company profile heineken nv

Heineken NV Company Profile

written for FNV Mondiaal by Food World Research & Consultancy

/Paul Elshof

Amsterdam, January/May 2005

Heineken NV Company Profile 2

Colofon Heineken NV Company Profile written for FNV Mondiaal by Food World Research & Consultancy / Paul Elshof as part of the FNV Company Monitor Project Edited & published by: Stichting Onderzoek Multinationale Ondernemingen (SOMO) Centre for Research on Multinational Corporations Copyright © 2005 January 2005 (annex 7 May 2005) SOMO, Amsterdam Contact information SOMO Keizersgracht 132 1015 CW Amsterdam Phone: +31 (0)20 6391291 e-mail: [email protected] Food World Research & Consultancy Phone: +31 (0)20 6393645 e-mail: [email protected] www.companymonitor.org


Table of contents

1. General characteristics .......................................................................................... 4 1.1. Name of the holding company .................................................................................. 4 1.2. Communication data ................................................................................................. 4 1.3. Ownership structure .................................................................................................. 4 1.4. Composition of the Board.......................................................................................... 5 1.5. Basic financial data : Turnover, profits, financial position ......................................... 5 1.6. Main activities............................................................................................................ 5 1.7. Main competitors....................................................................................................... 6 1.8. Products and brands ................................................................................................. 6 2. Production and production policies...................................................................... 8 2.1. Geographical distribution of production and employment ......................................... 8 2.2. Sales and production development of Heinekens leading brands ............................ 9 2.3. The policy to capture markets ................................................................................... 10 3. History and strategy ............................................................................................... 11 3.1. A young, but well integrated company ...................................................................... 11 3.2. Strategy..................................................................................................................... 13 3.3. Actual positions in Asia, Latin America and Africa .................................................... 14 3.4. Employment development......................................................................................... 17 3.5. Development of volumes brewed & sold and employment figures .......................... 18 4. Labour relations ...................................................................................................... 19 4.1. Strong trade union presence..................................................................................... 19 4.2. Employee representation at different levels .............................................................. 20 4.3. Labour relations ........................................................................................................ 21 5. HR Management and management styles ............................................................ 23 6. Corporate norms, standards and codes ............................................................... 25 6.1. Sustainable corporate behaviour patterns. ............................................................... 25 6.2. Work in progress ....................................................................................................... 26 6.3. Social-economic rights .............................................................................................. 28 Annex to the Heineken Company Profile ........................................................................... 29 Smaller Board............................................................................................................ 29 New executive committee.......................................................................................... 30 Heineken Code of Business Conduct........................................................................ 31


1. General characteristics

1.1. Name of the holding company

Heineken NV

1.2. Communication data

Heineken NV Tweede Weteringplantsoen 21 PO Box 28 1017 ZD Amsterdam 1000 AA Amsterdam Netherlands Netherlands

Tel.: +31 20 5239239 Fax.: +31 20 6263503 Website: www.heinekeninternational.com (Corporate Communications Department) Email : [email protected] (Corporate Affairs Department)

1.3. Ownership structure

Shares are traded on the Euronext Stock Exchange Amsterdam. Heineken NV is controlled by Heineken Holding NV . This Holding has a 50,005 % share in Heineken NV. And Heineken Holding NV on its turn is controlled by LÀrche Holding S.A., a Swiss company. LÁrche Holding owns 50,005 shares in Heineken Holding NV. LÁrche Holding is a society owned by the Heineken family. This has long been Freddy Heineken, the third generation owner . Since his death in 2003 this ownership belongs to his daughter Mrs. C.de Carvalho Heineken and her husband M.R.de Carvalho. Mr de Carvalho has a seat in the supervisory Board. To sum up: the Heineken family controls with a 25,0010 share in Heineken NV de facto the Heineken Group. On 31 December 2003 there were 391,979,675 shares, with a nominal price of €2.00, but traded at €30,19. At that date Heineken was valued at € 11.8 billion.1 Heineken Holding NV has no operational activities. Its one and only aim is to safeguard the long-term continuity, independence and stability of Heineken´s activities. Also Heineken Holding NV is traded at the Euronext Amsterdam stock exchange.

1 Heineken NV Annual Report 2003, p.87


1.4. Composition of the Board

Recently, in the period 2000 to 2003 the composition of the Executive Board has been changed completely. The Executive Board consists of 4 persons, since May 2004 5 persons. Chairman of the Executive Board is Tony Ruys, member of the Board since 1993 and appointed as chairman in 2002. � Ruys is responsible amongst others for Corporate Affairs, Human Resources & Organisation

Development, and the Asia/Pacific region. � All other members have been elected in the Board in 2001 and 2002. � M.Bolland is responsible for amongst others corporate brands, commercial affairs , North and

South America, Southern Europe � J.van Boxmeer is responsible amongst others for Corporate Production, Policy and Control,

Heineken Technical Services, Central and Eastern Europe ( until May 2004), North-West Europe and Sub Saharan Africa.

� D.Hooft Graafland is Heineken´s Chief Financial Officer. � K.Büche has been appointed from 1 May 2004 Ruys has 58 years, just as Büche, but the 3 others are quite young: 43 to 50 years. All have the Dutch nationality except van Boxmeer who is Belgian. And since May 2004 the Austrian K.Büche has been appointed as an extra member of the Board, with first responsibility for Brau Union , which means Heineken’s Central and Eastern European activities. The Supervisory Board has 7 persons, all of Dutch nationality, except Mr. Carvalho, the husband of Mrs Carvalho, Freddy Heinekens daughter. He has the British nationality.

1.5. Basic financial data : Turnover, profits, financial position2

Net turnover (in mln € )

Operating profit (in mln €)

Net profit Net profit as % Of shareholders

equity 1999 9,255 1,222 798 25,4 2000 8,482 1,282 795 30,1 2001 7,637 1,125 767 25,9 2002 6,766 921 621 25,9 2003 5,973 799 516 19,7

At the end of 2003 total group equity was € 3,899 million and provisions amounted to € 1,367 million. Liabilities were at their highest level in the history of Heineken NV : € 5,631 million. This resulted in a ratio of Group equity to borrowed capital of 0,56 end 2003. The lowest level in Heinekens history, but still high compared with many other companies. Heineken has a tradition of being very conservative in financing its business; until 1999 the ratio group equity to borrowed capital was around 0,90.

1.6. Main activities

The Heineken Group belongs to the 4 major brewery-companies in the world and has been for a long time one of the most international breweries. Some others like Interbrew and South African Breweries

2 Heineken NV, Anuual report 2003, p. 90


(S.A.B.) acquired more aggressive than Heineken other breweries during the last decade. So they developed also in widely spread international brewing companies. But the Heineken brand is by far the brand name most spread over the world. Heineken has sales activities in 170 countries worldwide. It operates about 115 breweries in 65 countries, spread over all continents with the exclusion of North America. In 2003 about 110 million hectolitres of beer were brewed. Apart from its brewery activities Heineken operates some soft drink companies in Europe and Africa and it owns a major maltery in Belgium/Europe. With a capacity of 250,000 tons this malthouse is one of the biggest and most modern in the world: it supplies about 40 of Heineken´s breweries Of the total turnover of € 9,2 billion in 2003 € 7,3 billion was beer related turnover, € 1,0 billion was soft drinks, € 0,6 billion was wine and spirits. Total employment was about 60,000 at the end of 2003.3

1.7. Main competitors

Heineken ranks nr 4 in the worldwide brewery-sector when measured on production volumes at the end of 2004. But during the last two years this ranking changes every half year due to mega-acquisitions or mergers. The major competitors are: InBev April 2004 merger in of Interbrew (Belgium) and AmBev ( Brasil) 190 mln hl. Anheuser Busch USA 160 mln hl SAB-Miller UK-South Africa-USA 125 mln hl Heineken Netherlands 110 mln hl Carlsberg Denmark 90 mln hl

Heineken has an 8% share of the world wide beer market. It is represented in all continents, but its stronghold is in Europe, where it has a 15% marketshare4. In Europe Heineken is market leader in its home country, the Netherlands, and in all countries surrounding the Mediterranean Sea, above all Southern Europe, and in all Central and Eastern European countries excepted Czech Republic and Russia.

1.8. Products and brands

As said, the Heineken brand is the most widely spread beer brand in the world. In 2003 a total of 22,1 million hectolitre has been consumed worldwide. All over the world the Heineken brand is positioned as a premium brand, apart from the Netherlands where it has been always a high priced standard beer. In the European beer market Heineken is the biggest brand measured in volume and value. Third in Europe is the second important brand name of the Heineken Group, Amstel. It has a high position in the standard beers, the big middle segment of the beer market between premium and low priced beers. Heinekens strategy is to be present in each market with a complete portfolio of brands,from low priced to premium and the brand Heineken also in the premium spot.

3 Heineken NV, Annual Report 2003, p.9 4 Paul Elshof, Zukunft der Brauwirtschaft, Internationalisierungsstrategien der Braukonzerne in Europa und ihre Auswirkungen, edition Hans Böckler Stiftung, 2004, p.17


The base is mostly a number of local or regional brands, who together cover the whole spectrum from low priced beers to premium beers. Included are special beers, light beers and alcohol free beers. The most important brands Heineken owns in the last groups of beers are:5 � Stout Murphy´s Irish Stout � White beer Paulaner � Alcoholfree Buckler � Mixdrink Desperados � Strong beers Affligem A new development has been announced recently. In 2002 Heineken acquired Al Ahram Beverage in Egypt, the national leading brewery with a nearly 100% market control in the Egyptian market. One very interesting element for Heineken was that Al Ahram Beverage has an alcoholfree beer that is well known in Egypt under the brandname Fayrouz. Recently Heineken announced that it is considering the option to introduce this beer under its Arabian brand name in Europe as a beer for the moslim population in Europe, who is not allowed to drink the normal alcoholic beers.

5 idem, p.43


2. Production and production policies

2.1. Geographical distribution of production and employment

Heineken started its process of internationalisation long before the other brewery companies. Already in the 50-ies of last century Heineken owned breweries in other continents and it had established itself as the most important import premium beer in the USA, what delivered very attractive profits. But over the years more than half of the total beer volume was always produced in Europe. This continent was considered by Heineken as its home market. And its acquisition policy was aimed at building commanding positions in a number of national markets, first of all in Southern Europe. In the period between 1970 and 1990 the emphasis was laid upon acquisitions to gain strong positions in France, Italy, Spain and Greece. In the 90-ies the emphasis was shifted to Eastern Europe and Asia. And since 2000 Heineken first of all aimed to acquire leading positions in the two major national markets in Europe, Germany and Russia. The consequence of this acquisition policy is visible in a regional break down of production based on volumes ( hectolitres of beer produced.) Geographical distribution of Heineken´s beer production ( in mln hectolitres)6 Total

volume Western Europe

Central/ Eastern Europe

N. and S. America

Africa & Middle East

Asia/ Pacific

1999 90,9 6,6 8,8 7,0 2000 97,9 7,4 9,2 7,5 2001 105,1 7,8 9,9 7,8 2002 108,9 42,2 15,6 8,4 10,6 8,0 2003 109,0 44,7 20,6 12,5 12,7 8,4

The great importance of Southern and Eastern European markets becomes clear when the Heineken sales volumes in national markets are shown7.

Turnover by volume in mln hl of Heineken Group in national markets according to size

Spain 10,8 million hl Netherlands 6,0 million hl Poland 9,4 `` `` Greece 3,4 ´´ ´´ Germany 8,0 `` `` Russia 3,3 ´´ ´´ France 7,4 `` `´ Slovakia 2,1 ´´ ´´ Italy 6,0 `` `´ Bulgaria 1,3 ´´ ´´

A restriction on these figures has to be made. They include the sales figures of Brau Union AG, the Austrian brewery company acquired by Heineken in 2003 from 1 Oct. 2003. Total turnover of Brau Union amounted in 2002 to 13 million hl. The full consolidation of this volume will lift the total volume in Europe with an extra 9 million hl. And this will change the ranking in this list.

6 Heineken NV, Annual Report , p.17-46 7 idem . p. 27


Geographical distribution of employment at the end of 20038 Netherlands 5,526 Africa/Middle East 11,941 Western Europe ( excl. Netherlands) 18,024 North and South America 5,435 Central/Eastern Europe 15,791 Asia/Pacific 4,824 The total employment figure end 2003 was 61,271

2.2. Sales and production development of Heinekens leading brands

The Heineken brand is the best sold premium beer internationally. The second important brand name within the Heineken Group is Amstel. Both brands are international brands and the marketing policy for these brands is made at corporate level. In 2003 the place of these two brands in Heineken´s brand portfolio was: � Heineken 20,3 % � Amstel 10,1 % � Other brands 69,9 % Development of Heineken sales9 Development of Amstel sales10 20,4 mln hl 1999 10,5 mln hl 21,6 ´´ ´´ 2000 10,8 ´´ ´´ 22,4 ´´ ´´ 2001 10,8 ´´ ´´ 22,9 ´´ ´´ 2002 10,8 ´´ ´´ 22,1 ´´ ´´ 2003 11,0 ´´ ´´

For these two brands guidelines and standards for brand style, brand value and development are set and maintained at central corporate level. Central support and benchmarking programmes are used to improve local marketing, sales and distribution policies. It is a cornerstone of Heinekens policy to develop local or national breweries in such a way that they can start as soon as possible also the production of the Heineken brand according to the standards set at corporate level. It saves the company a lot of money in terms of import duties and transport. In 2003 local production of the Heineken brand has been started in Russia at the subsidiary Bravo International, in 2004 local production started in China and Indonesia. In these markets Heineken wants to grow the share of its major brand in the premium segment. The only market where the Heineken brand is sold as a standard brand is the home market in the Netherlands. In this market sales of Heineken are going down, in the same rhythm as the whole beer market is slowly going down.

8 Heineken NV, Anuual Report 2003, p. 23 9 idem, p. 16 10 idem, p. 19


2.3. The policy to capture markets

Heineken basic policy is to try to acquire through a string of acquisitions a major share of a national market. It tries to take over local or national breweries with strong national standard brands and at best some speciality brands. By building a network of breweries that covers a national area and give it a lot of scale in distribution, it can build a platform that enables it to introduce its international brands such as Heineken, Amstel or the international specialities such as the white beer Paulaner or the abbey beer Afflighem. To reach this position Heineken works along two lines: � the acquisition of a number of breweries who together give a good coverage of a national or

regional market � the acquisition of beer & soft drink wholesalers, to create a strong distribution platform to boast

all brands owned by the company. In those countries where Heineken has a long history, it constructed this kind of distribution platforms: the Netherlands, France, Poland and Italy. In the two major European national markets, Germany and Russia, Heineken is just starting to build a strong presence11. In Germany it started in 2001 a joint venture with the Schorghuber group: Bayerische Brauholding International in which Heineken has a 49,9% participation. BBI is operating in Bayern and during the last two years it acquired a few extra breweries in Southern Germany. It seems as if Heineken contends itself to become one of the strongest groups in the Southern and Western part of Germany, leaving the Northern part to Carlsberg (after its acquisition of Holsten in Hamburg) and the central part of Germany to Interbrew. In Russia Heinekens follows a similar policy. It acquired in 2002 first Bravo International in St.Petersburg. And in 2004 it took over 3 breweries in the Ural region of Russia, where these breweries have very strong positions in regional markets. These regions show the fastest rise of beer consumption per capita. This policy of acquiring breweries that together cover a certain regional area or create the possibilities for nationwide distribution is a policy that implies a string of acquisitions over a number of years and consequently later on a long process of integration, restructuring and consolidation of production in a smaller number of brewery sites.

11 Paul Elshof, Zukunft der Brauwirtschaft, o.c. p.26-27


3. History and strategy

3.1. A young, but well integrated company

Compared with many other brewery companies Heineken has a short tradition. In the sector there are many breweries with more than 300 years of history. Beer has been for a number of centuries the preferred drink in Western Europe: purer than drinking water, which was mostly contaminated, and less expensive than other drinks like wine. The history of the Heineken Company goes back to 1864, when Gerard Adriaan Heineken bought an existing brewery, named ´De Hooyberg´ in Amsterdam. The origins of this brewery go back to 1592. From 1864 onwards started the growth of the Heineken Company in three generations of the Heineken family into one of the world leaders in the branch. The successor to Gerard was Henry Heineken. He started the expansion overseas in the 1920-ies with exports to the USA, Far East and Caribbean. At the end of the 1940-ies the third generation took over in the person of Freddy Heineken. He presided the company until 1989. During his presidency the company developed the international production infrastructure, which made Heineken a predecessor in the industry. When in 1968 Allied Breweries (UK) took over the Oranjeboom Brewery in Breda ( the southern part of the Netherlands) , Heineken immediately acted to acquire Amstel, one of the other leading Dutch brewery companies.12 This combination had 60% of the Dutch beer market. The danger of a foreign domination of the Dutch beer market was prevented. After the acquisition of Amstel Heineken had 3 brewery sites in the Netherlands, 2 in Amsterdam and 1 in Rotterdam. It started the construction of a greenfield brewery in Zoeterwoude at the beginning of the 70-ies, still one of the biggest in the world. In 1975 this site started production and it made possible the closure of two sites, the Rotterdam and former Amstel-site in Amsterdam. The production of this site was in 2002 about 10 million hectolitre and it is the major productionsite that exports Heineken beer to the USA. In 1972 Heineken acquired a first French brewery in the Straatsburg, the Elzas region. More acquisitions followed, first in France, slightly later in Italy and Spain. These were the starting steps of Heineken in the offensive strategy to make Europe a kind of home market for the Heineken company such as Anheuser Busch, the world brewery leader, saw the USA as its home market. This offensive in Europe started in 1972, more than 20 years before the other breweries who dominate the worldwide sector such as Interbrew , South African Breweries and Scottish & Newcastle started their internationalisation. Around 1990 Heineken controlled the market already in many markets or had at least strong nr. 2 positions. It prevented by being very early that Carlsberg or BSN ( Kronenbourg) or eventually Stella Artois ( later Interbrew) would acquire major positions all over Europe. In 1972 Heineken had only a market share of 3% in Europe whereas the Heineken brand was sold worldwide, from New York to Singapore.13

12 Barbara Smit, Heineken, een leven in de brouwerij, SUN, Nijmegen , 1996 , p. 56 vv 13 ibid. , p. 166


In 2004 Heineken has a European market share of about 15%, a figure that will grow to 20% when it continues to expand its positions in Germany and Russia. In Central and Eastern Europe Heineken acquired between 1991 and 2003 a market share of 27%.14 This process started with first acquisitions in Hungary (1991 and 1994), Poland and Bulgaria (both 1994). The major step came in 2003 when Heineken acquired the Austrian market leader Brau Union AG, which had expanded in the years before in surrounding Eastern European countries. The acquisition of Brau Union created a perfect fit in Eastern Europe: where Heineken was weak, Brau Union was strong, and vice versa. The combination led to a situation where the enlarged Heineken is market leader in 8 of the 13 countries involved: in Poland, Austria, Rumania, Hungary, Slovakia, Bulgaria, Macedonia, and Albania. The acquisition of Brau Union AG in 2003 was the biggest one in Heineken’s history: about €1 billion was paid. Before the biggest one had been the acquisition of Cruzcampo in 2000 in Spain to consolidate Heineken leadings position in that country: the price than was about Fl. 1 billion, about € 450 million. Compared with other major consolidators in the sector such as Interbrew and South African Breweries Heineken is rather conservative and cautious in financial terms. This has two major reasons. The long international presence makes that Heineken has internally a well developed policy of standardized rules and procedures. Over the years it could develop a policy of Heinekenisation of all its operations. This relates to styles of reporting, standards of production/productivity, marketing methods and styles. One of the preconditions to make this possible is to prefer a string of acquisitions of medium sized companies that can be integrated into this Heineken culture in a relatively short time compared to the take over of or merger with big companies that would make this process uncertain. The second reason is the ownership structure. The factual control of the company by the Heineken family (although now under the name Carvalho) with a minimal majority (50,005 % in Heineken Holding which owns 50,005% in Heineken NV) and the wish to keep that control makes it impossible to make much bigger acquisitions without watering down this control. The consequence of both elements is that Heineken developed over the decades into a well integrated company with clear strategies regarding production policies and brand c.q. marketing strategies. And while it could support over many decades its major brands Heineken and Amstel it has a strong advantage compared to Interbrew and South African Breweries who have to grow their brands worldwide from a much lower base. Interbrew has Beck’s as its international premium beer: in 2003 about 3 million hl was sold worldwide. And SAB promotes its Czech beer Pillsner Urquell as its international premium beer. It just jumped the 1 million hl export threshold in 2003. The years ahead will see the unfolding of Heinekens presence in Asia/Pacific, mainly China, in Latin America, Africa, in Russia and in Germany. The consolidation of its position as market leader in Europe will imply that Heineken has to build a stronger position in the future in Germany and also in the UK. But the background in Europe is one of gradual declines of beer consumption, at least in Western Europe. This is partially compensated by growth in Central and Eastern Europe. In general growth based on rising consumption levels of beer is mainly expected in Asia, Latin America and Africa. In these regions Heineken will try to expand its positions in the coming decade.

14 Paul Elshof, o.c., p.34-35


3.2. Strategy

Heineken’s strategy is well defined in its Annual Report on 2003 at page 2: “The goal is at all times to defend and strengthen its leading global market position and preserve its independence”. To strategy to obtain this goal is: � “Achieve levels of sales and profitability which make it one of world’s largest and financially

best-performing brewing groups � maintain a strong portfolio of beer brands, with Heineken as the leading international premium

beer � maintain strong local market positions, a good sales mix and an efficient cost structure by

combining the sale and distribution of the international Heineken premium brand with that of strong local brands

� fullfill its corporate social responsibility, particularly with regard to policy on alcohol abuse, social and environmental issues”.

In 2002 Heineken started a restructuring program at its corporate centre that had implications on all levels in the company. The restructuring got the name: Taking Heineken to the next level. The crucial issue in this program was the aim to make the company more entrepreneurial by changing the structure of the corporate centre, bringing down the operational responsibility on a number of issues, while maintaining centrally set policies and standards. For the first time a central department for acquisitions was formed. The aim was clearly set: Heineken wants to be one of the 3 major brewing companies. This step was made in a period that Heineken got a lot of criticism from the financial press and analysts. It lacked the aggressivity that was necessary to maintain its place in the topleague. Compared with Interbrew and SAB, Heineken seemed to them to much in the defensive. One of their central aims, preservation of its independence, could also be read as ‘preservation of the family control of this company’. The start with this new acquisition department can help to combine both elements: continue the permanent expansion in such a way that the control of the Heineken family will stay intact. The other part of the restructuring program is the decentralisation into the operational companies of a number of responsibilities. Not in setting the standards but in the implementation of centrally defined standards in regional or local policies. The structure of the company has been designed in a new way: a new configuration of operating companies has been designed. The new configuration will make for example in Europe forms of international restructuring easier. National boundaries are made subordinate on the new defined boundaries of operating companies. A new phenomenon has been the way Brau Union has been integrated in last years. The headoffice of Brau Union in Linz, Austria, has been defined as the head office of all Heineken’s activities in Central and Eastern Europe. Probably this decision has helped Heineken to get the cooperation of Brau Union management and of the owner families to obtain full control of Brau Union. Heineken integrated its substantial existing interests in Central and Eastern Europe into the existing Brau Union structure.


The CEO of Brau Union, mr. K.Büche, has been appointed member of the Executive Board of Heineken from 1 May 2004.

3.3. Actual positions in Asia, Latin America and Africa

As has been said, Heineken has been for decades the most international brewer, a position that has been overtaken recently by Inbev ( the company merged out of Interbrew from Belgium and Ambev from Brazil) and SABMiller ( the combination of South African Breweries and Miller from the USA). Heineken followed the last years a double strategy in terms of regional presence: it wanted above all to maintain and expand its market leadership in Europe and at the same time it sought to acquire important positions in growth market in the other continents. In the coming years there will be a gradual shift of emphasis into a policy whereby in Europe most energy will be spend on consolidation of the position and operations ( against the background of stable or stagnating consumption patters) whereas the emphasis in the other continents will be on further expansion. When string positions have been build in national markets, also there consolidation will follow. This could be a matter of decades. It makes sense to see where Heineken stands now. In general one could say that Heineken operates in various ways to penetrate markets. Sometimes it starts with 100% acquisitions. In many cases it prefers (or is sometimes just allowed) to acquire a minority interest in a company: mostly about 20%. And sometimes Heineken starts with an alliance with another brewing company, by offering the other one a licence to sell and sometimes to produce and sell Heineken beers. When the start is a minority interest, we see in most cases that after a couple of years (sometimes decades) this interest is expanded into a majority interest of let’s say 60 or 70%. In those cases family owners sell their share-packages to Heineken. And then Heineken offers the remaining shareholders to buy also the rest in order to acquire 100% full control and have the opportunity to integrate the company completely into the Heineken structure. This pattern has been executed many times: amongst others in France, in Poland, in China, in Israel, in Kazakhstan. The Annual Reports shows where Heineken has its production operations. The different levels of participation are always mentioned. Here are listed the participations according to the data in the Annual Report 200315

15 Heineken NV Annual Report 2003, p.93-95


Latin America Country Name of the company

and level of participation

Location Brands

Argentina Companias Cervecerias Unidas Argentina SA (CCU) 24,6 %

Salta , Santa fe Heineken, Budweiser, Schneider,Salta, Santa Fe, Cordoba, Rosario

Bahamas Commonwealth Brewery 53,2 %

Nassau Heineken, Kalik, Guinness, Vitamalt

Brazil Cervejarias Kaiser Brasil SA 20 %

Feira de Santana, Jacarei, Gravatal, Ponta Grossa, Queimados, Pacatuba, Araraguara, Manaus, Preto, Cuiaba, Ribeira

Heineken, Kaiser, Santa Cerva, Bavaria, Summer, Xingu

Chile Companias Cervecerias Unidas SA 30,8%

Stiago, Temuco, Antofagasta

Heken, Christal, Escudo

Costa Rica Cerveceria Costa Rica 25%

San Jose Heineken, Imperial, Pilsen, Bavaria, Rock Ice

Dominican Republic Cerveceria Nacional Dominicana 9,3%

Santo Domingo Heineken, Presidente

Haiti Brasserie Nationale d´Haiti 22,5%

Port-au-Prince Prestige, Guinness, Malta

Jamaica Desnoes & Geddes 15,5%

Kingston Heineken, Red Stripe, Dragon Stout, Guinness

Martinique Brasserie Lorraine 83,1%

Lamentin Lorraine, Porter, Malta

Neth. Antilles Antilliaanse Brouwerij 56,3%

Willemstad Amstel, Amstel Bright, Coral, Malta

Panama Cervecerias Baru-Panama 74,5%

Panama City,David Pama, Soberana, Cristal, Guinness

St. Lucia Windward & Leeward Brewery 72,7%

Vieux Fort Heineken, Piton, Guinness

Surinam Surinaamse Brouwerij 76,1%

Paramaribo Parbo

Africa / Middle East Country Name of the company


Location Brands

Angola Nocal 27,1% Luanda Nocal Angola EKA 45,8% Dondo EKA Burundi Brarudi 59,3% Bujumbara, Gitega Amstel, Primus Cameroon Brasseries du Cameroun

8,8% Bafoussam, Douala, Garoua, Yaounde

Amstel, Mützig

Chad Brasseries du Logone 100%

Moundou Gala, Chari, Maltina

Congo Brasseries du Congo 50%

Brazzaville, Pointe Noire Amstel, Mützig, Primus, Guinness, Ngok, Maltina, Turboking

Democratic Republic of Congo

Bralima 93% Boma, Bukavu, Kinshasa, Kisangani, Mbandaka, Lubumbashi

Amstel, Mützig, Primus, Guinness, Maltina, Turboking


Egypt Al Ahram Beverages Company 99,9%

El Obour, Sharka, Badr, Gianaris

Heineken, Stella, Birell, Fayrouz, Sakara, Meister

Ghana Ghana Breweries 75,6% Kumasi, Accra Amstel Malta, Star, Gulder, ABC Stout, ABC Golden Bubra, ABC Golden Lager

Israel Tempo Beer Industries 17,8%

Netanya Heineken, Maccabee, Gold Star, Nesher, Malt Star

Jordan General Investment 10,8%

Zerka Amstel

Lebanon Almaza 67% Beirut Amstel, Almaza, Laziza Morocco Brasseries du Maroc

2,2% Casablanca, Fes, Tanger Heineken

Namibia Namibia Breweries 14,5% Windhoek, Swakopmund Windhoek, Guinness Nigeria Nigerian Breweries

54,2% Consolidated Breweries 24,8%

Aba, Enugu, Ibadan, Kaduna, Lagos Jjebu Ode, Owe Omamma

Amstel Malta, Maltina, Star, Gulder, Legend, ´´33´´Export, Hi-malt

Reunion Brasserie du Bourbon 85,6%

Saint Denis Bourbon, Dynamalt, 974

Rwanda Bralirwa Gisenyi, Kigali Amstel, Primus, Mützig, Guinness

Sierra Leone Sierra Leone Brewery 42,5%

Freetown Heineken, Star, Guinness, Maltina

South Africa SAB-Miller (licence) Cape Town, Durban , Johannesburg

Amstel

Asia/Pacific Country Name of the company


Location Brands

Cambodia Cambodia Brewery 33,7%

Phnom Penh Tiger, Anchor, Gold Crown, ABC Stout

China Shanghai Asia Pacific 40,9%

Shanghai Tiger, Reeb

China Hainan Asia Pacific 42,2%

Haikou Tiger, Anchor, Aoke

China Guangdong Brewery 21%

Shenzhen Kingway

Indonesia Multi Bintang Indonesia 84,5%

Tangerang, Sampang Agung

Bintang, Guinness

Japan Kirin (licence) Tokyo Heineken, Buckler Malaysia Guinness Anchor Berhad

10,7% Kuala Lumpur Heineken, Tiger,

Guinness, Anchor Ice, Baron´s, Kilkenny

New Caledonia Grande Brasserie de Nouvelle Caledonie 87,3%

Noumea Number One, Havannah

New Zealand DB Breweries 32,5%

Greymouth, Mangatainoka, Otahuhu, Timaru

Heineken, DB Draft, Tui, Amstel, Murphy´s IrishStout, Export Gold, Export Dry, Monteith´s


Papua New Guinea SP Brewery 31,9%

Port Moresby, Lae SP Lager, South Pacific Export Lager, Niugini Ice

Singapore Asia Pacific Breweries 42,2%

Singapore Heineken, Tiger, Anchor, ABC Stout, Baron´s

Tahiti Brasserie de Tahiti (licence)

Papeete Heineken

Thailand Thai Asia Pacific Brewery 14,8%

Bangkok Heineken

Vietnam Vietnam Brewery 25,3%

Ho Chi Minh City Heineken, Tiger, Bivina

Vietnam Hatay Brewery 42,2%

Hatay Heineken, Tiger, Anchor Draft

From this impressing list a few important issues become clear: � most participations are minority participations. Heineken delivers the technical and brewing

expertise and secures in this way the possibility to (let) brew its own brands in order to avoid import taxes. Eventually these minority interests can be enlarged to majority participations. But this works not always. In 2002 Heineken was surprised when Quilmes, the leading brewery company in Argentina and some surrounding countries, was sold to Ambev, although Heineken had a 20% participation and expected to expand it further.

� In some cases Heineken licences important competitors to brew its beers ( Heineken and Amstel) : Kirin in Japan, South African Breweries-Miller in South Africa. But recently Heineken decided to take the commercialisation in its own hands by starting sales offices.

� In South Africa it made in 2003 one step furhter: together with Diageo ( the owner of Guinness) it bought Namibian Breweries to brew its own beers and compete with SAB Miller in South Africa.

� In many countries Heineken has a close alliance with Guinness/Diageo. About 10 years ago it even pooled its interests with Guinness in Malaysia.Heineken sold its Kuala Lumpur brewery to Guinness, while it owned already a brewery in Singapore. In January 2005 it announced that ot would start the production of Guinness in the St.Petersburg Bravo brewery for the Russian market.16

� In the Asia Pacific region Heineken has a long time partnership with Frazer and Neave, named Asia Pacific Breweries. This joint venture is Heinekens vehicle to expand in the Asia Pacific region.

� In many regions Heineken builded over the decades very strong regional brands: � In Western Africa with Star and Gulder, in the Asia Pacific with Tiger and Anchor. When

consumption levels rise in the future these brands can become very important also in terms of volumes.

3.4. Employment development

It is interesting to see how volumes and employment numbers developed over the years.

16 Financieel Dagblad, 21 January 2005


3.5. Development of volumes brewed & sold and employment figures17

Year Volumes brewed & sold

In mln hectoliters Total employment

Average figures for the years 1996 71 31,682 1997 73,8 32.421 1998 83,1 33,511 1999 90,9 36,733 2000 97,9 37,857 2001 105,1 40,025 2002 108,9 48,237 2003 109 61,271

Both figures are rising continuously, but this masks the fact that over the years there is a shift in the balance of numbers of employees employed in production and those employed in marketing, sales and other indirect positions. This is a general trend in the brewery industry. Backed by Heineken Technical Services, the corporate engineering department, brewery operations in all countries are everywhere gradually brought to standards required by Heineken in a double sense: as far as product quality is concerned and also regarding productivity. Investments in modern brewing technologies always imply higher output per worker. In most developing countries this tendancy doesn´t necessarily lead to lower employment levels, while rising consumption and volumes probably lead to an expansion of the number of shifts to work. But when more breweries in the same country are under Heinekens control the policy will be to consolidate production in a smaller number of breweryplants. This policy is most clear in Europe where the consolidation takes place against a background of stable or declining consumption. In most other regions this policy will become more clear cut in the nearby future.

17 Heineken NV Annual Reports


4. Labour relations

4.1. Strong trade union presence

Heineken has just as is the case in most other brewing companies a workforce that can be characterized as highly loyal to the company and at the same time with a high level of trade union membership. This is a historical phenomenon: the brewery industry is very old, has strong traditions and is in a certain sense quite conservative. While the product is very visible and beer has a conno-tation of enjoying a good atmosphere amongst friends, working in such a company creates proud and loyalty with its employees. The brewery sites also have a long tradition of trade union membership. This is due to the fact that brewing has been a craft for many centuries. In the late middle ages the brewery guilds belonged to the most important guilds in many cities. See for example the beautiful building of the brewery guild at the Central Market in Brussels. The self confidence of the brewers could be combined with the big numbers of the unskilled or lower skilled workers at the bottling lines and in expedition and distribution to create strong trade unions. In its first Report on Sustainability “Path to Sustainability” 2002-2003, Heineken gives a figure on the level of unionisation in its operations.18 The average level of membership of all employees worldwide is 38%. In different regions different levels of union membership exist: � Europe 40% � North / South America 60% � Africa/Middle East 37% � Asia/Pacific 13% This figure relates to the 51.986 employees who are Heineken employees and doesn’t count the employees who work at minority shareholdings, such as is the case for the German operations. Not yet included are also the figures on Brau Union. In both cases the levels of unionisation will be high. In Austria for example, where 2,618 employees were employed by Brau Union, 100% of all employees in production and distribution are union member, and about 90% of the employees in the clerical staff. In its home country, the Netherlands, about 5,525 employees worked in 2003 for Heineken. Of this group about 3,800 work in the subsidiaries for the Dutch market and about 1,700 work in corporate departments such as head office, HTS ( Heineken Technical Services: the central engineering department), marketing and export departments. Of the 3,800 working for the Dutch market most work under conditions governed by a Collective Agreement; all employees in production and the lower ranks in clerical staff. This group is 80% unionized.

18 Koers op Duurzaam , Duurzaamheidsverslag 2002-2003, Heineken, Sept. 2004, p.47. In a later chapter more will be said about this Sustainability Report and Heineken’s policy regarding sustainability.


Whereas the strong presence of unions is already a wide spread reality in the company, Heineken says also that it wants to endorse alls its employees to make themselves represented by works councils and trade unions19.

4.2. Employee representation at different levels

This strong level of union membership of course influences also the way employee represen-tation functions at subsidiary level. Seats in most works councils are occupied by trade union members and in many countries works councils and unions coordinate their positions and policies. In many European countries workers representation is regulated by national laws. This is the case in most Western European countries and in some Eastern European. In those countries where no works councils exist trade union bodies are the employee representative bodies that negotiate and discuss with management. On an international level Heineken has since 1997 a European Works council (EWC). The way this European Works Council was founded is a good illustration of how labour relations normally work. In the period 1992-1996 Heineken union members from various EU countries could meet regularly on an international level. These meetings were made possible through a programme funded by the European Parliament to prepare the implementation of international information and consultation practices within multinational companies in the EU. This group of about 20-25 employee representatives met each year to exchange information on national developments within Heineken and to prepare the negotiations with Heineken management on the coming European Works Council. The group was coordinated by the full time union officer of FNV Bondgenoten, the most important trade union in the Netherlands, where Heineken’s head office is located. This union coordinated at behalf of EFFAT, the European trade union secretariat for the Food and Agricultural Workers unions. Several times in 1995 and 1995 this group offered to Heineken management to start negotiations. In vain, while Heineken wanted to start negotiations only when legislation on European level and its implementation in national laws was finished (the last happened only in 1996), but also while some senior managers wanted to bypass the trade unions in these negotiations. They considered the necessary start of the negotiations for a EWC as the moment to structure this body without the involvement of the unions. The high level of unionisation made this attempt to a failure. Employees expressed clearly their position: there is only one way to negotiate a EWC, that is with the unions. In the period 1996 until the end of 1997 the negotiations were effectively coordinated by FNV Bondgenoten, the Dutch trade union. The content of and provisions in the EWC Agreement indicate the strength of the unions within the company.20 A few elements make this Agreement a strong one compared to many others. They are: � two 3 day meetings per year � one extra 2 day meeting a year for training the works council members

19 Ibid. p. 47 20 Paul Elshof , o.c. , p. 101 vv. The way the EWC’s function within Heineken, Interbrew, Carlslberg and Scottish & Newcastle has been compared. The Heineken one clearly stands out because of its stronger agreement and greater continuity.


� the participation from the beginning of representatives from Eastern European countries although they were at that time aspirant members of the EU. This was the case for Poland, Hungary and Slovakia.

� The two meetings per year rotate always in a fixed pattern: the spring meeting always in Amsterdam to enable Board members to participate when Annual results and future plans are presented and discussed. The autumn meeting always rorating at different locations in Europe to enable local employee representatives and national management to participate and raise in this way the awareness of an international perspective by all.

In the European Works Council 28 representatives from 14 countries participate and one quality seat is reserved for the FNV Bondgenoten trade union officer who coordinates at behalf of EFFAT, the European trade secretariat for the union from the food and agriculture sectors. These 28 members represent the employee structures in the respective countries, mostly elected by the works council structures, sometimes by the union bodies. They are all trade union members.

4.3. Labour relations

At national level Heineken has in a few countries an elaborate structure of labour relations. If we take the two countries that could be considered since recently as the two home markets of Heineken, the Netherlands and Austria, there is a structure that could serve as a possible structure for more countries where Heineken operates several breweries. In both countries national laws exist for many decades on employee representation by works councils. The normal pattern in these two countries is that each brewery plant has its own works council, as is the case for headquarters, technical departments as Heineken technical Services and sometimes also for the export offices and distribution activities. In both countries these works councils have regular meetings with their management. Rights and tasks are regulated by law. In the Netherlands 10 works councils exist at local level. The three brewery sites have a Groups Works Council consisting of members elected out of the works councils of the 3 brewery sites. And on national level a Central Works Council exists, with members elected by the 10 local works councils. All local councils have at least 6 internal meetings a year, where employee representatives discuss all relevant matters. At least 6 times a year they meet with the respective management representatives. This brings a total of at least 12 meetings a year. The Central Works Council has the same pattern of meetings, the Group Council meets 4 times a year on its own and 4 times with management. In Austria 8 local works councils meet also at least once per month, and 4 times a year they meet with local management. Also here exists a Central Works Council that meets once a month and 4 times per year with management. In both countries these councils coordinate closely with the unions. Unions and works councils have their division of tasks and responsibilities. The negotiations on labour conditions, working times, pension provisions, social plans/redundancy packages in times of restructuring are typically the task of the unions, whereas the works councils have the lead as far as it regards the information on the daily


business development, investments, and they are the bodies to negotiate with management the detailed implementation of conditions negotiated by the unions. In general the works councils and unions in these countries regard the relation they have with management as good. But it seems that sometimes this relation has to be tested. In the Netherlands the unions organized their first strike since a very long time in 1990. Before there never was a need to start an open conflict. In 1990 Heineken started a process to restructure its operations in the Netherlands announcing job losses for 700 employees. Background was the first experience of Heineken with a declining market share and declining volumes. The workers and their unions were furious that a high number of them were victimized for waht was considered to be the result of short sighted manamenet policies in the years before: the arrogance of a marketleader for many years. Quite soon Heineken management withdrew its plans and had to prepare new plans that had a complete different content. The unions had shown their strong position and that made it necessary for heineken to negotiate changes. When a couple of years later a wide-ranging modernisation process was announced this resulted in the negotiation of an social agreement to deal with the social consequences of this process. The main elemnts were: � No redundancies as a result of this process and the investments involved � The modernized organisation will be manned with existing employees: they have the right of

precedence before new employees are hired. � Connected with this a high priority on training and further education of all employees � Those workers who loose their actual jobs are replaced to other jobs and receive the training

they need � No outsourcing of activities to third parties to keep jobs in house for redeployment of workers � When needed already outsourced work will be taken back to organize sufficient jobs for all

actualy employed workers. This agreement should cover the period 1994-1998. While the whole process of modernization took more time the agreement was first extended for a secind periode of 4 years: 1998-2002. And recently it was again extended for 2 years (2003-2004) with some minor changes in the content. As far is known there have rarely been labour conflicts in Heineken operations in other parts of the world. But this could also be an opinion based on lack of communication or of not informing unions in the Netherlands when conflictsd took place. The national studies that will be carried out in the context of the Monitor project will maybe shed another light on this issue. As has been said earlier, Heineken annnounced in its first report ´´Path to Sustainability`` that at average the level of unionization in Heineken worldwide is 38%. The highest levels are in Europe and Latin America, and the lowest ones in Asia/Pacific. In this report Heineken says : `` Heineken promotes that employees are represented by works councils or trade unions. Heineken guarantees the freedom of trade unions and offers employees the right to be represented by these unions as parners in the negotiations on labour conditions. If


employees make use of this right, is quite different per region. Local conditions, traditions and cultural habits play a big role``21

5. HR Management and management styles

Heineken has been for a long time a company with a quite hierarchical structure and this heirarchical attitude was translated also in the way relations with employees were conducted. But since 1990 this pattern is changing. In the early 1990-ies Heineken started a project to modernize its operations and their attitude to employees. Several causes played a role. It was partly due to a generational change in management. The most important cause was the policy to make the brewery-operations more efficient. It meant the introduction of new technologies, a higher level of automation, more computer controlled processes in brewing, bottling, packaging and wharehousing. This meant that a high number of employees had to be higher skilled and prepared to new functions and contents of old functions and new tasks. A lot of manual labour that had been executed for decades under difficult work conditions was automated. And the start was made by a complete automation of the breweryhouses. Brewers had to be trained to operate the brewing houses from central control rooms by computers. Those workers that had difficulties in acquiring the new skills were reemployed on the bottling lines and in the wharehousing or expedition departments. But also in these departments started the process of the introdution of more computerized operations some years later. The consequence was the development of a training program for all workers. The specific conditions and modalities were negotiated with the trade unions and works councils. This happened in any case in most European countries. In 1994 Heinekens Corporate Department ´Production and Policy Control´ conducted an internal benchmarking study to measure and compare production, production costs and productivity in all of its fully owned brewery sites. This internal benchamrking study was followed by an external benchmarking study in 1995 whereby about 40 brewery sites worldwide were compaed with heinekens operations. These studies were collected in a handbook: ´Competitor best Practices` and was edited in july 1995. It was made available to all senior managers and gave them an idea where there sites stood compared with other Heineken breweries and with competitors. The most important lessons Heineken drew from these studies that a higher level of efficiency in a more competitive market place could be best gained by changing the ways operations were organized and not necessarily by more investments in machinery. Management teams were invited to come forward with plans to improve their operations. And in most European countries the highest priority was laid upon training of employees and the introduction of the team-concept.

21 ´´Path to sustainability``2002-2003 , p.47


It meant that a lot of tasks and responsibilities were shifted from different managament levels to teams of operators, that had to be prepared for these tasks. From 1997 onwards a lot of energy, money and time has been spend on these training projects. And gradually these benchmarking operations were transformed in operational methods to give local management and teams, first of all the teamleaders, a say in the preparation of targets for the coming years. ´Future vision´ was the name given to the operational translation into setting targets for the coming years. The aim was to develop a kind of sustainable cost leadership, as compared with competitors in the sector. This process is an ongoing process and undoutedly brewerysites all over the world have been starting with this process in one kind or another. Compared with most other brewery companies Heineken is advanced in rolling out this methodology over all its sites. This is due to the fact that the growth of Heineken by acquisitions has been done in smaller and better manageable steps, as compared to for example SAB or Interbrew, who expanded by much bigger acquisitions or mergers. This policy supposes a modernization of the relations between management and employees: the old hierarchical patterns are counterproductive when the daily operations are controlles and planned by higher skilled employees than has been the case during the last decades. The numbers of employees in production , wharehousing and distribution will go down. But those who stay will have higher qualifications and will undoubtedly have a strong say in how daily operations are planned and executed. New kinds of tensions between managers and operators or teams could well play a role in the coming years and a new type of negotiations will probably be necessary to find a new equilibrium in the power positions between managment and employees.


6. Corporate norms, standards and codes

6.1. Sustainable corporate behaviour patterns.22

Heineken has about 10 years history in the development of a kind of corporate social responsibility approach. he main reasons to start with a structured approach were twofold: � in 1994 / 1995 Heineken got a lot of criticism while it started to invest in a greenfield brewery

site in Birma/Myanmar. It made Heineken retreat from its plans. � In 1995 it was critiziced while it started a marketing campaign in which mostly negroes were

figuring on the poctures used. The criticism was that this adevrtising campaign didn´t show a fair and realsitic picture of social reality.

These reasons led to the appointment of a senior manager who started the preparations of a structured apporach to CSR issues. From the beginning the Heineken approach was slightly different from the one of most other companies. Deliberate the approach was chosen to see CSR as a process. Not the endresult was the miost important issue, but the process. Internally CSR got the name of Corporate Stakeholder Responsiveness. On aspects where clear risks existed that they could have international ramifications, Heineken adopted the approach of centrally formulated guidelines and codes. On all other aspects it started a process, whereby all operating companies were invited to write down their already existing policies or to formulate their own policies. The results were publiziced and distributed internally to raise the overall awareness of the issues involved. Each operating company received back the own reports but also those from all other opreating companies: in fact this was a kind of informal benchmarking operation. At the end of this process a Senior Management Committee was set up to start a structured approach: this group had members with complete different backgrounds. After lengthy discussions 12 maimn issues were selected: these were explored on their potential of implementation by conducting extensive depth interviews in 4 countries : Ghana, Poland, Rwanda and Indonesia. The results were publicized and reported back to the countrymanagers involved. Out of the range or 12 the most relevant issues were selected to start work upon. They could be different in each country. Managers from these countries who would operate as project managers for this process received a training at the Corporate center in the Netherlands.

22 This part of the report is based on an interview with Mr.Mark van Rijn, one of the three senior managers at Corporate headquarters, responsible for CSR. His task is amongst others to relate on this issue with stakeholders.


But in 2002 it became clear that this approach didn´t deliver what was expected: the process went too slow. At the same time Heineken was removed from the international Jones index because it stayed behind other companies in this respect. This created a higher sense of urgency in Heineken headquarters. Another apporach was chosen. And at the same time the management group responsible for CSR issues was transformed from the Department of Corporate Relations to Corporate Affairs as part of a restructuring of Heineken Headquarters. The department Corporate Affairs was direct accountable to the president of the Board. A CSR advisory Board was installed with membership of 2 big operating companies and the staff of the department. Finetuning of the approach is formulated over there. For each issue an appropriate approach is discussed. This advisory Board discusses 2 times per year with a broader Platform the issues at stake. In this platform are represented all Company Directors and the Managing Directors of big operating companies and of the big regions. Three main issues were selected for a start: � Policy on alcohol use and abuse � Integrity � Supply chain responsibility Also in 2002 a policy was formulated at central level to prevent corruption practices.

6.2. Work in progress

The first task set was the edition of the report ´´Path to Sustainability``23. This report was edited and distributed in 2004. It is considered as a 0-report, mainly issued to create transparancy on the actual existing patterns in Heineken. It contains 3 main chapters: � one on economic sustainability � one on ecological sustainability � one on social sustainability In the last part some annexes are included: one indicates for each operating company in the world on which of these three aspects reports are made. This so called 0-report gives the state of affairs in Heineken at the beginning of 2004. It is planned to edit a second edition in spring 2005. In this report the improvements made have to be shown. This stage is clearly directed at the improvement of the performance of operating companies.

23 The full name is: ´´Path to sustainability 2002-2003, Heineken Corporate Affairs, September 2004.


Heinekens policy is to have its practices audited by external auditors. The company chosen is KPMG. This company will audit the actual performance in all operations of Heineken in the world. But also this company is in the beginning of a learning process. Also the auditing practices are work in progress. The choice for an external auditor is made to stimulate a quality jump in the way companies treat the issues involved.

An important issue that is now tackled is the supply chain resposibility. First versions of two codes are now tried in practice: a purchasers code, meant for the purchasing staff of Heineken, and a suppliers code, for the suppliers at which Heinekens buys ingredients and raw materials.

The Corporate CSR department has internally set a code that by the end of 2005 all companies have to qualify for a 40-60% daily operating pattern according to the codes and rules developed. In the Sustainability Report 2002-2003 Heineken commits itself to a number of issues in the two years ahead.24 On economic sustainability: � the implementation of a systematic approach for stakeholder management � the implementation and publication of the heineken Code of Business Conduct. On ecological sustainability: � a reduction in the use of water in the brewing process by a reduction in the numbner of

brewerysites that use more than the standard 7 hectoliters of water per hectoliter brewed beer � a reduction in the number of sites that drain away water untreated � at the end of 2012 the construction of waste water treatment installations in Africa has to be

finished � the recycling of rest products has to be improved � in 2010 energy-use will be reduced with 15% as compared to the level of 2002 � the specific CO2 emission will be reduced to 11,2 kilogram per hectoliter beer in 2006 � the reporting of CO2emiisiomns will be improved On social sustainability: � Heineken will improve the involvement and commitment of employees with the � Company � The frequency of work related accidents will be brought back to 2,2 per 100 full time jobs in

2006 � The seriousness of accidents will be brought back by 2006 to 40 sick leave days per 100 full

time jobs � The policy on ´´beer promotion girls´´ will be implemented worldwide in all operations who are

controlled by Heineken ( more than 50% owned). � We´ll start a systematic and strutural approach for supply chain responsibility � In new operating companies ( those who are recently acquired and whi will be acquired in the

coming years) we´ll raise the awareness and information on Heinekens alcohol use and abuse policy.

It will be clear that on all these aspects the coming report ( Spring 2005) will deliver the results and identify new targets. The first report gives already a lot of figures on most of these issues.

24 O.c. pages 14 and 15


Last but not leat should be mentioned the systematic approach of Heineken on preventive and curative health care in those countries where the public policies on health care are insufficient. Most of all this is the case in Africa, where Heineken is heavily involved in HIV/Aids related health care projects in Sub Saharan Africa.

6.3. Social-economic rights

In the broad field of human rights., related to social-economic issues, Heineken has defined 6 priorities: � workers representation: representation by unions or works councils is stimulated � diversity : diversity by nationality, gender, ethnicity and skills is considered vital and will be

promoted � sexual intimidation: central policies will be formulated that have to transformed by the local

companies in local policies � child labour : in 2003 a central policy has been formulated in draft and sicussed with the

European Works Council. NGO´s who fight child labour are supported � safety and health: first priorities are the reduction of work related accidents and the information

and training of employees in this matter to prevent accidents � training and education: Heineken has its own Heineken University, a training center mostly

meant for different layers of management. In 2003 more than 1,500 employees participated in courses.

The whole CSR approach is clearly a work in progress and can be follwed in a transparant way. The Sustainability Report can be downloaded by using Heinekens website: see chapter 1.2 Heinekens communication data. Food World Research & Consultancy Paul Elshof January 2005


Annex to the Heineken Company Profile

This annex has been written in May 2005 because of the far reaching changes that took place in Heineken during the last months, after finishing the Company Profile in Jan. 2005.

Smaller Board Central in these changes is the radical restructuring at the top, at Board level. This will be the stepping stone for more changes deep down in the organisation. In the beginning of April 2005 Heineken announced a drastic reshuffling of the Board. The two oldest members will leave this year: the CEO Thony Ruys ( 57 years old) and Karl Buche ( 58 years old). Both are leaving the company a few years earlier than would be normally the case, as a result of a study that was done the last months in order to design a structure that would simplify the top structure of the company. Normally managers within Heineken retire at 60. The existing Board of 5 persons will be reduced to 3 persons: the 3 other Board members,all in their fourties. The new CEO will be Jean Francois van Boxmeer ( 43 years old). He will be the first non-Dutch person to preside Heineken. His whole work life he worked at Heineken, amongst others as general manager in Congo, Poland and Italy and has been responsible during the last years for Heinekens expansion in Russia. Marc Bolland will become the new COO, Chief Operational Officer to whom all regional managers will report in the future. Rene Hooft Graafland will stay as CFO, the Chief Financial officer. As such the structure will be in line with the way others major breweries have structured their Board. This reduction in the number of Board members goes together with some other important changes: � A smaller number of managers at toplevels. � A change in the regional structures: the formation of 5 regional structures � These changes are meant to make the decision making process in the company a lot faster

and probably more aggressive. The old centralised structure in which different regional organisations reported to different members of the Board will be replaced by a structure in which the 5 managers of the newly formed regions act more independently and report all to Marc Bolland. The 5 newly formed regions are: � Western Europe � Central and Eastern Europe ( including Germany, Greece, Austria, all Central European

countries and Russia) � The America’s ( North, central and South America) � Africa and the Middle East � Asia and Pacific


New executive committee The 3 Board members will form together with the 5 new region managers and 5 staff managers an Executive committee of 13 members. This committee will be in the future the most important decision making body in the company. Information related to the new structure. Some former managers and acting managers reported in the press that one of the first steps will be to look for cost reduction opportunities in Western Europe, where in general beer consumption is slowly going down. Better capacity utilization and shifts of production will make it possible to close several of the 31 now existing brewery-sites in Western Europe. Some analyst reports are already mentioning a potential number of 10 factory closures in the coming years. The money saved by these closures will be spend to expand in Eastern Europe and in Asia an maybe to make a big step forwards in Latin America. Heineken is in serious discussion with Bavaria the Colombia, one of the biggest stand alone breweries operating in Latin America, since Interbrew took over Ambev from Brazil. But there is a lot of scepticism at the possibility for Heineken to acquire this brewery, because of its ownership structure and the policy, whereby Heineken Holding wants to secure its majority position in the shareholding structure. This prevents the possibility to finance athis acquisition that will run in the billions of Euros or Dollars with the release of new shares. A probability could be to form a kind of joint venture and to bring in the Latin American activities of Heineken ( Chile, Brazil and Central America ). One of the recent appointments has been the appointment of Nico Nussmeier as the new general manager for the newly formed Central and Eastern European region. Nussmeier has been the last years the general manager of the Heineken activities in Poland. The old headquarters of Brau Union in Wien/Austria will function as the headquarters for the Central and Eastern European region. Consequence of the changed exchange rate between US dollar and Euro Between 2002 and 2005 Heinekens annual operating profit from the US sales, all exported from the Heineken brewery at Zoeterwoude in the Netherlands, fell down from Euro 357 million to Euro 119 million because of the exchange rate change between the two currencies. This took place although volumes sold have been growing continuously during these years. Out of fear to loss market share to competitors as Anheuser Busch or SAB Miller Heineken didn’t dare to raise the price of Heineken beer. To brew the beer in the USA Heineken would have to brew the beer over there in 3 locations, destroying in this way the efficiencies it had build in Zoeterwoude. Furthermore, as was said by Thony Ruys, it is still cheaper to ship beer from Rotterdam to California than, say, from New York to California.


The strength of the Euro to the dollar eats away a big part of Heineken profits. This makes that management will look more aggressively for cost reductions in other regions. The new structure will facilitate this operation. More international coordination and product reshuffling will be a consequence. Recent acquisition in Russia In the beginning of May Heineken announced the acquisition of the Patra brewery in Jekaterinburg, the biggest city in the Ural region of Russia. This brewery has a 20% market share in this city and a 1% market share on the national market. The acquisition lifts Heinekens total market share in Russia to 8,3%. Heineken has now a solid nr. 3 position in the Russian market and more acquisitions will follow. Heineken expects the Russian beer market to grow with 5,5% in 2005 to over 89 million hectoliters. In a couple of years Russian beer consumption will have surpassed total beer consumption in Germany, still the number one beer market in Europe. Heineken Code of Business Conduct See for Heineken Code of Business Conduct: http://www.heinekeninternational.com/content/live/files/downloads/CorporateResponsibility/Code%20of%20Business%20Conduct.pdf

company profile heineken nv

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