Heineken Delivers Strong Organic Net Profit

07/09/06 Heineken N.V. has announced strong organic net profit growth of 13.7% for the first six months of 2006, a clear acceleration compared with the 5.4%-growth rate reported for the same period in 2005. Heineken confirms its increased full-year forecast of an organic net profit growth of 'slightly above 10%' (recently upgraded from 'mid-single digit').

Heineken said it achieved accelerated organic growth across all key metrics: +6.3% in revenues, +10.4% in EBIT (beia) and +13.7% in net profit (beia). Group beer volume grew 11.6%, to 62.8 million hectolitres of which organic growth accounted for 6.6%. Consolidated beer volume amounted to 53.3 million hectolitres. Net profit (beia) grew 10.5% to €410 million mainly driven by strong top-line growth. Net profit was 25.5% higher reflecting in part €28 million in exceptional net book gains in the first half-year against costs of €23 million in the same period in 2005. Volume of the Heineken brand in the global premium segment rose 12.7% to 11 million hectolitres, increasing the brand's share of the segment. The Heineken brand performed strongly in the Americas, Central and Eastern Europe and Africa, driven by engaging new marketing campaigns and consumer-driven innovations.

The introduction of Heineken Premium Light in the USA exceeded expectations with sales of over 300,000 hectolitres by the end of June. Heineken expects that Heineken Premium Light will achieve more than 600,000 hectolitres sales in 2006, 50% above the original forecast. The introduction has also had a positive impact on the volume growth of Heineken lager with depletions up 8% in the first six months. In Russia, the integration of the breweries acquired in 2005 is proceeding on schedule, and the findings of the brand portfolio optimisation review and the production allocation studies are now being implemented. We reiterate our full-year sales forecast of 13 million hectolitres beer volume, representing a high single-digit organic growth rate. The programme to reduce the fixed cost base by €200 million net of inflation by the end of 2008, named Fit 2 Fight, is on track. The expected inflation on the fixed cost base over the period amounts to €160 million. Therefore Heineken has identified concrete projects to achieve total savings of €360 million before tax by the end of 2008. For the full-year 2006, Heineken expects to achieve 10-15% of the gross savings in fixed costs. The related exceptional one-off costs before tax in 2006 are estimated at €60-75 million.

Heineken’s CEO said in a statement, 'At the heart of our improved performance has been the acceleration in top-line growth. One of the key drivers is the excellent performance of the Heineken brand in all regions, and most notably the successful launch of Heineken Premium Light in the USA, and the accelerated rollout of DraughtKeg.' 'At the same time, we have made progress towards our ambitious target to reduce fixed cost by €200 million by the end of 2008. We have completed the identification and benchmarking phase and have already announced reorganisations in France and the Netherlands.'

On 18 July 2006, Heineken raised its forecast of organic net profit growth for the full-year 2006 to 'slightly above 10%' (from 'mid-single digit'). The upgrade reflected the good performance of the Heineken brand, strong volume growth in Central and Eastern Europe, the Americas, Africa and South East Asia, the better than expected volume performance of the expanded business in Russia and the successful introduction of Heineken Premium Light in the USA. Heineken expects the positive trend in its key markets and the strong growth of the Heineken brand to continue. However, in the second half of 2006 the comparison with prior year will be more challenging than in the first half.

Heineken intends to increase the marketing investment in Heineken Premium Light in the USA. The effect of higher sales volumes and increased marketing investments is expected to reduce the forecast negative impact of the launch on EBIT in the USA by €7 million to an estimated €18 million in 2006.

Profitability will be increased due to the implementation of the Fit 2 Fight cost-saving programme despite the increasing pressure on input costs and the costs of integrating and upgrading the Russian operations. In the second half of 2006 exceptional charges of €60-75 million before tax are expected in relation with Fit 2 Fight reorganisations. As announced previously, Heineken will also report an exceptional net gain of €279 million on the sale of land in Seville, Spain, in the second half.