Heineken surprises with sales slump

Published on Wednesday 21 April 2010 20:34

HEINEKEN, which took over Scottish & Newcastle's UK drinks operation in 2008, jolted the market yesterday by revealing a slump in group sales.

The Dutch brewer, which carved up S&N's worldwide business with Carlsberg of Denmark in a near-8 billion deal, blamed a sharp drop in first-quarter American and European volumes. It said this outweighed growth among emerging market drinkers.

Heineken warned that market conditions remained tough in Europe and the US, while a tripling of excise duty in Russia this year badly impacted sales.

But the group, whose brands include Heineken, Amstel and Foster's, said it was now detecting signs of improvement.

The brewer, which also makes Zywiec and Murphy's, said: "After a slow start to the year, volume trends improved in March, partly due to the earlier timing of Easter sales."

The company sold 8 per cent less beer in the first three months of the year – a fall of 5.3 per cent on a like-for-like basis.

Volumes in central and eastern Europe were down 14 per cent, largely impacted by the Russian duty increase. Revenue fell by 3.5 per cent to 2.94 billion (2.6bn).

This was worse than the City consensus expectation of a total 5.5 per cent slide in volumes and 2 per cent fall in revenue.

Karel Zoete, a drinks analyst at broker Rabobank, said: "There are a mixture of positives and negatives. The volumes were weak, trading was poor in Europe, although eastern Europe was only down 1.3 per cent if you exclude Russia."

Zoete said another positive was that the flagship Heineken brand grew 6.7 per cent.

Trevor Stirling at Bernstein Research said the transfer of stakes in Asian brewers to joint venture Asia Pacific Breweries and the fact it had shifted in South Africa from imports to a local joint venture had skewed the figures.

"This probably knocked 1 or 2 percentage points off consolidated volumes," Stirling said.

Heineken did not give an outlook for the full year but said priorities for 2010 included cash generation and more debt reduction.

The company said at the time of its full-year results in February that it expected lower beer consumption and for consumers to trade down to cheaper brands this year due to the weak global economy.

Heineken has a higher exposure to more mature developed markets than bigger rivals AB InBev and SABMiller, with western Europe representing some 57 per cent of its revenue last year.

Heineken's earnings last year jumped 14 per cent to 2.09bn, helped by cost-cutting including 600 jobs going worldwide. A total of 200 jobs went in Scotland.