Heineken N.V. Reports Third Quarter 2010 Result
During the third quarter, continued strong cash flow generation led to a significant decrease in net debt. Heineken confirms its target of a Net debt/EBITDA (beia) ratio of below 2.5 times and a cash conversion rate in 2010 and 2011 above 100%.
Oct 28 2010 --- Heineken N.V. announced its trading update for the third quarter of 2010. Compared with the same quarter in 2009:
* Organically, EBIT (beia) grew mid-single digits driven by a strong performance in Africa and Asia and ongoing cost savings. EBIT (beia) grew significantly;
* Volume of the Heineken brand in the international premium segment grew 2.2% to 6.9 million hectolitres;
* Consolidated beer volume grew 24% to 43.8 million hectolitres, due primarily to the consolidation of FEMSA Cerveza. Organically, volume declined 2.2%;
* Revenue grew 13%, due to the changes in consolidation scope. Organically, revenue was 2.1% lower;
* Organic growth in net profit (beia) was slightly above 10%.
Revenue and results
In the quarter, revenue totalled €4,619 million (+13%). Organically, the effect of lower volume (-3.1%) was offset by better prices and an improved sales mix (+1%). Net changes in consolidation scope added €466 million to revenue whilst exchange rate changes added €152 million.
Organic EBIT (beia) growth benefited from selling price increases in the first half of 2010, volume growth in Asia and Africa and ongoing Total Cost Management (TCM) savings. Heineken’s share of net profit of associates and joint ventures grew, albeit at a slightly lower rate than in the first six months. EBIT (beia) grew significantly, with net changes in the scope of the consolidation adding 14%. Currency fluctuations contributed €35 million to EBIT.
Exceptional costs of €49 million, mostly related to TCM and integration activities partially offset the exceptional book gains realised in the first half of 2010. Organically, interest costs decreased significantly due to strong net debt reduction. As forecast, the effective tax rate (beia) was higher than in the same quarter of 2009.
Net profit for the third quarter amounted to €520 million. Organic growth in net profit (beia) was slightly above 10%.
Changes in the consolidation scope
Changes affecting volume, revenue and results:
* UBL in India included in group beer volume as of 1 January 2010;
* Shift from export to local production by the joint venture in South Africa as of 1 January 2010;
* Multi Bintang Indonesia and Grande Brasserie de Nouvelle Caledonie transferred to the APB joint venture as of 1 February 2010;
* FEMSA Cerveza in Mexico and Brazil included as of 1 May 2010;
* Waverley TBS in the UK deconsolidated as of 1 July 2010. Waverley reduced revenue by €135 million in the quarter, whilst the effect on EBIT was negligible.
Group beer volume development in the third quarter
Due to first time consolidation of FEMSA Cerveza, which added 10.4 million hectolitres, volume increased 28%.
Volume of the Heineken brand in the international premium segment grew 2.2%, once again outperforming the Group’s average growth rate. Volume growth was mainly driven by Brazil, South Africa, Taiwan, Vietnam, France and Nigeria offsetting lower volume in the USA, Spain, Poland and Greece.
Volume in Western Europe was lower due to unfavourable weather conditions and low consumer confidence. Trading was weak in the UK, the Netherlands, Italy and Spain, whilst volume grew in Portugal. Volume in France was stable.
In Central & Eastern Europe, excluding Russia, volume decreased 1.0% organically. Growth in Romania, Serbia, Belarus and Austria partly compensated for declines in Poland, the Czech Republic, Hungary and Greece where beer consumption was affected by austerity measures. In Russia, volume declined significantly, albeit at a slower rate than in the first half of 2010.
Volume in Africa and Middle East grew 12% organically. Nigeria was the largest contributor. Solid volume growth also occurred in the Democratic Republic of Congo, Egypt, Burundi, Rwanda, South Africa, Lebanon and Tunisia.
In the Americas, organic volume growth in Latin America, the Caribbean and Canada, largely compensated for lower volume in the USA, where the economic environment continues to affect beer consumption. The Mexican market was lower due to unfavourable weather conditions, affecting volume of CCM. In Brazil, strong volume growth continues. CCU, the joint venture in Chile and Argentina, achieved strong volume growth.
In Asia Pacific, volume grew 69% due primarily to inclusion of the UBL joint venture which added 2.5 million hectolitres. Volume in Vietnam, Mongolia and Taiwan increased substantially.
Financial structure
During the third quarter, continued strong cash flow generation led to a significant decrease in net debt. Heineken confirms its target of a Net debt/EBITDA (beia) ratio of below 2.5 times and a cash conversion rate in 2010 and 2011 above 100%.
On 13 August 2010, the principal amount of an 8-year private placement loan from US institutional investors of $725 million was funded, further improving the maturity profile of long term debt. The fixed Euro coupon (including swap) averages 3.9%.
Until 30 September 2010, Heineken had repurchased 8.6 million Heineken N.V. shares on the market of which 8.0 million shares were delivered to FEMSA. The remainder will be delivered before the end of 2010.