Heineken Earnings Fall in H1 on Weaker Europe and US Demand

Net profit (beia) of €694 million (+5.7% organic growth), reflected higher EBIT (beia) and lower interest expenses, partly offset by higher taxation expense. Reported net profit declined 14%, primarily reflecting a significant exceptional gain last year.

Aug 24 2011 --- Heineken N.V. has announced organic growth in group beer volume of 4.2% with higher volume across all regions for the first half of 2011. Volume of the Heineken brand in the premium segment increased 4.7%, led by growth in Asia Pacific and Western Europe. On an organic basis, revenue grew 3.3%, driven by a positive volume effect of 2.2% and increased price and sales mix of 1.1%.

Organically, EBIT (beia) grew 3.9%, as an increase in revenues, cost savings and higher profit from joint ventures was partially offset by planned higher marketing investment and increased input costs. Net profit (beia) of €694 million (+5.7% organic growth), reflected higher EBIT (beia) and lower interest expenses, partly offset by higher taxation expense. Reported net profit declined 14%, primarily reflecting a significant exceptional gain last year.

Jean-François van Boxmeer, Chairman of the Executive Board and CEO, commented: "This is a solid performance for the first half of the year, with higher organic group beer volume across all regions. Our focus on transforming our geographic footprint, aligned with increased marketing investment has enabled us to deliver robust top-line growth and gains in market share. Furthermore, we delivered an incremental €82 million of cost savings through our Total Cost Management programme, driving organic growth in EBIT (beia).”

“Continuing to invest in our key brands is helping us to win with consumers. The Heineken brand continued to outperform our overall portfolio, driven by strong marketing and innovation propositions. We are delighted with the early consumer response to our new global “Open Your World” campaign, with its success evident from recent awards received at the 2011 Cannes Lions International Creativity Festival. In March, we launched Heineken in the Mexican market, and in August we started brewing the Heineken brand locally in India as we progress our exciting UBL partnership. New campaigns to support the international roll-out of Desperados and Strongbow Gold have also made a positive impact.”

“We will continue our relentless focus on tight cost management, realisation of planned synergies from earlier acquisitions and strong cash flow generation to support near-term performance. Whilst mindful of the continuing volatility and increased uncertainties in the global economy, I remain confident that these efforts combined with our strengthened global platform and higher marketing investments, position the company well to deliver sustainable growth over the long-term," he concluded.

Heineken expects trading conditions in Latin America, Sub-Saharan Africa and Asia Pacific to benefit from a continued positive economic environment. Volume development in parts of Europe and the USA is expected to remain challenging given the current economic uncertainty, high unemployment and ongoing weak consumer confidence.

Heineken expects a slightly higher rate of input cost inflation in the second half of the year (compared with the first half of 2011). For the full year, Heineken continues to expect a low single-digit increase in input costs (on a per hectolitre basis). Heineken will continue its focus on long-term brand building through higher marketing investment. In the second half of the year marketing and selling (beia) expense, on an organic basis, is expected to increase by low single-digits, compared with the second half of 2010.

The current 3-year TCM programme covering the period 2009 to 2011 is expected to deliver further cost savings in the second half of the year. With a culture of continuous improvement now firmly embedded across its business, Heineken plans to introduce a new 3-year cost saving programme from the beginning of 2012. A key initiative involves the formation of a Global Business Services organisation that will enable the Company to better leverage the scale of its global operations. Investment in this new global function is expected to give rise to additional efficiency benefits and support profitability in future years.

For 2011, gross capital expenditure related to property, plant and equipment is forecast to be approximately €800 million.

Heineken does not expect material changes to the effective tax rate (beia) in 2011 (2010: 27.3%). The effective tax rate (beia) in the second half of 2011 will be slightly lower than the rate in the second half of 2010. Heineken forecasts an average interest rate of around 5.5% for 2011.

Heineken is targeting a cash conversion rate of around 100% for the full year 2011, supported by strong cash flow generation and disciplined capital allocation.

Heineken has witnessed volume weakness in the high-selling season of July and early August 2011, reflecting poor weather conditions in Europe, in combination with lower consumer confidence in some key markets. This will affect second half 2011 volume and profit performance and therefore Heineken expects full year net profit (beia), on an organic basis, to be broadly in line with last year. Heineken remains confident that its highly diversified geographic footprint, ongoing cost saving programmes and higher investment in long-term brand building initiatives will support growth in future years.