Heineken Volumes Decline in Tough Q1

24 Apr 2013 --- Heineken N.V. has announced its trading update for the first quarter of 2013. In the quarter. Revenue increased 8.1% to €4,145 million in the first quarter of 2013. First time consolidations added €449 million (+11.7%) with unfavourable currency translation movements reducing revenues by €34 million (-0.9%).

On an organic basis, revenue declined 2.7% reflecting lower total consolidated volume of 4.5%, partly offset by revenue per hectolitre growth of 1.8%. Planned price increases contributed to revenue per hectolitre growth across all regions.

EBIT (beia) grew in the mid-teens including a net positive consolidation and negative foreign currency impact. On an organic basis, EBIT (beia) declined in the mid-single digits reflecting lower revenue only partly offset by the lower phasing of marketing expense and the realisation of TCM2 cost savings.
 
Reported net profit in the quarter was €227 million compared with €166 million2 in the first quarter of 2012.

The implementation of the revised accounting standard IAS19 is expected to result in an increase in pre-tax pension expense of €98 million in 2013, spread equally over each quarter. This comprises an increase of €41 million in personnel expense (which will reduce EBIT (beia)) and an increase of €57 million in other net finance costs. For the full year 2013, the impact of IAS19 is expected to reduce net profit (beia) by €75 million and EPS (beia) by €0.13. In 2013, the first time impact on EBIT (beia), net profit (beia) and EPS (beia) will be treated as a non-organic item.

Further assessment of the impact of IAS19 on 2012 (for restatement purposes) resulted in an increase in pre-tax pension expense of €45 million and a reclassification from personnel expense to other net finance costs of €51 million. This results in a restated 2012 EBIT (beia) of €2,918 million, net profit (beia) of €1,661 million and EPS (beia) of €2.89.

The main consolidation scope changes impacting financial results include:
•The acquisition of a controlling stake (58.1%) in APB and APIPL (50%), both consolidated from 15 November 2012;
•The acquisition of Efes Breweries International’s 28% stake in Central Europe Beverages, Serbia, now a wholly owned subsidiary, and disposal of a 28% stake in Efes Kazakhstan on 8 January 2013;
•The divestment of Pago International, a wholly owned subsidiary, on 15 February 2013;

Global market conditions remain volatile, contributing to a weaker than expected first quarter. Challenging trading conditions in austerity affected markets in Europe and inflationary pressures in Nigeria are expected to continue to impact volume development for the balance of year, leading to a moderation in organic growth expectations for the full year. Overall, HEINEKEN still anticipates organic volume and revenue growth for the full year 2013, with higher growth regions offsetting volume weakness in certain developed countries. HEINEKEN reaffirms all other elements of its full year outlook for 2013 as stated in its full year 2012 earnings release dated 13 February 2013. 

Total consolidated volume declined organically by 4.5% in the first quarter. This reflects lower consolidated beer, third party product and cider volume and growth in soft drinks volume.

In Africa & the Middle East, group beer volume declined by 4.3%, against strong growth in the comparable prior year period, continued soft consumer demand in Nigeria and the effect of a significant excise duty increase in the Democratic Republic of Congo in the fourth quarter of 2012. Volume in Nigeria declined in the mid-single digits as high inflation places pressure on household disposable incomes and continues to inhibit consumer spending. Volume in South Africa grew in the mid-single digits, led by growth of the Amstel and Heineken brands, with a resulting gain in market share. Volume in Ethiopia grew strongly in the double digits.
 
In the Americas, group beer volume declined by 2.4%. In Mexico, domestic volumes grew marginally, primarily reflecting softer beer category consumption from unfavourable weather. In the US, sales to retailers declined in the low-single digits, outperforming the overall market and leading to further market share gains. Volume in Brazil declined in the mid-single digits, in line with the beer market.
 
In Asia Pacific, group beer volume grew 8% organically, driven by a low-double digit growth of APB, led by accelerated volume gains in Vietnam, China, Malaysia and Indonesia. Volume of United Breweries Limited (UBL), our joint venture operation in India, increased in the low-single digits. Following the consolidation of APB from 15 November 2012, the business has been successfully integrated within HEINEKEN.
 
In Central & Eastern Europe, group beer volume declined by 3% organically. The implementation of recent price increases contributed to solid revenue per hectolitre and slight revenue growth in the quarter. Volume in Russia declined in the mid-single digits following new legislation banning the sale of alcoholic products in kiosks and a further excise duty increase. Volume in Poland declined in the mid-single digits, impacted by adverse weather and low consumer confidence. Volume in the Czech Republic grew in the low-single digits, whilst volumes in Austria and Romania were in line with the prior year quarter. In Greece, despite the ongoing difficult economic conditions, domestic beer volume was stable supported by the launch of Amstel Radler and growth of the Alfa brand.
 
In Western Europe, group beer volume declined by 8.7% organically. Severe cold and wet weather conditions across key markets were compounded by the difficult economic conditions and government-imposed austerity measures which continued to impede consumer spending. Volume in the UK, Italy, Netherlands and Spain all declined in the mid- to high-single digits. In France, volume declined as expected following destocking related to the significant excise duty increase announced in December 2012. In the first quarter, new ‘Radler’ brand extensions were launched under the Amstel (Spain and the Netherlands), Foster’s (UK and Finland), Dreher (Italy), Sagres (Portugal) and Maes (Belgium) and Calanda (Switzerland) brands.