just On Call - Heineken Sees More Cuts in Europe
Heineken has already closed 46 breweries and maltings across Europe in the last decade, but there are more cuts to come as the brewer seeks to fuel its drive into Africa and Latin America.
The brewer will seek to achieve a further EUR500m (US$660m) in cost savings over the next three years, with the axe set to fall hardest on recession-hit Europe. "Europe will continue to take the lion's share of the programme," Heineken's CFO, Rene Hooft Graafland, told analysts yesterday (15 February).
Heineken increased its global beer sales by 3.6% in volume in 2011. Although sales rose in all regions, the brewer echoed its rivals by citing emerging markets as the key growth drivers. In Vietnam, for example, Heineken brand volumes rose by 20%.
But, it is in Africa and, to a slightly lesser extent, Latin America and Asia, where Heineken sees its future. Alongside the cost savings plan, it intends to increase its global capital spend by 56% in 2012, to EUR1.25bn. Most of this will be spent on capacity upgrades in Africa and bottling operations in Mexico, according to Hooft Graafland.
Altogether, the strategy marks a further shift out of Western Europe, which still accounts for 43% of Heineken's net sales, according to Sanford Bernstein estimates. On Europe, Heineken's chairman & CEO, Jean-François van Boxmeer, said: "We all feel that Europe is in a recession and it is not going to be a pretty place.
"That is no reason to step away from programmes that we have engaged on, aimed at improving our cost base in Europe. Cost savings measures are deeply embedded in our Euroepan organisation."
But, he added that Heineken will continue to invest behind brands to grow market share in Europe and said that the region is an important engine for the group. "Europe is a very large cashflow for us, fuelling all our expansion overseas, helping to tranforsm the profile of our group towards emerging markets," he said.
Heineken's performance in 2011 has broadly impressed analysts. Despite a 1.2% slip in net profits, to EUR717m (US$944.9m), net sales rose by 6% to EUR17.1bn. Heineken's share price rose by 4% following the results announcement.
Bernstein analysts said that many observers had become too gloomy about the Netherlands-based brewer. "Consensus estimates have been too cautious on 2011 earnings, sticking too closely to the company's August guidance which, although prudent at the time, had in our view become too pessimistic," they said. "We expect up to a 10%-plus revision in consensus earnings estimates for 2012."
Looking to the year ahead, Heineken did not issue profits guidance. However, the brewer did highlight a likely 6% rise in input costs, driven by more expensive malting barley. Volume sales are set to continue growing strongly across Africa, Latin America and Asia, the firm said.
There will be a lot of relieved beers being downed in Amsterdam tonight. And, while the folk at Heineken will be keen to hedge their bar spend, they'll still want to celebrate today's news....
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