Supply Chain Finance Strategy @ HEINEKEN

HEINEKEN | Brewing Great Beers, Building Great Brands

Heineken®, our flagship brand, is the world’s leading international premium beer

Desperados, Sol, Amstel Premium Pilsener and Strongbow Gold complement our global brand portfolio

Altogether, we have over 250 international, regional, local and specialty beers and ciders in our portfolio

Passion for quality and Innovation are at the heart of how we build great brands and delight our consumers

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HEINEKEN | Truly Global Presence

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>165 breweries in over 70 countries

>85,000 employees

>Consolidated Beer Volume in 2012: 172 million hl

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1 Grow the Heineken® brand

2 Be a consumer-inspired, customer-oriented, brand-led organisation

3 Capture the opportunities in emerging markets

4 Leverage the benefits of HEINEKEN’s global scale

5 Drive personal leadership

6 Embed and Integrate Sustainability

Shaping Our Future | Our Global Priorities

HEINKEN Global Procurement Function

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HEINEKEN’s Global footprint has increased

significantly: group beer volumes have

more than doubled over the last 10 years.

HEINEKEN’s market base is much more

fragmented than our competitors

(incl. ABInBev, Carlsberg & SAB).

In recent years HEINEKEN’s competitors

have made significant strides in

centralising procurement.

Fragmented market base makes moving to

a Global Procurement Company more

complex, but the benefits will be greater.

Supply Chain Finance offers a good opportunity by leveraging HEINEKEN global scale

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♦ Using HEINEKEN full global spend volume

Leverage full spend volume to maximise economic

benefits by harmonizing payment terms and improving

our working capital position to meet industry standards.

♦ Using HEINEKEN group credit rating

By using HEINEKEN’s strong credit rating, interest rates

are highly competitive. Even for larger suppliers the

programme is interesting, because it offers an extra

credit line and off-balance financing of receivables.

Using HEINEKEN global negotiating power

By developing a Global SCF programme, HEINEKEN

has been able to exempt all ‘additional’ costs for

suppliers (i.e. set-up fees, transaction fees).

Supplier Finance is enabling HEINEKEN to leverage spend volume to maximise economic benefits...

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H a r m o n i z e P a y m e n t T e r m s

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O p t i m i z e I n v o i c i n g P r o c e s s

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D r i v e I n n o v a t i o n 4

• Improve supplier invoicing process (i.e. always PO nr on invoice)

• Further automate PtP process (i.e. EDI and self-billing)

• Drive to improve invoice approval times (i.e. also NPR/ services)

Sh

ort T

erm

S e c u r i t y o f S u p p l y • Improve suppliers financial stability and liquidity

• Ensure stable supply by motivating suppliers investment in stocks

• Reward innovation by offering SCF programme

• Support investments by offering SCF

Lo

ng

er T

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• Harmonize payment terms across OpCos or most suppliers

• Offer suppliers off-balance sheet funding

• Offer suppliers cheaper funding by providing SCF

• Increase FOCF

The aim of HEINEKEN is to have a SF programme with the highest standards.

This means that there is need for:

♦ Global coverage on a local scale (i.e. ensure sufficient local support)

♦ Sufficient funding (i.e. ensure large credit line for global roll-out)

♦ Standardized and robust (IT) solutions

♦ Highly competitive discount rates.

To achieve these goals, HEINEKEN follows a ‘multi-banking strategy and after an

extensive RFP process (18 banks involved), three banks were selected

The selected Banks have global reach and physical presence in key markets

— including staff with local trade and language expertise — this facilitates

suppliers’ enrollment in the programme perfectly.

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HEINEKEN Supply Chain Finance - Banks Multiple banks for Global coverage, sufficient funding and competitive pricing

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• HEINEKEN’s obligation to pay a supplier on normal due date is not extinguished.

• A supplier can sell its receivable, after the approval of an invoice by HEINEKEN, to the SF Bank upon own selection.

• The selling of the invoice, by the supplier, takes place on a non-recourse base.

• On payment due date, SF Bank debits HEINEKEN’s bank account and pays a supplier unless payment has already been requested (i.e. supplier factored our debt).

The HEINEKEN global Supplier Finance programme is a three party scheme with bilateral relationships. There are three separate agreements in place:

1. HEINEKEN and the supplier agree to a commercial supply contract

2. HEINEKEN and the SF bank agree that payments will be handled by the SF bank

3. Supplier and the SF bank agree on a discount rate for forwarded invoices

HEINEKEN Supply Chain Finance – Contractual set-up Three separate agreement are in place

Supply Chain Finance – Onboarding Process Example of onboarding a Global supplier

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Criteria for Prioritisation Benefits

Focus on 2013/ 2014 go-live countries: UK, NL, Austria, Hungary, Belgium, Portugal

Suppliers with biggest spend with Heineken Suppliers requirement for early payment Current Payment terms: i.e. the longer the higher

the lever/ opportunity for Suppliers Good relationship with supplier Supplier dependency (share of wallet) Contract renewal period Supplier of strategic importance Suppliers need for cash

First focus is on suppliers of OpCos where SF program is introduced, in order to realize real benefits

Optimize HEINEKEN working capital (i.e. harmonize payment terms)

Supplier more likely to enjoy the financing tool for longer tenor

Transparancy of invoice handeling Strengthening relationship Off-balanse sheet financing tool Harmonize payment term of supplier worldwide

For SF, a supplier is defined as a ‘Platinum’ supplier if it is of high strategic importance and has a high annual turnover with HEINEKEN. Platinum segment: individualistic approach .HGP FD and SF Programme Manager together with the SF Bank invite the Treasury director. To introduce the concept in person.

One supplier is currently in the onboarding process for the countries: UK, NL, AT, HU. It has harmonized its payment term with HEINEKEN and this delivers HEINEKEN a cash benefit of approx. € 7 mln.

Approach

Outcome

Segmentation

1. 2.

3. 4.

5.

HEINEKEN Supply Chain Finance - Roll-out First Phase of SCF roll-out focuses mainly on Europe (WER+CEE)

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HEINEKEN already uses several local SCF schemes. All are based on local OpCo credit rating and not on group rating. Also the level of automation varies significantly across the OpCos (status 2012).

♦ Overall scope is HEINEKEN Operating Companies

(OpCos) all over the world. Initial scope Europe and

Mexico/ Brazil, 25 OpCo’s.

♦ Local suppliers will also have access to the

programme, whereas Global suppliers have local

contracts with different OpCos.

♦ OpCos around the world have different IT set-ups,

therefore we buildt an SF IT Solution per OpCo:

The Supplier Finance Toolkit 16 Tools have been developed to facilitate SF implementation in the OpCos

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• An IT cookbook has been developed containing a detailed desciption of all steps necessary to build the SF functionality in SAP. This cookbook can be used by all OpCos using SAP –positive feedback from OpCos.

• For each bank a standardized contract is negotiated, which serves as the basic ‘template’ for each OpCo.

• A fully detailed transition plan including instruction manual has been established for Transtion Managers/ OpCo project managers.

• For OpCo, HGSS and buyers various training- and onboarding packs have been delivered , enhancing a standardized roll-in methodology across all OpCos.

• A dashboard has been developed that buyers can use to prioritize suppliers, prepare for discussions and track progress.

HEINEKEN Supply Chain Finance - Focus Per supplier segment a specific ‘onboarding approach’ is pursued

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• The HEINEKEN SCF programme focusses on all suppliers worldwide with annual spend exceeding € 200K.

• Payment terms with smaller and medium sized suppliers that have an annual spend <€50m and >10% revenue at HEINEKEN can only be extended beyond 60 days if our SCF programme is applied.

• To determine the onboarding approach and pricing range HEINEKEN arranges its suppliers into 4 segments. Per segment a different ‘onboarding approach’ is pursued:

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