Outlook 2007
This outlook for 2007 provides further information on general developments in the international beer industry, their effects on Heineken's position, its profit forecast and its capital investments.
General
The world beer market is expected to grow by almost 3 per cent in terms of volume. Developing markets like China, the Far East, Latin America and Russia will drive a large part of the growth. In terms of value about half of the growth will be generated by the increase in the premium segment of the market. The growth rate of the premium segment is expected to be twice as high as that of the total market. The premium segment develops positively in mature as well as in developing markets and with the Heineken brand we occupy a leading position in this attractive segment. New communication platforms, like the UEFA Champions League soccer and rugby, successful innovations, like the DraughtKeg, and excellent execution in on-trade and off-trade, will drive the volume growth of the Heineken brand to a level that exceeds the segment growth.
In 2006, most of our key markets developed well and, in general, Heineken expects a continuation of this trend in 2007.
In the USA, the Company will benefit from the growing consumption of imported beer in the regular and large light beer market. The introduction of Heineken Premium Light in the luxury light segment gave new opportunities to trade-up the US beer consumer. Russia, our largest operation by volume, will continue to grow, be it at a more normal rate, and our optimised portfolio of brands offers ample opportunities for further growth in the premium and mainstream segment of the market. With the greater political stability and resulting economic growth in Africa, beer markets in Central Africa have returned to growth and the Heineken Group is well positioned to benefit from this development. The outlook for Nigeria and Egypt, where substantial restructurings were undertaken in 2005 and 2006, are positive. In Eastern Europe, in particular in Poland, and in the Far East, beer continues to gain in popularity at the expense of local alcoholic beverages. The southern part of Western Europe offers good long-term volume and value growth, whilst in Northwest Europe opportunities for strong brands and attractive innovations are available despite the overall decline of beer consumption as a result of an ageing population.
Uncertainties remain in the field of government actions like excise duty increases, smoking bans in the on-trade and advertising limitations.
Full-year profit outlook 2007
Based on these developments, Heineken expects strong top-line growth in 2007 as a result of higher volumes, better pricing and an improvement in sales mix. On the cost side, the industry is faced with increasing input costs as a result of higher purchasing prices for barley and packaging materials, mitigated by lower cost of energy and transportation.
In 2007, we expect a substantial reduction of our fixed-cost base on the back of the realisation of our Fit2Fight cost saving programme.
The world beer market will continue to grow in 2007. The volume of the international premium segment is expected to grow at an average rate twice that of the overall beer market. Thanks to its strong position in this segment, the Heineken® brand in particular will benefit from this trend, driving the growth of revenue and profit.
Heineken Premium Light in the USA will sell more than 1 million hectolitres and will be EBIT neutral in 2007 even though incremental marketing investments will rise from USD55 million in 2006 to USD70 million in 2007. After the completion of the integration and brand portfolio optimisation in 2006, revenues and EBIT in Russia will continue to grow organically. Heineken expects input costs to increase by 7-8 per cent as a result of higher purchasing prices for barley and packaging materials. In 2007 the further implementation of Fit2Fight, targeting €450 million of annual fixed cost reductions before tax and after inflation by 2008, will result in gross savings of €135-€155 million before tax and €140-170 million restructuring costs before tax.
Based on the above, Heineken expects to achieve organic growth in net profit in the range of 10-13 per cent in 2007.
Currency exchange rates are not expected to have a major impact on Heineken's profit development as the transaction risk of the dollar has been hedged to a large extent at rates which are only slightly lower than those realised in 2006.
Capital investments and headcount
Heineken expects the capital expenditure related to property, plant and equipment to total around €900 million in 2007. A large part of this investment is related to replacement of existing equipment. In Spain, Tunisia, Laos, India and Mongolia we are in the process of constructing new breweries whilst major capacity expansions are underway in Poland, Thailand, Chile and Africa. In principle, the capital investments will be financed from the cash flow.
The cost-saving programme Fit2Fight and outsourcing of activities will lead to a further increase of efficiency and will enable the Company to better compete on the world beer market. As a result of the cost-reduction programmes, the downward trend in the number of employees will continue.
