Climate Change
Many people worry about our climate warming up. Don’t they see the positive side of things? Balmy winters! They are good for beer sales, says Heineken. But that’s about the only positive note to take home from Heineken’s 2007 full year results.
He giveth, he taketh away. Yet, the two are not the same. He who giveth is the Dutch consumer. He was willing to pay inflated prices for his beer which had been illegally fixed by a price cartel. For years, these unkosher proceeds garnished Heineken’s earnings. He who taketh away is the EU. Last year the EU fined Heineken EUR 219 million for operating a cartel. And whoosh, with one swipe, Heineken’s profits slumped.
No matter how hard Heineken tried, it was those “exceptional items” which did Heineken’s annual results 2007 in. Without those “exceptional items”, Heineken would have had a fine year.
On 21 February, Heineken reported that in 2007 its beer volume was up 7 percent to 120 million hl. All of the regions contributed to this volume rise. The volume of the Heineken brand grew even 10 percent to 25 million hl.
Heineken increased its revenues 7 percent to EUR 12.6 billion. And its cost-savings plan – Fit2Fight - was ahead of schedule. That translated to an “organic” net profit increase of 23 percent. However, if you counted in the big “exceptional item” of the EU fine, the net profit fell 33.4 percent to EUR 807 million from EUR 1.2 billion in 2006.
That didn’t help Heineken’s stock price, which has been in decline since the announcement of the Scottish & Newcastle takeover in October last year. As Heineken also forecasted a 15 percent hike in raw materials costs for 2008, which could translate into a price increase of 5 percent in consumer prices, Heineken’s stock, already down more than 10 percent this year, took another hit.
The price increase will affect most markets except the U.S. Last year Heineken raised its prices but the domestic brands refused to follow. Still, Heineken USA managed a sales increase of 5.7 percent in volume in a market which was all but flat (+1%). The import category grew 2.5 percent.
Despite a slowdown in the second half of 2007, the Heineken brand was up 2.7 percent in the U.S. Heineken Premium Light, says Heineken, was even up 20 percent. But that increase cost Heineken dearly. Heineken Premium Light must have had some cannibalisation effect on Amstel Light which suffered an 11 percent drop in sales volume.
