Faculty of Business Administration – English section INVESTMENT CREDIT ANALYSIS HEINEKEN Coordinating teacher: Maria Alexandra Nichifor Subject:… [601260]

THE BUCHAREST UNIVERSITY OF
ECONOMIC STUDIES
Faculty of Business Administration – English section

INVESTMENT CREDIT ANALYSIS
HEINEKEN

Coordinating teacher: Maria Alexandra Nichifor

Subject: Banking techniques and oper ations

Paper w ritten by:

Pîrcălabu Ioana

Șerbănescu Lorena

Group No. 132

Bucharest, 2016

Table of Contents

1. Description of the loan ………………………….. ………………………….. ………………………….. ………. 3
2. Description of the company ………………………….. ………………………….. ………………………….. 3
3. Credit History ………………………….. ………………………….. ………………………….. ……………………… 6
4. Analysis of the market and industry ………………………….. ………………………….. ……………. 6
4.1. Market analysis ………………………….. ………………………….. ………………………….. …………… 6
4.2. Industry analysis ………………………….. ………………………….. ………………………….. ………… 7
5. Financial analysis of the borrower ………………………….. ………………………….. ………………. 8
5.1. Assets evaluation ………………………….. ………………………….. ………………………….. ………… 9
5.2. Equity and liability evaluation ………………………….. ………………………….. ……………… 9
6. Cash flow analysis ………………………….. ………………………….. ………………………….. ……………. 10
7. Collateral analysis ………………………….. ………………………….. ………………………….. ……………. 10
8. SWOT analysis ………………………….. ………………………….. ………………………….. ………………….. 11
8.1. Strengths ………………………….. ………………………….. ………………………….. ……………………. 11
8.2. Weaknesses ………………………….. ………………………….. ………………………….. ………………. 11
8.3. Opportunities ………………………….. ………………………….. ………………………….. ……………. 11
8.4. Threats ………………………….. ………………………….. ………………………….. ……………………….. 11
9. Credit scoring ………………………….. ………………………….. ………………………….. ……………………. 12
10. Credit decision ………………………….. ………………………….. ………………………….. ……………… 13
11. References ………………………….. ………………………….. ………………………….. …………………….. 13
12. Annex ………………………….. ………………………….. ………………………….. ………………………….. …. 14

Table of figures

Figure 1 – Beer market share – volume ………………………….. ………………………….. ……………….. 4
Figure 2 – Volume of sales ………………………….. ………………………….. ………………………….. …………. 7
Figure 3 – Beer consumption per capita ………………………….. ………………………….. ……………… 8

1. Description of the loan

Heineken wants to a pply for an investm ent credit of 3,5 million EURO over a
period of 2 years for opening a new line of produc tion in its existing factories.
The purpose of the investment comes from the fact that Heineken entered a
new market segment in 2015, the cider segm ent, a segment of products that is still
undeveloped in Romania. Now the company wants to open also a production line for
the Cider i n one of its 4 centers of production , namely in the factory from Tirgu –
Mures (Ungheni) . The Cider (Strongbow) is a fermente d apple drink with an alcohol
content of 4.5%, less than a normal beer. This product is able to enter market niches
that the traditional beer cannot reach. Moreover, Romania is in the top 10 apple
producers from Europe ( 462,935 tonnes/year), so the local m arket represents a huge
potential for developing such a product. The fact that this market is not yet developed
in Romania is a huge opportunity for the company to increase its revenues on the
local market.
The total value of the investment is of 5 millio n EURO . The investment will
be financed 30% by the company (1.5 million Euro) , while the other 70% will be
financed through the requested credit. The repayment of the credit will be done
through equal monthly installments, on a schedule agr eed by both Hein eken and BCR
before signing the contract .
The credit will be repaid from the monthly cash flow obtained through sale of
the products of the company on the local market. The company’s good financial
situation and cash flow allows it to be able to handle the credit and its installments
well.
The security of the loan is represented by a 1st rank mortgage. T he collateral
offered by Heineken in order to re duce the risks of non -repayment is represented by
the computerized bottling robot of the factory from Unghe ni and an additional
security will be represented by the company’s inventory, presently owned by
Heineken . The acce pted value of this collateral is: 3,7 million EUOR for t he
equipment and an additional 1 000 000 EURO for the inventory.

2. Description of the company

Heineken is a multinational beer producer from Netherlands, established in
1864 in Amsterdam. Nowadays, it is the biggest beer producer from Europe and
occupies the third place worldwide in what concerns the volumes of beer sold.
Heineken Romania is a subsidiary of Heineken group, which was founded in 1998
and occupies the leading position on the beer market of our country. The company’s
vision is to achieve sustainable growth in all markets and to create value all around
the world, by providing qu alitative products that satisfy their customers’ needs.

Heineken Romania is a joint stock company. It is a subsidiary of the parent
company from Netherlands. Its shareholders are Heineken Group 98,44% and private
owners representing 1,56%. The value of its social capital in 2014 was 302 485 365
EURO.
It has a very diversified portfolio of brands covering all segments of the
Romanian market: super premium, premium, mainstream and economic. The product
provided by the company is the beer, an alcoholic bevera ge obtained by combining 4
natural elements yeast, malt, hops and water. It is one of the oldest and most popular
beverages with a low degree of alcohol. The main beers included in its portfolio of
products are: Heineken, Silva, Ciuc Premium, Golden Brau, Neumarkt, Bucegi,
Edelweiss (import), Zipfer (import), Gosser, Sch lossgold, Gambrinus, Harghita and
Hațegana.
Heineken has a market share of approximately 30% in what concerns the
volume of sales and 33% share based on the sales value.
Its main competitors on the Romanian beer market are Ursus Breweries
(subsidiary of SABMiller), Bergenbier (subsidiar y of Molson Coors) and Tuborg
Romania (subsidiary of Carlsberg Group). This 4 leading companies represent
together 80% of the market share of the Romania beer market. Other actors in the
same industry, but with a lower market share are: Bermans (0,8%), Ma rtens (0,5%),
Romaqua(4,9%), Europen Drinks(4,4%) and Private Label(0,9) beer producers.

Figure 1- Beer market share – volume
Source: Nielsen – Study on Romanian beer market

Heineken’s customers are represented by its regional distributors, who buy
beer from the company in order to resell it. The company has a wide portfolio of
clients. It produces diversified types of beer and distributes it through its supply chain
by creating a complex distribution infrastructure and thus att racting all the beer
consumers from economic to premium. It uses mainly intermediaries in order to
1%
15%
1%
4%
30%
1% 1%5%4%32%6%OTHER MANUFACTURERS
BERGENBIER/MOLSON COORS
BERMANS
EUROPEAN DRINKS
HEINEKEN ROMANIA
MARTENS
NATIONAL BERE HOLDING
PRIVATE LABEL
ROMAQUA
SAB/CRB
TUBORG/URB

distribute its products. Heineken distributes its products through both traditional
(retail stores and h oreca) and modern (supermarkets, hypermarkets and dis counters)
distribution channels, its products being equally distributed on the entire Romanian
market. The Romanian beer market is segmented in 6 sectors Bucharest, Moldavia,
Muntenia, Banat, Olte nia and Transylvania. The Bigge st number of customers and th e
highest market share of the company is registered in Banat (40,4% market share).
The biggest distributors (customers) of Heineken’s products on the regional
markets are:

Customer Region Payment Term Payment Method
Nitela SRL Dolj,Olt, Mehedinti 24 days Payment Order
Farel.IMPEX SRL Mures, Sibiu, Alba
and Bistrita 24 days Payment Order
Amiro S.A. Brasov, Harghita,
Covasna 24 days Payment Order
Table 1: Customers Table

Some other smaller regional distributors are:

Customer Region Payment T erm Payment Method
Cronos SRL Teleorman 14 days Payment Order
Geraico Prod Com Hunedoara 11 days Payment Order
Pomadil Com SRL Gorj 14 days Payment Order
Triat Trust SRL Iasi 14 days Payment Order
Nicolzoe SRL Ialomita 11 days Payment Order
Youn g Magic Galati 14 days Payment Order
M.T.C Sibiu Sibiu 14 days Payment Order
Meca Tech
Distributie SRL Bucharest 24 days Payment Order
Smart&Fair
Distributie Bucharest 24 days Payment Order
Geo Alexin SRL Vrancea 14 days Payment Order
Vansar Bihor 14 days Payment Order
Crisodes import
export SRL Bihor 14 days Payment Order
Table 2: Customers Table

Most of the beer sold in our country is also locally produced (97%), using a
large percentage of raw materials from our country. So Heineken mostly uses natural
ingredients and has contracts with many local and foreign suppliers . The company
has suppliers for yeast, malt, hops and water as well as suppliers for raw materials for
glass bottles and cans in all of its 4 factories from Romania ( Constanța , Craiova,
Miercurea Ciuc și Târgu Mureș). At local level 70% of the raw materials used by
Heineken in its production processes , are provided by local producers . The raw
materials needed for the production process are closely monitored by the Acquisition
Manager who, together with its team, searches for the suppliers that offer the best

price -quality report. So, Heineken does not have a stable list of suppliers, it prefers to
continuously evaluate the market and search in order to find the best alternative.

3. Credit History

Until now Heineken had not had any collaboration with BCR . The banks that
the company is working with are:

Bank Type of account Currency
ING Bank Current Account ROL
BRD GSG Current Account ROL, EURO
Transylvania Bank Current Account ROL
BrickBank Netherlands Current Account ROL, EURO, USD
Table 3 – Bank Relationships

At the international level, Heineken Holding has registered in the financial
statement, in 2015, at the loan s and borrowings sect ion a total indicator of 1 .397 mill
€.

4. Analysis of the market and industry

4.1. Market analysis

The Romanian beer market is an oligopolistic market with few independent
competitors, which sell slightly different products to a large number of cust omers. An
investigation conducted by the Romani an Competition Council shows that the beer
market doesn’t show anymore the characteristic of a monopolistic market as it did 13
years ago, when in Romania there were 50 or 60 small beer producers.
Nowadays, the market in dominated by 4 external companies (Heineken
Romania, Ursus Breweries, Bergenbier and Tuborg Romania) , which created a market
with high entrance barriers for small producers that might want to start a business in
this sector. These barriers are represented by the high investment needed in o rder to
become competitive and by the fact that the main actors of this sector have acquired
the benefits of an economy of scale, thus reducing their production cost and having
very competitive prices that cannot be achieved by small producers. The network of
distribution channels, the marketing and advertising campaigns that the big producers
developed represents other advantages that are hard to be achieved by a small
company that wants to enter the beer market.
In 2014 the four leading companies represe nted together more that 80% of the
market share of the industry defined in volume and almost 90% of the market share
value of the industry.
In order to reduce the competition pressure, the main competitors on the
Romanian market have chosen to segment the market vertically in 4 segments: super
premium, premium, mainstream and economic. E ach of the leading companies has a

large portfolio of products for every segment. However, the largest sales volume is
registered in the mainstream segment.
By a nalyzing the level of beer consumption in Europe in 2014 we can spot
Romania on the eight place with a total consumption of 14 900 000 hectoliters.
However, the demand for this product has decreased in the last years because of the
fact that excises increa sed to 16% in 2013, thus causing a considerable fiscal pressure
on the local producers and an increase in the selling prices.

4.2. Industry analysis

In the last few years, the beer sector has encountered constant decreases in the
volume sold in Romania, registering an 8,6% decrease in 2014. This decrease may be
considered a consequence of the economic situation and of the behavioral changes of
the country.

Figure 2 – Volume of sales
Source:”Raport privind investigatia sectoriala pe piata berii” Romanian Competition
Council, 2014

There has also been registered a decrease of the consumption of beer per
capita in Romania in the same period. The average value of beer consumption
decreased with 8,6% in 2014 compared to 201 3, its value being 74 liters/capita.
200
4200
5200
6200
7200
8200
9201
0201
1201
2201
3201
4
Volume of sales 14.5 15.2 17.7 19.4 20.2 17.6 17 17 18.2 16.3 14.9
0510152025millions of hl

Figure 3 – Beer consumption per capita
Source:”Raport privind investigatia sectoriala pe piata berii” Romanian Competition
Council, 2014

So the rate of growth of the industry is a negative o ne (-8.6%), the industry
being a declining one, after constant decreases in the volume and value of sales in the
last years. This is why Heineken decided to enter a new market segment, the Cider
segment and introduced Strongbow on the Romanian market. Worl dwide the
company is the number one Cider producer. By entering thin new line of products the
company had a huge success and decided that the Romanian market can also be a
good place for producing this Cider.
The beer industry also operates under a cyclica l business model, registering
higher sales of beer in the summer (May – August) and less in the winter period.
Besides this, the beer industry is also affected by demographics, taxes, perceived
health effects, rules and regulations and the consumption of s ubstitute products.

5. Financial analysis of the borrower

Financial analysis also referred to as financial statement analysis contain a
wealth of useful data and information regarding the financial position of the company
among its competitors, the success of the company, its stability and profitability as a
business. Typically, financial analysis are used to analyze weather a business is stable,
solvent, liquid, and profitable. Moreover, financial analysts focus mainly on balance
sheet, income statement, cash -flow statement and statement of changes in equity. The
company’s financial statement contains a series of relationships that can be described
by analyzing individual components of each financial statement and by ratio analysis.
The financia l analysis of the activity of Heineken was realized based on the
evaluation of the accounting documents from 2014 and 2015.

6771849499
88 878490
81
74
020406080100120
Beer consumption per capita
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

5.1. Assets evaluation

Common size ratio.
Total assets, percentage change: (TA 2015 – TA 2014)/TA 2014
(37.714 mill € – 34.830 mill €)/34.830 mill €= 8.28%

The common size ratio s computed above are used to compare the company to
itself over time. An increase in total assets o f 8.28% has been identified when we are
to compare the 2015 year with the 2014 year . The increase in total assets are justified
by a major increase, of 10.63% in non -current assets and a slight decrease of 2.82% in
current assets.

5.2. Equity and liabili ty evaluation

In 2015 compared to 2014, Heineken registered an increase in liabilities of
5.92% due to an increase in trade and other payables of 8.67%. Even though the
liabilities registered an increase of 5.92%, that is not a warning fact, bec ause
Heineken registered in 2015 a profit of 957 mill € which is with 197 mill € more than
the last year, meaning that the company rose its profit with 25.92% .

Current ratio = total current assets/total current liabilities
Current ratio = 5.914 mill €/8.516 mill€
Current ratio = 0.6944

Even though Heineken registered a low indicator of the current ratio that does
not necessary mean that the company is not going to be able t o pay back the loan. It
just means that for the moment the company wasn’t able to settle its current liabilities,
meaning that they did not turn their assets into cash with the expected ease.

Formula: Interest cover = EBIT/Interest ex penses
Interest cover =3.247 mill €/ 412 mill €
Interest cover = 7.8810

The interest cover ratio measures the company’s ability to meet its interest
payment. This ratio has the purpose to determine how easy th e company is able to pay
interest expenses an outstanding debt. Heineken has registered a ratio of 7.8810 whi ch
is a very good ratio . Being higher reflects a better financial health and it means that
the company is more than capable to meet its interest ob ligations from operating
earnings.

6. Cash flow analysis

The statement of cash flow reveals how the company spends its money (cash
outflows) and where the money comes from (cash inflows), in other words it
determines the business’ solvency. This analysis shows weather the company has
enough money to pay back its loans. It is a very impo rtant tool for credit analysis,
because the cash flow analysis gives the creditors a well -rounded picture of the
business’s financial health.

Data from cash flo w statement 2014 2015
Cash flow from operations (mill €) 4.140 4.486
Total cash in working capital 27 371
Change in inventories (104) 27
Table 4 – Data from the cash flow analysis

When analyzing the cash flow, the most important indicator is cash flow from
operations. This is the key source of the company’s cash generation. It shows the cash
that the company produces internally. Heineken registered an increase of 8,35% in
Cash flow from operations. That means that the company generates enough cash to
pay its debts. The main in dicator that could influence the cash flow from operating
activities is working capital. This increase in the cash flow from operations could be
justified by the fact that the company registered an increase of 344 mill € of the total
cash in working capital.
A negative indicator registered in inventories could have a negative effect on
the company’s cash balance. The value from inventories h as changed in the interval
of years, 2014 -2015, and become a positive indicator. That means that the company,
in 2015 sold more goods than it did in the last year.
After analyzing the indicators above we can say that Heinek en has a good financial
health a nd it is definitely capable of repaying its debts.

7. Collateral analysis

The collateral, also called security, represents the asset pledged by Heineken
against the performance of a credit facility to the effect that the bank could sel l it off,
the collateral, in cas e un unexpected event happens and the company has no longer
the possibility to repay the landed amount. In order to reduce the risk of non –
repayment, Heineken offered as collateral , the computerized bottle robot used at the
factory f rom Ungureni. Only the machinery was not enough so the company added to
the collateral an additio n security which consist in a part of the company’s inventory
that is presently owned.
The com puterized bottle robot worth 3.700.000 € and th e inventory was
evaluated at 1.000 .000 € . In total the market value of the collateral was estimated at
4.700 .000 € . To this value the bank applied a risk coefficient of 25% , thus resulting
that the accepted value of the collateral is 3.525.0 00 €.

8. SWOT analysis

In order to better asses s the company, a SWOT analysis is used to show how
internal and external factors are influencing the company’s performance.

8.1. Strengths

 Strong brand name
 High quality of its products
 Big brand portfolio (variety of tastes)
 High brand recognition (trustworthy brand )
 Innovative and eye -catching packaging strategy
 Good advertising and branding campaigns
 Sponsorships: music and sport events
 Responsible alcohol consumption campaigns
 Management team’s experien ce
 Employee training and development programs, focusing on its performance
management system norms
 Leading market position
 Good credit history and ability to pay its debts in time
 High importance and encouragement of innovation in the company’s strategy
 High entrance barriers for new competitors in the market
 Long term relations with its customers and suppliers

8.2. Weaknesses

 Largely dependent on the price of its raw materials
 Perceived as slightly more expensive than other beers
 Man brand image (makes it h arder to attract women target )

8.3. Opportunities

 Sustainable development engagement
 Opportunity to reach the women target by: the e ntrance in the alcohol fre e
(0%) beer market, flavored beer market and introduction of the Cider segment
of products
 Acquisitio n of other brewers and brands

8.4. Threats

 Decline of the local beer market

 Intense competition on the Romanian market (oligopolistic)
 Legislative changes ( taxes and regulations )
 Side effects of alcohol consumptions
 Weather and season (cyclical business)

9. Credit scoring

Evaluation Criteria Weight Values Mark Evaluation
Qualitative criteria
1 Management
quality, business
strategy, collateral
received

21% Accumulated
experience within
company’s main
activity, good
business strategy,
well known
company

1

0.21
2 Ownership
structure
4% Majority owned by
a powerful
international
company
1
0.04
Quantitative criteria
1 Current assets:
current assets/current
debts
18%

0.69
5
0.9
2 Solvability ratio:
total assets/total
debts
18%
1.66
1
0.18
3 Operating profit
margin: operating
profit/sales x100
12%
18.75%
1
0.12
4 Interest cover ratio :
operating
profit/in terest
expenses
18%
7.88
1
0.18
5 Equity ratio: total
equity/t otal assets 9% 39.95% 1 0.09
Client rating:
financial
performanc e
100%
1.72-A
Table 5 – Qualitative and Quantitative criteria

After conducting the company’s credit scoring we have reached to the
conclusion that Heineken is included i n the type A category , according to the Bank’s
Norms. The c ompany has an overall credit scoring of 1.72 that made possible its
placement in the performance credit cate gory. This type of company, namely type A,

allows us to draw the conclusion that Heineken will have no problem in reaping the
loan due to the fact t hat it performs pro fitable activities.

10. Credit decision

Taking into consideration all the facts previously presented, the Credit
Committee approved the “investment credit” under the following conditions:

Credit type: “investment credit”

Purpose of the credit: the opening of a new production line of The Cider,
Strongbow, in the factory Ungureni from Tirgu -Mures.

Amount: 3.5 Million €

Interest: 3,8% + ROBOR

Collateral: The computerized bottle robot from th e fac tory from Ungureni and a par t
of the existing inventory

Contract date: June 2016

Maturity date: May 2018

Other conditions:
 The company will not apply for other loans without the written approval of the
bank
 The co mpany will carry on at least 30% of the payments through the bank
 The company is obliged to maintain t he good quali ty of the colla teral
 The company must provide to the bank constant financial reports

In case Heineken does not fulfill one of the above conditions, the Bank has the
right to increase the interest rate with 2% or to consider the contract null and to
demand the payment in advance for all the obligations.

11. References

1. Dima, A.M., Ameziane L., Dinca V.M., Orzea I., Agoston S., Vasil escu A.M.,
Serban A.L., 2012, Banking for Business Administration: theory cases and
applications , Bucharest: Editura ASE

2. Heineken Holding N.V., 2015, Heineken holding N.V. annual report 2015 ,
Amsterdam: Heineken Holding N.V.

3. Heineken Romania, 2013. Despre noi, [online] Available at:
http://www.heinekenromania.ro/about -us

4. GHID AFACERI – FIRME & COMPANII ROMANIA. Distributie Heineken
[online] Avaialbel at: http://www.ghidafaceri.ro/preturi -catalog -firme -vanzare –
producatori -10-/distributie_heineken
5. Romanian Competition Council, 2011. Raport privind investigatia sectoriala pe
piata berii Avaliable at:
http://www.consiliulconcurentei.ro/uploads/docs/items/id9158/nota_bere_neconf.pdf
6. Interner Corp, 2016. Heineken Romania Avaliable at: http://www. wall-
street.ro/tag/heineken -romania.html

7. Asociatia Berarii Romaniei, 2016. Berea si economia Avalable at:
http://www.berariiromaniei.ro/berea -economia/

8. Investopedia, 2016. Complete Guide To Corporate Finance Avalable at:
http://www.investopedia.co m/walkthrough/corporate -finance/2/financial –
statements/balance -sheet.aspx

9. My Accounting Course, 2015. Basic accounting course Available at:
http://www.myaccountingcourse.com/basic -accounting -course

10. Accounting for management, 2015. Accounting for m anagement Avalable at:
http://www.accountingformanagement.org

12. Annex

BALANCE SHEET 2015 2014
ASSETS
Non -current assets
Property, plant and equipment 9.552 8.718
Intangible assets 18.183 16.341
Investments in associates and joint ventures 1.98 5 2.033
Other investments and receivables 856 737
Advances to customers 266 254
Deferred tax assets 958 661
Total non -curre nt assets 31.800 28.744
Current assets
Inventories 1.702 1.634
Other investments 16 13
Trade and other receivables 2.873 2.743
Prepayments 343 317
Income tax receivables 33 23
Cash and cash equivalent 824 668
Assets classified as held for sale 123 688

Total current assets 5.914 6.086
TOTAL ASSETS 37.714 34.830
EQUITY
Share capital 461 461
Share premium 1.257 1.257
Reserves (111) (178)
Retained earnings 5.143 4.585
Equity attributable to equity holders of Heineken
Holding 6.750 6.125
Non -controlling interests in Heineken 6.785 6.284
Non -controlling interests in Heineken group
companies 1.535 1.043
TOTAL EQ UITY 15.070 13.452
LIABILITIES
Non -current liabilities
Loans and borrowings 10.658 9.499
Tax liabilities 3 3
Employee benefits 1.289 1.443
Provisions 320 398
Deferred tax liabilities 1.858 1.503
Total non -current liabilities 14.128 12.846
Current liabilities
Bank overdrafts and commercial papers 542 595
Loans and borrowings 1.397 1.671
Trade and other payable 6.013 5.533
Tax liabilities 379 390
Provisions 154 165
Liabilities classified as held for sale 31 178
Total current liabilit ies 8.516 8.532
TOTAL LIABILITIES 22.644 21.378
TOTAL EQUITY+LIABILITIES 37.714 34.830

CASH FLOW STATEMENT 2015 2014
Revenue 20.511 19.257
Other income 411 93
Raw materials, consumables and services (12.931) (12.053)
Personnel expenses (3.322) (3.080)
Amortization , depreciation, and impairments (1.594) (1.437)
Tax expenses (17.847) (16.570)
Result from operating activities 3.075 2.780

Interest income 60 48
Interest expenses (412) (457)
Other net finance income/expenses (57) (79)

Net finance expenses (409) (488)
Share of profit of associates and joint ventures and
impairments thereof 172 18
Profit before income tax 2.838 2.440
Income tax expenses (697) (732)
PROFIT 2.141 1.708