Heineken Annual Report & Accounts 2008

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 profit appropriation

The Executive Board has submitted its financial statements 2008 to the Supervisory Board. The financial statements of this Annual Report can be found here.

KPMG ACCOUNTANTS N.V. audited the financial statements. Their report can be found here.

The Supervisory Board recommends that shareholders, in accordance with the Articles of Association, adopt these financial statements and, as proposed by the Executive Board, appropriate the entire profit of €209 million, as well as €95 million of the retained earnings for payment of dividend. The underlying principle of the dividend policy is that 30-35 per cent of net profit before exceptional items and amortisation of brands (net profit beia) is placed at the disposal of shareholders for distribution as dividend.

The proposed dividend amounts to €0.62 per share of €1.60 nominal value, of which €0.28 was paid as an interim dividend on 3 September 2008.

Supervisory Board composition and remuneration

The Annual General Meeting of Shareholders on 17 April 2008 appointed Mrs. M.E. Minnick as member of the Supervisory Board. Mrs. Minnick is consulted regularly in view of her marketing knowledge and her experience in the drinks industry.

Messrs. Das and Hessels will resign by rotation from the Supervisory Board at the Annual General Meeting of Shareholders on 23 April 2009. Both are eligible for immediate re-appointment for a period of four years. Non-binding nominations for their appointments will be submitted to the Annual General Meeting of Shareholders. Furthermore, it is proposed to re-appoint Mr. Das as delegated member of the Supervisory Board. The notes to the agenda contain further information.

The Supervisory Board consists of eight members. All members of the Supervisory Board comply with best practice provision III.3.4 of the Dutch Corporate Governance Code (maximum number of Supervisory Board seats). The Supervisory Board has a diverse composition in terms of experience, gender and age. Two out of eight members are women; three out of eight members are non-Dutch and the average age is: 60 (ranging between 47 and 71). The General Meeting of Shareholders determines the remuneration of the members of the Supervisory Board. The 2005 Annual General Meeting of Shareholders resolved to adjust the remuneration of the Supervisory Board effective 1 January 2006. The detailed amounts are stated in note 33 of the financial statements.

Corporate Governance

The Annual General Meeting of Shareholders of 20 April 2005 sanctioned the way Heineken deals with the Dutch Corporate Governance Code of 9 December 2003, and in particular the non-compliance with a limited number of best practice provisions, as a consequence of the special character of the Company (see the Dutch Corporate Governance Code). Since then there has been no change in the governance of Heineken N.V.

On 10 December 2008 the amended Dutch Corporate Governance Code was published. This Code will come into force with effect from the financial year 2009. As recommended by the Corporate Governance Code Monitoring Committee Heineken will include a chapter in the Annual Report on the broad outline of the corporate governance structure and compliance with the amended Code and present this chapter to the Annual General Meeting of Shareholders in 2010. Heineken will prepare for presentation in this meeting a full Comply or Explain report. Heineken expects that it will apply almost all best practice provisions, with some exceptions relating to the structure of the Heineken Group.

Meetings and activities of the Supervisory Board

The Supervisory Board held seven meetings in the presence of the Executive Board, including meetings by telephone conference. The agenda included subjects, such as the Company’s strategy, the financial position of the Group, the results of the operating companies, acquisitions, large investment proposals, the yearly budget, management changes, the risk profile and control systems. The acquisition and the integration of Scottish & Newcastle was a regular topic in the meetings. Beginning 2009, the Supervisory Board discussed and approved the adjustments to the remuneration policy for the Executive Board.

The external auditor attended the meeting in which the annual results were discussed.

One meeting was held without the Executive Board present. In this meeting, the Supervisory Board discussed, based on a self-assessment survey, the functioning of the Supervisory Board, its committees and its members as well as the functioning of the Executive Board and its members.

One meeting was held in Edinburgh, Scotland, where the Regional President Western Europe presented the main developments in his region, with specific attention to the markets in the UK, Belgium, Portugal and Finland. In 2008, the Director Group Commerce presented the marketing issues. The Director Group Control & Accounting presented the post-audits. Post-audits are made of larger acquisitions after a few years.

The Chairman of the Supervisory Board met frequently with the CEO, amongst others, to prepare the Supervisory Board meetings and to monitor progress.

None of the members of the Supervisory Board was frequently absent. An absence of twice or more is considered frequent.

Independence

The Supervisory Board endorses the principle that all members are able to act critically and independently and considers the members of the Supervisory Board as independent. In a strictly formal sense, however, Messrs. De Jong, Das and de Carvalho do not meet the applicable criteria of the Dutch Corporate Governance Code dated 9 December 2003. In this respect reference is made to the best practice provision III.2.2 of the Dutch Corporate Governance Code as contained in the ‘Comply or Explain’ report of 21 February 2005 (see the Dutch Corporate Governance Code).

Committees

The Supervisory Board has four committees, the Preparatory Committee, the Audit Committee, the Selection & Appointment Committee and the Remuneration Committee.

Preparatory Committee

Composition: Messrs. Van Lede (Chairman), Das and de Carvalho.

The Preparatory Committee met six times. The committee prepares decision-making by the Supervisory Board.

Audit Committee

Composition: Messrs. De Jong (Chairman), Hessels and Mrs. Fentener van Vlissingen.

The members collectively have the experience and financial expertise to supervise the financial statements and the risk profile of Heineken N.V. The Audit Committee met four times to discuss regular topics, such as the annual and interim financial statements, the effectiveness of risk management, the adequacy of internal control policies and internal audit programmes, the external audit scope, approach and fees, as well as reports from both the internal and external audits. The Group Director IT presented the international IT programmes.

The Audit Committee also reviewed the achievement of targets for the annual bonus for the Executive Board and Senior Management and decided on the procedure for the assessment of the external auditor, in view of the re‑appointment. The Annual General Meeting of Shareholders on 17 April 2008 reappointed KPMG Accountants N.V. as the external auditors for a four-year period (financial statements 2008 – 2011).

The CEO and the CFO attended all the meetings, as well as the external auditor, the Director Group Control & Accounting and the Group Internal Auditor.

Selection & Appointment Committee

Composition: Messrs. Van Lede (Chairman), Das, de Carvalho and Lord MacLaurin.

The Selection & Appointment Committee met three times. In these meetings the composition and the rotation schedule of the Supervisory Board were discussed.

Remuneration Committee

Composition: Messrs. Das (Chairman), Van Lede and de Carvalho.

The Remuneration Committee met six times. The Remuneration Committee discussed the adjustments to the remuneration policy for the Executive Board. The adjustments will be submitted to the Annual General Meeting of Shareholders on 23 April 2009. They also reviewed the target setting and payout levels for the annual bonus and the long-term incentive plan for the Executive Board (Heineken N.V. shares).

Remuneration Executive Board

In 2005 the Annual General Meeting of Shareholders approved the remuneration policy for the Executive Board. Every two years the policy is evaluated. In 2007 the Annual General Meeting of Shareholders approved the first adjustments.

Details of the policy and its implementation are described here. The current pension scheme was introduced in 2006.

The adjustments to the revised remuneration policy, as from 1 January 2009, will be submitted for approval to the Annual General Meeting of Shareholders on 23 April 2009. The policy is described here. The structure of the revised remuneration policy does not contain significant changes and aims to ensure that highly qualified managers can be attracted and retained as members of the Executive Board. The package includes a base salary, an annual bonus and a long-term incentive scheme.

Appreciation

Given the particularly challenging year 2008 for the Company, not only because of the historic acquisition of a part of Scottish & Newcastle, but also in view of the deteriorating trading conditions, the Executive Board and all employees have shown remarkable resilience based on their strong loyalty to the Company.

The Supervisory Board wishes to express its gratitude to the members of the Executive Board and all Heineken employees for their contributions in 2008.