Netherlands: Heineken reports strong organic net profit growth of 12.6% for 2006

Dutch brewing force, Heineken N.V., announced strong organic net profit growth of 12.6% for the full year 2006, a significant improvement compared to 2005, according to company’s press centre, February 21. Heineken delivered organic growth across all key business metrics and regions. The company expects continued strong performance in 2007 with organic net profit growth in the range of 10-13%. For 2006 the company proposes a dividend of €0.60 per share, an increase of 50% compared with 2005. This is subject to shareholder approval at the Annual General Meeting on 19 April 2007.

Net profit grew 12.6% organically and EBIT was up 10.7% organically. Net profit was 59.1% higher reflecting in part €291 million of exceptional items, mainly related to book gains, compared with exceptional costs of €72 million in 2005.

Revenue grew 7.1% organically driven by higher volumes, better pricing and improvement in sales mix. Consolidated beer volume grew 11.3% to 111.9 million hectolitres; of this 6.9% was organic and 4.4% the effect of first-time consolidations.

The Heineken brand in the international premium segment grew 11.8% to 22.5 million hectolitres and achieved its biggest increase since the 1980’s. The brand also increased its share in the segment and grew in every region. The successful launch of Heineken Premium Light in the USA added 680,000 hectolitres.

Innovation in packaging and beer types contributed to revenue growth. In particular DraughtKeg developed well, selling 5.4 million units in 2006. In total 62,000 David draught beer systems have been installed since its introduction.

The integration of the 10 breweries was completed ahead of plan. Beer volume grew more than 10% organically, driven by portfolio optimisation and premium brands. Beer volume reached 13 million hectolitres.

Accelerated efficiency gains: The Fit2Fight programme delivered gross cost savings before tax of €114 million in 2006. At the start of the programme, the cumulative effect of inflation on the F2F cost base over the three-years of the programme was estimated at €160 million. Heineken has revised the impact of cumulated inflation upwards by €90 million, which will be offset by additional savings, already identified. Gross F2F-savings will therefore total €450 million by 2008, resulting in net savings in-line with the original net cost savings objective of the programme.

“This has been a strong year for Heineken”, Jean-François van Boxmeer, Chairman of the Executive Board and CEO, commented. "We have accelerated our organic top-line growth with significant increases in revenue and volume across our global portfolio. The strong growth of the Heineken brand across all our regions continues to be at the heart of this acceleration, driven by the introduction of Heineken Premium Light, an increased commitment to innovation, and high impact consumer marketing. The Heineken brand’s performance in 2006 again demonstrates the immense value of the asset that continues to differentiate us from all our competitors.

“We are also delivering on our commitment to become more efficient. We have made excellent progress on our ‘Fit2Fight’ fixed cost reduction programme. During the year we have achieved savings totalling €114 million and we are executing projects, which will deliver the balance of the €450 million gross savings by the end of 2008.

“Our 2006 results also reflect the changing culture within Heineken. In particular, our progress on Fit2Fight coupled with the accelerated implementation of our innovation agenda, brand portfolio reviews and the Total Production Management (TPM) programme shows that we are taking and implementing bigger decisions faster.

“Looking ahead, I am confident that we can maintain the momentum of this year and can make Heineken a truly performance driven organisation.”

2007 full-year profit outlook

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% 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% in 2007.

Dividend proposal

The Annual General Meeting of Shareholders on 19 April 2007 will be asked to approve the distribution of a cash dividend of €0.60 per share of €1.60 nominal value, an increase of 50%. This represents a dividend payout ratio of 31.6%, which is in-line with the proposed new dividend policy of Heineken N.V., which targets a payout of 30-35% of Net profit (beia). As an interim dividend of €0.16 per share was paid on 20 September 2006, the final dividend will be €0.44 per share, which will be subject to a 15% Dutch withholding tax. If shareholders approve the proposed dividend policy and dividend, Heineken shares will be quoted ex-dividend on 23 April 2007.

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