Heineken N.V. Reports Strong Organic Growth for 2008; Acquisitions and Impairments Significantly Impact Profit

In the face of deteriorating economic conditions, we have delivered a strong organic profit growth ahead of our forecast. This has been driven by robust pricing, higher volumes, better sales mix and a reduction in fixed costs. The Heineken brand continued to grow faster than the international premium segment.

18/02/09 Heineken N.V. announced strong organic net profit growth of 11%, ahead of forecast; Net profit (beia) amounted to EUR1,013 million. Reported net profit of EUR209 million diluted by lower than expected profits from new businesses and related financing charges. Net exceptional charges of EUR757 million, 80% of which relates to non-cash items. Consolidated beer volume grew 3.5% organically. Strong growth in Africa, Asia and Central and Eastern Europe, volumes in Western Europe and the were lower due to the challenging economic environment. Heineken volume in the international premium segment grew 4.7% and exceeded 25 million hectolitres for the first time, gaining share. A new company-wide action programme will deliver a cash conversion rate of more than 100% in the period 2009-2011. Capital expenditure for 2009 to be reduced by EUR400 million versus 2008. Fixed cost ratio improved to 29.5% (2007: 30.7%). Fit2Fight cost reduction programme delivered in full and on time. Continued focus on rigorous cost reduction; Total Cost Management programme launched. Proposed dividend of EUR0.62 per share for 2008.

Jean-François van Boxmeer, Chairman of the Executive Board and CEO:

“In the face of deteriorating economic conditions, we have delivered a strong organic profit growth ahead of our forecast. This has been driven by robust pricing, higher volumes, better sales mix and a reduction in fixed costs. The Heineken brand continued to grow faster than the international premium segment. 

However, the exceptional economic circumstances required us to reduce the value of goodwill in Russia, our investment in India and in our pub portfolios in the UK. These non-cash exceptional charges, together with low profit contributions of new businesses and the related financing costs resulted in a substantially lower reported net profit.

We strengthened our geographic footprint considerably, entering 11 new markets. We now hold the number one or number two position in 59 of the 66 markets in which we operate. In the current environment, we believe this to be a significant competitive advantage.

The strategic potential of our new markets remains strong. However, the economic downturn means that it will take longer to achieve the goals we had set for them. In particular, the performance in the UK was below expectations as the combination of recession, on-trade downturn, unprecedented excise duty rises, the smoking ban and the fall in the value of the British pound made the market exceptionally challenging. We are realising the announced synergies. In addition, we are reducing costs more significantly, restructuring parts of the business, investing in brands and improving pricing in order to increase profitability.

As we have experienced in recent months, our business is robust but not immune from the challenges posed by the global economic downturn. Therefore, we have in place a rigorous, company-wide focus on cash generation and cost reduction. We will continue to invest in key brands, customer relationships and people in order to increase profitability. Each operating company is implementing specific action plans to address the local market situation.

Together, all of these actions will ensure that Heineken emerges a stronger, more competitive player.”