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Heineken's 1997 Net Profit Up by 16%
Business Wire - March 13, 1998 08:05
%HEINEKEN %NEW-YORK %FOODS %BEVERAGES %EARNINGS V%BW P%BW
AMSTERDAM, The Netherlands--(BUSINESS WIRE)--March 13, 1998-- Heineken N.V., the leading international brewer, today announced that their net profit for the year 1997 rose by 16% to NLG 761 million ($376 million). Heineken proposed to the General Meeting of Shareholders to issue one bonus share for every four shares already issued and to pay out an unchanged dividend of NLG 3.50 per share of NLG 25.-. Furthermore it is proposed to do a 5 for 1 share split. This was announced by the Executive Board of Heineken N.V. today.
Net revenues rose by 11% to NLG 13,512 million ($6,668 million). Operating profit rose by 19% from NLG 1,012 million to NLG 1,203 million ($594 million). The main contributing factors were an improved sales-mix, higher selling prices in a number of countries, and lower purchasing prices for raw materials and packaging materials. Changes in exchange rates also had a positive net effect on operating profit. Net profit per share increased from NLG 13.06 to NLG 15.18 ($7.49).
Sales of beer brewed under Heineken's supervision rose by 4.4% to 73.8 million hectoliters. The development of the Heineken brand, once again, was excellent in 1997 with sales increasing from 17.9 to 18.8 million hectoliters. Amstel volume rose from 6.9 to 7.2 million hectoliters in a declining standard segment of the beer market, while sales of Murphy's also developed satisfactorily.
Sales volume in the American market rose by 5%, with total volume of exports from The Netherlands rising by 7% to 7.5 million hectoliters. Furthermore, revenues and results in The Netherlands increased and the profit contribution from all French business units was higher than expected, while the contribution of the Italian operations improved considerably. El Aguila in Spain realized an improved result.
Sales volume and results in the Asia-Pacific region developed positively in local currency. However, the fall of several currencies in the second half of 1997 meant lower revenues and results when expressed in Dutch guilders.
Heineken expects results for 1998 to be higher than in 1997. While the US-dollar exchange rate is more favorable compared with 1997, there are uncertainties surrounding currency fluctuations and activities in several countries in the Far East. Added to this, unpredictable developments like increases in excise duties and other governmental measures, prevent a meaningful prediction of the level of profit growth for 1998 at this time. The Executive Board of Heineken continues to have a favorable view of the company's longer-term profit development.
EXPLANATORY STATEMENT
Of the 11% rise in net revenues to NLG 13,512, ($6,668 million) 3% was due to new consolidations. The main changes in consolidation related to Birra Moretti in Italy, now consolidated for the whole year, Kumasi Brewery in Ghana and Brasseries du Logone in Chad. Several beverage wholesalers were also consolidated for the first time. A net 3%-increase in revenues was caused by changes in exchange rates. The exchange rate of the US-dollar was higher against the guilder. In addition, adoption of the US-dollar in the Democratic Republic of the Congo (the former Zaire) also helped increase net revenues. This contrasted with the devaluation of the Indonesian rupiah and other Far Eastern currencies. New consolidations aside, the rise in sales volume had a further 1% positive influence on net revenues. Passing on of increased excise duty led to a 1%-increase in net revenues. The remaining 3%-increase was due to a better sales-mix and improved selling prices in some countries.
During 1997, the world beer market grew by 1.0% to 1,279 million hectoliters. Sales of beer brewed under Heineken's supervision rose by 4.4% to 73.8 million hectoliters. In Europe the premium and specialty beer segments showed continued growth as did lower-priced beers. This was largely achieved at the cost of the standard segment of the beer market.
In The Netherlands, beer sales and operating profits were both higher. In addition, Heineken Italia realized major progress with the merging of the breweries acquired in 1995 and 1996. The result of the Italian business improved considerably. The breweries in Greece and Ireland also had a good year. Integration of the new breweries in France with the existing organization proceeded according to plan and the profit contribution of all French business units exceeded our expectations. El Aguila in Spain achieved improved operating profit, but lost some market share.
In Africa sales volume excluding new consolidations remained static.
In the Asia-Pacific region, sales volume and results in local currency developed positively in local currencies. However, the fall of several currencies in the latter half of 1997 meant lower revenues and profits in guilders. This is due to the practice of translating income statements of foreign subsidiaries at closing rates of the financial year. The situation in several countries in the Far East will mean a decline in sales volume and margins in 1998, although this will only have a relatively limited impact on Heineken's overall results. The economic fundamentals are in place for renewed growth of the beer market in the medium term.
Sales volume in the United States rose by 5%. The total volume of exports from The Netherlands rose by 7 % to 7.5 million hectoliters.
Operating profit and net profit
During 1997, the prices of raw materials declined on average by 3% while purchasing prices of packaging materials were also lower.
Once again, the strength of our brands was reinforced by marketing activities including sponsorship and advertising. Marketing and selling costs increased from NLG 1,436 million to NLG 1,642 million, representing a rise from 11.8% to 12.2% of net revenues.
Activities devoted to realizing a lower cost structure proceeded undiminished during 1997. Restructuring costs were significantly below the level of 1996 when major provisions were made with regard to integration plans in Italy and France, as well as reorganizations elsewhere in Europe. This contrasted in 1997 with a downward revaluation of real estate in Switzerland to reflect net realizable values. In addition, provisions were made for costs relating to the millennium factor and introduction of the Euro. Preparations for both events have been vigorously pursued and are on schedule.
In 1997, personnel costs declined from 17.8% to 16.8% of net revenues.
Operating profit increased by 19% from NLG 1,012 million to NLG 1,203 million ($594 million). The main contributing factors were an improved sales-mix and higher selling prices in several countries, as well as lower purchasing prices for raw materials and packaging materials. Higher sales volume also contributed to the increase in operating profit. Exchange rate fluctuations also had a positive net effect on operating profit. The positive influence from new consolidations was not significant. The acquisitions realized in France and Italy in 1996 made a higher than expected contribution to the result. Operating profit improved from 8.3% to 8.9% of net revenues.
Earnings of non-consolidated participations were lower than in 1996. However, in that year there had been a non-recurring book profit on the sale of minority-participation. The underlying result increased, mainly thanks to higher results in Poland and from Nigerian Breweries Ltd.
Interest charges were at the same level as in 1996. The additional proceeds from the higher level of funds invested were offset by interest charges on new acquisitions and lower interest rates.
The income tax burden was 38.8% compared with 37.4% in the previous financial year. This increase was due to higher profit before taxation in countries with relatively high tax rates, increases in corporation tax rates in several countries, and the forming of provisions during 1997 that are not deductible in the financial year. The increase was limited by offsetting profits in Italy and Spain with tax losses carried forward from previous years.
The decline of the share of minority interests in the result was mainly due to the lower results of Multi Bintang Indonesia.
Profit per share, dividend proposal, capitalization of reserves
and share split
Net profit increased by 16% to NLG 761 million ($376 million). Net profit per share of NLG 25.- rose from NLG 13.06 to NLG 15.18 ($7.49).
It will be proposed to the General Meeting of Shareholders to be held on April 23, 1998 to pay an unchanged cash dividend of NLG 3.50 per share of NLG 25.-. On September 23, 1997 an interim dividend of NLG 1.50 was already made payable, so that a final dividend of NLG 2.- per share remains to be paid. It will further be proposed to approve, out of the general reserve, the distribution of one bonus share for four old shares Heineken N.V. together with the payment of a cash dividend of NLG 0.694 on each old share, equal to The Netherlands withholding tax. The new shares will participate fully in the profit of the financial year 1998. Furthermore, it will be proposed to do a 5 for 1 share split. The share split and the bonus share issue will be combined in one bank transaction. The bank cost for the shareholders of this transaction will be taken for account of the company, for one time only.
Balance sheet and statement of cash flows
Shareholders' equity rose from NLG 4,514 million to NLG 5,103 million ($2,518 million). This was the outcome of net profit of NLG 761 million and revaluation of NLG 134 million, versus goodwill charged totaling NLG 131 million and a proposed dividend payout of NLG 175 million. Net investments in tangible fixed assets amounted to NLG 817 million. Cash flow from operating activities rose from NLG 1,188 million to NLG 1,659 million. This was the outcome of higher operating profit and higher depreciation charges, together with a reduction in working capital and lower tax payments. Cash flow per share from operating activities rose from NLG 23.67 to NLG 30.06.
Prospects
Heineken expects that the sales-mix can be further enhanced by exploiting shifts in consumer patterns in the direction of premium and specialty beers. Even in beer markets with zero growth this could lead to improved margins and higher profitability. Part of the growth of our premium beers will be realized by further export growth. The continued focus on cost control and efficiency will also play an important role in the company's profitability.
Heineken expects results for 1998 to be higher than in 1997. While the US-dollar exchange rate is more favorable compared with 1997, there are uncertainties surrounding currency fluctuations and activities in several countries in the Far East. Added to this, unpredictable developments like increases in excise duties and other governmental measures, and the weather, prevent a meaningful prediction of the level of profit growth for 1998 at this moment in time. The Executive Board of Heineken continues to have a favorable view of the company's longer-term profit development.
The Annual Report of Heineken N.V. will be available as from April 7, 1998.
Heineken is a leading international brewer, marketing some of the most successful brand names worldwide.
Heineken N.V. and Heineken Holding N.V. shares are listed on the Amsterdam stock exchange. Prices for the ordinary shares may be accessed on Bloomberg under the symbols HEIN NA and HEHN NA, on the Reuter Equities 2000 Service under HEIN.AS and HEHN.AS and on Quotron under HEINN.EU and HKAN.EU. Additional information is available on Heineken's home page: heineken.nl.
-- US Dollar equivalents are provided for reader convenience at the December 31, 1997 exchange rate of NLG 2.0264 = US$1.
(For tabular information please call Taylor Rafferty Associates at 212-889-4350)
CONTACT: Jan van de Merbel
Heineken
011-31-20-523-9591
- or -
Jeff Zelkowitz
Taylor Rafferty Associates
212-889-4350
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