Big brewers plan more savings in 2010
Heineken NV and Carlsberg A/S, the world's third and fourth biggest brewers, have promised more cost-cutting to support margins, with no sign of challenges easing in 201023/02/2010
Last year the industry suffered from recession-hit consumers buying less beer, particularly in mature North American and European markets, but brewers managed to push through price increases and squeeze out savings.
Carlsberg and Heineken have both claimed success with debt reduction and savings campaigns, Carlsberg raising its medium-term profit margin targets for all regions, and Heineken producing 2009 net earnings above market expectations.
"There was a lot of short interest expecting bad news. The fact that it was in line takes the stock up. They've also given fairly decent guidance," said Trevor Stirling, analyst at Bernstein Research, adding that a flat operating profit forecast with Russia weak suggested a rise in profits elsewhere.
"Heineken's net profit was better than expected. They have done a lot to reduce debt ... The guidance is cautious, but for many industries there's a lack of visibility. Heineken tends to be rather conservative," said KBC Securities analyst Wim Hoste.
Heineken Chief Executive Jean-Francois van Boxmeer told a conference call that the mature markets would suffer from lower bar sales and trading down to cheaper brands this year, as last, and price hikes would be lower than in 2009.
"One has also to look at geographies which had an effect from the credit crisis but which restored quickly like most of the countries in Asia or Africa, which had a dip in quarter three and we saw restarting in quarter four," he said.
Carlsberg too talked of a "challenging" 2010, with Russian demand seen falling by a low double-digit percentage due to a tripling in tax last month under the government's campaign to curb the nation's drinking.
Chief Executive Jorgen Buhl Rasmussen told reporters that the Russia beer market, where its subsidiary Baltika is the leader, should return to growth of three to five percent in 2011, with business fundamentals improving.
Carlsberg, maker of Carlsberg beer, Holsten, Kronenbourg and Tuborg, forecast an unchanged operating profit for this year but net profit growth of more than 20 percent, with 2009 results in line with market expectations.
Heineken's 2009 figures were also broadly in line with forecasts, although net profit before one-offs rose 18 percent on an underlying basis to 1.06 billion euros ($1.45bn). The company had forecast only a low double-digit percentage rise.
The Dutch company, whose chief brands are Heineken and Amstel, Europe's biggest and third-biggest selling beers, also reduced its net debt/EBITDA ratio to 2.6 times from 3.3 times at the end of 2008, a key objective last year.
Heineken said input costs would fall due to a decline in the price of brewing barley would be offset by higher energy costs, rising advertising rates and increased marketing costs.
It would continue to drive on a three-year cost-cutting plan, which yielded 155 million euros in savings at operating level in 2009, with the workforce set to fall.
Carlsberg said its focus this year would be market share growth and efficiency improvements.
Heineken reported a 6.7 percent drop in consolidated beer volumes in the fourth quarter, but Carlsberg's were unchanged, after declining in the first nine months.
Underlying beer volumes were also flat for SABMiller, the world's number two.
Heineken's pain has been greater than that of its peers given some 70 percent of the brewer's operating profit comes from the more sluggish European and North American markets.
However, it is now set to boost its emerging-market presence to 40 percent of profits once it completes its deal to buy the beer business of Mexico's FEMSA.
