IFRS and other accounting and reporting changes at Heineken

Date: 22 Feb 2005

Heineken has implemented a number of accounting and reporting changes in 2003 and in 2004. As of January 2005, European Union regulation requires all publicly listed companies based in the European Union to draw up their financial statements under International Financial Reporting Standards (IFRS). These standards, published by International Accounting Standards Board (IASB), are intended to provide shareholders with an easier way to compare the results of companies operating in the different European Union countries and in other countries where IFRS is applied.

Accounting changes in 2004
As from 2004 Heineken applies the Dutch GAAP standard RJ 271 (which is equal to IAS 19) in respect of retirement benefits.

On 1 January an employee benefits obligation was recognised on the balance sheet amounting to EUR 708 million net of the subordinated loan (EUR 160 million) that was granted to the Dutch pension fund in 2003. The one-off decrease of shareholders’ equity amounts to EUR 187 million while existing provisions decreased with EUR 646 million of which EUR 100 million relates to provisions for deferred tax liabilities.

Pension costs of 2004 were the same as in 2003. If Heineken had applied IAS 19 in 2003 personnel costs would have been EUR 23 million higher than reported in that period.

Accounting changes as a result of the implementation of IFRS by Heineken in 2005
IFRS will be fully implemented by Heineken in 2005. In order to prepare for the transition from Dutch Generally Accepted Accounting Principles (GAAP) to the new IFRS standards, Heineken established a project team in early 2003.

The team 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 the team’s analysis, Heineken took the fundamental decisions on the IFRS accounting policies that were to be applied and on the way in which the transition to the new policies would be made. Implementation of IFRS is proceeding according to plan and Heineken will be able to present its first fully IFRS-compliant figures for the first half of 2005 with IFRS-based restated comparative figures for the first half of 2004.

A full restatement based on IFRS will be 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.

The main IFRS-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 on an annual basis.

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

Main changes due to the implementation of IFRS in 2005:

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 as of January 1, 2005. The annual depreciation will also be calculated based on historic costs. The 2004 figures will be restated accordingly. Heineken estimates that this change will reduce the annual depreciation charge in 2004 by approximately EUR 35 million and increase operating profit by EUR 35 million. The one-off decrease of tangible fixed assets as per 1 January 2004 amounts to EUR 350 million.

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 to the remaining 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 this change will reduce the annual amortisation charge in 2004 by approximately EUR 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.

Inventories (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 EUR 8 million in the value of stocks listed in the opening balance 2004.

Employee benefits (IAS 19).

As Heineken introduced in 2004 the Dutch GAAP standard RJ 271, which is equal to IAS 19, no changes will occur in 2005

Accounting changes in 2003
Improvement in regional reporting of results

1. Information by geographical area
   Given the materiality of the BBAG acquisition, Heineken made a number of changes in the reporting of results. Europe was split into two separate regions, Western Europe and Central and Eastern Europe, the latter covering Brau Union in Austria and all countries east, including Russia. This gives a better insight into Heineken’s operations in the mature markets of Western Europe on the one hand and its performance in developing markets and its progress in integrating BBAG in Central and Eastern Europe on the other. The countries constituting each region are listed at the end of this document.
2. Reporting by region of consumption
   Since 2003, Heineken has reported the result by the region of consumption instead of by the region where the productive assets are situated. For example, the results for the export markets in the Americas, including the USA, Canada and the Caribbean, are now fully included in the Americas instead of partly in Western Europe and partly in the Americas.
3. Dollar rates and flows
   Information is now provided on Heineken’s exposure to the dollar. Heineken discloses its actual and forecast net dollar inflow, the portion of the future dollar inflow, which has been hedged and the realised and hedged rates for the dollar against the euro.

Changes in accounting policies
Heineken made a number of reporting changes in 2003 in compliance with the Dutch accounting rules and the IFRS:

1. Capitalisation of goodwill
   Goodwill is no longer written off against equity but is capitalised and amortised over a period of 20 years maximum. Goodwill amounting to EUR 1,124 million was capitalised in 2003. The effect of amortisation of goodwill on the operating result and net result amounted to EUR 31 million. In accordance with general practice, Heineken focuses on results excluding amortisation of goodwill and excluding exceptional items.
2. In accordance with the new Dutch Guidelines for Annual Reporting (RJ 270), Heineken has reclassified excise duties in the profit and loss account, eliminating them from net turnover and from costs in 2003. Certain selling expenses which are directly linked to the sales invoices sent to customers are now also deducted from net turnover and are no longer included in marketing and selling expenses. The effect on net turnover and costs is as follows:

   	2003 FY	2002 FY
   Net turnover	11,199	10,293
   Excise duties	-1,388	-1,282
   Marketing and selling expenses	-556	529
   Marketing and selling	9,255	8,482

3. Dividends announced after balance sheet date are no longer presented as a liability in the balance sheet, but remain part of equity until the dividend is formally approved.
4. Exceptional items are no longer shown on a separate line in the profit and loss account. Exceptional items however, are discussed in the notes to the profit and loss account.

HEINEKEN EUROPE REGIONAL SEGMENTATION