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EU fine takes the fizz out of Heineken 1H earnings, CEO plays down U.S. woes

EU fine takes the fizz out of Heineken 1H earnings, CEO plays down U.S. woes

Heineken NV reported a fall in first-half earnings Wednesday, reflecting a hefty fine levied against the Dutch brewer by the European Union for price fixing and a mixed performance by the company's U.S. operations.
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 euro219 million (US$299 million) fine. Sales rose 6.8 percent to euro6.13 billion (US$8.37 billion) from euro5.74 billion in the same period of 2006.
Shares fell 2.2 percent in Amsterdam trading to close at euro44.42 (US$60.68).
Profits from the company's Eastern Europe and Africa & Middle East operations each grew by more than 30 percent and each added more to the company's bottom line than its Americas operations did, prompting an unusually candid defense of the importance of the United States market to Heineken by Chief Executive Jean-Francois van Boxmeer.
The company didn't release earnings figures for the U.S., but said sales were up 8 percent on a mix of price increases and higher volumes. Earnings for North and Latin America as a whole were up 5 percent to euro134 million (US$183 million) _ around 15 percent of the company's operating profits.
But "the U.S. is absolutely our key market," he told reporters at a press conference.
"The international imports segment, premium priced, is growing by 7 percent (annually). Where do you see that? Seven percent growth, year-on-year!"
He conceded that the company's Heineken light beer, introduced to the U.S. market last year, was unlikely to meet its target of 1 million hectoliters this year, and said the company had set up a "crash team" to deal with a 10 percent slide in volume sales of its Amstel light brand.
"In a way we created our own competition," by introducing the Heineken light, he said.
The company raised U.S. wholesale prices by around 3.5 percent this year, he said, which translated to a 5-6 percent increase for consumers.
He said that "arguably prices have played kind of a little bit of a holding back role in the development of our sales in the United States, but ... we are very pleased with our results so far, it's going absolutely the right way."
He said the price increase was needed after a price war in 2005, and that in the past year heavy promotion of imported beers by competitors had "distracted consumers" and made it more difficult for Heineken to advertise its new products.
But "we stay very optimistic for the U.S. You have to see for us that it holds all the features of being a growth market for the international premium segment."
Mexican-produced beers Heineken sells as imports in the U.S. _ including Dos Equis _ grew by 13 percent, he said.
"What brings us down from time to time is the dollar. I agree to that," he said. "But even with a weak dollar it's very interesting financially and remains our first market also in terms of financial return."
In its earnings report, Heineken said it had benefited from mild weather in Western Europe, with operating profits there up 12 percent to euro332 million (US$454 million) on a 1 percent volume increase, due mostly to cost savings.
Rising energy, grain and packaging costs will have added 8 percent to Heineken's raw materials costs in 2007, the company said, but those costs had been largely passed on to consumers.
Chief Financial Officer Rene Hooft warned that higher grain prices were due to "structural issues that will not go away in the short to midterm."
Heineken's price-fixing fine was the largest handed down to three Dutch brewers 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.
Providing "decisive information" about secret price-fixing meetings allowed InBev to escape a potential euro84 million (US$114 million) fine.
An industry group of Dutch hotels, restaurants and cafes has said it plans to file civil suit against Heineken seeking "substantial" damages.
Van Boxmeer said the company had acknowledged holding meetings with its competitors, "but we contest that led to any pricing agreements," he said. Appeals are likely to last until 2010, he said, and he doubted any civil suits would be successful in the meantime.


Updated : 2021-05-12 06:31 GMT+08:00