Blame it on the weather
Heineken too will not be spared the scourge of brewers: higher commodity costs. Because of the failure of last year’s barley harvest, Heineken estimates that its annual expense bill could rise by as much as EUR 180 million.
When presenting its 2006 annual figures in February, the Dutch brewer issued a warning that raw material and packaging costs would rise 7 percent to 8 per cent in 2007, or between EUR 150 million and EUR 180 million.
Moreover, a smoking ban in Dutch cafes and pubs could be imposed from the start of 2008, carrying the risk of reduced beer sales for both Heineken and Grolsch in their domestic market. The Dutch Health Minister was reported as saying that he wants impose the smoking ban within a year, much quicker than expected. The impacts of smoking bans in countries such as Ireland, Norway, Italy, have been mixed, but tend to be negative on beer sales. In the Netherlands, nothing has been decided yet as the government will re-enter talks over the issue with Horeca Nederland in May only. Heineken refused to comment on the issue.
The Heineken group reported 2006 operating profit of EUR 1.57 billion, a 12.7 percent annual rise, on sales of EUR 11.8 billion, 9.6 percent higher. It forecast organic growth in net profit of 10 percent to 13 percent in 2007, after recording net profit of EUR 930 million in 2006, 12.6 percent higher. It proposed a dividend of EUR 0.60 a share, 50 percent higher than 2005.
On a separate issue, Heineken said it would seek to reverse falling sales at Amstel Light in the U.S., which it admitted partly reflected the fact that the brewer had been concentrating on the Heineken Premium Light brand. Sales volumes of Amstel Light were 8.6 percent down in 2006, it was reported. However, Heineken said it had no intention of abandoning the product, pointing out that it was aimed at different consumers to those who typically bought its flagship U.S. brand. Total sales of the Heineken brand grew 11.8 percent to 22.5 million hl and achieved its biggest increase since the 1980’s, said Heineken. The launch of Heineken Premium Light in the USA added 680,000 hl. For 2007 Heineken expects Heineken Premium Light in the USA to sell more than 1 million hl, while remaining EBIT neutral. This means that the sales increase will not do anything for profits. Which is not too bad, given that incremental marketing investments will rise from USD 55 million in 2006 to USD 70 million in 2007.
