Annual Report 2016 Heineken N.V. Report of the Report of the Financial Sustainability Other Annual Report 2016 Introduction Executive Board Supervisory Board Statements Review Information Inside this year’s report Introduction Report of the Supervisory Board Sustainability Review We Are HEINEKEN 01 To the Shareholders 46 Brewing a Better World: our sustainability performance 135 Remuneration Report 50 Protecting water resources 136 Report of the Executive Board Reducing CO2 emissions 138 Chief Executive’s Statement 02 Financial Statements Sourcing sustainably 140 Strong performance and progress 04 Consolidated Income Statement 59 Advocating responsible consumption 141 Key figures 05 Consolidated Statement of Promoting health and safety 143 Comprehensive Income 60 Our impact on society: Growing with communities 144 From Barley to Bar 06 Consolidated Statement Reporting basis and criteria of Financial Position 61 Executive Team 08 non-financial indicators 146 Consolidated Statement List of operating companies of Cash Flows 62 Our business priorities 09 for non-financial indicators 151 Consolidated Statement Win in premium led by Heineken® 10 of Changes in Equity 64 Shape the cider category 11 Notes to the Consolidated Other Information Lead by cool marketing and innovation 12 Financial Statements 66 Appropriation of Profit 153 Be commercially assertive 13 Heineken N.V. Balance Sheet 124 Independent Auditor’s Report 154 Drive end2end productivity 14 Heineken N.V. Income Statement 125 Deloitte Assurance Report 158 Brewing a Better World 15 Notes to the Heineken N.V. Financial Statements 126 Shareholder Information 160 Regional Review 16 Bondholder Information 164 Africa, Middle East and Eastern Europe 17 Historical Summary 165 Americas 18 Glossary 167 Asia Pacific 19 Reference Information 169 Europe 20 Disclaimer 170 Risk Management 21 Financial Review 28 Corporate Governance Statement 33 Further information online at: theHEINEKENcompany.com – Download the Annual Report – Find out about HEINEKEN’s history – Explore our countries and brands – Read more about our sustainability journey Follow us on Twitter for news and updates: @HEINEKENCorp Heineken N.V. Report of the Report of the Financial Sustainability Other 01 Annual Report 2016 Introduction Executive Board Supervisory Board Statements Review Information We Are HEINEKEN We build true human connections and break down barriers, because we believe great moments of shared experiences are the best in life. We are inspired by consumers to brew the best beers and extend that same passion to all of our brands, products and activities. We are proud of our family history and Dutch heritage and derive from them our entrepreneurial spirit that takes us to every corner of the world. We are brand builders. The Heineken® brand defines and unites us while our many local, regional and global brands make our portfolio diverse and unique. People are at the heart of our company. We see our strength in trust, diversity and progress. We stand by our values: passion for quality, enjoyment of life, respect for people and for the planet. We always advocate for responsible consumption. We are committed to our communities and strive to consistently improve the impact we make on the planet. We work with our customers and partners to grow together and seek to win with integrity and fairness. And we are convinced that by staying true to these commitments, we create value for our shareholders. We Are HEINEKEN. Heineken N.V. Report of the Report of the Financial Sustainability Other 02 Annual Report 2016 Introduction Executive Board Supervisory Board Statements Review Information Chief Executive’s Statement 2016 was another strong year for HEINEKEN despite a tough economic environment, significant currency fluctuations and geopolitical instability. Organic revenue grew by 4.8% with revenue per hectolitre up 2.2%. In addition, our operating profit (beia) grew by 9.9%, Diluted Earnings Per Share (beia) increased by 2.9% to EUR 3.68, and we delivered a margin expansion of more than 50 basis points. We benefited from our unique diversified footprint. Whereas our Africa, Middle East and Eastern Europe region was negatively affected by adverse economic circumstances, Europe, Asia and the Americas performed well, with Vietnam and Mexico particularly strong. The Heineken® brand grew 3.7%, with positive volume performance across all regions. Innovations under the brand include the new ‘wild lager’ beers H41 and H71, which were launched in selected markets in Europe. In addition to our UEFA Champions League, Rugby and James Bond sponsorships, we announced a five-year partnership with Formula 1® in May. The partnership allows us to connect with more consumers, particularly in high growth markets, and to build a bold responsible marketing campaign. In the next five years, we will commit EUR 200 million and our best marketing brains to reinforce our ‘When You Drive, Never Drink’ message with campaigns in markets around the world. Our International Brands portfolio outperformed overall portfolio growth. Amstel, which now sells in more than 100 markets, reached 11.5 million hectolitres and is a challenger in its segment. Tecate and Tiger delivered stellar growth. Tiger reached the 10 million hectolitre milestone much earlier than anticipated and expanded sales to a total of almost 60 markets. Both Tecate and Tiger are connecting with consumers through the positions they are taking on things that matter to these brands and consumers alike. In the last two years, our Cider portfolio has grown from 25 markets to now being enjoyed in a total of 41. In 2016, the UK, the home of ciders, also grew. Overall, our consolidated cider volume grew to 4.8 million hectolitres. The growth of cider has been fuelled in particular by Strongbow Apple Ciders, our flagship brand, but is also supported by the growth of our other cider brands, including our newest, Orchard Thieves, and the continuous ingredient and flavour innovations of the portfolio. We see a lot of potential for our low- and no-alcohol portfolio, which in 2016 reached a consolidated volume of 12.3 million hectolitres. The portfolio continues to develop with new innovations that expand consumer choice. We are learning a lot from brands like Amstel, Fayrouz, Bintang and Cruzcampo and in markets like Nigeria, Indonesia and Spain where this part of the business is thriving. In 2016, Radler extended beyond European markets into Mongolia, Egypt and Chile and Radler 0.0% launched in five markets. We see a lot of opportunity for growth and are very excited to launch Heineken 0.0 in 2017. In 2016, HEINEKEN continued to invest in key developing markets. We added capacity in Ethiopia and Cambodia. We opened a brewery in Shanghai, acquired a brewery in Vietnam, and we are building a new brewery in Mexico. Heineken N.V. Report of the Report of the Financial Sustainability Other 03 Annual Report 2016 Introduction Executive Board Supervisory Board Statements Review Information In addition, we continued to optimise costs, leverage our size, and improve the efficiency of our Financial Shared Services and Global Procurement. Our operations improved productivity despite increasing complexity brought about by an enlarged product offering and increased personalisation requirements from retailers. Efficiency and productivity targets are tightly linked to our Brewing a Better World strategy. In 2016, we decreased our water consumption to 3.6 hl/hl from 3.7 hl/hl in the previous year. These savings would be equivalent to more than 1,000 Olympic-sized swimming pools of water. Our CO2 emissions in production decreased to 6.5 kg CO2-eq/hl, down from 6.7 kg CO2-eq/hl in 2015. This reduction is similar to the emissions saved by installing nearly 300,000 solar panels. We are on track with most of our 2020 Brewing a Better World commitments and during 2017 we will define our 2030 ambitions in line with the UN Sustainable Development Goals (SDGs) and COP21. In the last seven years, since we kicked off Brewing a Better World, our CO2 emissions have decreased 5%, despite our business volume growing by 52%. But this is not enough. As a result of the Paris Agreements of COP21, we will redouble our efforts in emission reduction. Preparing for the future requires above all great leaders that can do more than drive excellent financial performance. In 2016, 150 of our most senior leaders attended a week-long residential course at Harvard Business School. We are rolling out a renewed guide of Leadership Expectations and a new Inclusion and Diversity Platform will help us to better leverage our global talent pool. HEINEKEN is a very inclusive company and we see diversity as a richness. Five nationalities are represented in our Supervisory Board, seven in our Executive Team and 53 in our senior leader community. We now aim to increase our focus on gender diversity. Our values guide how we work and conduct our business and we support the principles of the OECD guidelines. This is the first year we have produced a joint annual and sustainability report. We feel strongly that our aim is to run the business sustainably throughout our operations. Disclosing the progress of Brewing a Better World together with our financial results is the right thing to do going forward. In 2017, economic conditions are expected to remain volatile and we have assumed a negative impact from currency comparable to 2016. We expect further organic revenue and profit growth. Excluding major unforeseen macroeconomic and political developments as well as the impact of proposed acquisitions in Brazil and in the UK, we expect continued margin expansion in 2017 in line with the medium term margin guidance of a year-on- year improvement in operating profit (beia) margin of around 40bps. Capital expenditure related to property, plant and equipment should be slightly below EUR 2 billion. I end this letter by expressing my gratitude to our customers, partners and stakeholders.