Heineken Q1 Revenue Decline to 3.5% Due to Changes in Consolidation Scope
Heineken’s revenue totalled €2,936 million. Changes in the scope of the consolidation accounted for 1.4% of the decrease in revenue. Organically, revenue was 2.2% lower, as the improvement in selling prices and sales mix.
21 Apr 2010 --- Heineken Holding N.V. issued its trading update for the first quarter of 2010. The first quarter of the year is the least significant in terms of volume and profitability. In 2009, the first quarter accounted for 20.5% of consolidated beer volume and 20.7% of revenue respectively.
-EBIT (beia) grew mid-single digit as the effect of cost savings, positive pricing and sales mix exceeded that of lower volume;
-Reported EBIT was significantly higher, driven by an exceptional book gain of €142 million on the transfer of two Asian operations;
-Heineken’s revenue declined 3.5% to €2,936 million, due to changes in consolidation scope, whilst the effect of lower volume was partly offset by better pricing and sales mix improvement. Organically, revenue was 2.2% lower;
-Volume of the Heineken brand in the international premium segment grew 6.7% to 5.7 million hectolitres;
-Consolidated beer volume declined 5.3% organically, totalling 23.6 million hectolitres. An important factor was the volume decline in Russia;
Revenue and results
Heineken’s revenue totalled €2,936 million. Changes in the scope of the consolidation accounted for 1.4% of the decrease in revenue. Organically, revenue was 2.2% lower, as the improvement in selling prices and sales mix (+2.4%) could only partly offset the effect of lower volume on revenue (-4.6%). The effect of weaker foreign currencies was limited.
EBIT (beia) grew mid-single digit driven by lower costs and improved pricing and sales mix, which more than offset the effect of lower volume on EBIT. Organic EBIT (beia) growth was slightly higher as the impact of currencies against the euro (-€6 million) and the negative effect of first time (de)consolidation were limited. Heineken’s Total Cost Management programme (TCM) achieved further savings across most cost categories. Investments in brands increased.
Reported EBIT increased substantially versus the first quarter 2009, due to a €142 million pre-tax exceptional book gain realised on the transfer of subsidiaries in Indonesia and New Caledonia, in line with the press release of 7 December 2009.
Net profit (beia) increased driven by higher EBIT and lower “Other net financing expenses”. Reported net profit of Heineken N.V. for the first quarter amounted to €218 million.
Changes in the consolidation scope
In 2010, two important changes will affect consolidated beer volume, revenue and EBIT:
-Transfer of a 68.5% stake in PT Multi Bintang Indonesia (MBI) and 100% of Grande Brasserie de Nouvelle-Calédonie S.A. (GBNC) from the Heineken Group to Heineken’s joint venture Asia Pacific Breweries (APB) and the acquisition of APB’s Indian breweries led to a scope change on 1 February 2010.
-The shift in South Africa from import to production by the local joint venture.
Group beer volume is not affected by these changes
In Central & Eastern Europe, Brau Holding International, Heineken’s joint venture in Germany, sold the Karlsberg brewery in July 2009, lowering Group beer volume. From 1 January 2010 Heineken includes in its Group beer volume 100% of the volume of United Breweries (UBL) in India.
In the first quarter, consolidated beer volume was 8.0% lower, of which 5.3% was organic. Deconsolidation and a shift in production led to a volume reduction of 0.7 million hectolitre. In Europe and the USA, economic conditions were still challenging, affecting beer consumption. After a slow start to the year, volume trends improved in March partly due to the earlier timing of Easter sales.
In Western Europe, colder than usual winter weather in January and February affected volume, especially in the U.K. In Italy, volume was strong due to lapping the temporary delistings in the first quarter 2009. Volume in Spain, and Switzerland increased slightly whilst volume in Ireland declined more than the average for the region.
In Central & Eastern Europe, volume was 13% lower. Excluding Russia, volume in the region decreased 1.3% organically. In Russia, the tripling of excise duty per 1 January and SKU rationalisation led to a significant lower volume. Volume in Austria grew, whilst volume in Romania and Poland was still under pressure.
In Africa, volume grew organically owing to the good performances in Democratic Republic of Congo, Burundi and the export business. In Nigeria, volume declined mid-single digit, due to the economic and security situation.
In the Americas, strong organic volume growth in the Caribbean and higher volume in Canada more than offset volume softness in the US market, where colder than usual weather, weak consumer sentiment and down-trading to lower-priced beers affected premium beer volume. The overall US beer market declined almost 2%. Depletions – sales by distributors to retailers – of Heineken USA’s Dutch portfolio decreased low-single digit, whilst the FEMSA brand portfolio was stable. Both portfolios reported an improvement in the trend in March.
In Asia, consolidated beer volume was lower due to the transfer of MBI and GBNC to APB. Organically, volume grew 1.7% driven by increased exports to Taiwan.
Group beer volume totalled 34.2 million hectolitres. Strong volume growth from the joint venture with Diageo and Namibian Breweries in South Africa was a key contributor to the performance in Africa.
Volume of the Heineken brand in the international premium segment increased 6.7% to 5.7 million hectolitres, driven by strong performances in Italy, Nigeria, South Africa, Indochina and Taiwan, which more than offset lower volume in the USA and Europe, continuing the long term trend of the premium segment outperforming the total beer market.
Priorities for 2010
During 2010, Heineken will continue to focus on further increasing value share in its key markets. In order to build its brands, Heineken stepped up its marketing investments in selective markets.
In the first quarter of 2010, price increases were implemented across most markets, albeit at a lower level than in 2009.
The TCM programme will continue to deliver cost savings. As announced earlier, breweries were closed in Finland and Romania in the first quarter.
Cash generation and debt reduction will remain an important focus in 2010 and Heineken reiterates its commitment to achieve a cash conversion rate (Free operating cash flow/Net profit (beia) before minorities) in excess of 100% for 2010 and 2011.
Heineken will continue the efforts to improve the profitability of the recently acquired businesses and will focus on the integration of FEMSA Cerveza as soon as the transaction is completed.
FEMSA Cerveza
On 11 January 2010, Heineken announced the proposed acquisition of FEMSA Cerveza in Mexico, Brazil and in its export markets including the USA. The Mexican, Brazilian and U.S. anti-trust authorities have approved the transaction.
Shareholders of Heineken N.V. and Heineken Holding N.V. will be asked to approve the transaction at the AGM that will be held on 22 April, whilst the AGM of FEMSA is scheduled for 26 April. Heineken expects to consolidate FEMSA Cerveza for the first time as of 1 May 2010.
