Insight: Heineken puts cost cutting above acquisitions

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Heineken sees substantial opportunities for further cost savings and will continue to prioritise this over potential acquisitions for the forseeable future, the brewer has said in its half-year results conference.

Heineken CEO Jean-François Van Boxmeer said today (26 August) that the brewer will continue to focus on "integrating businesses which we have bought and on cash generation to pay down debt". Internal savings, he said, will take precedence over potential acquisitions.

The brewer's chief financial officer, René Graafland, said the group sees "substantial scope for further cost savings in the second half and beyond".

Better-than-expected cost savings in the first half of 2009 helped Heineken to a 20% lift in net profits for the six months, it said today. The brewer's Total Cost Management programme, set to run from this year to 2011, has already realised annual savings of EUR120m and the brewer claimed today that the integration of Scottish & Newcastle businesses is complete.

However, group net profits before exceptional items and amortisation of brands (beia), slipped by 10% for the half-year. This is because "new acquisitions are not yielding yet enough profit contribution to create the growth there", Van Boxmeer said.

Heineken's Total Cost Management progamme aims to find the bulk of savings from commercial and supply chain cost controls.

During the six months, Heineken said it has cut jobs in Russia and the US, closed the Arano brewery in Spain and cut costs in wholesale. It has also made plans to sell off the Beamish Crawford brewery site in Ireland, while the Fischer brewery in France is also to be closed, along with two breweries in Czech Republic.

In the UK, Van Boxmeer said that the group's Berkshire brewery "will definitely close" next year.

In Heineken's beer markets, the group reported volume sales declines across Europe, with a 7% drop in Western Europe and a 13% drop in the East, as well as a 10% decline in the Americas.

Eastern Europe has been harder hit by the economic downturn than many other regions, said Van Boxmeer, while the Heineken brand has been damaged in the US by its core middle class consumers trading down to cheaper beers.

Commenting on the US, Van Boxmeer said: "We have to maintain image and value, and pricing is integral to that, rather than cut of prices to improve volumes. We have work to do to immprove communication." He added that the firm is working with a new marketing agency in the US.

In the UK, Heineken reported like-for-like beer volumes down 2% for the half-year, against a market down 6% for the same period, and cider sales volumes up 4%.

Van Boxmeer said the brewer will continue to "reduce capacity in a declining market", but said the group has achieved 80%, or EUR145m, of its intended cost savings in the UK, following its acquisition of Scottish & Newcastle business there.

In its outlook, Heineken said it sees no uplift in global beer volumes for the second half of 2009.

There was more positive news from India, where Van Boxmeer said the brewer hopes to secure a deal with United Breweries in the near future.

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