Annual Report 2006 WorldReginfo - 7ad6190b-4bbe-4ad3-bfe7-ee58fe50baab Contents 01 Profi le 02 Performance highlights 04 Report of the Supervisory Board 08 Report of the Executive Board 08 Chief Executive’s statement 14 Outlook 2007 16 Executive Committee 18 Operational review: 18 Introduction 18 The Heineken brand 18 Innovation 20 Heineken brand communication 21 The Amstel brand 21 Brand portfolios 22 Sustainability 24 Personnel and organisation 26 Regional review: 26 Western Europe 30 Central and Eastern Europe 34 Americas 38 Africa and the Middle East 42 Asia Pacifi c 46 Risk management 51 Financial review 56 Corporate governance 56 Decree Article 10 Takeover Directive 58 Dutch Corporate Governance Code 62 Remuneration report Financial statements 67 Consolidated income statement 68 Consolidated statement of recognised income and expense 69 Consolidated balance sheet 70 Consolidated statement of cash fl ows 72 Notes to the consolidated fi nancial statements 116 Heineken N.V. balance sheet 117 Heineken N.V. income statement 118 Notes to Heineken N.V. fi nancial statements 170 brands Other information Heineken’s leading brand portfolio includes more 122 Auditor’s report than 170 international premium, regional, local and specialty beers. Our principal brands are 124 Appropriation of profi t Heineken® and Amstel®. We continually seek 125 Shareholder information to reinforce our brands through innovations 129 Countries and brands in production, marketing and packaging. 136 Historical summary 138 Glossary 131.9 million hl 140 Reference information The Heineken brand is available in almost every country on the planet. We own more than 115 breweries in more than 65 countries brewing a Group beer volume of 131.9 million hectolitres. WorldReginfo - 7ad6190b-4bbe-4ad3-bfe7-ee58fe50baab Profi le Heineken Heineken is one of the world’s great brewers and is committed to remaining strong and independent. The brand that bears the founder’s name – Heineken – is available in almost every country on the planet and is the world’s most valuable international premium beer brand. Heineken brews great beers and builds great History brands. In addition to the Heineken brand, we The Heineken story began more than 140 years have more than 170 international, regional, local ago in 1864 when Gerard Adriaan Heineken and specialty beers around the globe. Our famous acquired a small brewery in the heart of brands include Amstel®, Europe’s third-largest Amsterdam. Since then, four generations selling beer, Cruzcampo®, Tiger®, Z˙ywiec®, of the Heineken family have expanded the Birra Moretti®, Ochota®, Murphy’s® and Star®. Heineken brand and the Company throughout Europe and the rest of the world. At Heineken we aim to be a leading brewer in each of the markets in which we operate and 57,557 employees to have the world’s best brand portfolio. In 2006 the average number of employees employed increased from 56,598 to 57,557 We have the widest presence of all international (pro rata). brewers, thanks to our global network of distributors and 115 breweries in more than 65 countries. Our brands are well established in profi table, mature markets, while the popularity of our beers is growing daily in emerging beer markets such as Russia, China and Latin America. We are the largest brewer and distributor in Europe. Our global coverage is achieved through a combination of wholly-owned companies, licence agreements, affi liates and strategic partnerships and alliances. Often, our wholesalers also distribute wine, spirits and soft drinks. Our international export operations ship beer to large and profi table markets worldwide. We are committed to growth and have embraced innovation as a key component of our strategy in the areas of production, marketing, communication and packaging. In all of these areas, it is the consumers and their changing needs that is at the heart of our efforts. We also fully acknowledge the role that we have to play in society. Social responsibility and sustainability underpin everything we do. We will continue expanding initiatives to combat alcohol abuse and misuse and work hard to reach the highest environmental standards in the industry. Heineken N.V. Annual Report 2006 01 WorldReginfo - 7ad6190b-4bbe-4ad3-bfe7-ee58fe50baab Performance highlights Our performance 1 Revenue +9.6% • Net profi t (BEIA) increased by €90 million or 10.7 per €11,829 million cent to €930 million. Net profi t (BEIA) grew organically by 12.6 per cent. Net profi t increased to €1,211 million. EBIT (BEIA) +12.7% €1,569 million • Consolidated beer volume grew by 11.3 per cent (from 100.5 million hectolitres to 111.9 million hectolitres); Net profi t (BEIA) +10.7% of this 6.9 per cent was organic and 4.4 per cent the €930 million effect of fi rst time consolidation. Consolidated beer volume +11.3% • Volume of Heineken in the premium segment grew by 111.9 million 11.8 per cent to 22.5 million hectolitres and the brand hectolitres achieved its biggest increase since the 1980s. The brand also increased its share in the segment and Heineken volume in premium segment +11.8% grew in every region. 22.5 million hectolitres EBIT BEIA Net profit BEIA In millions of EUR In millions of EUR 2002 1,330 2002 795 2003 1,357 2003 806 2004 1,377 2004 803 2005 1,392 2005 840 2006 1,569 2006 930 Consolidated beer volume Heineken volume in premium segment In millions of hectolitres In millions of hectolitres 2002 73.8 2002 17.4 2003 85.2 2003 18.5 2004 96.7 2004 19.2 2005 100.5 2005 20.1 2006 111.9 2006 22.5 1 Please refer to the Glossary for defi nitions. Heineken N.V. 02 Annual Report 2006 WorldReginfo - 7ad6190b-4bbe-4ad3-bfe7-ee58fe50baab Key fi gures1 Results In millions of EUR 2006 2005 Change Revenue 11,829 10,796 9.6% EBIT 1,832 1,283 42.7% EBIT BEIA 1,569 1,392 12.7% Net profi t 1,211 761 59.1% Net profi t BEIA 930 840 10.7% Dividend (proposed) 294 196 50.0% Free operating cash fl ow 1,122 1,138 (1.5%) Balance sheet In millions of EUR Total assets 12,997 11,829 10.0% Equity attributable to equity holders of the Company 5,009 3,969 26.2% Market capitalisation 17,654 13,122 34.5% Net debt position 1,913 2,647 (24.3%) Per share of €1.60 Weighted average number of shares – basic 489,712,594 489,974,594 Net profi t 2.47 1.55 59.2% Net profi t BEIA 1.90 1.71 10.7% Dividend (proposed) 0.60 0.40 50.0% Free operating cash fl ow 2.29 2.32 (1.3%) Equity attributable to equity holders of the Company 10.23 8.10 26.3% Share price as at 31 December 36.03 26.78 34.5% Staff In numbers Average number of employees pro rata 57,557 56,598 1.7% Ratios EBIT as % of revenue 15.5% 11.9% 30.3% EBIT as % of total assets 14.1% 10.8% 30.6% Net profi t as % of average equity attributable to equity holders of the Company 27.5% 21.1% 30.3% Dividend % payout 24.3% 25.8% (5.8%) Gearing 40.0% 66.7% (40.0%) Cash conversion rate 105.6% 120.0% (12.0%) Net interest cover 19.7 14.3 37.8% 1 Please refer to the ‘Glossary’ for defi nitions. Heineken N.V. Annual Report 2006 03 WorldReginfo - 7ad6190b-4bbe-4ad3-bfe7-ee58fe50baab Report of the Supervisory Board To the shareholders During the year under review, the Supervisory Board performed its duties in accordance with the law and the Articles of Association of Heineken N.V. and supervised and advised the Executive Board on an ongoing basis. Financial statements and profi t appropriation retain suffi cient earnings in order to grow The Executive Board has submitted its fi nancial the business both organically and through statements for 2006 to the Supervisory Board. acquisitions. Under the new policy Heineken will only consider share splits if and when the share These fi nancial statements can be found price has reached a level where the liquidity of on pages 67 to 121 of this Annual Report. the stock becomes adversely affected. Heineken will continue to pay the annual dividend in the KPMG ACCOUNTANTS N.V. audited the fi nancial form of an interim dividend and a fi nal dividend. statements. Their report appears on page 122. The interim dividend will be fi xed at 40 per cent of the total dividend of the previous year. A new dividend policy will be submitted to the Annual General Meeting of Shareholders for The Supervisory Board recommends that the approval. The new policy will fi rst be applied over shareholders, in accordance with the Articles of the fi nancial year 2006. Under the existing policy Association, adopt these fi nancial statements and, Heineken reviewed every three years if there as proposed by the Executive Board, appropriate would be scope to increase the dividend via a €294 million of the profi t as dividend, based on the share-split, thereby increasing the number of new policy, and add the remainder, amounting to shares, whilst maintaining the annual dividend €917 million, to retained earnings. The proposed per share at the same level. This resulted in an dividend amounts to €0.60 per share of €1.60 intended dividend payout ratio of 20-25 per cent. nominal value, of which €0.16 was paid as an In the new policy it is proposed to increase the interim dividend on 20 September 2006.