The Netherlands: Heineken N.V. reports 2005 full year results at the top end of forecast

Heineken N.V. announced on February 22 its 2005 full year results at the top end of the profit outlook published in February 2005.

Heineken achieved organic growth in all key business metrics in 2005: 2.2% organic growth in Revenues, driven by a more positive price and sales mix, 2.9% organic growth in EBIT (beia) and 7.3% organic growth in Net Profit (beia).

Net Profit (beia) increased by €37 million to €840 million, despite a negative currency effect of €27 million. Net Profit increased to €761 million.

Cash flow from operations was once again strong and amounted to €2,213 million. Cash conversion continued at a high level, reaching 120%. In addition, the disposal of non-core assets, mainly the real estate assets acquired with the BBAG business, contributed €270 million to net cash flow.

Group beer volume grew by 5.3% (from 112.6 million hectolitres to 118.6 million hectolitres) with an improvement in volume trends in the second half of the year.

Volume of Heineken® in the premium segment grew by 4.5% to 20.1 million hectolitres, further strengthening its position as the world’s leading international premium beer brand.

Beer volume of Heineken USA, excluding distribution of the Femsa brands, decreased by 0.3%. Total depletions – sales by distributors to the retail trade - were 1.2% up and depletions of the Heineken® brand increased by 1.9%. In the second half of the year, both volume and depletions growth of Heineken® accelerated. Volumes of Femsa brands sold by Heineken USA in 2005 amounted to 2.2 million hectolitres (+7.4%). Heineken Premium Light® has been successfully test marketed, and the brand will be rolled-out nationally in March 2006.

Heineken’s market position in Russia was further strengthened with the acquisition of Ivan Taranov Breweries in the second half of 2005. With 10 breweries and more than 12 million hectolitres on an annualised basis, Heineken’s operation in Russia is now the biggest operation by volume.

Heineken will address the efficiency and effectiveness of its global operations. The company is targeting total annual cost reductions of €200 million to be achieved by 2008, with the bulk of the cost savings materialising in 2007 and 2008. Unfinished elements of existing cost reduction programmes totalling €65 million are included in this amount. Heineken does not expect organic growth in Net Profit for 2006 to exceed mid-single digits.

CEO Statement
Jean-François van Boxmeer, Chairman of the Executive Board and CEO, commented: “In 2005, Heineken has delivered organic Net Profit growth of 7.3%, at the top end of our forecast for the year. We have also grown our volumes and our revenues, as well as the brand equity and market share of Heineken® within the international premium beer segment."

"In September 2005, I said that we would introduce a greater sense of urgency to Heineken and a greater focus on top-line growth. To this end, we have accelerated the introduction of Heineken Premium Light® in the USA, we have increased distribution of our portable DraughtKeg innovation to 30 countries and we have moved forward our rollout plan for BeerTender."

"In order to deliver even greater efficiency, we are reviewing our cost structure and are targeting €200 million of annual cost savings by the end of 2008."

"Our profit growth in Western Europe in particular, reflects the actions we have taken and which have made Heineken the region’s best performing international brewer."

"We achieved solid growth in Central Europe as a result of a strong performance in Poland and a turnaround in Hungary and Romania."

"In Russia, thanks to further acquisitions in 2005, we are well-positioned for future growth. We will accelerate both the integration of our ten breweries and the optimisation of our broad portfolio of brands."

"With the new global management structure in place, I am confident that we have the people, the commitment and the brands to meet successfully the challenges of our industry and improve our financial performance.”

Full-year profit outlook 2006
The world beer market continues to grow. The premium segment is expected to grow at a rate that is twice as high as that of the overall beer market. In particular the Heineken® brand will benefit from this trend, fuelling the growth of profitability through a better sales mix and higher volumes. Brand portfolio reviews will lead to a stronger offering to consumers and a more focussed spend of marketing resources. Innovations in packaging and products will increase the attractiveness of Heineken’s brand portfolio for both the trade and consumers. These actions will drive volume, improve the sales mix and strengthen the ability to achieve better selling prices.
The introduction of Heineken Premium Light® in the USA will contribute to the growth of earnings from 2008 onwards. The investments in the brand’s introduction are expected to have a negative impact on EBIT in 2006 of approximately €25 million, and in 2007 the new product is expected to be EBIT neutral.

Heineken is targeting €200 million of annual cost reductions by 2008 through efficiency improvements, with the bulk of the cost savings materialising in 2007 and 2008.

The increased oil price will have an effect on the costs of energy, transportation and packaging materials. Based on the current trading environment, it is expected that only part of these higher input costs can be passed on to the consumer.

The integration activities in Russia are well underway. For 2006, the rationalisation of the brand portfolio will have a dampening effect on beer volume, whilst integration costs will also put temporary pressure on the results in Russia.

Based on the above, Heineken does not expect organic growth in Net Profit in 2006 to exceed mid-single digits.

Heineken’s long-term profit forecast is positive as a result of the strength of its brand portfolio, its consistent and intensified spend on innovation and on the Heineken® brand, its strong distribution structure, and the focus on efficiency improvements.

Dividend proposal
The General Meeting of Shareholders on 20 April 2006 will be asked to approve the distribution of an unchanged cash dividend of €0.40 per share of €1.60 nominal value, which will be subject to a 25% Dutch withholding tax. As an interim dividend of €0.16 per share was paid on 21 September 2005, the remaining final dividend will be €0.24 per share. If the meeting approves the proposed dividend, Heineken shares will be quoted ex-dividend on 24 April 2006.

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