February 18, 2009 / 9:21 AM / 11 years ago

Heineken and Carlsberg pledge to cut costs

BRUSSELS/COPENHAGEN (Reuters) - Brewers Heineken (HEIN.AS) and Carlsberg (CARLb.CO), which carved up Scottish & Newcastle last year, committed to slashing debt, costs and spending on Wednesday in anticipation of a recession-hit 2009.

Cans of Carlsberg beer are seen through a branded pint glass before a news conference in London January 25, 2008. REUTERS/Stephen Hird

Heineken, the world’s third-largest brewer, said it was “cautious” about the development of beer consumption this year after a number of markets slowed at the end of 2008.

Both Heineken and world number four Carlsberg noted beer consumption was typically quite resilient to recessions, though the Dutch brewer said downturns could spur a switch from bars to drinking at home and to cheaper brands.

“Beer is one of the less affected consumer categories in economic recessions. It’s clearly not immune to weaker economies but overall it’s holding up well,” Carlsberg Chief Executive Jorgen Rasmussen told a conference call.

The two bought Scottish & Newcastle for 7.8 billion pounds in 2008, Heineken chiefly getting the British assets while Carlsberg expanded in Russia and France.

Analysts said Wednesday’s figures suggested Carlsberg had got the better part of the deal, although one described its stock as a bet on the Russian economy. Volumes in the UK market, where Heineken expanded, fell 8.3 percent in the fourth quarter.

Heineken, which brews beer under its own name and the ‘Amstel’ brand, said its focus now would be on cash generation of over 100 percent of net profit for 2009-2011 to pull net debt down to 2.5 times EBITDA (earnings before interest, tax, depreciation and amortisation) from 3.3 times.

Cash generation had been on average 50 percent of profit in 2007 and 2008.

Capital expenditure would drop to 700 million euros from 1.1 billion in 2008.


Heineken also launched a three-year cost-cutting programme, Total Cost Management, but gave no targets. Its Fit2Fight scheme ended in 2008 with 469 million euros in gross savings.

Carlsberg’s Rasmussen also stressed a cash flow and cost focus in 2009. The group last year announced a number of cost cuts in its French and British businesses.

Capital expenditure would drop to 3.75 billion crowns in 2009 from 5.3 billion in 2008 and it would cut net debt to about 3 times EBITDA by year end from about 3.8 times at end 2008.

A positive note would be lower costs for oil, aluminium for cans and essential ingredients such as barley in 2009.

Heineken’s input costs rose 18 percent last year. CEO Jean-Francois van Boxmeer said the 2009 rise would be “substantially lower” than the 8 percent previously forecast.

Heineken reported an 11 percent rise in 2008 operating profit before exceptionals to 1.93 billion euros, below forecasts of 1.98 billion euros. Russian, Indian and UK goodwill impairments led to a 74 percent tumble in reported net profit.

Carlsberg, which brews ‘Baltika’ beer as well as its own brand, posted a 52 percent increase in operating profit to 8.0 billion Danish crowns ($1.35 billion), slightly above expectations, and forecast a figure of 9.0 billion for 2009.

Heineken shares were up 2.7 percent at 21.56 euros at 12:55 p.m. British time and Carlsberg’s 3.6 percent higher at 195 crowns. The DJ Stoxx European food and beverage index .SX3P was flat.


“I think there’s relief that it wasn’t any worse in 2008, particularly in the fourth quarter,” said Trevor Stirling, beverage analyst at Sanford Bernstein, referring to both sets of earnings.

Analysts said Heineken’s figures were a mix of positives from its old business, including Nigerian expansion, and a worse-than-expected performance from S&N assets, principally in Britain, for which it appeared to have overpaid.

They welcomed the cash generation and cost-cutting plans.

Jyske Bank analyst Jens Thomsen said that, while Heineken’s focus on debt was “soothing,” it faced challenges in the UK.

“I think Carlsberg stands slightly stronger ... Carlsberg paid more for its part of S&N but it looks as if they got the best parts in the deal,” he said.

Carlsberg is trading at 7.9 times expected 2009 earnings, according to Reuters data, against 9.3 times for Heineken and 10.3 times for global leader Anheuser-Busch InBev INTB.BR.

Some saw scope for Carlsberg to cut the gap, although acknowledged Russian risks.

Editing by John Stonestreet

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