Jobs on the line as Heineken unveils £420m cost cuts plan

By MARTIN FLANAGAN
Published on Thursday 16 February 2012 00:00

THE British brewing industry was braced for more job cuts yesterday as Heineken unveiled plans to take another €500 million (£420m) out of costs.

The company has already slashed spending by €614m in the past three years but said it saw a 2.8 per cent fall in the volume of beer sold in Britain last year, partly because of a cool summer.

Chief executive Jean‑Francois van Boxmeer defended the sales slump by saying the industry’s fall was even steeper at 3.5 per cent.

The maker of Europe’s top-selling Heineken lager and Amstel, as well as British beers such as Deuchars IPA, Newcastle Brown Ale and John Smiths, said 2011 net profit before one-offs climbed 9 per cent to €1.58 billion from €1.46bn.

Heineken became Britain’s third-biggest brewer in 2008 after its joint acquisition with Carlsberg of Edinburgh-based Scottish & Newcastle. It said it expected to benefit this year from growth in Africa, Asia and Latin America.

But it is predicting a 6 per cent rise in input costs, primarily reflecting higher prices for malted barley. Brewers tend to hedge input costs a year in advance. So Heineken, like its peers, is set to be hit by a sharp increase in commodity prices last year when future prices for malted barley were 40 per cent higher.

“If we look now, we had a very good fourth quarter and so overall the business is doing better than we thought,” van Boxmeer said.

Rene Hooft Graafland, chief financial officer, said of the new efficiency drive: “It’s like the Olympics, you can always go faster.”

He said the previous programme had involved physical closures, typically breweries, whereas the new efficiencies would focus on areas like procurement and IT.

Van Boxmeer said unspecified job losses would be associated with the new programme but would be more “modest” than in the past three years. The company axed 1,100 staff last year alone, of which about 100 were in the restructuring of S&N’s British operations.

Van Boxmeer said emerging markets would take most of the capital investment in 2012, but he remained committed to Britain and western Europe because they threw off money to expand in emerging markets which now account for two-thirds of volumes and half of the profits. “Thirty of the 39 acquisitions we have made over the past decade have been in emerging markets, and the lion’s share of capital spending will go to Africa,” van Boxmeer added.

“But we are not going to abandon Europe. It’s thanks to the good cash flows we generate in Europe that we can finance acquisitions.”

He also pointed to the purchase of more than 900 pubs in the Galaxy estate last December as a show of confidence in the British market.

Underlying earnings in western Europe, including the UK, rose 2.6 per cent to €962m on flat volumes. That compared with a 0.2 per cent rise in profits to €655m in the Americas, while earnings were up over 9 per cent in Africa and the Middle East and up 39 per cent in Asia Pacific.

Volumes rose over 6 per cent in both Africa and the Middle East, and Asia Pacific.

“It’s a lot better than expected,” Trevor Stirling, a brewing analyst with Bernstein Securities, said.

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