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EU fine takes the fizz out of Heineken 1H earnings

EU fine takes the fizz out of Heineken 1H earnings

Heineken NV reported a fall in first-half earnings Wednesday, reflecting a euro219 million (US$299 million) fine levied against the Dutch brewer by the European Union for price fixing as part of a cartel.
Net profit was euro302 million (US$413 million), down 30 percent from euro433 million. The company, which reports earnings twice yearly, said that net profit would have been up by more than 30 percent if not for the fine, and sales rose 6.8 percent to euro6.13 billion (US$8.37 billion) from euro5.74 billion in the same period of 2006.
Heineken repeated forecasts for growth in earnings of at least 20 percent in 2007, before exceptional items such as the fine, which it is appealing.
Shares fell 1.5 percent to euro44.72 (US$61.09) in Amsterdam.
Heineken said its sales increase was "driven by strong volumes, an improved sales mix and higher pricing."
CEO Jean-Francois van Boxmeer said the company's performance was driven by growth in Eastern Europe and Africa, "but also exceptionally mild weather, winter weather, in most parts of Europe."
Rising energy, grain and packaging costs will have added 8 percent to Heineken's raw materials costs in 2007, the company said. But Van Boxmeer said that the company had successfully passed those increases on to the market.
He said that worse weather and rising materials costs would be felt more strongly in the second half. Chief Financial Officer Rene Hooft warned that higher grain prices due to "demand from emerging markets and the competition for bio-energy are certainly structural issues that will not go away in the short to midterm."
The company showed operating profit increases in all areas, with its most profitable Western European operations up 12 percent to euro332 million (US$454 million) on a 1 percent volume increase, due in part to cost savings.
In Central and Eastern Europe, already Heineken's largest market by volume, volume growth was an additional 12 percent and operating profit was up 34 percent to euro207 million (US$283 million).
In Africa, operating profit was up 34 percent to euro154 million (US$210 million), passing the Americas in terms of importance to Heineken's bottom line.
In the Americas, where Heineken has introduced a light beer in the U.S. market in the past year, operating profit was up 5 percent to euro134 million (US$183 million), with volumes up 4.3 percent.
Van Boxmeer said Heineken would not meet a 1 million hectoliter target for the new light beer in the U.S. this year, but insisted the introduction was "going the right way" anyway.
"There is an improved pricing environment in the States, but there is also increased competition, particularly in the imports segment," he said.
In Asia, profits rose 11 percent to euro52 million (US$71 million).
Heineken's price-fixing fine was the largest among three major Dutch brewers fined for coordinating price hikes in 1996-1999, since it controls more than half the market in the Netherlands. Heineken denies the charges, saying the increases were in line with rising prices generally during that period.
A fourth player on the Dutch market, Belgium's InBev SA _ one of Heineken's biggest competitors globally _ was not fined because the EU said it acted as the whistle-blower.
Regulators raided the offices of Heineken and the other brewers and later said they had found handwritten notes taken during secret price-fixing meetings that confirmed they took place, backing up information supplied by InBev. Providing "decisive information" allowed InBev to escape a potential euro84 million (US$114 million) fine.
An industry organization of Dutch hotels, restaurants and cafes, has said it plans to file civil suit against all the brewers, seeking "substantial" damages and demanding they lower wholesale prices.
Van Boxmeer said the company had acknowledged holding meetings with the competitors, "but we contest that leads to any pricing agreements," he said. Appeals are likely to last until 2010, he said, and in the meanwhile he doubted any civil suits would be successful.