Heineken plans to target European volumes in 2011, FY results

By Guy Montague-Jones

- Last updated on GMT

Related tags: Europe, European union

Heineken has pledged to make European volume growth a priority after publishing full year results that revealed stronger than expected profit growth but falling turnover.

The Dutch brewer said full year sales revenue dropped 2.2 per cent in 2010 to €16.133bn as the company paid for its big presence in the declining European and US beer markets. The ever weakening Western European market accounts for half of group sales.

Higher than expected profits

But despite the picture on the top-line, Heineken said it achieved an 8.6 per cent increase in organic EBIT (earnings before interest and tax).

Ian Shackleton, an analyst at Nomura, said earlier than planned cost savings (€280m vs. €200m) mainly accounted for the better than expected profits.

Looking forward to 2011, Heineken said it expects volume development in Latin America, Africa and Asia. In Mexico and Brazil, where Heineken has acquired the beer operations of FEMSA, improved marketing effectiveness and cost synergies are predicted to translate into higher profitability.

European strategy

And in the struggling European markets, Heineken said it will shift its prime focus towards volume and value share growth. Increased investment in marketing and innovation is earmarked to fulfill this goal.

Such spending may be needed to recover lost volume in Europe but it is likely to put pressure on profits.

Shackleton said: “We have consistently flagged that the cost of doing business in beer is rising and the company indicates further investment in A&P, which will likely hold back Europe profits in the near term.”

Another threat to profitability is rising commodity prices, although the analyst was encouraged by the relatively low level cost increase predicted for next year.

Summing up the guidance, he said: “The company’s comments on 2011 are reasonably positive, especially with input costs only up low single digit.”

Related topics: Heineken

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