Outlook 2008
This outlook for 2008 provides further information on general developments in the international beer industry, their effects on Heineken’s position, its profit forecast and its capital investments.
Full-year profit outlook
Heineken expects that 2008 will be another year of good organic growth in net profit, based on a further improvement in sales mix, better prices, higher beer volume and savings in fixed costs. The international premium segment will continue to grow at a higher rate than that of the overall beer market and the Heineken brand will benefit from this trend. In its last year, the Fit2Fight cost-savings programme is expected to deliver approximately €150 million of gross costs savings thus delivering in full the Fit2Fight programme launched at the beginning of 2006.
As a result of worldwide input cost inflation, Heineken expects a 15 per cent price increase in its raw material and packaging costs. The Company expects that it will be able to pass on the impact of the increased input and energy costs in most of its markets. Due to the uncertainties around the possible impact of worldwide consumer price inflation and weakening economies on consumer spending and beer consumption, it is too early to make a reliable estimate of volume levels for 2008.
Heineken expects the capital expenditure related to property, plant and equipment to total around €1.2 billion in 2008. Part of this investment is related to capacity expansion and the construction of new breweries in Central and Eastern Europe, Asia and Africa. In principle, the capital expenditures will be financed from the cash flow.
The total restructuring costs associated with the Fit2Fight cost-savings programme is expected to amount to about €225 million, of which about €75 million will relate to 2008. As a result of cost-reduction programmes, the underlying downward trend in the number of employees will continue.
In the event of a successful offer for Scottish & Newcastle, Heineken’s share of the assets will be consolidated for the first time when the deal becomes effective.
The intended acquisition of the assets of Scottish & Newcastle represents a significant strategic step that will create strong platforms for future profit and cash flow growth. It will enable the Company to grow its flagship Heineken brand faster in profitable markets and make the Heineken Group the leading brewer in the highly profitable European beer market. Following the transaction, Heineken will hold 18 number 1 or 2 positions in Europe. In Western Europe, where Heineken has increased its profitability consistently, year after year, Heineken will acquire number 1 and 2 market positions in significant new profit pools.
The transaction will also add attractive brands with international appeal such as Newcastle Brown Ale, Foster’s, John Smith’s Bitter and Strongbow cider to Heineken’s leading brand portfolio. In addition, Heineken will acquire a 37.5 per cent stake in United Breweries, the leading brewer in the still small but fast-growing Indian beer market.
On a pro-forma annual basis, this acquisition would add over 27 million hectolitres and revenues of approximately €3.6 billion to Heineken, thus becoming twice as big as the second player in the European market.