Netherlands: Heineken NV will report a drop in full-year net profit from ordinary operations on Tuesday, February 22, compared with 2003, according to its forecast, as negative currency effects are expected to outweigh the effects of organic growth and acquisitions, analysts said.

According to AFX News, in September, the brewer repeated its guidance that full-year net profit before goodwill and extraordinary items will suffer from "strongly" negative currency effects, which are expected to outweigh the positive effect of organic growth and acquisitions.

Net profit before exceptional items and goodwill amortisation for 2004 is expected to decline to 710-779 million euros from 806 million in 2003.

In November, Heineken announced it will take a 190 mln eur impairment charge on its 20 percent stake in Brazilian brewer Cervejarias Kaiser, which will be reported as a non-cash exceptional item in the results.

Analysts estimate the negative effect of the weak dollar on Heineken's operating result and net profit will be slightly below the brewer's own forecast. Heineken expects it to dent operating profit by some 130 million euros and net profit by around 85 million euros.

Organic growth is expected to have slowed from the 6 percent growth rate reported over the first six months of the year, according to analysts, with the lowest estimate predicting growth of just 2 percent.

They expect Heineken to have suffered from very difficult market conditions in the second half of 2004 in Europe, also due to the poor weather in Europe which makes for a difficult comparison base after the previous year's hot summer.

In addition, growth will be hit by a slowdown in the US import beer segment. In October, Heineken cut its forecast for growth in US imports in 2004 to 3.5-4.0 percent from a previous outlook of 5 percent.

Lower volume growth and negative currency effects in Nigeria are also expected to depress the results.

Analysts at CAI Cheuvreux believe "there is significant risk that earnings could disappoint negatively" which could lead to downward earnings revisions.

"Clearly the recent strength in the share price is on the back of an anticipated recovery as well as on several speculative issues (acquisitions, CEO, structure) which we believe are unlikely to materialize," they said.

In their view, earnings growth and returns for 2005 are "unlikely to be higher" than for its peers, and they rate Heineken 'underperform.'

Analyst Johan van den Hooven at Bank Oyens & Van Eeghen has a 'neutral' recommendation as the shares are valued broadly in line with peers, and needs "some positive news on the company's outlook for 2005" before considering any upward revision.

Fortis Bank analysts believe Heineken will post an "optimistic" outlook for 2005, with organic growth seen reaching double-digit numbers, largely due to cost saving measures implemented in the Netherlands, Spain and at BBAG last year. They rate Heineken as a 'buy.'

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