Heineken First Half Profits Up on Cost Cutting

For the near term, Heineken remains cautious on the development of beer consumption in Europe and the USA due to continued weak consumer spending and planned austerity measures across many countries.

Aug 25 2010 --- Heineken has reported that net profit (beia) increased 17% organically, driven by higher EBIT (beia) and lower interest expense and amounted to €621 million. Net profit increased 42% to €695 million partly due to positive exceptional items. The company reported strong free operating cash flow generation at €699 million, up from €383 million, positively impacted net debt and interest charges. There was organic EBIT (beia) growth of 5.7% as a result of €104 million savings from Total Cost Management programme, improved margins per hectolitre and the strong performance of Heineken’s joint ventures, offsetting lower volume and higher marketing investment.

Heineken volume in the international premium segment outperformed the overall portfolio and grew 4.1%. Group beer volume decreased 2.3% organically impacted by the weak economic environment and the effect of excise duty increases, partly offset by strong growth in Africa, Asia and Latin America. Heineken expects the organic increase in net profit (beia) for the full year 2010 to be at least in low double digits.

Jean-François van Boxmeer, Chairman of the Executive Board and CEO, commented: “Heineken achieved strong organic net profit growth in the first half year 2010. Trading conditions remained challenging in Europe and the USA, but we realised strong group beer volume growth in Africa and Asia. The effectiveness of our premium strategy was reinforced by the continued strong performance of the Heineken brand which once again outperformed our broader portfolio and the overall beer market. Furthermore, we delivered an incremental €104 million of cost savings through our Total Cost Management programme."

“We are well placed for the future. Our expanded footprint in Latin America complements our strong positions in Africa and Asia where we continue to see excellent opportunities for future volume growth. Our focus on cash flow has strengthened our balance sheet and our key brands are benefitting from our increased marketing investments. The activities to improve the recently acquired businesses are paying off, whilst we also have made significant progress to integrate FEMSA Cerveza.”

For the near term, Heineken remains cautious on the development of beer consumption in Europe and the USA due to continued weak consumer spending and planned austerity measures across many countries. Volume in Latin America, Africa and Asia is expected to continue to grow. Price increases in the first half of the year will continue to have a limited positive effect in the second half of 2010. The international premium segment is forecast to continue to outgrow the beer market as a whole, benefiting Heineken.

Heineken will continue its focus on brand building and increase investments in key brands, which will be largely offset by lower input costs. The TCM programme will deliver further savings in the second half of the year. In addition, Heineken will focus on developing the performance of companies acquired during the last 3 years, including FEMSA Cerveza, and the unlocking of synergies.

Free operating cash flow generation will remain strong. Heineken remains fully committed to further reducing its net debt, targeting a net debt/EBITDA (beia) ratio of below 2.5 times, and a cash conversion rate in 2010 and 2011 above 100%.

For 2010, capital expenditure related to property, plant and equipment are forecast at €800 million, including FEMSA Cerveza for the 8 months commencing 1 May 2010 at €200 million. For the full year 2010, Heineken estimates an effective tax rate (beia), including FEMSA Cerveza and non-recurring items in the normal line of business, of 27-29%. On a like-for-like basis, the effective tax rate (beia) in the second half of 2010 will be higher than the rate of the second half of 2009 when a number of non-recurring items led to a lower tax rate. For 2010, Heineken expects an average interest rate including FEMSA Cerveza of approximately 6%.

Based on the above, Heineken expects the organic increase in net profit (beia) for the full year of 2010 to be at least in low double digits.