularly useful for establishing the brand position in crowded marketplaces. In 2004, we won the international Reggie award for our sponsorship of the Matrix series of films.

Sports

In 2004 we sponsored numerous sports events at local and regional level. The highlight was our sponsorship of the year’s most important international sports event, the 2004 Olympic Games in

Athens. The sponsorship was executed over three years by Athenian Brewery and was a core

Geographical distribution of Group volume

> in thousands of hectolitres

Western Europe


The Americas


Asia Pacific

Group volume*

2004

43,494

31,579

14,546

13,483

9,526

112,628

2003

* Group volume = volume sold by consolidated companies and Heineken beers brewed under licence by third parties.

44,727

20,611

12,511

12,706

8,413

98,968

Change (%)

– 2.8

53.2

16.3

6.1

13.2

13.8


31 > Heineken N.V. Annual Report 2004 > Report of the Executive Board > Operational Review component in strengthening the brand equity, re-inforcing the international, premium positioning and driving spontaneous awareness of the brand. Along the way, we were able to give thousands of Heineken partners, suppliers and employees a unique and intense Heineken brand experience.

Following the Heineken brand’s highly successful sponsorship of the Rugby World Cup at the end of 2003, our continued sponsorship of the Heineken Cup across key European markets maintained our credentials in the sport and also helped support the brand’s positioning, drive volume and recruit new consumers to the brand.

Music

The Thirst dance music programme continued to draw crowds in venues around the world and won many international awards. The programme, which brings the world’s leading DJs in a travelling music show is now in its third year. Thirst is a significant part of our strategy to build presence and credibility in contemporary music – an increasingly important marketing and recruitment platform for the brand.

Total Amstel sales > in millions of hectolitres

Amstel

2000

2001

2002

2003

2004

10.8

10.8

10.8

11.0

11.1

The Amstel Brand is available in over 90 markets around the world and ranks as one of the top international beer brands. It is the third largest beer brand in Europe, with the Heineken brand occupying the number one position. In 2004 Amstel’s volume grew to 11.1 million hectolitres, benefiting from the double-digit growth in developing markets outside of Western Europe, while its core European volume base remained under pressure due to the weakness of the mainstream segment in Europe.

Among the key growth areas for Amstel in 2004 were Sub-Saharan Africa, North America, the Middle

East, Kazakhstan, the United Kingdom and Ireland. In Spain and the Netherlands Amstel maintained its position, whereas in France, other markets around the Mediterranean and Central European markets,

Amstel remained stable.



Marketing and sponsoring

We continue to focus on building Amstel’s brand value, on extending its product range and on extending its global reach. In 2004, we introduced Amstel to a number of markets and optimised our portfolio of line extensions to appeal to evolving consumer preferences. Embracing the trend towards lower calorie beers, we developed the new ‘Amstel Lite’ and introduced it in the Netherlands. In France we introduced an alcohol-free variant – ‘Amstel Free’ – in the on-trade. In Spain we strengthened the positioning of Amstel beer by changing the name to ‘Amstel’ from ‘Amstel Aguila’.

In line with our portfolio approach, we are developing a revised strategy for Amstel that will provide a clear, distinctive and sustainable role for the brand within our overall portfolio.

Aligned with this will be the development of a more efficient system for tracking Amstel’s performance world-wide in a systematic way. In due course we plan to develop an ‘Amstel Brand Dashboard’ similar to the system already developed for Heineken.

Amstel once again sponsored a number of high-profile sports events. The year 2004 marked the

10th anniversary of Amstel’s sponsorship of the UEFA Champions League. Other high-profile sponsorships include the PGA of America golf tour and the Amstel Gold cycling race in the Netherlands.

These sponsorships helped to boost consumer awareness and purchasing preference among millions of sports fans around the world.

Innovation, Research & Development

To a large degree, the ability of Heineken to sustain growth depends on our ability to innovate across products, packaging and drinking occasions. It is our understanding of the consumer, which shapes our innovation ideas and it is world-class Research & Development (R&D) which enables those ideas to be realised.

Much of our R&D activity is carried out locally in our operating companies and coordinated centrally.

The programme covers the entire supply chain, from the evaluation of new and improved strains of barley and hops to the development of new products and packaging.

An important focus of our R&D efforts is on developing and refining new draught beer systems, both for the on- and off-trade. In February 2004 we launched BeerTender® in the Netherlands, a returnable 4-litre keg and tap system that allows consumers to enjoy quality draught beer at home.

Based on its successful launch, we now plan to introduce BeerTender® in a number of other countries.

We also continue to work on improvements to the features and functionality of David, our successful draught beer system for small on-trade outlets, launched in 2002.

Packaging innovations in 2004 included the further roll-out of the Heineken ‘Identity’ can. Across markets, in which the can has been launched, results have confirmed success in terms of positive consumer perception, premium positioning and volume growth. Through the year, we also created new designs for secondary packaging for Heineken and Amstel.



In addition to research into product, packaging and dispense systems, we continue to explore ways of achieving greater operational efficiency and environmental improvements across production and the supply chain.

The INEX Innovation Experience

In 2004, much of our ongoing R&D work was showcased at a new one-day annual innovation event:

INEX – the Heineken Innovation Experience. The event drew more than 300 participants from around the Heineken world, all of whom came to share ideas and witness innovation in action.

The event ended with a presentation to launch the 2004 Innovation Contest, aimed at fostering an innovative and competitive spirit throughout the company. Markets will present their innovation ideas at INEX 2005 in March, and a jury will select the first winner of the Heineken Innovation Award.

Knowledge management: the brewery brain bank

Over our company’s 140-year history, we have built a wealth and depth of technical knowledge relating to the business of brewing and packaging beer. We value this knowledge very highly, but only in the last ten years have we made a concerted effort to document and share it throughout the company.

At the end of 2004, the Heineken knowledge management system comprised a highly sophisticated digital database accessible to all technical staff worldwide. It brings together the experiences, the problems and the solutions of generations of technical staff at our breweries worldwide.

Investor Relations

Heineken takes a proactive role in maintaining an open dialogue with shareholders and bondholders, providing accurate and complete information in a timely and consistent way. We do this through presentations, webcasts, press releases, regular briefings and open days with analysts, fund managers and shareholder associations.

In 2004, we gave several business and financial presentations and improved audience access by webcasting them live from London and New York. One of these presentations was directed solely at sustainable investment portfolio managers. In addition, Heineken took part in a number of international conferences organised by third parties and other activities for institutional investors.

For retail investors, who are mainly based in the Netherlands, Heineken organised company visits and gave presentations. In 2005 we plan to increase the number of direct webcasts and presentations to analysts and fund managers.

To improve further our dialogue with financial audiences we make significant and increasing use of the website www.heinekeninternational.com

Sustainability

As a company we aim to achieve more than just superior financial results. We are committed to sustainability in the broadest sense. Our definition covers economic sustainability, the working conditions and general health, safety and well-being of our employees and the support of the local communities in which we operate. Sustainability covers everything from the quality of our products to protecting the environment. We expect to be judged on all these elements and we invest great time and resources in meeting our ever-rising standards and targets.

Sustainability reporting

In 2004 we published the first comprehensive Sustainability Report. This publication ‘Towards

Sustainability’ analyses the period 2002-2003, presenting a thorough and broad overview of our activities worldwide and how they score according to three dimensions of sustainability: economy, ecology and society.

The report was well received both internally and externally, winning the prestigious Dutch ACC



Award for best sustainability report by a Dutch company. In recognition of our continuous focus on Corporate Social Responsibility, our rating as measured by the SAM/Dow Jones STOXX benchmark rose by 6% in 2004. This puts Heineken in the number 4 position in the beverages sector. Our goal is to reach the top 3. During the year, Heineken’s listing in the FTSE4 Good index was maintained.

In 2005, Heineken will not publish a full sustainability report, but will provide a performance update. Our intention is to publish this in the first half of 2005 and to provide periodic updates on this subject on the website at www.heinekeninternational.com/responsibility .

In addition to the full Sustainability Report, in 2004 we published the brochure ‘Living our

Responsibility’. This publication is intended mainly for internal use and provides case studies of our commitment to social responsibility from around the world.

Business conduct

In 2004, the Heineken Code of Business Conduct and the Heineken Code of Whistle Blowing were introduced. Both documents are available on our corporate website.

The Code of Business Conduct sets rules and guidelines on issues ranging from compliance with local rules and regulations, fraud prevention, and dealing with gifts and corruption, to conflict of interest and chain responsibility. All operating companies are expected to have translated the

Heineken Code of Business Conduct into a local code before 30 June 2005. We have set up a review board to ensure consistency of the local codes with the Heineken Code.

The Heineken Code of Whistle Blowing, containing provisions for internal disclosure of serious wrongdoings and/or malpractice, will be rolled out in 2005.

Environmental sustainability

Our respect for the environment starts with strict control of what goes into and comes out of our breweries and facilities around the world. Our environmental policy addresses all links in the supply chain, from the procurement of materials and services, through brewing and packaging, distribution and consumption of our products to the processing of by-products, wastewater and waste. We adhere strictly to national rules and regulations regarding waste and wastewater disposal. Where local regulatory requirements do not exist, we apply our own Heineken standards.

In our most recent Sustainability Report we provide in-depth and extensive environmental information on aspects including the origin of primary sources such as water, fuel, indirect CO

2 emissions, ozone layer depletion due to the leakage of refrigerants and the destination of our byproducts. Our enhanced alertness to the environmental aspects of brewing and selling beer inevitably reveals areas requiring improvements.

The efficient use of raw materials, water and energy is a simple but critical starting point for our responsibility. In this regard, we have a programme to promote energy awareness throughout the company that is now well underway. We set a target of reducing energy by 7.5% between 2002 and 2004 and met it. We continuously research new and improved ways of reducing natural resources through our ‘Aware of Water’ and ‘Aware of Energy’ programmes. The many specific actions relating to environmental improvements undertaken in 2004 include the civil works for a new wastewater treatment plant in Kaduna, Nigeria. The plant will be operational in 2005.

Health and safety

Heineken makes every effort to prevent circumstances arising at its operations that might have a negative effect on the health and safety of its employees. Heineken has a global health and safety policy that serves as a basis for individual operating companies.

The operating companies, in turn, provide statistics annually and a more extensive report every two years. We develop and apply our own Heineken standards where local regulatory requirements do not exist. That means providing health care to employees and their families where medical services are inadequate. It also means providing employees regularly with information and training to protect them from unsafe and unhealthy situations.

In the last few years we have run a programme in Africa to promote the use of personal protective


35 > Heineken N.V. Annual Report 2004 > Report of the Executive Board > Operational Review equipment among workers. As a result of this ‘Getting the stars protected’ initiative, many breweries have replaced old and inadequate protective equipment with new recommended materials. The programme has helped to reduce accident frequency to 3.5 per 100 employees per year in Africa, down from 5.5 per 100 in 2001. Our target is to reduce that figure to 2.2 by 2006. Absentee days have also declined, reflecting a drop in the severity of workplace accidents, to 53 per 100 full-time employees in

2003, from 79 per 100 in 2001. Based on this success, we launched this programme in both Asia and the Caribbean in 2004.

In breweries where adequate basic medical services are lacking, Heineken provides comprehensive medical care to employees and dependents. In addition, Heineken has a company AIDS programme that provides free, voluntary testing and medical care to Heineken employees and their families. The programme was extended to Asia. We were encouraged by the results and presented the outlines of our policy during the 2004 World AIDS Conference in Bangkok.

Alcohol and society

As a brewing company we are acutely aware of the risk posed by alcohol, particularly when consumed irresponsibly. The basis of our Alcohol Policy is our conviction that our beers, when consumed responsibly, fit in with a positive lifestyle. We do, however, recognise that some people consume our products at the wrong time, for the wrong reasons or in the wrong quantities. We are committed to raising consumer awareness about responsible consumption and what exactly this means.

In 2004 we became the first alcohol company in the world to link a responsibility message on bottles, cans and secondary packaging with a dedicated alcohol education website. This site, www.enjoyheinekenresponsibly.com

allows consumers to find information on the effects of alcohol, read guidelines on responsible drinking and be directed via links to other organisations with more specialised knowledge on the subject. The label bearing the website and message will appear on every

Heineken bottle around the world.

We are committed to promoting our products in a responsible way to consumers above the legal drinking age. We do not want advertisements that may be seen by consumers to condone in any way the abuse of alcohol, particularly our brands. We therefore work continuously to strengthen the basis of responsible marketing and see this as a permanently ongoing process. Efforts in this area in 2004 included a new on-line training course for senior commercial management, designed to deepen their understanding of our guidelines on responsible commercial communication.

In addition, we are developing programmes that promote responsible drinking and help prevent alcohol abuse. Through partnerships with industry organisations such as the International Center for Alcohol Policies, the Amsterdam Group of international alcohol beverage producers and the European trade association Brewers of Europe, we develop international programmes that can be tailored to the specific cultural and linguistic needs of each separate market.

In 2004 we fine-tuned our thinking on how best to convey responsible consumption messages in our brand communication.

In Italy we developed an award winning ‘responsibility’ TV commercial called ‘Pensaci’ – think about it – that addresses the theme of drink-driving in an innovative and thought-provoking manner.

And of course, our Alcohol Policy also includes those within our own organization. Our Cool@Work programme, which sets out for new employees the principles of responsible consumption is a vital part of the education process. We have also developed a special training for our sales force, which recognises the special conditions under which they operate. In future, we plan to introduce the alcohol and work programme to companies that have recently joined the

Heineken Group.



Geographical distribution of personnel > in numbers

Western Europe (excluding Netherlands)



Americas

Netherlands

Asia Pacific

18,009

16,844

11,565

5,606

4,885

4,823

Personnel and Organisation

In 2004 the average number of employees employed increased from 61,271 to 61,732.

Within Heineken, there is a clear balance between the Human Resources policies which are developed centrally and applied across the world, such as performance management, and those which are locally developed and implemented according to the individual market situation and legislation.

The global Human Resources agenda for Heineken in 2004 was driven by the need to shape our business into a high-performance organisation and develop a challenging and supportive culture, two key objectives of the ‘Taking Heineken to the Next Level’ programme.

Leadership development

We implemented a number of new initiatives in the area of leadership development in 2004. One is a new leadership competency model that defines behaviour expectations from all senior managers at Heineken. The model takes Heineken’s company ambitions and values as a starting point, and translates these into the leadership behaviour required from senior managers.

These leadership competencies then serve as the basis for selecting and developing potential candidates for senior management positions throughout Heineken. In the future, selection for positions will depend as much on experience and track record as on leadership competencies.

Management development

We completed an extensive review of the systems for performance management, succession planning, developing and rewarding Heineken managers and we re-designed the recruitment and development process for senior managers. This review led to a set of uniform HR standards and procedures which will be launched globally in 2005 in order to improve the clarity, transparency, consistency and fairness of our career development approach.

We see these as important factors in fostering a merit-based culture within Heineken, a culture that rewards and advances employees according to tangible, measurable achievements. Under the new system, employees will receive clear feedback on their performance and on their stated personal and professional ambitions. That will give them the opportunity to take more of a lead in steering their own personal development.

Human resources systems

In 2004, following Heineken’s common systems IT strategy, an integrated system for the main HR processes, was developed. The development was done in close cooperation with and between our operating companies. This avoids future IT development costs for HR and through standardisation of definitions and data structures, provides a much better basis for consolidation as well as for internal and external benchmarking. The first implementation took place in November 2004. Between 2005-

2007 other operating companies will follow.



European Works Council

In 2004, the Executive Board provided its annual update to the European Works Council (EWC) on company strategy and the financial results for 2003. Furthermore, the EWC was informed extensively in an open dialogue about the developments in the Brau-Union region and strategic programmes.

Management and the Works Council also held a comprehensive and successful stakeholders dialogue on the topic of Corporate Social Responsibility.

Training and development

In 2004 we re-committed ourselves to becoming a learning organisation and established ‘passion for learning’ as one of our four key ways of working. We believe embedding this philosophy is a critical part of our ability to maintain our lead within the international beer market. During the year, we expanded our on-line and off-line learning capabilities, and in particular, focused significant resource behind the Heineken University, which exists to develop and share strategic expertise within the group. It does this through the provision of programmes which supplement our regular local and international training courses.

The 2004 Heineken Prizes

The Heineken Prizes are awarded biennially by the Dr H.P. Heineken Foundation and Stichting

Alfred Heineken Fondsen. They acknowledge and reward unique achievements in the four fields of biochemistry and biophysics, medicine, environmental sciences and history. A fifth Heineken Prize, the Heineken Prize for Art, is awarded every two years to an artist living and working in the

Netherlands. The recipients are selected by the Royal Netherlands Academy of Arts and Sciences and the awards carry a total value of more than €650,000.

In October 2004, His Royal Highness, the Prince of Orange of the Netherlands, presented the awards and delivered an impressive speech honouring the laureates and commemorating the late

Mr A.H. Heineken.

The five winners

The Dr H.P. Heineken Prize for Biochemistry and Biophysics was awarded to Dr Andrew Z. Fire from the USA, for his discovery of RNA interference.

The Dr A.H. Heineken Prize for Medicine was awarded to professor Elizabeth H. Blackburn from the USA for identifying the structure of chromosome ends (telomeres) and discovering the enzyme telomerase.

The Dr A.H. Heineken Prize for Environmental Sciences was awarded to professor Simon A. Levin from the USA for his insights into the effects of scale on ecosystems.

The Dr A.H. Heineken Prize for History was awarded to Jacques Le Goff from France for fundamentally changing the current view of the Middle Ages.

The Dr A.H. Heineken Prize for Arts and Sciences was awarded to Daan van Golden in the Netherlands for his versatile output as an artist and his ability to place art in a new context, time and again.

For more information please visit www.heinekenprizes.org



Regional Review

Western Europe

5.3

Net turnover billion euros

43.5

Total beer sales million hectolitres

11.0

Heineken beer sales million hectolitres

623

Operating result million euros

The Americas

1.5


23.7


7.2


269


Africa and the Middle East

0.9


13.5


0.9


168



39 > Heineken N.V. Annual Report 2004 > Report of the Executive Board > Regional Review

Central and Eastern Europe

1.8


31.6


0.9


129


Asia Pacific

0.5


9.5


2.8


59




Western Europe

Group Volume Western Europe > in millions of hectolitres

Reference to market positions and market shares in the relevant countries is based on available market information and refer to an estimate of market ratios.

2000

2001

2002

2003

2004

Against this background, and as a result of innovative marketing and new products, Heineken’s leading brands showed great resilience, maintaining market share in tough markets and winning share in several important markets.

Regional review

Growing consumer preference for premium and speciality beers is creating ample opportunities for

Heineken to further improve performance, given that we have strong, high-margin brands in both these segments.

Growth for Heineken was stronger than for Amstel, whose position in the mainstream segment of the market made it more vulnerable to price competition.

In Western Europe, Heineken’s overall beer sales volume decreased to 43.5 million hectolitres, from 44.7 million in 2003. Our operating result improved thanks to the benefit of tight cost control and strong marketing. Sales volume of the Heineken brand in the region increased.

Operations

Heineken is Western Europe’s largest and leading beer brewer. We have market leadership positions in the Netherlands, Spain, Italy and Greece and we are the number two player in France, Ireland and

Switzerland. Our position in Germany was strengthened substantially by two acquisitions in 2004 and by a third in January 2005. Heineken, and in some cases Amstel, are also brewed under licence or imported into several other Western European markets.

Netherlands

>

Innovation drives Heineken brand market share growth

5.9


50 Market share percent

1 Market position position

The dominance of lager in the Dutch beer market grew further in 2004.

Lager’s share of the total market is now approximately 93%.

A cool summer and a weak economy caused the Dutch beer market to contract by almost 2%. Against this, Heineken Brouwerijen’s beer sales volume slipped from 6.0 million hectolitres to 5.9 million hectolitres. The slight loss of market share was due to our relatively strong position in the on-trade, where sales fell more sharply than in the rest of the beer market. But thanks to successful marketing and innovation initiatives, the Heineken brand specially was able to keep its share of the market.

The lower sales volume, coupled with higher promotional spend and higher provisions for bad debt in the on-trade, translated into a lower operating result. The supermarket price war, which started in the last quarter of 2003, depressed margins of all packs and brands in the off-trade.

40.7

43.7

42.2

44.7

43.5


41 > Heineken N.V. Annual Report 2004 > Report of the Executive Board > Regional Review > Western Europe

THE WESTERN EUROPEAN BEER MARKET IS ONE OF THE MOST PROFITABLE IN THE WORLD. IN 2004, THE BEER

MARKET DECLINED SLIGHTLY AS A RESULT OF THE RELATIVELY POOR SUMMER, WEAKER EUROPEAN ECONOMIES

AND UNFAVOURABLE DEMOGRAPHICS. THE COMBINATION OF THESE ELEMENTS CAUSED A GENERAL DECLINE

IN THE ON-TRADE. IN OVERALL VOLUME TERMS, THE OFF-TRADE GREW BUT WAS DOMINATED BY INCREASING

COMPETITION ON PRICE AT A RETAIL LEVEL AS SUPERMARKETS FOUGHT TO WIN AND RETAIN CUSTOMERS.

An increase in on-trade selling prices, lower staffing costs and other improvements in the cost structure across the supply chain had a positive impact resulting in an increase of the operating result.

Brands

The market share of the Heineken brand remained stable thanks in part to marketing, packaging innovations and promotions. One of the innovation successes of 2004 was BeerTender®. The consumer response – within a few months we sold more than one million kegs – exceeded our forecasts and prompted our decision to build a second kegging line at Zoeterwoude.

Other new marketing initiatives included a twelve-pack of one-way, 25-cl glass bottles, re-launched with a new twist-off cap. The David dispensing system which appeals to smaller on-trade establishments through the use of 20-litre kegs, continues to grow strongly.

Marketing highlights also include the ‘Heineken loudspeaker hat’ promotion during the European

Soccer Championship. Hundreds of thousands of orange and green hats, which doubled as loudspeakers, were sold through on- and off-premise outlets and were made available to the fans, for football matches involving the Dutch team. An active PR programme gave the Heineken brand a significant presence in all media.

The brand was also highly visible once again at Pink Pop, the Fast Forward Dance Parade and Dance

Valley, which helped to reinforce the brands contemporary music credentials.

Amstel further strengthened its number two position in the Netherlands, helped by creative sales promotions such as the new ‘Our beer’ advertising campaign and by the introduction of Amstel Lite

(with 30% fewer calories than regular Amstel) in July. As of early November, Amstel also became available in BeerTender® kegs.

Sales volumes of our specialty brand, Wieckse Witte, and our Brand premium beer, suffered as a result of supermarket discounting. To reinforce its premium position, Brand introduced a new golden

12-bottle crate, which will support its premium positioning with both trade and consumers. Brand

Urtyp and Brand Cuvee continued to grow in their high-end niche market, with most top-restaurants now serving Brand Urtyp as an aperitif. As of early November, Brand became available in

BeerTender® kegs.



Soft drinks

Vrumona was the only soft drinks company in the Netherlands that managed to grow market share in

2004, driven primarily by anticipating changing consumer demands and meeting them with timely new product launches. As a result of this growth, Vrumona became the second largest player in this category. Despite the market share growth, however, Vrumona’s overall sales volume declined.

Vrumona’s operating result decreased. Across the Netherlands, sales of all traditional carbonated soft drinks declined largely due to greater dietary concerns among consumers. Light and non-carbonated soft drinks, though, continued to grow. In these segments, we introduced several successful new products, such as Sisi Fruitmania and Crystal Clear. Joy, the tooth-friendly children’s drink, won a national prize for best beverage innovation.

Spain

>

Outstanding profitability and strong efficiency gains

10.7




Overall, the Spanish beer market grew by approximately 3% in 2004. As with other markets in Europe, discounting intensified at retail level and sales volume in the on-trade declined. In contrast, the off-trade segment continued to grow and we were able to raise prices in line with inflation.

Despite the increased price competition and decline in on-trade sales, sales volume of our key brands expanded in line with the market. Heineken España maintained its leading position in the branded beer segment, thanks largely to successful marketing. Overall sales volume was stable. In this context, we focused on driving costs down and on making improvements to our product mix. We now no longer brew any private label beer in Spain, as we focus on the higher margin segments of the market.

Consequently, our branded volume increased modestly, with the Heineken brand providing most of the growth in this segment.

Efficiency gains

We achieved substantial efficiency gains, driven by improvements in purchasing, logistics, point of sales materials and reductions in inventory. In addition, we outsourced some of our non-core activities.

Variable costs rose due to both portfolio adjustments and the shift towards one-way packaging.

The integration of Heineken Canarias into Heineken España has proceeded well, yielding our targeted synergy benefits. The Canarias operations are now supplied by Heineken España and we have harmonised the IT systems.

Brands

Heineken España’s main focus in 2004 was, once again, on building a strong brand portfolio in which every brand plays a specific role. While Heineken is the cornerstone of the portfolio, Cruzcampo is assuming an increasingly important role as a top mainstream beer with a strong Andalucían heritage. In 2004 Cruzcampo celebrated its centenary, an event which gave us a strong marketing platform for the year. The activities involved a national advertising campaign with the slogan:

‘100 years of living your life with all your heart’. In addition, we relaunched Shandy Cruzcampo in 2004 with new packaging and a new advertising campaign.

Consumers continue to respond well to our advertising and sponsorships. Our website www.Heineken.es

is popular and, in line with our focus on music, is becoming a national reference point for music events of all descriptions.

Other marketing successes for the year include a prize for ‘Legado de Yuste’, an abbey beer launched in 2002. This specialty brand continues to grow and was chosen as one of the 100 best ideas of 2004 by a prestigious economic magazine.



Amstel plays an important role in the mainstream beer segment and was supported nationally through exploitation of the UEFA Champion’s League sponsorship and through promotional initiatives at a local level. Sales of Amstel in PET bottles, launched in 2003, continue to progress well.

The large alcohol-free segment in Spain again showed robust growth, reflecting the continuing trend towards healthier lifestyles, as well as increased restrictions on alcohol consumption. In particular, our Buckler brand profited from this. As elsewhere, Heineken España participates actively in campaigns to encourage drivers to drink alcohol-free beer.

Production development

The construction of the new Heineken España brewery in Seville is well under way, with bottling scheduled to start at the end of 2006 and production reaching full capacity in 2008. The brewery, with an initial capacity of 4.5 million hectolitres, will offer greater efficiency and productivity as well as lower production costs.

The brewery will brew all Heineken España brands, but will focus on production of Cruzcampo.

With a total investment of €233 million, the project represents the largest private industrial investment in the city of Seville. The project will be partly financed through the sale of the city centre plot of around 17 hectares on which the existing brewery stands.

Other significant developments were the opening of a new PET bottling line in Jaèn in order to meet anticipated demand and a bronze award to our Arano brewery in Navarro from the European

Foundation for Quality Management.

France

>

Marketing innovations drive Heineken brand growth

7.1




The French beer market lost about 5% in volume in 2004, amid more intense price competition and promotional activity in the mainstream segment.

Heineken France, though, continued to focus on its leading premium brands. As a result we were able to contain our loss in overall market share to one percentage point.

Overall beer volumes for Heineken France declined from 7.4 million to 7.1 million hectolitres.

The operating profit was severely impacted by the combined effect of restructuring costs on the wholesale activity and changes in business tax.

Brands

Through strong marketing initiatives the Heineken brand stabilised its sales volumes and was able to gain market share in both the on- and off-trade channels. The brand was supported by the launch of the award winning ‘Ice Pack’ packaging in the off-trade during the summer and through the success of draft-beer David system within the on-trade channel.

The Amstel brand is the leading draught beer brand in the on-trade and Amstel Free has been introduced as part of the on-trade portfolio.

In the off-trade, our innovative Desperados mini-kegs were launched and the Pelforth brand confirmed its potential through the success of the product line extension Pelforth

Ambré. Strong promotional pressure in the mainstream


44 > Heineken N.V. Annual Report 2004 > Report of the Executive Board > Regional Review > Western Europe segment and lower consumption, though, reduced the sales volume of “33“ Export.

The increased penetration of ready-to-drink (RTD) brands both within the on- and off-trade sectors hit beer consumption and hampered the development of Desperados and Kriska.

We continued our initiative ‘Bière Coté Repas’ aimed at persuading French consumers to associate beer drinking with fine dining, with the introduction of a range of up-market beers in 75-cl bottles in select restaurants.

Wholesale

France Boissons, Heineken France’s distribution organisation has started an important cost-efficiency programme based on achieving regional synergies and re-engineering logistics. Heineken France will continue to pursue this programme in 2005. In addition, we will have to divest three of our distributors in response to French anti-trust regulation upon the request of the French Ministry of Finance.

Furthermore, the European Commission concluded that certain discussions between Heineken and

Kronenbourg in early 1996 regarding a discontinuation of the acquisition of wholesalers constituted an infringement of EU competition law. As a result, the Commission imposed a fine on Heineken of

€1 million.

Italy

>

Heineken Italy outperforms the market with solid growth in market share

5.9

34


Market share percent


Heineken Italy’s overall market share remained more or less stable at 34% in 2004 and expanded its product range in the Italian beer market that declined 3% overall.

This was largely due to a less favourable summer than the spectacular weather of 2003, which in turn drove down tourist numbers once again.

Heineken Italy’s total sales volume declined to 5.9 million hectolitres from 6.0 million in 2003.

Heineken Italy, nevertheless, achieved its goal of raising the market share of Heineken,

Birra Moretti and Ichnusa.

Brands

In addition to the strong commercial focus, the development of the Heineken brand was aided by advertising campaigns such as ‘Fresh is Better’. This has strengthened the Heineken brand’s link with trend-setting consumers. Heineken Italy also launched the country’s first Heineken Don’t Drink & Drive campaign. The Heineken brand continued to take a leading role in music sponsorship through festivals such as Heineken Jammin’, Umbria Jazz and Thirst.

Birra Moretti’s promotional link with football was strengthened further during the year. Among the highlights were the Trofeo Birra Moretti and the sponsorship of Inter Milan, Juventus and the

Champions League. Outside the domestic market, too, Heineken Italia continued to build the international credentials of Birra Moretti, targeting strategic markets such as the USA and the United

Kingdom.

During the year, we also launched Budweiser, brewed under licence, in both the on- and off-trade, achieving widespread distribution.

Dreher consolidated its national position and image by expanding on the ‘sparkling friendship’ theme in its advertising campaign. Ichnusa, strongly associated with Sardinian culture, was supported by a new multimedia advertising campaign, aimed at making the brand more contemporary.



Successful focus on efficiency

The Customer Relationship Management approach, adopted by Heineken Italia at the end of 2002 has clearly started to pay off. It helped boost the efficiency of the sales force and also made it possible to track and measure the effectiveness of promotions, and profitability per outlet. Heineken Italy’s overall reorganisation plan is progressing well.

Wholesale

Heineken Italia’s distribution unit Partesa, made some acquisitions in 2004 and reported higher sales as a result. Partesa is evolving its business model, aiming at securing autonomous growth on the one hand, and on the other supporting the development of our beers. The three pillars of this change process are the reduction of working capital, the rationalisation of logistics and the streamlining of procurement. IT improvements are ultimately aimed at aligning Partesa with the overall Heineken group systems.

Greece

>

Athenian Brewery successful in Olympic year

3.3




The Heineken brand’s three-year sponsorship of the

2004 Olympic Games in Greece helped Athenian Brewery to maintain its position in the beer market as a whole, which fell by 1%. This decline contrasts with relatively robust Greek economic growth of 4% and largely reflects a drop in tourist numbers. Athenian Breweries’ share of the market remained more or less stable at 83%.

As elsewhere in Europe, the volume decline was greater in the on-trade, with price increases having a mitigating effect on demand. Athenian Breweries overall beer sales volumes declined from 3.4 million hectolitres to 3.3 million hectolitres.

Prices of beer and mineral water were raised in line with inflation and the price discounting seen elsewhere in Europe in the off-trade has not yet hit the country. This partly reflects the fact that Greek consumers have been enjoying wage increases in line with inflation at around 3.5% However, continuing consolidation in the off-trade, as well as the entry of multinational discounters point to increased competition in the future.

These factors combined produces a decrease in operating result for the year.



Marketing and sponsoring

Athenian Brewery, under the Heineken brand name, was Grand Sponsor of the Athens organising committee of the Olympic Games. The sponsorship was supported by a three-year marketing campaign that promoted the games as a great celebration, with Heineken as its unchallenged leading beer. The Games gave Heineken and Athenian Brewery an opportunity to demonstrate common values of community spirit, quality, creativity and teamwork. In addition, the campaign boosted significantly brand recognition and appreciation.

To commemorate the Games, Athenian Brewery introduced a number of innovative, limited edition gifts and beer packaging collector’s items including a special Heineken Identity Can and a new variant of the 1.5 litre Magnum Collectors Bottle. We also turned heads by introducing the Paco bottle – striking green aluminium – which re-inforced the brand’s premium positioning.

Heineken beer was sold to Olympic Games spectators and visitors in recyclable 0.33 litre PET plastic bottles with the Games logo. For the first time in Greece, we also used the Major Tom backpack coolers for PET bottles to appeal to spectators on the move.

Amongst various consumer promotions, ‘Friends of Heineken’ who bought their favourite beer in

July and August 2004 were offered the chance to acquire unique commemorative gifts and to win tickets to the Games themselves.

The three year Olympic sponsorship campaign ‘Marathon’ won Heineken the silver prize in the

2004 Effie Awards. In addition, Heineken’s Olympic sponsorship television commercial ‘bottle top’ was awarded the Ermis Grand Prix for Best Advertising Spot of the Year – one of the most important nominations in the Greek advertising and communication industry.

Although the year was dominated by the Olympic Games, continued marketing investment behind the Amstel brand enabled it to maintain its market leadership in both the on- and off-trade.

Germany

>

Acquisitions strengthen position in German beer market

7.7

8

4


Market share percent

Market position position

The German beer market declined around 2%, reflecting poor weather and weak consumer spending. Brau Holding International’s

(BHI) total beer sales volume declined by 5% to 7.7 million hectolitres. Despite this, we were able to increase our operating results steady, thanks to strict cost control and careful pricing.

Through Brau Holding International, our joint-venture company with Schörghuber Group, we continued to focus on building for the future with a series of important acquisitions that strengthen our position in the south of the country. Fürstlich Fürstenbergische Brauerei and Hoepfner Brauerei were acquired in the last quarter of 2004. The acquisitions will raise total sales volume in Germany by 870,000 hectolitres. The new companies will be consolidated with effect from January 2005.

The Fürstenberg brand is a leading beer in the south German region and is also exported to several other European countries. Hoepfner is a well-known beer brand in south-west Germany and is also exported to France. Both brands are a valuable addition to BHI’s portfolio of German premium brands.

In January 2005 Heineken announced that Kulmbacher Brauerei AG, a subsidiary of Brau Holding

International, has made a binding offer to acquire 90.7% of the shares of Würzburger Hofbräu AG.

Brands

Heineken brand volumes and market share in Germany remained stable, thanks to contracts with new on-trade outlets popular with young adults. Imported brands still represent less than 1% of the total German beer market. The Heineken brand, present in the German market since 1993, is gradually achieving a higher profile within its premium position.



Despite the disappointing summer weather, which had a significant impact on the sales of its main product, Weissbier, Paulaner was able to compensate fully for the impact of volume loss in 2004, thanks to price increases and lower fixed costs due to a restructuring programme undertaken in 2003.

Although the Kulmbacher sales volumes were down, the brewery’s brand Mönchshof was a great success in 2004, scoring double-digit volume growth. Kulmbacher has now successfully integrated the

Scherdel brewery acquired in 2003.

The consequences of the introduction in 2003 of a mandatory deposit on all cans continued to be felt in 2004. This has led to the almost complete disappearance of the non-returnable packaging segment and impacted the volume of Karlsberg, which previously held a large share of the canned beer market. In these difficult market circumstances most of Karlsberg’s brands saw sales volume declines. The exception was Mixery, a blend of beer and cola, which achieved solid sales growth and further consolidated its lead in this segment.

Other countries

In Ireland , the Heineken brand increased its share of the beer market substantially in 2004, thanks to new advertising and the powerful exploitation of sponsorship. The operating result of Heineken

Ireland improved, which contrasts with an overall decline of approximately 3% of the Irish beer market.

In the United Kingdom in the first full year of operation with the new positioning of imported

Heineken, we raised volume and gross margin and made considerable progress in distribution, ensuring availability of the Heineken brand in cans and bottles in all major supermarkets. Heineken is performing particularly strongly in the on-trade, where it is sold on draught and in bottles, and is consistently achieving one of the highest rates of sale of all premium lagers.

Our operations in Switzerland have been under significant pressure from declining consumption, low consumer spending levels, and the poor summer. This has meant a decline in sales volume and a lower operating result.

In Belgium Affligem decreased in sales volume, as a result of declining export activities.

In Norway the Heineken brand is steadily growing, while in Sweden the growth was hampered by the influx of low priced beers.



Central and Eastern Europe

Group Volume Central and Eastern Europe > in millions of hectolitres


2000

2001

2002

2003

2004

10.0

11.7

15.7

20.6

31.6

Across the region, Heineken is the market leader with a share of approximately 27% and total beer volumes which rose to 31.6 million hectolitres in 2004, from approximately 20.6 million, thanks to acquisitions and solid organic growth.

Regional Review

In October 2003 Heineken acquired a majority stake in BBAG, which was included in the consolidation fot the first-time since 1 October 2003. At the beginning of 2004 Heineken increased its stake in

BBAG from 60.3% to 100%. The integration of BBAG activities into Heineken’s existing operations has been completed and is generating significant cost and revenue synergies. In the year under review six breweries have been closed or divested. The combined brand portfolios have been optimised and rationalised. In several Central European countries the Heineken brand was launched in the distribution network of Brau Union. In 2004 the integration of Brau Union has delivered gross synergy gains of €26 million and related non-recurring restructuring costs of €10 million. Heineken expects the full synergies of €80 million before taxation to be unlocked by the end of 2007 in line with the plans published in May 2003.

Brau Union is Heineken’s Central European operating company and the largest brewing group in

Central Europe, leading in Poland, Austria, Romania, Slovakia, Bulgaria and Macedonia. Brau Union has also strong market positions in Hungary, Croatia and the Czech Republic.

The combined group made solid advancements in sales volume and operating result thanks to the performance of its top brands in the Central European market. Sales volume of the Heineken brand increased by more than 30%. Total beer sales volume of Brau Union fell by more than 5%, and overall,

Brau Union experienced a slight loss in market share due to its focus on the premium end of the market.

During 2004, Heineken Russia confirmed and consolidated its number three position in the market through the acquisition of three breweries, Shikhan, Volga and Sobol. These acquisitions allow us to leverage economies of scale at a regional level, provide a better spread of production facilities and will enable us to brew our national brands regionally, thus reducing overall transportation costs.

Poland

>

Growth of the Heineken brand, increased operating result

10.3




A colder summer and higher excise duties slowed the growth rate of the Polish beer market to almost 3% in 2004, down from 4.6% in 2003. Sales volume declined to 10.3 million hectolitres. Market share decreased to approximately 36%.

Substantial investments were made in quality, employee training, technology and distribution.

The construction of the brewhouse in Warka, which doubled the brewery’s annual production capacity


49 > Heineken N.V. Annual Report 2004 > Report of the Executive Board > Regional Review > Central and Eastern Europe

C E N T R A L A N D E A S T E R N E U R O P E I S O N E O F T H E W O R L D ’ S L A R G E S T B E E R M A R K E T S B Y R E G I O N . M A N Y

M A R K E T S H AV E B E L O W - AV E R A G E P E R - C A P I TA C O N S U M P T I O N A N D C O U N T R I E S A R E P R E PA R I N G T O J O I N

T H E E U . T H E S E E L E M E N T S A R E F O R E C A S T T O D E L I V E R A N A C C E L E R AT I O N I N G R O W T H O F P U R C H A S I N G

P O W E R , B E E R C O N S U M P T I O N A N D T O E X PA N D T H E M A R K E T F O R P R E M I U M B E E R . to 3.5 million hectolitres of beer will supply sufficient capacity for the expected future growth. These decisions along with a strong focus on increased efficiency resulted in an increase in operating result.

Brands

Heineken, the leading international premium beer in Poland, experienced substantial growth as did

Tatra, in the standard segment. Spezial, a regional brand, grew its volume too. The sales growth supports the company’s strategy of being active in almost all market segments and reflects higher mainstream brand, and Z ywiec, the most recognised Polish premium brand, were slightly below those were introduced into Z ywiec Group’s portfolio. While Poland is a lager beer country, the financially attractive specialty segment is developing too and Heineken imports such as Desperados, Paulaner

Hefe Weissbier, Paulaner Original Münchner, Fischer, Murphy’s Irish Stout and Murphy’s Irish Red are becoming more popular.

Russia

>

Strong growth in sales, presence and profitibility

4.7




The Russian beer market grew 11.5% in 2004, thanks to strong economic growth, underpinned by high oil prices. While the rouble fell around 9% against the euro, it strengthened against the US dollar by around 6%.

The two major trends of the Russian beer market are the growth of the international premium segment, which now accounts for 6.1% of the market – up from 4.5% in 2003 – and the growth of the

PET bottle segment, which now represents 40% of the off-trade market. We are well represented in both of these segments.

Heineken Russia had a strong year, outpacing the market with double-digit like-for-like volume growth and gaining market share in the process. In addition, we were able to raise prices between

6% and 8%. The increase in sales volume and prices combined with operating and purchasing efficiencies and an improvement in our product mix resulted in a sharp increase in operating result.

The newly acquired breweries, Shikhan and Volga, have strong regional brands. We anticipate investing €130 million over the next four years in these breweries to increase capacity and upgrade the existing facilities.

Total beer sales volume in 2004 reached 3.9 million hectolitres, up from 3.3 in 2003. Including acquired volumes, the 2004 volume is pushed to a total of 4.7 million. Annualising the acquired volumes would give a total of 6.0 million hectolitres under the control of Heineken Russia with a resultant market share of 7.1%.



Brands

All of our key brands in Russia grew strongly in 2004, with Ochota showing the biggest volume growth of about 50%. The only exception was Botchkarov, which faced strong competition and consequently suffered a volume decline. Botchkarov was awarded the prestigious DLG gold medal for quality in

Germany.

In its second year of local production, the Heineken brand, helped by an increase in the international premium segment, grew more than 100%.

Market developments

Excise duty was increased by 11% in January 2004, in line with inflation, and had a negligible impact on the market. The Duma drafted and adopted two pieces of legislation that affect the beer market directly. A selective restriction was imposed on the advertising of beer. This will restrict the time and content of the beer advertisements on television and prohibits the placing of billboards and other advertising materials close to schools. Secondly, new restrictions on the sale and consumption of beer in public places were discussed. We expect possible measures to have only a limited impact on the future growth of the beer market.

Austria

>

Stable operating result and higher market share

4.8




After an exceptionally good 2003 in terms of volume development, the Austrian beer market fell 1.3% to 9.0 million hectolitres in 2004.

Outperforming the market, Brau Union

Österreich slightly improved its market share and confirmed its position as the most important brewery group in Austria.

The total beer sales volume of Brau Union Österreich amounted to 4.8 million hectolitres, having grown steadily over the last few years. In 2004 Brau Union Österreich was able to raise prices and lower costs, although the operating result declined, because of sharply increased marketing investments.

Brands

The Heineken brand was re-launched in March 2004, following transfer of sales and distribution responsibility from a wholesale partner to Brau Union Österreich. Strong marketing boosted brand volume by 50% and the launch campaign won a prestigious industry award.

Volumes of the national premium brands, Zipfer and Gösser, fell slightly, whereas the mainstream brands showed an increase in volume. Our speciality beer, Edelweiss, registered slightly lower volume, but our alcohol-free beer, Schlossgold, grew significantly.

Other countries

In Romania , the beer market grew 4% in 2004. Most of the growth came in the lower priced segment of the market, driven by a significant increase in the popularity of PET packaging.

Beer sales volume of Brau Union Romania fell to 3.6 million hectolitres and market share decreased.

This fall was almost entirely due to a new local entrant in the market, competing on price.

The international premium beer segment grew, and locally brewed Heineken was successfully introduced in December. In the first few months of local production, sales of Heineken exceeded targets.

Our overall operating result in Romania decreased.



In Hungary , the beer market overall showed a marginal decline during a year which was dominated by strong competition and price wars in the mainstream and low-priced German imports segment.

As a result, total volumes suffered a strong decline. Brau Union Hungaria’s market share decreased.

Our share of the premium segment remained stable, although the Heineken brand captured the lead in the segment.

As of January 2004, the activities of Amstel Brewery Hungary and Brau Union Hungary have been combined in Brau Union Hungária. Combined total beer sales in 2004 amounted to 2 million hectolitres. Currently, measures are being taken to improve the performance of the newly merged company by reducing cost and by strengthening the portfolio. In 2004 the Komárom brewery closed.

Slovakia ’s beer market fell by more than 10% in 2004, reflecting the big increase in excise duties from 2003, sharply higher energy prices and weak consumer purchasing power. Beer sales of our operating company Heineken Slovensko declined to 1.8 million from 2.1 million hectoliters. However, despite the unfavourable economic conditions, we were able to stabilise our market share at 42 % and consolidate our market leadership. Heineken Slovensko undertook a major restructuring and closed a brewery.

The Bulgarian beer market showed a continued growth of approximately 7.5%. The Zagorka brewery was able to increase beer sales to 1.5 million hectolitres from 1.3 million, and grow its market share to over 30%, further consolidating its market leadership. These successes resulted in a significant increase in operating result.

Croatia , had a strong year. In its first full year under Heineken ownership, the Karlovacka Pivovara brewery acquired in April 2003, increased sales by approximately 10% against a market, that declined slightly, due in part to a very strict new anti-alcohol law. The strong performance reflects improvements in product quality, effective marketing and the enhancement in our sales and distribution.

The company is the country’s second largest brewer and the country’s biggest beer exporter.

The beer market in the Czech Republic fell by 2.3% during the year. However, beer sales of our operating company Starobrno performed strongly, increasing by 7% to 826,000 hectolitres. This was thanks mainly to one brand – Zlaty´ Bazˇant, which entered local production in the second half.

Starobrno is now the fourth largest brewer in the Czech Republic.

Our operation in Macedonia showed strong volume growth.

In Kazakhstan , Dinal has a market share of 8% divided between Amstel and Tian Shan.

In mid-2004, we announced the purchase of an additional stake in the Dinal Brewery, taking our stake to 99.9%, creating an additional outlet for growth of the Heineken brand, imported from Russia.



The Americas

Group Volume The Americas > in millions of hectolitres


2000

2001

2002

2003

2004

Regional review

Heineken’s regional sales volume rose to 14.5 million hectolitres from 12.5 million hectolitres, due largely to the increasing strength of the Heineken and Amstel brands throughout the region.

In the United States, in particular, packaging and marketing innovations drove our sales volumes and the market remains a focus for investment and innovation. In Central America, both sales volumes and operating results have grown as a result of restructurings completed in 2003, which have improved sales and distribution effectiveness. In South America, our interest in CCU continues to strengthen our position in Chile and Argentina. In the Caribbean, a strong focus on innovative marketing and increased efficiency across all operations has delivered an impressive increase in both sales volumes and operating results. A strong euro and the continuing weak dollar have once again weighed on results throughout the region. The operating result decreased, reflecting the weakness of the dollar and of dollar-related currencies against the euro.

United States

>

Continued growth in the world’s most profitable beer market

6.4


23 Market share * percent

2 Market position * position

Heineken USA’s total beer sales volume, the most profitable beer market in the world, rose 4.4% in 2004 to 6.4 million hectolitres, up from just over 6 million hectolitres in 2003.

While the overall beer market was flat in 2004, as more consumers chose wine and spirits over beer, the import segment expanded approximately 2% and Heineken USA maintained its position in this growing category.

While sales volume of Heineken USA rose, a weak dollar hit operating results. Our market share of the imported beer segment grew slightly to approximately 23%.

Mediocre summer weather, worsened by four hurricanes in the southeast, led to a considerable drop in on-trade sales. While aggressive price cuts slightly increased trade discounting in the beer category somewhat limited our volume growth; price increases for Heineken and Amstel Light helped to preserve revenues. We increased prices by an average of 2.5% throughout the northeast, southeast and central regions.

The regulatory environment also affected sales. Smoking bans in an increasing number of states cut on-trade business in favour of off-trade sales. In addition, several states, including Massachusetts, have changed their regulations to allow distilled spirits and beer sales on Sundays. Spirits continue to play an important role in the on-trade channel while wine is increasing share in the off-trade.

Brands

In June Heineken USA and FEMSA Cerveza in Mexico signed an agreement making Heineken the exclusive national importer, marketer and seller of FEMSA’s brands – Tecate, Dos Equis, Sol, Carta Blanca and Bohemia in the USA. The agreement came into effect on 1 January 2005 and will expand our

* imported beer segment

7.4

7.8

8.4

12.5

14.5


53 > Heineken N.V. Annual Report 2004 > Report of the Executive Board > Regional Review > The Americas

H E I N E K E N H A S B U I LT A ST R O N G P O S I T I O N I N T H E A M E R I CA S , W I T H E X P O RTS TO T H E U N I T E D STAT E S ,

C E N T RA L A M E R I CA A N D T H E CA R I B B EA N . H E I N E K E N A L S O OW N S A N U M B E R O F B R E W E R I E S I N T H E CA R I B B EA N

A N D C E N T RA L A M E R I CA A N D H A S I N T E R E STS I N A N D L I C E N S I N G AG R E E M E N TS W I T H S E V E RA L B R E W E R I E S I N

C E N T RA L A N D S O U T H A M E R I CA . T H E R EG I O N A S A W H O L E , A N D L AT I N A N D S O U T H A M E R I CA I N PA RT I C U L A R ,

A R E ST I L L P R E D I CT E D TO O F F E R G R OW T H O P P O RT U N I T I E S I N T H E F U T U R E .

portfolio of strong imported beer brands, helping us increase our leadership position in this segment among Hispanic Americans, the most rapidly growing consumer group in the US. Alongside this,

Mexican beers are also gaining popularity with the wider group of beer drinkers.

By a balanced regional approach and providing customers with relevant packaging types, we boosted the number of occasions for consumers to purchase and enjoy Heineken. We successfully introduced a new 18 pack in Atlanta and Baltimore to capitalise on the consumer trend towards larger pack sizes. Another packaging innovation was our new 1.5 litre bottle, designed for festive occasions.

Shaped like a champagne bottle, it is sold in both the on- and off-trade, offering a touch of prestige to the consumer.

Heineken sponsored the 2004 Grammy Awards. Viewed by more than 28 million Americans, our exposure strengthened off-trade sales. In addition, two new music-themed Heineken TV spots, ‘Piracy’ and ‘Street Music’, aired during the Grammy telecast. Heineken also continued its sponsorship of the

Heineken House Party and Latin Grammy’s.

A market specific sales and marketing plan designed to accelerate volume growth of Heineken, was launched in Baltimore and Philadelphia. Our sales volume in those regions grew by double-digit, or high single-digit percentages. We plan to expand this project into other metropolitan regions in 2005.

We also launched a sales and marketing initiative designed to strengthen the leadership of the

Heineken brand in New York City with enhanced category management, increased merchandising activity in key on- and off-trade accounts. Although it is too early to quantify the success in sales terms, we are confident it will boost our presence and sales volume in the region.

Amstel Light maintained growth with the help of focused marketing efforts such as sponsorships of sporting and entertainment events. Amstel Light was the official sponsor of the PGA of America and other golfing events such as the Amstel Light Iceland Open.

We launched three new commercials, highlighting Amstel Light 12-pack with the slogan ‘Taste

Great, Low Carbs, Low Calories’ in 2004. In addition, the ‘Who says you can’t’ campaign was expanded with an Amstel Light summer commercial.

In terms of packaging innovation, we debuted the Amstel Light ‘Fridgepack’ in eight markets.

Class action lawsuits

Heineken USA and Heineken N.V. are defending purported ‘class action’ lawsuits in four states.

The lawsuits claim that we, along with other producers and distributors of alcoholic beverages, have aimed our advertising and marketing to underage people. We are defending ourselves vigorously against these accusations, as Heineken companies aim beer advertising and marketing only to people above the legal drinking age. Our legal team has filed, or will be filing in 2005, motions to dismiss all four cases at the initial pleading stage.

Awards

Fortune Magazine has named Heineken USA one of ‘America’s 25 Best Places to Work’ among the category of medium-sized companies in the United States. This award is a great endorsement of our collective efforts to make Heineken USA a preferred employer.



Canada

>

Sales and market share growth

The Canadian beer market is shrinking due to the resurgence of wine and spirits as well as the impact of smoking bans on the on-premise segment. The Heineken brand continues to improve its position in the imported beer segment with considerable growth in the Ontario and Quebec markets.

South America

>

Heineken brand strong and growing

Sales volumes jumped in the key South American markets of Chile and Argentina in 2004.

Through our proportionately consolidated interest in Chile’s top brewer, CCU, beer volumes increased to 5.9 million hectolitres.

CCU, has approximately a 90% market share in the beer market in Chile. CCU Argentina has a solid second position in the Argentinean beer market with approximately 16% market share. CCU markets a number of lager brands and specialty beers in Chile and Argentina. CCU started brewing Heineken, both in Chile and Argentina, in June 2003.

In addition to beer, CCU produces wine, soft drinks, fruit juices and mineral water. It also produced

0.8 million hectolitres of wine, of which approximately half was exported to various European countries and to Brazil.

Strategically, Heineken and CCU complement one another perfectly, and the cooperation has enhanced the Heineken brand’s growth potential in Chile and Argentina. In Argentina in particular, the addition of the Heineken brand to CCU’s portfolio has created good opportunities for expanding the distribution, which benefits the growth of CCU’s other brands as well as the Heineken brand.

In Chile , the beer market in volume terms held relatively steady, however, in operating profit terms improved due to better prices, supported by a stronger economy. Heineken brand volume improved

34% during 2004, leading the growing premium segment. The operational result of both soft drinks and wines improved in 2004.

With the improvement in Argentina ’s economy, the beer market has grown and prices have increased. In this growing market, CCU has increased its market share by almost two percentage points, selling 2 million hectolitres. Heineken beer volume increased 17% during 2004, leading the premium segment.

Other countries

Due to the weak performance of Kaiser in Brazil , Heineken reduced the carrying value of its 20% stake from €190 million to zero during the year.

In Colombia , sales of imported beer were depressed by the strong euro.

In 2004, the Heineken brand was re-launched in Uruguay , where our previous partner Quilmes had distributed it until 2003.



Central America

>

Increased efficiency and sales volume

Heineken’s sales volumes improved in Central America, rising to 0.4 million hectolitres from

0.3 million hectolitres, thanks to restructurings and increased efficiencies.

We operate in Central America in alliance with FIFCO. In Costa Rica we own a 25% interest in Cerveceria Costa Rica, the country’s only brewer. FIFCO owns 75% of that company. In Panama,

Heineken is the majority owner of Cervecerias Baru Panama, one of the country’s two brewers.

FIFCO is the minority shareholder. Via a joint venture company with FIFCO, we have an indirect interest in Nicaragua in COCECA, the country’s only brewer. In 2004 we increased our indirect interest in COCECA to 12.5% from 8%.

In Costa Rica both the beer business and the juice business has improved after the 2003 restructurings. Beer volumes were slightly higher than previous year.

In Panama the total beer market has expanded, as have sales volumes of imported Heineken.

We have focused on improving sales and distribution effectiveness.

Caribbean

>

Strong growth due to marketing and commercial excellence

The Heineken brand is the most widely available beer in the Caribbean, with a strong position in each of the 31 markets. Heineken’s volume growth in the Caribbean region approached 10% in 2004, as operating companies overcame adverse weather during an active hurricane season that hit several important markets.

Beer sales volume jumped to 1.4 million hectolitres from 1.3 million the year before. Impressive organic growth compensated almost fully the effect of a weaker US dollar to which many of the local currencies in the region are tied.

A programme for improving commercial strategy, based on a thorough analysis of the market and brand position paid off in terms of strong volume and market share growth.

We grew sales volume by 8% in our most important market, Puerto Rico , significantly outpacing the beer market that grew only 4% and boosting our market share to above 20%. Brand health is exceptionally strong, as a result of good local marketing and the use of music-related sponsorships.

In the Bahamas , in February Commonwealth Brewery acquired the distributor Burns House and the business has been restructured. The financial results of both Commonwealth Brewery and Burns

House are well above the results of 2003 in constant currency terms, even though the islands were hit by several hurricanes.

The sales volume of Heineken in Trinidad doubled. The Heineken brand achieved a step change in market share and sales volumes remain strong.

The market in Curaçao remained under pressure from imported South American brands and a weaker economy. The Heineken brand remained stable.

In Surinam the brewery recorded the highest sales volume for more than 10 years.



Africa and the Middle East

Group Volume Africa and the Middle East > in millions of hectolitres


2000

2001

2002

2003

2004

9.2

9.9

10.6

12.7

13.5

Regional review

This volume growth came despite continuing difficult economic circumstances in many countries.

Since most currencies in the region shadow the US dollar, its decline against the euro eroded purchasing power, as did inflation. On the positive side, higher earnings from rising oil and minerals prices boosted some economies. In a number of countries locally-brewed Heineken became available at an affordable price for the first time.

Sales volume of the Heineken brand grew almost 5%. Across Africa, sales of Amstel, including the non-alcoholic Amstel Malta, rose sharply to 1.9 million hectolitres from 1.3 million in 2003.

Africa

Operations

Heineken has owned breweries and has enjoyed substantial market positions in several African countries for more than 50 years. In Africa we produce a variety of local brands and in some countries

Heineken and Amstel beer are also brewed locally. Most of the operating companies also produce and market soft drinks. Heineken beer is also imported on a modest scale. In South Africa Amstel is brewed and distributed under licence.

The most important regional Heineken brands in Africa, however, are the 50-year-old Star and

Gulder in West Africa, the 70-year-old brand Primus, popular throughout Central Africa, and the nonalcoholic Maltina, of which we produce approximately 1 million hectolitres annually.

In 2003, we narrowed our focus to countries with attractive beer markets and the acquisitions and portfolio adjustments made in 2004 reflect that more profitable focus. During the year we were active in terms of defining our structure across the region. We acquired two new breweries, closed one and put our two Ghanaian breweries into a new merged entity. In addition, we sold our minority stakes in NOCAL (27%) and EKA (46%) breweries in Angola and in our subsidiary Brasseries du Logone in Chad.

In line with our strategy of expanding in Nigeria, we reached agreement in principle in late 2004 to increase our stake in Nigerian based Consolidated Breweries from 24% to a controlling interest of 50.05%. Consolidated Breweries achieved a sales volume in 2004 of 877,000 hectolitres.


57 > Heineken N.V. Annual Report 2004 > Report of the Executive Board > Regional Review > Africa and the Middle East

H I G H E R S A L E S A N D I M P R O V E D O P E R AT I N G R E S U LT

B E E R A N D S O F T D R I N K S A L E S V O L U M E I N A F R I C A A N D T H E M I D D L E E A S T E X PA N D E D A G A I N I N 2 0 0 4 ,

T H A N K S M A I N LY T O W I D E R D I S T R I B U T I O N A N D I N C R E A S E O F P R O D U C T I O N C A PA C I T Y. T O TA L G R O U P B E E R

V O L U M E G R E W 6 . 1 % T O 1 3 . 5 M I L L I O N H E C T O L I T R E S . S O F T D R I N K S S A L E S R O S E 2 . 7 % T O 2 . 6 M I L L I O N

H E C T O L I T R E S . A F T E R FA L L I N G I N 2 0 0 3 , O P E R AT I N G R E S U LT S I N L O C A L C U R R E N C I E S B O U N C E D B A C K

S T R O N G LY, T H A N K S T O V O L U M E G R O W T H A N D C O S T C O N T R O L .

Nigeria

>

Increasing volume and driving efficiencies

5.8




In Nigeria, Africa’s second largest beer market and the most important

African market for Heineken, our main operating company

– Nigerian Breweries – raised volume output by 1.2% to 5.8 million hectolitres in a market that remained stable.

The stable beer market bore a strong relationship to the economy, which came to a standstill in the second half of 2004. Inflation and national strikes also had a dampening effect on consumption.

Despite this, Nigerian Breweries was able to raise market share and prices.

Together with efficiencies offered by the new brewery at Ama, which entered service during the year, we were able to achieve a substantial increase in operating result both in local currency terms and in euro.

The new brewery, with a capacity of 3.4 million hectolitres, is achieving significantly lower energy and water costs. The old brewery near Enugu was closed. The commissioning of the new brewery led to an increase in depreciation, but we were able to offset this through savings on packaging and material costs and higher prices.

Other countries

In South Africa the region’s largest beer market, Heineken established Brandhouse, a joint venture with Diageo and Namibia Breweries. The creation of Brandhouse follows the acquisition by Diageo and

Heineken of a 28.9% stake in Namibia Breweries Limited in July 2003. Among its brands are premium beers including Windhoek, Heineken, Guinness and Kilkenny.

This venture combines the sales, marketing and distribution of 40 top premium brands and its performance so far confirms our belief that we have created a strong platform for future growth. Sales volume of the Heineken brand in South Africa increased substantially. Also Amstel’s sales volume increased.

As part of this new venture, Namibia Breweries in Windhoek, Namibia , started brewing the

Heineken brand locally for Namibia, South Africa and other countries in the region.

Despite periodic unrest during the year, Brasseries, Limonaderies et Malteries in the Democratic

Republic of Congo reported strong volume growth in beer and soft drinks. The growth came thanks to intense marketing activities to counter competitive pressures. A relatively stable exchange rate and inflation also contributed to the positive performance.



In Sierra Leone , after years of interrupted production due to war and unrest, the Sierra Leone

Brewery was partly renovated in 2004. A new bottling line was officially opened in April by the country’s President. However, skyrocketing inflation and plunging purchasing power have curbed consumption.

In Burundi , Brasseries et Limonaderies du Burundi reported considerable profit growth as a result of a strong volume increase, a stable exchange rate and effective cost management.

In Rwanda , Brasseries et Limonaderies du Rwanda turned in a higher operating result, despite an erosion of consumer purchasing power due to the difficult economic environment and sharp increases in utility rates. We improved nationwide distribution and production productivity increased once again.

The market in Congo was under continued pressure as a result of weak consumer purchasing power, although Brasseries du Congo was again able to match its 2003 performance. Volumes were flat but did not impact the operating result, thanks to tight cost control.

On Ile de la Réunion , Brasseries du Bourbon experienced intense competition from the ready-to-drink segment, but despite this reported an improvement in operating result compared to

2003, thanks to a modest increase in volume.

In Ghana , the merger between Ghana Breweries and Guinness Ghana to form Guinness Ghana

Breweries was concluded in December. This venture addresses over-capacity in the Ghanaian market and is expected to lead to improved profitability. Heineken has a 20% stake in the combined company.

In Cameroon , sales of Amstel and Mützig, which are brewed under licence, were slightly higher.

In Morocco , sales of Heineken, which is brewed under licence by Brasseries du Maroc, were up

7% compared to 2003.

Middle East

Heineken has fully consolidated breweries in Egypt and Lebanon. Al Ahram Beverages Company in

Egypt and Almaza in Lebanon are both market leaders in their countries. Al Ahram Beverages

Company has brewed Heineken beer since late 2003.

At the end of 2004, we established Fayrouz International to sell the non-alcoholic malt-based beverage

Fayrouz brand internationally. Heineken has a minority interest in Tempo Beer Industries in Israel and

General Investment Ltd in Jordan.



Egypt

>

Strong performance

0.9




In Egypt, the sales volume of Al Ahram Beverages Company rose 6% in 2004, thanks to a buoyant tourist industry, and an increase in local market demand for beer.

Having fallen sharply in 2003, the Egyptian pound was down a further 15% against the euro on average and inflation rose by approximately 10%, making prices a key issue in 2004.

Despite the devaluation of the Egyptian pound and higher inflation, Al Ahram increased its positive contribution to group profits in euro terms.

Growth in overall beer sales was balanced by a drop in the entire soft drinks market in Egypt.

Sales of Fayrouz and the non-alcoholic beverage Birell declined 18% in line with the market.

At the end of 2003 we raised prices in order to maintain the premium position, which was enhanced in 2004 by further new flavour additions to the Fayrouz product range.

Wine sales were strong, growing by 45%, and a number of higher quality wines were launched at the end of the year. Spirits grew 21%. Al Ahram also launched premium spirits – whisky, vodka and gin – as well as various ready-to-drink products.

Other countries

In Lebanon , Heineken has a 67% controlling interest in the brewery Almaza and its distribution operations. Almaza recently secured worldwide rights to Laziza, a popular Lebanese beer brand, which has strengthened Almaza’s position.

Total sales volumes rose 14% and the final result in euros increased by 44%, even after an average 5% devaluation of the Lebanese pound. The results reflect the benefits of the first year of full integration of the local Heineken distributor together with the acquisition of the Laziza brand.

In Israel , Tempo Beer Industries imports and distributes Heineken as well as some of our specialty beers. We have reached agreement with Tempo Beer to create a new company that will pool the

Heineken and Tempo brands which includes a licence for local production and marketing. The investment to obtain a 40% interest in the new company fits well with Heineken’s strategy of combining its international premium brands with strong local brands.

Our exports to the Gulf States recovered from last year and notched up a sales volume increase of 4%. The decline in the US dollar, however, had a substantail effect on profits. To further grow our business in the Gulf, we are exploring new ventures with our local partners.

In Jordan , Amstel is brewed under licence by General Investment Ltd. The Amstel sales volume increased by 31% compared to last year.



Asia Pacific

Group Volume Asia Pacific > in millions of hectolitres


2000

2001

2002

2003

2004

Operations

Underpinning our strong position in the region is our Singapore-based joint venture with Fraser

& Neave, Asia Pacific Breweries (APB). APB operates sixteen breweries in Singapore, Malaysia,

Thailand, Vietnam, Cambodia, China, New Zealand and Papua New Guinea. For the fifth consecutive year, APB’s sales volume grew at double-digit rates.

Heineken is brewed at several of APB’s breweries throughout the region. In addition, we have our own breweries in Indonesia and on New Caledonia. We also import Heineken into the region and in some countries it is brewed under licence. Heineken beer has a strong market position, particularly in Thailand, Vietnam, Hong Kong, Australia, New Zealand, Singapore and Taiwan.

China

>

Focus on strategic acquisitions in a high-growth market

China is an important long-term strategic market for us as the popularity of beer is rising from a low level of per capita consumption on the back of a rapidly growing economy.

We are pursuing a China strategy of acquiring profitable breweries in high-growth provinces and of developing our flagship brand Heineken. In addition to this, the Heineken brand development has been improved, as well as the profitability of existing breweries. In April 2004, Heineken and

APB consolidated operations in China to form Heineken Asia Pacific Breweries China (HAPBC).

This company holds all the China operations of APB and APIPL. Heineken owns 46.1% of HAPBC.

At the same time, Shanghai APB began brewing Heineken beer locally. Following the merger, HAPBC is reviewing plans to improve the efficiency and cost effectiveness of operations at all levels.

7.5

7.8

8.0

8.4

9.5


61 > Heineken N.V. Annual Report 2004 > Report of the Executive Board > Regional Review > Asia Pacific

ST R O N G R EC OV E RY WA S T H E T H E M E FO R T H E A S I A PAC I F I C EC O N O M I E S A N D FO R H E I N E K E N ’ S

A S I A PAC I F I C O P E R AT I O N S I N 2 0 0 4 . O U R B E E R SA L E S VO LU M E I N T H E R EG I O N G R E W 1 3 %

F R O M 8 . 4 M I L L I O N H ECTO L I T R E S TO 9 . 5 M I L L I O N H ECTO L I T R E S OV E R T H E Y EA R .

HAPBC also bought a 21.5% stake in Kingway Brewery Holdings, one of the most profitable listed

Chinese brewers. Kingway, its principal brand, is popular in the province of Guangdong, one of

China’s most prosperous provinces with a population of 85 million, as well as in Hong Kong, Macao and Taiwan. HAPBC and Kingway are exploring cooperation in distribution in Guangdong and

Hong Kong.

In China, sales volume grew by double digits and operating results also improved substantially from the previous year as a result of operational improvements.

In Hong Kong , continued competition from low-priced Chinese beer and the stronger euro resulted in lower Heineken sales volume.

Australia

>

Strong growth in a profitable market

In Australia, a mature market, the premium beer segment is expanding at double-digit rates as consumers tastes develop. The Heineken brand has long been a force in this rapidly expanding premium beer segment; a segment that makes up almost 10% of the total Australian beer market.

The launch in August 2004 of a sales and marketing joint venture with Lion Nathan Australia,

Australia’s second-largest brewer, has further boosted Heineken’s position in this important market.

Heineken’s popularity within the premium segment and Lion Nathan’s local brewing and national sales and distribution capabilities is a powerful combination. The Heineken Lion Nathan Australia joint venture has created an extensive sales and distribution backbone throughout the country.

We began brewing Heineken beer locally as of January 2005.

Our sponsorship of sports, such as the Australian Open Tennis tournament, the Heineken Classic

Golf tournament and Rugby World Cup has also helped to enhance the Heineken image.

Vietnam

>

Prestige value boosts sales

Vietnam is a success story for the Heineken brand. Thanks to a series of witty Western TV advertising, along with music-related marketing campaigns and a booming economy, sales volume of the Heineken brand grew at a double-digit rate in 2004. Our global Thirst music programme has been extremely popular in Vietnam, as elsewhere in the region, and has helped to raise our profile.

To meet increasing demand for the Heineken and Tiger brands, the APB brewery near Ho Chi Minh

City, will increase its production by 50% to 2.3 million hectolitres from 1.5 million hectolitres by 2006.

We expect the expanded capacity to lead to further sales volume growth.


62 > Heineken N.V. Annual Report 2004 > Report of the Executive Board > Regional Review > Asia Pacific

Other countries

In Indonesia , Multi Bintang grew sales volume by 18% in 2004. We introduced Bintang Zero, a non-alcohol beverage, while locally brewed Heineken has been launced in the market. Financial performance was positively affected by the higher sales volumes and strict cost control.

In Thailand , Heineken outperformed the Thai beer market growth of 12.5%. The Thai brewery doubled its brewing capacity to 2 million hectolitres to meet the demand. Thai APB also launched its second brand, Tiger beer, in July 2004. This is expected to further strengthen the company’s market position and distribution network.

In Taiwan , sales of the Heineken brand have registered their fourth year of double-digit growth.

Although Taiwan’s beer market is mature, our growth is strong because we have built an excellent brand reputation locally and because the premium beer market is expanding.

In Cambodia , both sales volume and result were significantly higher. The brewing capacity increased by 20% to 350,000 hectolitres and sales volume grew by 32% driven by the standard and economy segment.

In South Korea , Heineken has become one of the leading imported beers in the country. We were able to do this after we set up our own sales and marketing office there in late September 2003.

In Japan , the total market for beer was flat. Heineken sales volumes remained stable.

In Malaysia , sales of the Heineken and Tiger brand achieved strong double-digit growth for the third successive year.

In Singapore , the domestic market contracted during the year leading to a dip in domestic sales. However, this was mitigated by a double-digit increase in export sales, resulting in improved performance.

In New Caledonia , the total beer volume declined as a result of the ban imposed on sales of chilled beer during 2003. However, the Heineken brand continued to show strong growth.

In New Zealand , DB Breweries improved its position in the growing premium beer segment.

In September, DB Breweries was successfully privatised and APB gained 100% ownership.

The company entered two major competitions this year – the 2004 Australian International Beer

Awards and the 2004 New Zealand Beer Awards – and was significantly rewarded for its quality brews where it clinched 7 and 10 awards in the respective competitions.

In Papua New Guinea , the mature beer market showed marginal growth mainly attributed to an improved business environment. South Pacific Brewery achieved higher sales volume, which improved 2% and cost control measures yielded an improved result.




64 > Heineken N.V. Annual Report 2004 > Brands

The Heineken brand, available in almost every country on the planet is the world's most valuable premium international beer brand.

We own and manage one of the world’s leading portfolios, comprising more than 120 international, local and specialty brands.

> www.heinekeninternational.com

B R A N D S




Governance

The Heineken risk management and control system encompass policies, processes, tasks, behaviours and other aspects of the company, which, taken together, are aimed at a reasonable level of assurance, that the risks of the Company are identified and managed and that the operational and financial objectives are met, where relevant in compliance with applicable laws and regulations. Embedded in these processes is a system of controls over financial reporting in order to provide reasonable assurance regarding the reliability of the Company’s financial reporting. Heineken’s internal control system is based on the COSO Internal Control Framework.

Considering Heineken’s overall risk profile, and based on the activities described below and the assessments provided from these, we have no indication that current risk management and control systems were not adequate nor effectively working in the year under review. The risk management and control systems are considered to be in balance with Heineken’s risk profile, although such systems can never provide absolute assurance.

Following Heineken’s continuing growth and changing risk profile, the Company’s risk management and control systems are subject to continuous review and adaptations. Currently, Heineken is further structuring and formalising its risk governance activities, appropriate to the evolving structure and needs of the group.

Risk management and control system

Overall Risk Profile

Heineken’s operations and related risks are widely spread. The worldwide activities are exposed to varying degrees of risk and uncertainty, some of which, if not identified and managed, may result in a material impact on a particular operating company, but may not materially affect the group as a whole.

Heineken’s operating companies work in many different markets, environments and cultures.

However, Heineken is a single-product company, with a high level of commonality in its worldwide business operations. This allows for the development of best-practice driven processes and systems worldwide which has a positive impact on Heineken’s overall operational risks and controls.

Overall, Heineken’s risk profile is considered relatively low. However, due to continuous growth and increasing complexity, the risk profile is changing.

Risk Management

Doing business inherently involves taking risks, and by managing these risks Heineken strives to be a sustainable and performance driven company. This calls for a proper balance between entrepreneurial attitudes and the control levels associated with exploiting business opportunities.

In the year under review, Corporate departments carried-out a structured integrated risk assessment. On a process level, structured risk identification and management activities are partly established in various operating companies, mainly driven by Heineken common systems.

In 2005 risk management will be further enhanced.

Responsibilities

The Executive Board, under the supervision of the Supervisory Board, is overall responsible for the design and functioning of Heineken’s risk management and control systems. Operating company management teams are accountable for managing performance, underlying risks and effectiveness of operations, within the boundaries set by the Executive Board. They are responsible for implementing, operating and monitoring an effective risk management and internal control system in their operations, optimising the use of Heineken common processes, systems and other best practices, supported and supervised by Corporate departments and the Executive Board.


67 > Heineken N.V. Annual Report 2004 > Report of the Executive Board > Governance

In 2004, the Heineken Code of Business Conduct and Code of Whistle Blowing were issued. Various policies and procedures have been updated, including Fraud Reporting procedure, the Funds

Planning & Application procedure, the Heineken Brand Policy and the Crisis Management Manual.

Corporate role

The commonality of Heineken’s operations, the development of Heineken common processes, systems, and definitions and related performance benchmarking opportunities, facilitate Corporate departments on setting directives and ensuring monitoring. In addition, Corporate departments are contributing to competence development in operating companies by sharing of best practices, common system and tool developments and training programmes. With the growth of the company and evolving business needs, corporate departments are reviewing and adapting their activities towards operating companies.

Shared services

Heineken is further developing shared services, mainly driven by synergies, but also strengthening risk management and internal control. Main examples of Heineken’s shared services are world-wide technical services to breweries, contracting of raw and packaging materials by Corporate Purchasing, back office activities with regard to Heineken’s export businesses, and shared IT services for all common system operations. Also within various operating companies, there is a movement towards shared services, like in the widely spread wholesale businesses in Western Europe, and various supportive processes in regional operating companies, managing many mid-sized and smaller market operations.

Business planning and performance monitoring

The main pillar of Heineken’s internal governance activities is the business planning and performance monitoring process. Operating companies strategy, business plan and quarterly performance reporting are discussed with the responsible Executive Board member, taking into account the comments from corporate function’s reviews, which may include internal control issues. The approved business plans include clear objectives, performance indicators and target setting, which provide the basis for monitoring performance compared to plan. Heineken’s regional operating companies, responsible for managing mid-sized and smaller companies in a region, cascade the business planning and performance monitoring cycle down to their management structures. Currently, further enhancements to Heineken’s performance management system are progressing.

Internal control in operating companies

Heineken is progressing the group-wide development and implementation of uniform processes and common IT systems based on best practices. At the end of 2004 the main part of the operating companies work in accordance with the evolving Heineken common system.

In developing and implementing common systems, structured risk assessments were included and controls established or adjusted. These internal controls ensure the integrity of the information processing in its support of the day-to-day transaction processing, financial and management reporting, decision-making and overall monitoring. Internal Audit reviewed the redesign and implementation of internal control during and after the common system implementation projects.

Based on these reviews, the level of internal control of the majority of operating companies working with Heineken common processes and systems is satisfactory. However, most of these operating companies are still in a phase of optimising their internal control systems. For a few operating companies, where the level of controls is not yet satisfactory, improvement plans and strong progress monitoring are in place.

Various – smaller and mid-sized – Heineken operating companies, that have not yet adopted common systems, showed progress on improving and monitoring internal control, following reports from internal and external auditors.



Supervision

The Executive Board oversees the adequacy and functioning of the entire system of risk management internal control. Corporate departments assist the Executive Board by providing analyses, appraisals and recommendations, raising the level of risk awareness, and promoting effective and efficient internal control best practices. Group Internal Audit provides overall independent challenge and assurance on risk management and internal control system.

Main operating companies and joint ventures do have their statutory obligations, including their own Supervisory Boards and Audit Committees. Various Heineken senior executives are member of these boards and committees.

Early 2004, an Assurance Meeting has been introduced in the operating companies. The Assurance

Meeting oversees, at operating company level, the adequacy and operating effectiveness of the entire internal control system. These meetings, which are in principle held twice a year, and agreed action plans are an integral aspect of the internal governance structure of operating companies and ensure transparency within the Heineken group.

Group Internal Audit is organised close to the business, with internal auditors having a good understanding of the process and culture and speaking the local language. Group Internal Audit has stimulated the establishment of Local Internal Audit departments and is continuously working on standardisation and ensuring their quality and independence governed by a functional relationship.

Group Internal Audit plays a critical role in the objective and independent assessment of risk management activities and the effectiveness of internal control. Group Internal Audit regularly meets with the Chairman of the Executive Board and the Member of the Executive Board responsible for Finance to discuss the main observations. Quarterly summary reports are issued to the Executive Board and the Audit Committee.

External parties also provide assurance on Heineken’s risk management and control system.

The worldwide external audit activities – which are based on local statutory requirements, and therefore broader in scope than necessary for the Heineken N.V. consolidated figures – provide assurance on reliability of financial reporting on operating company level.

Main risks and responses

Under the explicit understanding that this is not an exhaustive list, Heineken’s major risk factors and responses are listed below.

Strategic risks

Heineken brand perception and company reputation

As both the group and its most valuable brand carry the same name, reputation management is of utmost importance. Heineken enjoys a positive corporate reputation and our operating companies are well respected in their region. Constant management attention is directed towards enhancing Heineken’s social, environmental and financial reputation. The Heineken brand is key to Heineken’s growth strategy and is the most valuable asset of the company. Anything that adversely affects consumer and stakeholder confidence in the Heineken brand or company could have a negative impact on the overall business.

The Company reputation and sales could be damaged by product integrity issues. Therefore, production and logistics are subject to rigorous quality standards and monitoring procedures. Brand perception is managed by strict marketing control procedures. Any (perceived) socially irresponsible behaviour of the Company and its employees is managed via the issue and implementation of a Code of Business Conduct and Whistle Blowing Procedure.

Pressure on alcohol

An increasingly negative perception towards alcohol could lead to a decrease in sales and damage the industry in general. If the social acceptability of alcoholic beverage were to decline significantly


69 > Heineken N.V. Annual Report 2004 > Report of the Executive Board > Governance from current levels, sales of Heineken products could materially decrease.

Heineken’s Alcohol Policy is based on the principle to produce, market, and sell beer in ways that have a positive impact on society at large. With this policy, Heineken promotes awareness of the advantages and disadvantages of alcohol, encouraging informed consumers to be accountable for their own actions.

Attractiveness of Beer Category under pressure

Heineken has many operations in mature Western European beer markets where the attractiveness of the beer category is being challenged by other beverage categories.

In these markets, management focus is on product innovation and portfolio management in order to secure market position and profitability. Since Heineken is acquiring new businesses in emerging markets, the relative dependency on profitability from mature markets will decline.

Operational risks

Growth in emerging markets and business integration

In the pursuit of further expansion, Heineken seeks to strike a balance between organic and acquired growth within the limit of a conservative financing structure. Following its expansion in emerging markets, Heineken will be faced with different cultures, business principles and political environments, which may affect corporate values, image and quality standards. It may also impact the realisation of long-term business plans including synergy objectives, underlying the valuation of new acquired companies.

Heineken is strengthening its business development and integration processes, which includes significant involvement from relevant corporate departments and regional management in carrying out effective due diligences and preparing integration plans. Timely and sound integration of acquired businesses should ensure control and the realisation of synergies.

Business continuity

Business interruptions could affect sales and market shares. These are not considered a major risk due to the relative size and spread operations. An exception is the supply of beer products from the Netherlands to the USA, one of Heineken’s most profitable markets.

Contingency measures, involving multi-sourcing locations in Europe are in place and Heineken’s central purchasing department manages long-term contracts with preferred suppliers in order to secure supply of critical raw and packaging materials.

IT security

IT has a growing impact on Heineken’s worldwide business operations, and connectivity in the company and with outside partners is increasing.

Heineken has a strict IT security policy to ensure confidentiality, integrity and availability of information and data. Support and monitoring activities towards operating companies are being strengthened. IT contingency measures with regard to the partly outsourced IT shared service centre are under review and will be further strengthened.

Financial risks

Currency risks

Heineken operates internationally and reports in euros. Currency fluctuations, especially relating to the US dollar, materially affect overall Company results.

Heineken has a clear policy on hedging transactional exchange risks, which postpones the impact on financial results. Translation exchange risks are not hedged. The sensitivity on the financial results with regard to US dollar positions are explained on page 95.



Capital availability

Sufficient generated capital is needed to finance long-term growth and to keep pace with the consolidation of the global beer market.

Strong cost and cash management and strong controls over fund applications are in place to ensure effective and efficient allocation of resources. Financing strategies are under continuous evaluation.

Tax

Heineken and its operating companies are subject to a variety of local excise and other tax regulations. In principle, Heineken’s sales prices are adjusted to reflect changes in the rate of excise duty, but increased rates may have a negative impact on sales volume.

Compliance risks

Emerging legislation

Due to increasing legislation, supervision and claim culture, both international as local, there is a growing possibility of non-compliance, which could result in claims or penalties and could have a negative effect on the Company’s reputation.

Relevant corporate departments and operating companies have put strong policies and procedures in place, or these are being established.

There may be current risks that the Company has not fully assessed, and are currently identified as not having a significant impact on the business but which could – in a later stage – develop a material impact on the Company’s business. The Company’s risk management systems are focused on timely discovery of such incidents.



Financial Review

Net turnover > in billions of euros

Beer

Soft drinks

Wines and spirits

Other income

7.7

1.2

0.8

0.3

Net turnover and cost of sales

Net turnover rose by €750 million to €10,005 million in 2004, an increase of 8.1%. First-time consolidations added 9.1% to turnover and organic growth amounted to 2.5%, reflecting improvements in the sales mix, higher selling prices and higher volume. This was offset by a 3.5% reduction in turnover due to lower exchange rates against the euro in particular for the US dollar, the Polish zloty, the Nigerian naira, the Russian rouble, the Egyptian pound and the Singapore dollar.

A number of companies were included in the consolidation for the first time in 2004. Shikhan

Brewery and Volga Brewery in Russia were consolidated as from 1 August and Sobol Brewery in Russia was consolidated as from 1 December. The BBAG group in Austria, which has businesses in Austria,

Romania, Poland, Hungary and the Czech Republic, was consolidated as from 1 October 2003. Several beverage wholesalers were also acquired in Italy, Spain and Poland.

There was a change in the accounting principles in 2004 which affects the profit and loss account.

With effect from the beginning of the 2004 financial year, pension costs and provisions have been accounted for on the basis of Guideline 271 Employee Remuneration of the Guidelines for Annual

Reporting in the Netherlands (GAR Guidelines). This change in accounting policies had the non-recurring effect of reducing shareholders’ equity by €187 million. If Guideline 271 had been adopted in 2003, the pension costs in 2003 would have been €23 million higher and the net profit €15 million lower.

Operating expenses rose 9% to €8,757 million, with first-time consolidations adding 10%. Expenses were held down by lower exchange rates for several currencies. Raw material costs declined, while the costs of packaging, energy and water rose slightly. Marketing and selling expenses were up 2%, but decreased slightly as a percentage of net turnover from 12.2% to 12.0%. Personnel costs were higher,

Operating profit and net profit

> in millions of euros

2003

Organic growth

First-time consolidations

Amortisation of goodwill

Exchange effects

Reorganisation costs in the Netherlands (2003)

Book gain Quilmes (2003)

Book gain Whitbread (2004)

Impairment Kaiser (2004)

2004

Operating profit

1,222

67

93

– 50

– 158

74

0

0

0

1,248

Net profit

798

65

19

– 50

– 99

48

– 71

17

– 190

537


72 > Heineken N.V. Annual Report 2004 > Report of the Executive Board > Financial Review

2004 2003

Turnover and costs


Net turnover

Raw materials, consumables and services

Personnel costs

Amortisation/depreciation and value adjustments

Total operating expenses

Operating profit

10,005

6,027

1,957

773

8,757

1,248

9,255

5,557

1,832

644

8,033

1,222

Change (%) reflecting first-time consolidations and higher average staff levels. A decrease in personnel costs on a like-for-like basis was offset by higher wage costs in several countries. Higher amortisation of goodwill also increased operating expenses €50 million.


Operating profit rose 2% from €1,222 million to €1,248 million, despite the 12.9% negative impact of exchange rate movements. Operating profit as a proportion of net turnover decreased from

13.2% to 12.5%. New acquisitions added €93 million to operating profit, before amortisation of goodwill of €50 million. The negative effect of exchange rate movements on operating profit amounted to

€158 million.

Income from non-consolidated participating interests declined by €241 million to €140 million negative. This decrease was largely due to the €190 million impairment charge on Heineken’s

20% participating interest in Cervejerias Kaiser and must be viewed against the background of the exceptional net gain of €71 million in 2003 on the sale of the 15% interest in Argentinean brewing group Quilmes.

Net interest charges rose €40 million to €180 million, largely reflecting higher interest charges in connection with loans raised to finance acquisitions.

The average tax burden decreased from 29.5% in 2003 to 28.7% in 2004, mainly due to several non-recurring tax assets in Italy in particular.

Net profit was down 32.7% to €537 million and earnings per share declined from €1.63 to €1.10.

2004 2003

Change (%)



Operating profit

Income of non-consolidated participating interests

Interest

Profit before tax

Taxation

Profit after tax

Minority interests

Net profit

1,248

– 140

– 180

928

– 306

622

– 85

537

1,222

101

– 140

1,183

– 319

864

– 66

798

2

– 239

29

– 22

– 4

– 28

29

– 33

9

2

7

20

8

8



2004 2003

Cash flow



Dividends paid

Cash flow from investing activities

Borrowings

Repayments on loans

Other financing

1,520

– 243

– 1,671

– 394

201

– 324

– 2

– 519

1,637

– 241

– 2,080

– 684

1,501

– 271

3

549

Cash flow and investments

The cash flow from operating activities decreased from €1,637 million in 2003 to €1,520 million in

2004, due mainly to higher interest and tax payments.

Net investments in tangible fixed assets amounted to €637 million in 2004, compared with €611 million in 2003. In addition to investments in Spain (€74 million), there was substantial expenditure in Nigeria (€66 million), Poland (€58 million), the Netherlands (€60 million), France (€70 million) and Italy (€53 million).

A total of €1,049 million was invested in new acquisitions and expanding existing interests, compared with €1,344 million in 2003. This related to the second phase of the Brau Union acquisition in Austria (39.7%), Shikan Brewery (95.1%), Volga Brewery (100%) and Sobol Brewery (100%), the increased stake in Dinal (48%) and the acquisition of several beverage wholesalers in Europe.

Financing and liquidity

Group equity decreased from €3,899 million as at 31 December 2003 to €3,862 million as at

31 December 2004. Shareholders’ equity increased from €3,167 million to €3,379 million.

The net profit of €537 million, net revaluations of €33 million and positive exchange rate effects of €2 million were offset by the dividend distribution of €173 million and the effect of implementation

Operating profit > in millions of euros

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

921

1,125

1,282

1,222

1,248

457

459

546

659

799


74 > Heineken N.V. Annual Report 2004 > Report of the Executive Board > Financial Review investments depreciation

2000

2001

2002

2003

2004

Tangible fixed assets, net investments and depreciation


418

445

578

465

696

481

611

560

637

645 of GAR Guideline 271 Employee Remuneration of €187 million. Minority interests in group equity decreased sharply from €732 million to €483 million, mainly due to the buy-out of minority shareholders in BBAG in Austria and Dinal in Kazakhstan.

Net interest-bearing debt increased by €523 million to €2,867 million in 2004, largely reflecting reduced cash balances due to acquisitions.

Profit appropriation

Heineken N.V.’s net profit amounted to €537 million in 2004. In accordance with Article 12 of the

Articles of Association, the Annual General Meeting of Shareholders will be invited to appropriate an amount of €196 million for distribution as dividend. This proposed appropriation corresponds to a dividend of €0.40 per share of €1.60 nominal value, on account of which an interim dividend of

€0.16 was paid on 22 September. The final dividend thus amounts to €0.24 per share. Netherlands withholding tax will be deducted from the final dividend at 25%. It is proposed that the remaining

€341 million be added to the retained profits reserve.

Share split

Heineken has maintained a consistent dividend policy over many years, carrying out a review every three years to ascertain whether there is scope for increasing the dividend paid to shareholders by increasing the number of shares in issue by 25%. Consequently, a proposal to split the Heineken shares, by issuing five new shares of €1.60 nominal value for every four existing shares of €2.00 nominal value, was approved by the Annual General Meeting of Shareholders on 29 April 2004. These shares have participated fully in the profits as from 1 January 2004.

2004

%

2003

%

Financing structure


Group equity

Deferred taxation

Employee benefits

Other provisions

Liabilities

3,862

227

680

341

5,308

10,418

37

2

7

3

51

100

3,899

415

0

952

5,631

10,897

36

4

0

9

51

100



Group equity > as a percentage of total assets

2000

2001

2002

2003

2004

40,7

43,6

38,9

35,8

37,1

IFRS

European Union regulation requires all publicly listed companies based in the EU to report their financial statements under International Financial Reporting Standards (IFRS) as of January 1, 2005.

These new standards, published by International Accounting Standards Board (IASB), are intended to provide shareholders and other stakeholders with a better way to compare the results of companies operating in different European countries.

Preparation

In order to prepare for the transition from Dutch GAAP to IFRS, a project team was set up in early 2003 and continued its work throughout 2004. Its first task was to make a thorough analysis of the main differences between Dutch GAAP and IFRS, and to prepare an estimate of the impact on our financial results. Based on this analysis, we took some fundamental decisions on the IFRS accounting policies to be applied and on the transition to the new policies.

The tasks of the project team were the following:

• Updating existing accounting policies and writing new policies based on the IFRS standards;

• Creating awareness in the operating companies about the coming changes;

• Preparing the updates for the common and other IT systems in so far as they were affected by IFRS; the main impact on systems is related to the change in valuation of Tangible Fixed Assets and Inventories from current replacement to historic value;

• Explaining in detail to the operating companies the consequences of the decisions on their reporting;

• Giving instructions to the operating companies with regard to the preparation of an IFRS 2004 opening balance and IFRS internal parallel reporting in 2004;

• Informing the operating companies about IFRS related changes in our planning tools and procedures.

In 2004 the attention of the project team and financial management was focused on the quality of the internal parallel reporting. In close cooperation with our external auditors, we reviewed the internal 2004 IFRS opening balance and 2004 first quarter results. Based on this review, all differences between the Dutch GAAP and internal IFRS reporting were analysed and explained. We are also in the process of the preparation of internal financial statements based on IFRS, in order to obtain more insight in all consequences on both figures and disclosures of the 2005 statements to be published.

Key differences

The main changes for Heineken will relate to the valuation of tangible fixed assets at historic cost, and the valuation of all financial instruments on the balance sheet at fair value. Additionally,

IFRS will no longer allow goodwill to be written off.

Based on preliminary unaudited IFRS figures for 2004, the restated figures will show an increase in operating profit of €96 million and an increase in net profit of €95 million.



Tangible Fixed Assets (IAS 16).

Under Dutch GAAP, Heineken’s tangible fixed assets are stated at replacement value less accumulated depreciation. Under IFRS Heineken will carry tangible fixed assets at historic values less accumulated depreciation. The annual depreciation will also be calculated based on historic costs. 2004 figures will be restated accordingly. The impact in 2004 on the annual depreciation charge is approximately

€35 million lower. The one-off decrease of tangible fixed assets amounts to €350 million in the opening balance of 2004.

Goodwill amortisation (IFRS 3)

Under Dutch GAAP, goodwill was capitalised and amortised over a maximum of 20 years. Under IFRS, goodwill will be capitalised and not be amortised but will be tested for impairment at least yearly.

IFRS 3 requires that the difference between purchase price and the fair value of acquired assets and liabilities have to be allocated to brands and customer relationships, and the remaining balance to goodwill. Previously, Heineken reported the difference between purchase price and the fair value of acquired assets and liabilities as goodwill. Under IFRS, Heineken will start capitalising its brands, starting with the acquisition of Brau Union. Since brands with a definite lifetime should be amortised,

Heineken estimates that the annual amortisation charge in 2004 will be reduced by approximately

€70 million and will increase operating profit and net profit by the same amount.

Hedge accounting (IAS 39 and 32)

Under IFRS, all financial assets, including derivatives and other financial instruments used to minimise the impact of fluctuations in interest rates and in currency exchange rates, must be measured at fair value. Starting in 2005, we will use hedge accounting. It is not possible to predict the impact of hedge accounting on 2005 results, as this will depend on the development of the prevailing foreign currency exchange rates and interest rates. In 2004, the financial statements will not be restated to reflect hedge accounting.

Stocks (IAS 2)

Under IFRS, stocks will no longer be valued at current replacement value but at weighted average prices based on historic values. The impact of the introduction of IFRS on the restated financial statements of 2004 will be a decrease of €8 million in the value of stocks listed in the opening balance 2004.

A full restatement based on IFRS was done as of 1 January 2004, in order to provide comparative

2004 IFRS results for the 2005 IFRS compliant financial statements. Via a press release on 19 May

2005, a detailed analysis of the impact of IFRS on the opening balance – balances per 30 June and

31 December – as well as on the profit and loss accounts for half year- and full year 2004, will be presented.


Ruys

Bolland

Van Boxmeer

Hooft Graafland

Büche




78 > Heineken N.V. Annual Report 2004 > Transparency

We actively seek dialogue with stakeholders.

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We are honest, accessible and transparent in our approach.

T R A N S P A R E N C Y



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>

Financial Statements 2004


80 > Heineken N.V. Annual Report 2004 > Financial Statements 2004

Consolidated Balance Sheet

before appropriation of profit > in millions of euros

31 December

2004

Assets

Fixed assets

Intangible fixed assets

Tangible fixed assets

Financial fixed assets

1,720

5,127

779

Current assets

Stocks

Receivables

Securities

Cash

779

1,309

76

628

7,626

31 December

2003

1,151

4,995

1,122

834

1,379

76

1,340

2,792

10,418

Equity and liabilities

Group equity


Minority interests in other group companies

3,379

483

3,167

732

Provisions

Employee benefits

Liabilities

Long-term borrowings

Current liabilities

2,642

2,666

3,862

568

680

2,721

2,910

5,308

10,418

7,268

3,629

10,897

3,899

1,367

–

5,631

10,897



Consolidated Profit and Loss Account


2004

Net turnover

Raw materials, consumables and services

Personnel costs


Total operating expenses

Operating profit

Results of and value adjustments to non-consolidated participating interests

Interest

Profit before tax

Taxation

Group profit after tax

Minority interests

Net profit

Number of issued shares

Net profit per share on ordinary activities, restated for share split

6,027

1,957

773

10,005

8,757

1,248

– 140

– 180

928

– 306

622

– 85

537

489,974,594

1.10

2003

5,557

1,832

644

9,255

8,033

1,222

101

– 140

1,183

– 319

864

– 66

798

391,979,675

1.63

Total result has been included in shareholders’ equity on page 112.



Consolidated Cash Flow Statement


2004

Cash flow from operating activities

Operating profit

Results of non-consolidated participating interests


Movements in provisions

Movements in employee benefits

Movements in working capital

Cash flow from operations

Interest paid and received

Taxation paid on profits

Cash flow from operating activities

Dividends paid

Cash flow from operating activities less dividends paid

Cash flow from investing activities



Consolidated participating interests

Non-consolidated participating interests

Result on participating interests disposed of

Other financial fixed assets

– 20

– 637

– 1,051

2

17

18

1,248

33

773

– 25

– 27

93

Cash flow from financing activities


Repayment of long-term borrowings

Share issue by group companies

201

– 324

– 2

– 1,671

2,095

– 192

– 383

1,520

– 243

1,277

2003

– 26

– 611

– 1,339

– 5

71

– 170

1,501

– 271

3

1,222

30

644

95

–

92

Net cash flow

Other cash movements

Changes in the consolidation

Exchange differences

Movement in cash

The net cash position is made up of

Cash

Securities

Bank overdrafts

Position as at 31 December

– 125

– 519

– 32

1

– 550

628

76

– 517

187

– 2,080

2,083

– 132

– 314

1,637

– 241

1,396

1,233

549

– 32

15

532

1,340

76

– 679

737



Notes to the Consolidated Balance Sheet,

Profit and Loss Account and Cash Flow Statement for 2004

Valuation, determination of results and consolidation

General

The financial statements and the report of the Executive Board have been prepared in accordance with the provisions of Part 9, Book 2, of the Netherlands Civil Code and the Guidelines for Annual

Reporting in the Netherlands (GAR Guidelines).

The financial information relating to Heineken N.V. has been included in the consolidated balance sheet and profit and loss account. Accordingly the abridged presentation permitted by Section 402, Part 9,

Book 2, of the Netherlands Civil Code has been used for the Heineken N.V. profit and loss account.

The amounts disclosed in the notes are in millions of euros unless otherwise indicated.

In preparing the financial statements, the management makes estimates and assumptions affecting the reported assets, equity and liabilities as at the balance sheet date as well as the reported revenues.

Significant estimates concern those affecting tangible fixed assets, goodwill, provisions, impairments, pensions and corporation tax.

Changes in accounting policies

With effect from the beginning of the 2004 financial year, pension costs and provisions have been accounted for on the basis of GAR Guideline 271 Employee benefits. This change in accounting policies has the non-recurring effect of reducing shareholders’ equity as at 1 January 2004 by an amount of €187 million. The adoption of the provisions of GAR 271 Employee benefits resulted in the inclusion of the deferred tax asset of €100 million in respect of taxation on the difference between the valuation for reporting purposes and that for tax purposes. This deferred tax asset has been netted off with the provision for deferred tax liabilities.

In accordance with the transitional provisions of GAR 271, the comparative figures in the consolidated profit and loss account have not been restated to reflect the change in accounting policies. If Guideline

271 Employee benefits had already been adopted in 2003, the pension costs in 2003 would have been

€23 million higher and the net profit €15 million lower.

Consolidation

Heineken N.V. and the companies in which Heineken N.V. directly or indirectly holds more than half of the voting share capital or is able to exercise control are fully consolidated. Minority interests in group equity and group profits are presented separately.

Proportional consolidation is applied in the case of companies in which the Heineken group has a direct interest and exercises a controlling influence on management decisions in partnership with other shareholders.

In the analyses of movements in various assets and liabilities, disclosures of ‘changes in the consolidation’ relate to increases or decreases in the group’s interests in consolidated companies.

There were a number of changes in the scope of the consolidation during the year.

The most significant changes with regard to the financial statements are mentioned below.

Shikhan Brewery, Russia

Volga Brewery, Russia

Sobol Beer LLC, West Siberia

Consolidated from

1 October 2004

1 October 2004

1 December 2004

These changes in the consolidation led to an increase in net turnover of €27 million.


84 > Heineken N.V. Annual Report 2004 > Financial Statements 2004 > Notes to the Consolidated Balance Sheet,


The following interests were expanded in 2004:

Brau Union Aktiengesellschaft (BUAG), Austria, with operations in Austria, Poland, Romania, Hungary and the Czech Republic, from 60.3% to 100%

Dinal LLP, Kazakhstan, from 51% to 99.99%

Foreign currency and financial instruments

Expanded from

15 May 2004

31 August 2004

Hedging transactions to limit exchange risks are entered into only in respect of actual amounts receivable and payable and highly probable future cash flows in foreign currencies. The instruments used are forward contracts and options. Before such contracts are entered into, cash in- and outflows in a particular currency are netted off at group level as far as possible. Where foreign currency balance sheet positions have been hedged, they are translated at the exchange rate of the hedge.

Recognition of results arising from hedging operations relating to future foreign currency cash flows is deferred until the relevant cash flows are accounted for. Other foreign currency transactions in the profit and loss account are recognised at spot rates unless forward contracts have been entered into in connection with these transactions, in which case the forward rate applies.

The financial statements of non-euro zone companies are translated into euros. Assets and liabilities are translated at exchange rates on the balance sheet date. Profit and loss account items are translated at the average monthly exchange rates. The difference between the net profit based on average exchange rates and the net profit based on the exchange rates on balance sheet date is accounted for in shareholders’ equity. The profit and loss accounts of companies in hyperinflation countries are translated at exchange rates prevailing on the balance sheet date.

Differences in book value arise from translation into euros of the opening balance of the shareholders’ equity of the non-euro zone consolidated companies plus intra-group long-term loans granted to these companies. These differences are treated as revaluations and are credited or debited directly to group equity, with due allowance for taxation. Other differences due to exchange rate movements are accounted for directly in the profit and loss account.

Intangible fixed assets

Goodwill is calculated as the difference between the cost of an acquisition and its net asset value.

In the case of acquisition of beverage wholesalers, the acquisition cost is almost entirely determined by the customer base, and this element is treated as goodwill.

As of 2003, goodwill is carried at cost less accumulated amortisation and impairment. Amortisation is calculated by the straight-line method based on the expected economic life of the assets concerned, subject to a maximum of 20 years.

Other intangible fixed assets, such as software, satisfying the applicable criteria are capitalised and amortised by the straight-line method over three years. If the net realisable value of intangible fixed assets is less than the carrying amount, a diminution in value is applied. Costs of internally developed brands, patents and licences and research and development are expensed.

Brands, patents and licences purchased with acquisitions are treated as part of the goodwill paid.

Tangible fixed assets

Except for land, which is not depreciated, tangible fixed assets are stated at replacement cost less accumulated depreciation. The following average useful lives are used for depreciation purposes:

Buildings

Plant and equipment

Other fixed assets

30-40 years

10-30 years

5-10 years




The replacement cost is based on appraisals by internal and external experts, taking into account technical and economic developments. Other factors taken into account include the experience gained in the construction of breweries throughout the world. Grants received in respect of investments in tangible fixed assets are deducted from the amount of the investment. Projects under construction are included at cost.

Financial fixed assets

Non-consolidated participating interests where the group has a significant influence are stated at the

Heineken share of the net asset value, which is determined on the basis of the Heineken accounting policies as far as possible. Other non-consolidated participating interests are stated at the lower of cost and market value, if permanently impaired. Loans to non-consolidated companies and other financial fixed assets are carried at face value, less provisions for credit risks.

Impairment of assets

Regular assessments are made for any indications that intangible and tangible fixed assets might be impaired. If any such indications exist, the net realisable value is determined by taking into account the net present value of the future cash flows to be generated by the assets concerned or the net proceeds from sale. If the net realisable value of an asset is less than its book value, the difference is deducted from the carrying amount as an impairment loss. The impairment is first charged to the revaluation reserve, any remainder being charged to the profit and loss account.

Current assets

Stocks purchased from third parties are stated at replacement cost, based on prices from current purchase contracts and latest prices as at balance sheet date. Finished products and work in progress are stated at manufactured cost based on replacement cost and taking into account the production stage reached.

Stocks of spare parts are depreciated on a straight-line basis taking account of obsolescence.

If the recoverable amount or net realisable value of stocks is less than their replacement cost, provisions are formed in respect of the difference. Advance payments on stocks are included at face value.

Receivables are carried at face value less a provision for credit risks and less the amount of deposits on returnable packaging.

Securities are carried at the lower of historical cost and quoted price, or estimated market value in the case of unlisted securities.

Cash is included at face value.

Revaluations

Differences in carrying amounts due to revaluations are credited or debited to group equity, less an amount in respect of deferred tax liabilities where applicable.

Provisions

The provision for deferred tax liabilities is formed in respect of timing differences between valuation for tax purposes and valuation according to the accounting policies for reporting purposes.

A provision is also formed for the withholding tax to be deducted from undistributed profits of foreign group companies. The liabilities are calculated at the standard tax rates on balance sheet date and are stated at face value. Deferred tax assets are netted off against deferred tax liabilities of the same kind over matching periods. A net deferred tax asset is not recognised unless future realisation is reasonably certain.

Provisions connected with reorganisation plans are calculated at the net present value of the benefit commitments in connection with early retirement, relocation and redundancy schemes.

The expected degree of employee participation in the schemes concerned is taken into account.




Employee benefits

Employee benefits are accounted for on the basis of GAR 271 Employee benefits, which is based on IAS 19.

Funded liabilities concern plans which are not administered by the company. Unfunded liabilities concern plans administered by the company.

The pension costs of pension rights granted are made up of that part of the movement in the net present value of the pension rights granted, accrued interest, the expected income from fund investments plus rights to fees, actuarial gains and losses, charges in respect of the period of service and the effect of any restrictions on plans or the termination of plans. Contributions to pension plans by employees are deducted from the increase in the net present value of pension rights in the profit and loss account. The discount factor used for the net present value calculations is based on interest rates on corporate bonds with maturities approximately corresponding to the timing of the pension obligations. The unrecognised actuarial gains and losses falling outside the ‘corridor’ are attributed to the average remaining period of service of employees. Actuarial calculations are performed each year by external actuaries.

Contributions to defined contribution pension plans are charged to the profit and loss account in the year in which they are payable.

Long-term borrowings

Long-term interest-bearing loans are included at face value taking into account any discounts or premiums and associated transaction costs. Discounts and premiums plus costs are charged to the profit and loss account as interest expenses over the period of the loan. Other long-term borrowings are stated at face value.

Current liabilities

Current liabilities are stated at face value.

Determination of results

Income and expenses are accounted for in the profit and loss account at the time of supply of the relevant goods or services and transfer of title to the purchaser.

Net turnover means the proceeds from sales of products and services supplied to third parties, net of sales taxes, direct customer discounts and excise duties.

Raw materials and consumables are stated at replacement cost in the profit and loss account.

Depreciation charges based on replacement cost are calculated on a straight-line basis according to the estimated useful lives of the assets concerned.

The results of non-consolidated participating interests consist of dividends made payable during the year by companies carried at cost and Heineken’s share of the net profits of companies carried at net asset value. The share of the results of companies carried at net asset value is calculated as far as possible in accordance with group accounting policies for the determination of results, taking account of taxation and minority interests.

Interest expenses are allocated to the periods to which they relate. Results arising from operations involving interest rate hedging instruments are also accounted for as interest. Such instruments are used to hedge the risk of a reduction in interest income on surplus funds temporarily invested in bank deposits due to falling interest rates and higher interest charges on interest-bearing liabilities due to interest rate rises. Interest rate hedging instruments are not used without a corresponding underlying position.

Taxation on profits is calculated on the profit shown in the financial statements by applying the standard tax rates, taking into account tax payable by the group on profit distributions by participating interests and applicable tax facilities. Differences between the amount thus calculated and the tax actually payable for the year are accounted for in the provision for deferred tax liabilities.



Notes to the Consolidated Balance Sheet

Intangible fixed assets

Position as at 1 January 2004




Amortisation and value adjustments

Position as at 31 December 2004

This book value is made up as follows:

Historical cost

Accumulated amortisation

Goodwill

1,093

661

3

– 3

– 81

1,673

Software and other

58

3

17

–

– 31

47

Total

1,151

664

20

– 3

– 112

1,720

1,790

– 117

1,673

138

– 91

47

1,928

– 208

1,720

The investment in goodwill in 2004 relates mainly to the expansion of our interest in the BBAG group in Austria.

It also relates to the acquisitions of Shikhan and Volga

Brewery in Russia, Sobol Beer LLC in West Siberia and the expansion of our interest in Dinal LLP in Kazakhstan.

Finally, it relates to the expansion of existing interests and acquisitions of beverage wholesalers.

Tangible fixed assets




Completed projects


Revaluations

Depreciation and value adjustments


This book value is made up as follows:

Replacement cost

Accumulated depreciation

Land and buildings

1,772

– 1

22

58

5

11

– 71

1,796

Plant and equipment

2,050

80

185

101

2

22

– 266

2,174

Other fixed assets

982

7

250

52

3

8

– 308

994

Projects under construction

191

2

180

– 211

1

–

–

163

Total

4,995

88

637

–

11

41

– 645

5,127

3,681

– 1,885

1,796

5,806

– 3,632

2,174

2,772

– 1,778

994

163

–

163

12,422

– 7,295

5,127

The aggregate amount of revaluations included in the book value as at 31 December 2004 is:

Other fixed assets includes vehicles, office equipment and returnable packaging. Projects under construction also include advance payments on tangible fixed assets on order. Some of the tangible fixed assets are encumbered with mortgages totalling €140 million (2003: €108 million).

245 318 41 – 604


88 > Heineken N.V. Annual Report 2004 > Financial Statements 2004 > Notes to the Consolidated Balance Sheet

Financial fixed assets


Change in accounting policies


Additions/loans granted

Disposals/loan repayments

Revaluations/exchange differences

Share in net profit/sale proceeds

Dividends received

Other value adjustments


Other financial fixed assets includes €317 million

(2003: €339 million) in respect of loans to customers and €17 million in respect of deferred tax assets

(2003: €18 million).


Shares Loans

Other financial fixed assets

– 45

–3

38

– 8

– 190

429

0

– 7

26

240

0

0

0

0

0

4

4

0

0

8

689

– 160

24

202

– 224

0

0

0

0

531

Total

1,122

– 160

17

232

– 269

– 3

38

– 8

– 190

779

2004 2003

Stocks

Raw materials

Work in progress

Finished products

Goods for resale

Non-returnable packaging

Other stocks

Advance payments on stocks

135

81

206

123

60

166

8

140

71

215

147

68

175

18

779 834

Receivables

Amounts falling due within one year:

Trade debtors

Less: Packaging deposits


Other amounts receivable

Prepayments and accrued income

1,270

– 322

948

24

192

145

1,309

1,306

– 316

990

21

215

153

1,379



2004 2003

Securities

Listed securities

Unlisted securities

54

22

76

Cash

Cash in hand and at bank

Short-term cash deposits

308

320

63

13

494

846

628

Total cash not freely disposable amounts to €50 million, mainly relating to letters of credit.

Shareholders’ equity

Position as at 1 January



Revaluations

Net profit for the year

Dividend


Dividend relates to the final dividend for 2003 of €94 million and the interim dividend for 2004 of €79 million.

For an analysis of shareholders’ equity, reference is made to pages 111-112.

Minority interests

Position as at 1 January




Revaluations

Minority interests in group profit

Dividends payable to minority shareholders

Share issue


732

– 3

– 267

3

– 2

85

– 63

– 2

3,167

– 187

2

33

537

– 173

3,379

483

2,637

–

– 152

41

798

– 157

393

–

400

– 65

19

66

– 83

2

76

1,340

3,167

732



Provisions Deferred tax liabilities

Pension liabilities

Reorganisation provisions

Other provisions

Total

The movements were:





Added/released

Utilised

Other movements


415

– 100

– 75

– 1

17

–

– 29

227

526

– 526

–

–

–

–

–

0

173

–

6

–

45

– 52

–

172

253

– 20

– 25

– 3

– 13

– 22

– 1

169

Additions due to planned and announced restructuring programmes are charged to the profit and loss account, with the exception of restructuring programmes relating to recently acquired companies, which are taken into account in the calculation of goodwill.

The other provisions comprise provisions formed for receivables from participating interests, for contracts of surety provided and for current lawsuits.

€482 million of the provisions (2003: €1,258 million) has a term in excess of one year.

2004

Employee benefits

Net present value of unfunded liablities

Net present value of funded liablities

Less: Fair value of the investments

Net present value of pension rights granted

Less: Unrecognised actuarial gains and losses

Liability included in the balance sheet

Provision by other deferred benefits


422

2,176

– 1,843

755

– 121

634

46

680

1,367

– 646

– 94

– 4

49

– 74

– 30

568



Employee benefits



Costs charged to the profit and loss account

Utilised


The promised pension arrangements relate mainly to pension schemes in the Netherlands, Greece, Austria,

Ireland and Nigeria.

Promised pension arrangements

Other deferred benefits

Total

661

–

96

– 123

634

47

– 1

10

– 10

46

708

– 1

106

– 133

680

2004

Costs charged to the profit and loss account

Increase in net present value of pension rights

Interest charges relating to pension liabilities

Expected investment yield

Effect of restrictions to and termination of schemes

80

132

– 105

– 11

96

Principal actuarial assumptions

For the adoption of Guidelines for Annual Reporting in the Netherlands, GAR 271 ‘Employee benefits’, the following actuarial assumptions and were made in calculating the staff provisions as at 1 January

2004 for the 2004 financial year:

> at 1 January 2004 and 31 December 2004

> in percentage

Discount factor

Expected investment yield

Future pay increases

Future pension increases

Medical costs percentage

3.5 – 19

4.0 – 6.6

2.1 – 17.0

1.5 – 2.5

5.0



2004

Total

2003

More than 5 years Total Long-term borrowings

Amounts falling due after more than one year relate to:

Bond loan, in €, interest rate 4.375%



(2003: 5.01%)

Loans from credit institutions, in €, average interest rate 3.59% (2003: 4.22%)

Loans from credit institutions, in PLN, average interest rate 7.11% (2003: 5.97%)

Loans from credit institutions, in CLP, average interest rate 3.0% (2003: 3.66%)

Loans from credit institutions, in EGP, average interest rate 11.2% (2003: 12%)

Other private loans, in various currencies, average interest rate 5.29% (2003: 4.86%)

Other loans, interest free

49

147

22

2,642

41

61

498

596

198

1,030

–

15

9

1,184

–

16

498

596

–

50

19

114

53

2,721

26

75

497

596

202

1,139

More than 5 years

–

16

18

1,304

–

17

497

596

–

160

Financing activities

The interest-bearing loans are carried at face value plus any premiums and less associated costs.

The other liabilities are carried at face value.

In 2003, a credit facility for €1,200 million was contracted with a syndicate of banks at an interest rate of 0.225% over Euribor, maturing in December 2008. As at 31 December 2004, an amount of €50 million had been drawn down from this credit facility.

A number of other loans also contracted, mainly at variable interest rates. The average interest rate in 2004 was 4.44% (2003: 4.72%).



2004 2003

Net interest-bearing debt position


Current portion of long-term borrowings

Bank overdrafts

Short-term deposits and other short-term interest-bearing debt

2,620

143

517

291

2,668

153

679

260

3,571

Securities

Cash

76

628

76

1,340

Net interest-bearing debt position

704

2,867

Current liabilities

Amounts falling due within one year relate to:

Repayment commitments on long-term borrowings

Bank overdrafts

Suppliers

Taxation and social security contributions

Dividend

Short-term deposits and other short-term interest-bearing debt

Amounts owed to non-consolidated participating interests

Other creditors

Accruals and deferred income

143

517

780

341

14

291

9

207

364

174

679

745

392

16

260

4

223

417

2,666

Tangible fixed assets totalling €68 million (2003:

€68 million) have been pledged to the authorities in a number of countries as security for the payment of taxation, particularly excise duties on beer, soft drinks and spirits and import duties.

3,760

1,416

2,344

2,910



2004 2003

Off-balance-sheet commitments

Tenancy and operating leases

Capital expenditure commitments, unless already included in tangible fixed assets

Long-term raw material purchase contracts

Declarations of joint and several liability

Other off-balance-sheet commitments

Commitment to acquire the remaining

GeBAG shares

Heineken is involved in various lawsuits and claims in connection with ordinary activities. Despite the fact that the outcome of the various proceedings cannot be stated with any certainty, the management believes that any adverse results will not have any material effect on the financial position and profits.

115

137

161

739

119

–

98

60

155

519

56

112

Financial instruments

Financial instruments, accounted for as assets and liabilities in the balance sheet, are used in the normal course of business and use is also made of financial derivatives. The financial instruments included in the balance sheet are made up of financial fixed assets, trade debtors, other amounts receivable, cash, long-term borrowings and current liabilities. Heineken is exposed to interest rate, exchange rate and credit risks on these financial instruments. To limit the risks, use is made of interest rate derivatives, such as interest rate swaps, forward rate agreements, caps and floors, minimising the effects of interest rate fluctuations on results. In addition, forward exchange contracts are used to limit the effects of exchange rate movements on results.

Hedging policy

Exchange rate and interest rate hedging operations are governed by a precisely defined policy and strict rules. Heineken is also exposed to translation and transaction risks. Translation risks are limited to a certain extent by financing in local currencies. Transaction risks arise mainly on cash flows in foreign currencies generated by export activities. The most important foreign currency cash flow is in US dollars. After deduction of dollar-denominated costs, a net cash flow in US dollars remains.

This cash flow is hedged well in advance by means of a combination of forward contracts and options.

This policy reduces the volatility of export results due to short-term fluctuations in the value of the

US dollar against the euro. Transactions are entered into with a limited number of counterparties with excellent credit ratings. The activities are closely monitored, independently of implementation.



2004 2003

Financial instruments

Contract value as at 31 December:

Currency hedging instruments in US dollars

Currency hedging instruments in other currencies

Interest-hedging instruments

741

208

1,502

649

101

1,414

Exchange risks

The foreign exchange hedging operations in 2004 produced an average exchange rate of 1.13 US dollars to the euro on a total of 770 million US dollars. The expected net cash flow in 2005 amounts to approximately 810 million US dollars. As at 31 December 2004, 706 million US dollars of the expected 2005 cash flow had been hedged at an average exchange rate of 1.27 US dollars to the euro. The expected cash flow for 2006 had not yet been hedged as at 31 December 2004.

Interest rate risks

As far as possible, Heineken opts for a 50/50 mix of fixed and variable interest rates in its financing operations, possibly combined with the use of interest rate instruments. The composition of the interest-bearing debt as at 31 December 2004 reflects this endeavour. The interest rate instruments used are interest rate swaps, forward rate agreements, caps and floors.

Market value

The market value of interest rate and exchange rate instruments is the amount for which the financial instruments concerned can be bought or sold in a free market. The market value of the financial instrument amounts to €40 million (2003: €117 million). The maturity of the exchange rate hedging instruments is less than one year. Interest rate hedging instruments maturing after one year amount to €1,337 million. The market value of long-term loans may differ from the amount at which they are carried in the balance sheet.



Notes to the Consolidated Profit and Loss Account

2004 2003

Raw materials, consumables and services

Raw materials

Packaging

Goods for resale

Marketing and selling expenses

Transport costs

Energy and water

Repair and maintenance

Other expenses

684

1,149

1,220

1,199

520

181

233

841

625

1,072

1,137

1,131

454

163

205

770

6,027

The movement in work in progress and finished products

(decrease of €20 million, excluding revaluations and changes in the consolidation) is included in the appropriate component of production costs, i.e. raw materials, packaging materials, excise duties and, with regard to the fixed cost element of stocks, other expenses.

Personnel costs

Salaries and wages

Pension costs

Other social security costs

Other staff costs

1,331

121

259

251

1,200

118

259

260

1,962

Personnel costs capitalised in connection with production of tangible fixed assets for use by the group – 5

1,957

Other personnel costs include amounts added to reorganisation provisions.

5,557

1,837

– 5

1,832


97 > Heineken N.V. Annual Report 2004 > Financial Statements 2004 > Notes to the Consolidated Profit and Loss Account

2004 2003

Number of employees

The average number of employees was:

Netherlands


Rest of Europe

The Americas


Asia Pacific

Heineken N.V. and fully consolidated participating interests


Rest of Europe

The Americas


Asia Pacific

Proportionally consolidated participating interests

Heineken N.V. and consolidated participating interests

4,885

15,897

14,919

1,760

10,982

1,024

947

3,090

3,846

583

3,799

49,467

12,265

61,732

5,256

14,829

14,820

1,534

11,378

1,316

962

3,204

3,901

563

3,508

Amortisation/depreciation and value adjustments

Depreciation of tangible fixed assets

Amortisation of capitalised goodwill

Amortisation of other intangible fixed assets

Value adjustments to other assets

645

81

31

757

16

773

560

31

18

The value adjustments to other assets relate mainly to provisions for stocks of finished products and spares held by various operating companies.

49,133

12,138

61,271

609

35

644



2004 2003

Results of and value adjustments to non-consolidated participating interests

Share in net result of participating interests carried at net asset value

Dividends received from participating interests carried at cost

Book profit on sale of 15% interest in Quilmes

Book profit on sale of Whitbread

Write-down of interest in Kaiser

21

12

–

17

– 190

13

17

71

–

–

– 140

The movement in the value of the real against the euro and the financial results of Cervejarias Kaiser in Brazil led to a write down of our interest amounting to €190 million, this being the total amount of our original investment.

Interest

Interest paid

Interest received

– 227

47

– 180

40

– 180

Taxation

Taxation

The main components of the taxation charge are:

Profit before taxation excluding the results of non-consolidated participating interests

Taxation charge at the tax rate prevailing in the Netherlands

Effect of tax rates outside the Netherlands

Non-allowable expenses

Utilisation of tax losses carried forward

Tax losses not recognised

Under/overprovided in prior years

Tax incentives and other differences

Effective tax burden

Taxation amounts to 28.7% (2003: 29.5%) of the group profit before tax not including the results of non-consolidated companies.

34.5%

– 3.4%

4.7%

– 0.8%

0.8%

– 2.4%

– 4.7%

28.7%

– 306

1,068

368

– 36

50

– 9

9

– 26

– 50

306

34.5%

– 3.8%

3.3%

– 1.6%

0.9%

– 1.6%

– 2.2%

29.5%

101

– 140

– 319

1,082

373

– 41

36

– 17

10

– 18

– 24

319



2004

Tax losses

As at 31 December 2004, the group had tax losses totalling €198 million, expiring as follows:

2005

2006

2007

2008

2009

Later than 2009

Total

An amount of €54 million relating to these tax losses has been recognised as a deferred taxes. Due to the uncertainty regarding the ability to realise the remaining tax losses, they have not been recognised.

61

14

15

13

3

92

198



Segmented Information

Information by geographical area

As almost the entire net turnover of the group is accounted for by just one product group, namely beer, the financial information is segmented by geographical area only. The remaining activities are not reported on a segmented basis. The following five regions aredistinguished: Western Europe,

Central and Eastern Europe, the Americas, Africa and the Middle East and Asia Pacific. Revenues and results are allocated to the region where the product is sold to the consumer.

Export revenues and results are also allocated to the regions. Most of the export production facilities are located in Western Europe. Sales to the other regions are charged at transfer prices which include a surcharge for cost of capital.

Results by region

Net turnover

Third party sales proceeds

Interregional sales proceeds

Total sales proceeds

Proceeds from services

Net turnover

Operating profit before amortisation of goodwill

Amortisation of goodwill

Operating profit

Results of non-consolidated participating interests

Value adjustments to non-consolidated participating interests

Interest

Taxation

Minority interests

Net profit

Beer volumes

Consolidated volume

Minority interests

Licences

Interregional volume

Group volume

1

Including Caribbean

Western Europe

2004 2003

5,143

1,067

6,210

138

6,348

629

– 6

5,140

1,264

6,404

156

6,560

593

– 9

Central and Eastern Europe The Americas

1

2004

1,845

14

1,859

35

1,894

188

– 59

2003

1,129

1

1,130

15

1,145

93

– 10

2004

1,510

–

1,510

4

1,514

284

– 15

2003

1,496

1

1,497

4

1,501

369

– 11

623

4

17

584

3

–

129

3

–

83

1

–

269

14

– 190

358

16

71

38,516

4,692

286

8,801

52,295

40,245

4,012

470

8,918

53,645

30,605

974

–

6

31,585

19,680

931

–

7

20,618

11,470

2,935

141

9

14,555

10,129

1,964

419

13

12,525


101 > Heineken N.V. Annual Report 2004 > Financial Statements 2004 > Segmented Information

29

64

19

13

25

96

1

97

4

01

69

11

58

16

71


168

5

–

149

4

–

Asia Pacific

59

7

–

48

6

–

Eliminations

–

–

–

–

–

–

Consolidated

2004

834

1

2003

822

1

2004

467

–

2003

462

–

2004

–

– 1,082

2003

–

– 1,267

2004

9,799

–

2003

9,049

–

835

55

890

169

– 1

823

53

876

150

– 1

467

3

470

59

–

462

5

467

48

–

– 1,082

– 29

– 1,111

–

–

– 1,267

– 27

– 1,294

–

–

9,799

206

10,005

1,329

– 81

9,049

206

9,255

1,253

– 31

1,248

33

– 173

– 180

– 306

– 85

537

1,222

30

71

– 140

– 319

– 66

798

10,788

335

2,360

28

13,511

10,433

330

1,943

22

12,728

5,312

3,227

987

–

9,526

4,750

2,733

929

–

8,412

–

– 8,844

–

–

– 8,844

–

– 8,960

–

–

– 8,960

96,691

12,163

3,774

–

112,628

85,238

9,970

3,761

–

98,969


102 > Heineken N.V. Annual Report 2004 > Financial Statements 2004 > Segmented Information

Balance sheet by region 1

Western Europe Central and

Eastern Europe

The Americas

2

Africa and the

Middle East

Asia Pacific Consolidated

Operating assets


2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003

4,388 4,690 3,376 2,764

4 32 36 36

4,392 4,722 3,412 2,800

896

90

986

904

283

1,187

780

76

856

872

61

933

343

35

378

392

17

9,783

241

9,622

429

Total assets

Invested cash

409 10,024 10,051

394 846

Total assets as per balance sheet

Total provisions and liabilities

Total liabilities as per balance sheet

Group equity

3,998 4,200

Investments in goodwill

Investments in other intangible fixed assets

Investments in tangible fixed assets

Amortisation of and value adjustments to goodwill

Amortisation of and value adjustments to other intangible fixed assets

Depreciation of and value adjustments to tangible fixed assets

25

9

337

6

19

84

11

324

9

12

364 358

1

2003 figures are restated for comparison purposes

2

Including Caribbean

1,137

621

8

138

59

8

168

1,306

10

4

113

670

4

99

686

8

2

24

15

3

40

616

286

9

23

11

2

31

548

– 23

1

119

1

1

65

697

81

2

139

1

–

43

187

30

–

19

–

–

8

179

–

26

–

–

15

10,418

6,556

6,556

3,862

10,897

6,998

1 661 1,122

20

637

81

31

645

6,998

3,899

26

611

31

18

560



Notes to the Consolidated Cash Flow Statement

The consolidated cash flow statement has been drawn up using the indirect method. The various consolidated profit and loss account and balance sheet items have been adjusted for changes which have no effect on the receipts and payments during the year. Working capital comprises stocks, receivables and current liabilities (excluding bank overdrafts and repayment commitments on longterm borrowings). The cash flow from investing activities relates to the net amount of investments and disposals. The net cash position consists of cash in hand and at bank, securities and bank overdrafts.



Revaluation/exchange differences


Other non-cash-flow movements

Cash flow statement


Working capital




Other non-cash-flow movements

Cash flow movements


Provisions

1,367

– 646

– 4

– 94

– 30

– 25

568

Employee benefits

–

708

–

– 1

–

– 27

680


2,721

– 31

– 1

28

– 276

201

2,642

Repayment commitments

174

–

2

–

291

– 324

143

303

– 18

– 16

– 10

– 93

166



Participating Interests

> of significance for the true and fair view required by law

A declaration of joint and several liability pursuant to the provisions of Section 403, Part 9, Book 2, of the Netherlands Civil Code has been issued with respect to the legal entities established in the Netherlands marked with a • below.

Fully consolidated participating interests

% interest

• Heineken Nederlands Beheer B.V.

• Heineken Brouwerijen B.V.

• Heineken Nederland B.V.

• Heineken International B.V.

• Heineken Technical Services B.V.

• Amstel Brouwerij B.V.

• Amstel Internationaal B.V.

• Vrumona B.V.

• Invebra Holland B.V.

• B.V. Beleggingsmaatschappij Limba

• Brand Bierbrouwerij B.V.

• Beheer- en Exploitatiemaatschappij Brand B.V.

Heineken France

Heineken España S.A.

Heineken Italia S.p.A.

Athenian Brewery S.A.

1

Amsterdam

Amsterdam

Amsterdam

Amsterdam

Amsterdam

Amsterdam

Amsterdam

Bunnik

Amsterdam

Amsterdam

Wijlre

Wijlre

Paris (France)

Seville (Spain)

Pollein (Italy)

Athens (Greece)

Grupa Z ywiec S.A.

Heineken Ireland Ltd.

2

Heineken Slovensko A.S.

Karlovacka Pivovara d.d.

Z ywiec (Poland)

Cork (Ireland)

Nitra (Slovakia)

Heineken Switzerland A.G.

Mouterij Albert N.V.

Ibecor S.A.

Affligem Brouwerij BDS N.V.

LLC Heineken Brewery

Karlovac (Croatia)

Chur (Switzerland)

Ruisbroek (Belgium)

Brussels (Belgium)

Opwijk (Belgium)

St. Petersburg (Russia)

Dinal LLP 1

Heineken USA Inc.

Antilliaanse Brouwerij N.V.

Commonwealth Brewery Ltd.

Windward & Leeward Brewery Ltd.

Cervecerias Baru-Panama S.A.

Nigerian Breweries Plc.

Al Ahram Beverages Company

Brasserie Almaza S.A.L.

Almaty (Kazakhstan)

White Plains (United States)

Willemstad (Netherlands Antilles)

Nassau (Bahamas)

Vieux Fort (St. Lucia)

Panama City (Panama)

Lagos (Nigeria)

Cairo (Egypt)

Beirut (Lebanon)

Brasseries, Limonaderies et Malteries ‘Bralima’ S.A.R.L.

Kinshasa (D.R. Congo)

Brasseries et Limonaderies du Rwanda ‘Bralirwa’ S.A.

Kigali (Rwanda)

Brasseries et Limonaderies du Burundi ‘Brarudi’ S.A.

Brasseries de Bourbon S.A.

P.T. Multi Bintang Indonesia Tbk.

Bujumbura (Burundi)

St. Denis (Réunion)

Jakarta (Indonesia)

99.9

100.0

56.8

53.2

72.7

74.8

54.1

99.9

67.0

95.0

70.0

100.0

100.0

94.4

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

98.2

100.0

98.8

100.0

61.8

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

59.3

85.6

84.5


105 > Heineken N.V. Annual Report 2004 > Financial Statements 2004 > Participating Interests

Proportionally consolidated participating interests

The companies listed below are proportionally consolidated because control of these companies is exercised jointly and directly by virtue of an agreement with the other shareholders.

% interest

BrauHolding International AG

Zagorka Brewery A.D.

Pivara Skopje A.D.

Brasseries du Congo S.A.

Asia Pacific Breweries (Singapore) Pte. Ltd.

Shanghai Asia Pacific Brewery Co. Ltd.

Hainan Asia Pacific Brewery Ltd.

South Pacific Brewery Ltd.

Vietnam Brewery Ltd.

Cambodia Brewery Ltd.

DB Breweries Ltd.

Compania Cervecerias Unidas S.A.

Munich (Germany)

Stara Zagora (Bulgaria)

Skopje (Macedonia)

Brazzaville (Congo)

Singapore

Shanghai (China)

Haikou (China)

Port Moresby (Papua New Guinea)

Ho Chi Minh City (Vietnam)

Phnom Penh (Cambodia)

Auckland (New Zealand)

Santiago (Chile)

49.9

49.0

27.6

50.0

42.1

44.7

46.1

31.9

25.3

33.7

42.1

30.8

Non-consolidated participating interests carried at net asset value

Cervecerias Costa Rica S.A.

Guinness Anchor Berhad

Thai Asia Pacific Brewery Co. Ltd.

San José (Costa Rica)

Petaling Jaya (Malaysia)

Bangkok (Thailand)

Other non-consolidated participating interests carried at cost

Namibia Breweries Ltd.

Cervejarias Kaiser Brasil S.A.

Windhoek (Namibia)

São Paulo (Brazil)

25.0

10.7

14.8

14.5

20.0

1

Expansion of interest in 2004

2

In accordance with the provisions of Section 17 of the Republic of Ireland Companies (Amendment) Act 1986,

Heineken N.V. has given irrevocable guarantees for the financial year from 1 January 2004 to 31 December 2004 in respect of the liabilities, as referred to in Section 5(c) of that Act, of the subsidiary companies

Heineken Ireland Limited and Heineken Ireland Sales Limited.



Balance Sheet of Heineken N.V.

before proposed appropriation of profit > in millions of euros

31 December

2004

Assets

Fixed assets


Current assets

Receivables

Cash

40

86

4,496

31 December

2003

8

574

126

4,622

Equity and liabilities

Shareholders’ equity

Issued share capital

Statutory reserve

Revaluation reserve

Retained profit

784

131

414

2,050

784

114

398

1,871

3,379

Liabilities


Current liabilities

1,212

31

1,161

86

1,243

4,622

3,832

582

4,414

3,167

1,247

4,414



Profit and Loss Account of Heineken N.V.


2004 2003

Net profit of group companies

Other revenues and expenses

Net profit according to the consolidated profit and loss account

553

– 16

537

819

– 21

798



Notes to the Balance Sheet and Profit and Loss Account of Heineken N.V. for 2004

General

The amounts disclosed in the notes are in millions of euros unless otherwise indicated. The aggregate amounts referred to in Section 383, subsection 1, Part 9, Book 2, of the Netherlands Civil Code, in respect of the remuneration, pensions etc. of existing and former members of the Executive Board and of existing and former members of the Supervisory Board disbursed by the company were as follows:

2004

Executive Board members

Former Executive Board members

Supervisory Board members

6.2

0.8

0.2

2003

3.4

–

0.3

Remuneration

The remuneration of the members of the Executive Board comprises a fixed component and a variable component, made up of an annual profit-sharing bonus and a long-term bonus. The annual bonus is related to the dividend distribution, expressed as a percentage of the nominal value of the shares. In terms of frequency, the long-term bonus is related to the issue of bonus shares or share spilt.

The calculation is related to the actual net profit.

The amounts for the long-term bonus included below refer to the amounts paid in the year under review and in the current book year by the company. The long-term bonus is related to the performance over the period 2001-2003.

For further details see page 14.

Executive Board remuneration

> in thousands of euros

Fixed Annual bonus Total Long-term bonus related to

2001-2003

4

A. Ruys

M.J. Bolland

J.F.M.L. van Boxmeer

D.R. Hooft Graafland

K. Büche 1

S.W.W. Lubsen 2

K. Vuursteen 3

2004 2003 2004 2003 2004 2003 2004

543

358

358

358

239

–

–

1

Remuneration since appointment as member of the Executive Board on 1 May 2004

2

Retired on 31 December 2002

3

Retired on 25 April 2002

4

For Messrs. Lubsen and Vuursteen the long-term bonus relates to period 2001-2002

543

358

358

358

–

–

–

618

376

376

376

251

–

–

455 1.161

277 734

277

277

734

734

–

185

–

490

–

–

998

635

635

635

–

185

–

897

534

534

349

–

376

401


109 > Heineken N.V. Annual Report 2004 > Financial Statements 2004 > Notes to the Balance Sheet and Profit and Loss Account of Heineken N.V. for 2004

Pensions

Shares

The pensions of the Executive Board members are administered by the Heineken Pension Fund.

In 2004, €520,300 (2003: €470,000) was charged to the company in respect of pension contributions.

With respect to past Executive Board members an amount of €240,000 was paid on behalf of pensions.

As at 31 December 2004, the members of the Executive Board did not hold any of the company’s shares, convertible bonds or option rights. One of the Executive Board members held 790 shares of Heineken Holding N.V. as at 31 December 2004.

Supervisory Board

The individual members of the Supervisory Board received the following remuneration.

As at 31 December 2004, the Supervisory Board members did not hold any of the company’s shares, convertible bonds or option rights. Two Supervisory Board members together held 9,500 shares of

Heineken Holding N.V. as at 31 December 2004.

> in thousands of euros

C.J.A. van Lede

J.M. de Jong

M. Das

M.R. de Carvalho

A.H.J. Risseeuw

J.M. Hessels

H. de Ruiter 1

J. Loudon

2

1


2


2004

38

38

12

43

40

38

38

–

2003

38

38

38

38

45

38

38

12

Accounting policies for the valuation of assets and liabilities and for the determination of results

Goodwill

Goodwill arising on acquisitions is calculated as the difference between the cost of the acquisition and its net asset value. Goodwill is carried at cost less accumulated amortisation and impairment.

Amortisation is calculated by the straight-line method based on the expected economic life of the assets concerned, subject to a maximum of 20 years.




Shares in group companies are carried at net asset value calculated in accordance with the accounting policies for the valuation of assets and liabilities.




Revaluations

Net profit of group companies

Dividend payments by group companies

Other movements


Group companies

Total

3,832

– 187

35

553

–

263

4,496

Shares

995

– 187

35

553

– 322

–

1,074

Amounts receivable

2,837

–

–

–

322

263

3,422

Other assets and liabilities

Amounts receivable from group companies are stated at face value. Also stated at face value are other amounts receivable, cash, long-term borrowings and current liabilities.


Exchange differences

Movements in exchange rates which affect foreign investments are accounted for in the statutory reserve, the revaluation reserve or the retained profit reserve.

Statutory reserve

This reserve relates to the net profit of participating interests over the distribution of which

Heineken does not have control. The movement in the statutory reserve reflects retained profits of participating interests, exchange differences and dividends received.



2004 2003

Receivables

Taxation

Other amounts receivable

33

7

40

–

8

8

Of the receivables, an amount of €38 million falls due within one year.

Cash

Short-term cash deposits


Issued capital

As per 31 December 2004, the issued share capital comprises 489,974,594 shares of €1.60 nominal value and the authorised share capital is €2.5 billion.

86

784

574

784






Revaluations

Realised revaluations


Released

Dividend


Issued capital

784

–

–

–

–

–

–

784

Statutory reserve

103

– 14

–

–

37

– 12

–

114

Revaluation reserve

414

– 22

41

– 35

–

–

–

398

Retained profits

1,336

– 116

–

35

761

12

– 157

1,871

Total

2,637

– 152

41

–

798

–

– 157

3,167




Revaluations

Realised revaluations


Released

Dividend


The total result in 2004, consisting of changes in accounting policies, exchange differences, revaluations (realised and unrealised) and the net profit for the year, amounts to €385 million

(2003: €687 million).

–

–

–

–

784

–

–

–

784

–

49

– 28

–

114

–

– 4

–

131

– 19

–

–

–

398

–

2

33

414

1,871

– 187

4

–

19

488

28

– 173

2,050

3,167

– 187

2

33

–

537

–

– 173

3,379



Long-term borrowings

Amounts falling due after more than one year relate to:

Amounts owed to credit institutions, in €, average interest rate 4.37%

Bond loan from credit institutions, in €, average interest rate 4.375%

Bond loan from credit institutions, in €, average interest rate 5.0%

2004

Total

118

498

596

1,212

2003

More than 5 years Total

–

498

596

1,094

68

497

596

1,161

More than 5 years

–

497

596

1,093

Current liabilities

Amounts falling due within one year relate to:

Taxation

Other creditors

–

31

69

17

31 86

Off-balance-sheet commitments

Declarations of joint and several liability


Third parties

–

Group companies Third parties

855 –

Group companies

836

Supervisory Board

Van Lede

De Jong

Das de Carvalho

Risseeuw

Hessels

Executive Board

Ruys

Bolland

Van Boxmeer

Hooft Graafland

Büche


114 > Heineken N.V. Annual Report 2004 > Innovation

It is our understanding of the consumer that shapes our innovation ideas and it is world-class research and development which enables those ideas to be realised.

I N N O V A T I O N



>

Other Information


116 > Heineken N.V. Annual Report 2004 > Other Information

Auditor’s Report

Introduction

We have audited the 2004 financial statements of Heineken N.V., Amsterdam, as included on pages 80-113 of this report. These financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

Scope

We conducted our audit in accordance with auditing standards generally accepted in the Netherlands.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion.

Opinion

In our opinion, the financial statements give a true and fair view of the financial position of the company as at 31 December 2004 and of the result for the year then ended in accordance with accounting principles generally accepted in the Netherlands and comply with the financial reporting requirements included in

Part 9, Book 2, of the Netherlands Civil Code.


KPMG Accountants N.V.

Appropriation of Profit

Article 12, paragraph 4, of the Articles of Association stipulates:

‘Of the profits, payment shall first be made, if possible, of a dividend of six per cent of the issued part of the authorised share capital. The amount remaining shall be at the disposal of the General Meeting of

Shareholders.’

It is proposed to appropriate €196 million of the net profit for payment of dividend and to add €341 million to the retained profits.

Special rights pursuant to the Articles of Association

Article 7, paragraph 2, of the Articles of Association reads:

‘The members of the Executive Board and of the Supervisory Board shall be appointed by the General

Meeting of Shareholders from a binding nomination of at least two persons to be made by the Supervisory

Board for each appointment.’

Heineken N.V. is not a ‘structuurvennootschap’ within the meaning of Sections 152-164 of the Netherlands

Civil Code.

Heineken Holding N.V., a company listed on Euronext Amsterdam, holds 50.005% of the shares of

Heineken N.V.

Authorised Capital

The company’s authorised capital amounts to €2.5 billion.

Events after Balance Sheet date

On 20 January 2005 Heineken announced that Heineken Breweries in Russia and Diageo started a joint venture for the production and distribution of Guinness stout beer in Russia.

On 21 January 2005 Heineken announced that Kulmbacher Brauerei A.G., a subsidiary of Brau Holding

International AG, the joint venture between Heineken (49.9%) and Schörghuber Group (50.1%), has made a binding offer for 90.7% of Würzburger Hofbräu AG at an amount of €34 million.



Information for Shareholders

Heineken N.V.

Heineken N.V. shares and options are traded on Euronext Amsterdam, where the company is included in the main AEX index. Prices for the ordinary shares may be accessed on Bloomberg under the symbols HEIA.NA and HEHN.NA and on the Reuters Equities 2000 Service under HEIA.AS and

HEHN.AS. The ISIN code is NL0000009165. Additional information is available on the homepage of

Heineken International, www.heinekeninternational.com

.

In 2004, the average daily volume of trade was 1,104,730 shares. Heineken N.V. is not a ‘structuurvennootschap’ within the meaning of the Netherlands Civil Code. Consequently, decisions on all important matters are taken by the General Meeting of Shareholders.

Market capitalisation

On 31 December 2004, there were 489,974,594 shares of €1.60 nominal value in issue.

On 31 December 2003, there were 391,979,675 shares of €2.00 nominal value in issue.

At a closing price of €24.53 on 31 December 2004, the market capitalisation of Heineken N.V. on balance sheet date was €12.0 billion.

Year-end price

High

Low

€24.53

€28.47

€23.02

31 December 2004

5 May 2004

15 January 2004

Rules concerning insider dealing

Within Heineken N.V. there are established rules governing the disclosure of transactions in shares of Heineken N.V. and Heineken Holding N.V. that are applicable to the members of the Supervisory

Board and the Executive Board, to other managers and staff who might be in possession of price-sensitive information and to a number of external parties.

Major Holdings in Listed Companies Disclosure Act

Pursuant to the Major Holdings in Listed Companies Disclosure Act, Heineken Holding N.V.,

Amsterdam, has disclosed an interest of 50.005% in Heineken N.V.

Dividend per share in euro cents > after restatement for recapitalisation and share split

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

16

16

16

20

26

26

32

32

32

35

Heineken N.V. share price in euros > Euronext Amsterdam > after restatement for recapitalisation and share split share price range closing price

0

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

10

Average trade in 2004: 1,104,730 shares per day

20 30 40 50

13.28

13.99

15.87

33.05

30.75

42.24

34.07

29.76

24.15

24.53


118 > Heineken N.V. Annual Report 2004 > Other Information > Information for Shareholders

Right to add agenda items

Shareholders who, alone or together, represent at least 1% of Heineken N.V.’s issued capital or hold shares with a market value of €50 million have the right to request items to be placed on the agenda of the General Meeting of Shareholders. Requests to place items on the agenda must be received by

Heineken N.V. at least 60 days before the date of the General Meeting of Shareholders. Heineken N.V.

reserves the right to refuse to place an item on the agenda if its inclusion would be contrary to the company’s material interest.

Bonds

Heineken N.V. bonds are listed at the Luxembourg Stock Exchange.

Two bond loans were issued on 4 November 2003. One was issued for €500 million with a coupon interest rate of 4.375%, maturing on 4 February 2010 and listed under ISIN code XS0179266597.

Another one was issued for €600 million with a coupon interest rate of 5.00%, maturing on

4 November 2013 and listed under ISIN code XS0179266753.

Heineken Holding N.V.

The A shares of Heineken Holding N.V. are traded on Euronext Amsterdam. The shares are listed under ISIN code NL0000008969. Options on A shares of Heineken Holding N.V. are traded on

Euronext.Liffe. In 2004, the average daily volume of trade was 177,042 shares. Heineken Holding N.V. is not a ‘structuurvennootschap’ within the meaning of the Netherlands Civil Code. Consequently, decisions on all important matters are taken by the General Meeting of Shareholders.

Market capitalisation

On 31 December 2004, the following numbers of shares were in issue:

241,730,598 A shares of €1.60 nominal value

3,281,250 B shares of €1.60 nominal value

250 priority shares of €2.00 nominal value.

The B shares confer the same voting rights as the A shares.

Heineken Holding N.V. share price in euros > Euronext Amsterdam > after restatement for recapitalisation and share split

Average trade in 2004: 177,042 shares per day share price range closing price

0

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

5 10 15 20 25 30

12.22

12.54

14.50

26.14

22.37

28.80

25.60

22.12

21.70

22.25


119 > Heineken N.V. Annual Report 2004 > Other Information > Information for Shareholders

On 31 December 2003, the following numbers of shares were in issue:

193,384,478 A shares of €2.00 nominal value

2,625,000 B shares of €2.00 nominal value

250 priority shares of €2.00 nominal value.

The B shares confer the same voting rights as the A shares.

At a closing price of €22.25 on 31 December 2004 the market capitalisation of Heineken Holding N.V.

was €5.4 billion as at balance sheet date.

Year-end price

High

Low

€22.25

€24.72

€20.00

31 December 2004

7 May 2004

12 January 2004

Rules concerning insider dealing

Within Heineken Holding N.V. there are established rules governing the disclosure of transactions in shares of Heineken N.V. and Heineken Holding N.V. that are applicable to the members of the Board of Directors and to those directly involved in the company.

Major Holdings in Listed Companies Disclosure Act

Pursuant to the Major Holdings in Listed Companies Disclosure Act, L’Arche Holding S.A. has disclosed an interest of 50.005% and Greenfee B.V. has disclosed an interest of 6.8% in Heineken Holding N.V.

Right to add agenda items

Shareholders who, alone or together, represent at least 1% of Heineken Holding N.V.’s issued capital or hold shares with a market value of €50 million have the right to request items to be placed on the agenda of the General Meeting of Shareholders. Requests to place items on the agenda must be received by Heineken Holding N.V. at least 60 days before the date of the General Meeting of

Shareholders. Heineken Holding N.V. reserves the right to refuse to place an item on the agenda if its inclusion would be contrary to the company’s material interest.

Financial calendar in 2005 for both Heineken N.V. and Heineken Holding N.V.

Announcement of 2004 results

Publication of annual report

Annual General Meeting of

Shareholders, Amsterdam

Quotation ex final dividend

Final dividend payable

Announcement of half-year results

Quotation ex interim dividend

Interim dividend payable

22 February

25 March

20 April

22 April

9 May

7 September

8 September

21 September

Contacting Heineken N.V. and Heineken Holding N.V.

Further information on Heineken N.V. is obtainable from the Corporate Communication and/or

Investor Relations Department, telephone +31 20 523 92 39, or by e-mail investors@heineken.com.

Further information on Heineken Holding N.V. is obtainable by telephone +31 20 622 11 52, or fax +31 20 625 22 13. Information is also obtainable from the Investor Relations department, telephone 020-523 92 39 or by e-mail investors@heineken.com.

The website www.heinekeninternational.com

also carries further information about both

Heineken N.V. and Heineken Holding N.V.



Historical Summary

Turnover and profit > in millions of euros 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995

Net turnover

Operating profit

Operating profit BEIA 1 as % of net turnover as % of the total assets

Interest cover ratio

Net profit including extraordinary income

Net profit BEIA 1 as % of shareholders’ equity

Dividend as % of net profit

10,005 9,255 8,482 7,637 6,766 5,973 5,347 5,174 4,646 3,830

1,248 1,222 1,282 1,125 921 799 659 546 459 457

1,329 1,327 1,282 1,125

13.3

14.3

15.1

14.7

921

13.6

799

13.4

659

12.3

546

10.6

459

9.9

457

11.9

12.8

11.2

537

791

12.2

13.3

798

806

16.4

16.6

795

795

15.6

22.5

767

715

14.6

21.0

621

621

13.3

30.1

516

516

12.4

92.7

445

445

10.7

72.1

345

345

9.5

62.0

297

297

10.4

–

301

301

23.4

173

32.2

25.4

157

19.7

30.1

157

19.7

25.9

157

20.5

25.9

125

20.1

19.7

125

24.2

19.4

100

22.4

14.9

80

23.1

14.5

80

26.8

14.0

80

26.4

Bonus shares > in millions of euros

Increase in share capital

Cash payment

Distribution from reserves

Percentage increase

Per share of €1.60

2 > in euros


Net profit BEIA

Cash payment

1

Dividend (proposed)


Bonus shares (par value)

–

–

–

25

–

–

–

–

–

–

–

–

73

–

73

10

–

–

–

–

–

–

–

–

142

16

158

25

–

–

–

–

–

–

–

–

3.10

1.61

0.40

6.90

–

–

3.34

1.65

0.32

6.46

–

–

2.42

1.62

0.32

5.38

–

–

2.38

1.46

0.32

5.63

0.23

–

2.11

1.27

0.26

4.89

–

–

1.91

1.05

0.26

5.34

–

–

1.80

0.91

0.20

4.69

0.57

0.06

1.54

0.70

0.16

4.73

–

–

1.10

0.61

0.16

4.18

–

–

1.30

0.62

0.16

4.38

0.57

0.06

Cash flow statement > in millions of euros


Dividend

Investments

Financing

1,520 1,638 1,184 1,165 1,035

243 241 187 168 160

1,671 2,081 1,973

– 125 1,233 427

783

– 39

1,503

335

935

112

527

– 13

283 Net cash flow – 519 549 – 549

1

Before amortisation, extraordinary income and goodwill.

2

Restated for the 5:4 share split in 2004.

All previous years have been restated using the current number of shares of 489,974,594.

175 – 293

882

114

728

80

120

753

94

439

36

255 – 283

539

93

840

111

640

93

344

– 70

133

114

13

127

25


121 > Heineken N.V. Annual Report 2004 > Other Information > Historical Summary

Financing > in millions of euros

Share Capital

Reserves


Minority interest

Group equity

Provisions

Employee benefits

Long-term debts

Current liabilities

Liabilities

Total equity and liabilities

Group equity/borrowed capital

2004 2003 2002 2001 2000 1999 1998 1997 1996 1995

784 784 784 784 711 711 711 569 569 569

2,595 2,383 1,853 1,974 1,685 1,907 1,588 1,747 1,479 1,579

3,379 3,167 2,637 2,758 2,396 2,618 2,299 2,316 2,048 2,148

483 732 393 381 124 248 256 182 186 157

3,862 3,899 3,030 3,139 2,520 2,866 2,555 2,498 2,234 2,305

568 1,367

680 –

981 1,024

– –

976

–

770

–

733

–

769

–

734

–

637

–

2,642 2,721 1,215 797 875 490 522 412 359 192

2,666 2,910 2,555 2,235 1,892 1,860 1,460 1,384 1,462 1,187

5,308 5,631 3,770 3,032 2,767 2,350 1,982 1,796 1,821 1,379

10,418 10,897 7,781 7,195 6,263 5,986 5,270 5,063 4,789 4,321

0.59

0.56

0.64

0.77

0.67

0.92

0.94

0.97

0.87

1.14

Employment of capital > in millions of euros




1,720 1,151 39 13 – – – – – –

5,127 4,995 4,094 3,592 3,250 2,964 2,605 2,521 2,452 2,086

779 1,122 835 531 615 422 490 429 380 335

Fixed assets 7,626 7,268 4,968 4,136 3,865 3,386 3,095 2,950 2,832 2,421

Stocks 779

Account receivable 1,309

834

1,379

765

1,270

692

1,192

550

1,024

Cash and securities 704 1,416 778 1,175

490

903

824 1,207

452

775

948

466

799

848

447

771

739

360

563

977

Current assets

Total assets

Group equity/fixed assets

Current assets/current liabilities

2,792 3,629 2,813 3,059 2,398 2,600 2,175 2,113 1,957 1,900

10,418 10,897 7,781 7,195 6,263 5,986 5,270 5,063 4,789 4,321

0.51

1.05

0.54

1.25

0.61

1.10

0.76

1.37

0.65

1.27

0.85

1.40

0.83

1.49

0.85

1.53

0.79

1.34

0.95

1.60



Operating Companies and Participating Interests

as at 1 January 2005 > export offices are not shown

Europe

Country Company Location Brands

Austria Brau Union Österreich (100%) Göss, Puntigam, Schladming,

Schwechat, Wieselburg, Zipf

Belgium

Bulgaria

Affligem Brouwerij BDS (100%)

Zagorka Brewery (49%)

Karlovacka Pivovara (94.4%) Croatia

Czech Republic Starobrno (97.6%)

France Heineken France (100%)

Opwijk

Stara Zagora

Karlovac

Brno, Znojmo

Marseilles, Mons-en-Baroeul,

Schiltigheim, St. Omer

Germany

Greece

Hungary

Ireland

Italy

Kazakhstan

Macedonia

Netherlands

Paulaner Brauerei (25%)

Kulmbacher Brauerei (31%)

Karlsberg (22.5%)

Fürstlich Fürstenbergische

Brauerei (49.9%)

Hoepfner Brauerei (49.9%)

Athenian Brewery (98.8%)

Brau Union Hungaria (85.3%)

Heineken Ireland (100%)

Heineken Italia (100%)

Dinal (99.9%)

Pivara Skopje (27.6%)

Heineken Nederland (100%)

Brand Bierbrouwerij (100%)

Munich, Rosenheim

Chemnitz, Kulmbach, Plauen

Homburg, Koblenz

Donaueschingen

Karlsruhe

Athens, Patras, Thessaloniki

Martfü, Sopron

Cork

Aosta, Bergamo, Cagliari,

Massafra, Messina, Pedavena

Almaty

Skopje

’s-Hertogenbosch, Zoeterwoude

Wijlre

Heineken, Edelweiss, Gösser, Kaiser, Puntigamer,

Schlossgold, Schwechater, Wieselburger, Zipfer

Affligem

Heineken, Amstel, Ariana, Stolichno, Zagorka

Heineken, Desperados, Karlovacˇko

Heineken, Hostan, Starobrno, Zlaty´ Bazˇant

Heineken, Adelscott, Amstel, Buckler, Desperados,

Doreleï, “33“ Export, Fischer tradition, Kriska,

Murphy’s Irish Stout, Pelforth, St. Omer

Hacker-Pschorr, Paulaner, Paulaner Weissbier

Kulmbacher, Mönchshof, Sternquell-pils

Desperados, Karlsberg, Mixery, UrPils

Bären Pilsner, Fürstenberg, Riegeter, QOWAZ

Arnegger, Edel-Weizen, Export, Goldköpfle, Grape,

Hefe Weißbier, Hoepfner Pilsner, Judelbier, Keller-

Weißbier, Kraüsen, Leicht, Maibock, Porter, Radler

Heineken, Alfa, Amstel, Buckler, Desperados, Fischer

McFarland, Murphy’s Irish Stout, Zorbas

Heineken, Amstel, Buckler, Gösser, Kaiser, Schlossgold,

Soproni Ászok, Talléros, Zlaty´ Bazˇant

Heineken, Amstel, Coors Light, Murphy’s Irish Stout

Heineken, Amstel, Birra Messina, Birra Moretti,

Budweiser, Classica von Wunster, Dreher, Ichnusa,

McFarland, Murphy’s Irish Stout, Prinz, Sans Souci

Heineken, Amstel, Tian Shan

Heineken, Amstel, Gorsko, Skopsko

Heineken, Amstel, Lingen’s Blond, Murphy’s Irish Red,

Vos, Wieckse

Brand


123 > Heineken N.V. Annual Report 2004 > Other Information > Operating Companies and Participating Interests

Country

Poland

Company

.

Grupa Z ywiec (61.8%)

Brau Union Romania (96.3%) Romania

Russia

Slovakia

Spain

Heineken Brewery LLC (100%)

Sobol Beer LLC (100%)

Shikhan Brewery OAO (95.1%)

Volga Brewery ZAO (100%)

Heineken Slovensko (100%)

Heineken España (98.2%)

Switzerland Heineken Switzerland (100%)

Location

Bydgoszcz, Cieszyn, Elblag,

Lez

.

.

ajsk, Warka, Z ywiec

Bucuresti, Constanta, Craiova,

Hateg, Miercurea Ciuc

St. Petersburg

Novosibirsk

Sterlitamak

Nizhnyi Novgorod

Hurbanovo, Rimavska Sobota

Arano, Jaen, Madrid, Seville,

Valencia

Chur

Brands

.

ajsk, Specjal,

.

Strong, Tatra, Warka Jasne Pelne, Z ywiec

Heineken, Bucegi, Ciuc, Gambrinus,

Golden Brau, Gösser, Schlossgold, Silva

Heineken, Botchkarov, Löwenbräu, Ochota

Sobol, Zhigulevskoye

Sedoy Ural, Shikan, Solyanaya Pristan

Okskoye, Rusich, Volga

Heineken, Amstel, Corgon, Gemer, Kelt,

Martiner, Zlaty´ Bazˇant

Heineken, Amstel, Buckler, Cruzcampo, Guinness,

Kaliber, Legado de Yuste, Murphy’s Irish Red

Heineken, Amstel, Calanda, Haldengut,

Murphy’s Irish Stout



Country

The Americas

Company Location Brands

Argentina

Bahamas

Brazil

Companias Cervecerias Unidas

Argentina (27.5%)

Commonwealth Brewery (53.2%)

Cervejarias Kaiser Brasil (20%)

Salta, Santa Fe Heineken, Budweiser, Cordoba, Rosario, Salta,

Santa Fe, Schneider

Heineken, Guinness, Kalik, Vitamalt Nassau

Araraguara, Cuiabá, Feira de Santana,

Gravatai, Jacarei, Manous, Pacatuba,

Ponta Grossa, Preto, Ribeirã

Heineken, Bavaria, Kaiser, Santa Cerva,

Summer, Xingu

Antofagasta, Santiago, Temuco Heineken, Cristal, Escudo Chile Companias Cervecerias Unidas

(30.8%)

Cervecería Costa Rica (25%) Costa Rica San José

Dominican Republic Cervecería Nacional Dominicana (9.3%) Santo Domingo

Haiti Brasserie Nationale d’Haïti (22.5%) Port-au-Prince

Heineken, Bavaria, Imperial, Pilsen, Rock Ice

Heineken, Presidente

Guinness, Malta, Prestige

Jamaica

Martinique

Netherlands Antilles

Nicaragua

Desnoes & Geddes (15.5%)

Brasserie Lorraine (83.1%)

Antilliaanse Brouwerij (56.8%)

Consorcio Cervecero

Centroamericano (12.5%)

Kingston

Lamentin

Willemstad

Managua

Heineken, Dragon Stout, Guinness, Red Stripe

Lorraine, Malta, Porter

Amstel, Amstel Bright, Malta

Bufalo, Tona, Victoria

Panama

St. Lucia

Surinam

Cervecerias Barú-Panama (74.8%) Panama City

Windward & Leeward Brewery (72.7%) Vieux-Fort

Surinaamse Brouwerij (76.1%) Paramaribo

Cristal, Guinness, Panama, Soberana

Heineken, Guinness, Piton

Heineken, Parbo

Affiliated company (non-consolidated)



Country



Israel

Jordan

Lebanon

Morocco

Namibia

Nigeria

Burundi

Cameroon

Congo

Brarudi (59.3%)

Brasseries du Cameroun (8.8%)

Brasseries du Congo (50%)

Bujumbura, Gitega Amstel, Primus

Bafoussam, Douala, Garoua, Yaoundé Amstel, Dynamalt, Mützig

Brazzaville, Pointe Noire Amstel, Guinness, Maltina, Mützig, Ngok,

Primus, Turbo King

Democratic

Republic of Congo

Bralima (95%) Boma, Bukavu, Kinshasa, Kisangani,

Lubumbashi, Mbandaka

Al Ahram Beverages Company (99.9%) Badr, El Obour, Sharkí

Amstel, Guinness, Maltina, Mützig, Primus,

Turbo King

Egypt

Ghana Guinness Ghana Breweries Ltd. (20%) Accra, Kumasi

Heineken, Birell, Fayrouz, Meister, Sakara, Stella

Amstel Malta, Guinness, Gulder, Maltina, Star

Tempo Beer Industries (17.8%)

General Investment (10.8%)

Almaza (67%)

Brasseries du Maroc (2.2%)

Namibia Breweries (14.5%)

Nigerian Breweries (54.1%)

Netanya

Zerka

Beirut

Casablanca, Fès, Tanger

Heineken, Gold Star, Maccabee, Malt Star, Nesher

Amstel

Almaza, Amstel, Laziza

Heineken, Amstel

Nigeria

Réunion

Rwanda

Sierra Leone

Consolidated Breweries (24.8%)

Brasseries de Bourbon (85.6%)

Bralirwa (70%)

Sierra Leone Brewery (42.1%)

Swakopmund, Windhoek Heineken, Beck’s, Guinness, Killkenny, Windhoek

Aba, Ama, Ibadan, Kaduna, Lagos

Jjebu Ode, Owe Omamma

Heineken, Amstel Malta, Gulder, Legend,

Maltina, Star

“33“ Export, Hi-malt

Saint Denis Bourbon, Dynamalt

Gisenyi, Kigali

Freetown

Amstel, Guinness, Mützig, Primus

Heineken, Guinness, Maltina, Star




Country

Asia Pacific


Cambodia

China

Cambodia Brewery (33.7%)

Shanghai Asia Pacific Brewery (44.7%) Shanghai

Hainan Asia Pacific (46.1%)

Kingway Brewery (9.9%)

Haikou

Shantou, Shenzhen

Multi Bintang Indonesia (84.5%)

Phnom Penh

Sampang Agung, Tangerang

ABC Stout, Anchor, Gold Crown, Tiger

Heineken, Reeb, Tiger

Anchor, Aoke, Tiger

Kingway

Bintang, Guinness, Bintang Zero, Fit ’n fun Indonesia

Malaysia Guinness Anchor Berhad (10.7%) Kuala Lumpur

Noumea New Caledonia Grande Brasserie de Nouvelle

Calédonie (87.3%)

New Zealand DB Breweries (42.1%) Greymouth, Mangatainoka,

Otahuhu, Timaru

Heineken, Anchor Ice, Baron’s, Guinness, Kilkenny, Tiger

Havannah, Number One

Heineken, Amstel, DB Draft, Export Gold, Monteith’s, Tui

Papua New Guinea SP Brewery (31.9%)

Singapore

Thailand

Vietnam

Asia Pacific Breweries (42.1%)

Thai Asia Pacific Brewery (14.8%)

Vietnam Brewery (25.3%)

Hatay Brewery (42.1%)

Lae, Port Moresby

Singapore

Bangkok

Ho Chi Minh City

Hatay

Niugini Ice Beer, South Pacific Export Lager, SP Lager

Heineken, ABC Stout, Anchor, Baron’s, Tiger

Heineken, Tiger

Heineken, Bivina, Tiger

Heineken, Anchor Draft, Tiger






Colophon

A Heineken N.V. publication

Heineken N.V.

Tweede Weteringplantsoen 21

1017 ZD Amsterdam

P.O. Box 28

1000 AA Amsterdam

Netherlands telephone +31 20 523 92 39 fax +31 20 626 35 03

Copies of this annual report and further information are obtainable from the Corporate Communication Department via www.heinekeninternational.com

Text

Emma Robson

Jana Sanchez

Heineken

Translation

Mac Bay Consultants

Photography

Sascha Nowotka Photography

Taco Anema

Heineken

Graphic design and electronic publishing

Design Studio Hans Kentie BNO

Colour separations

Nederlof Repro

Printing

Boom Planeta Graphics

Binding and distribution

Hexspoor



>

Heineken N.V. Jaarverslag 2004