Outlook for 2003
Although the immediate economic outlook for many
markets is less than bright, Heineken expects the struc
tural growth in sales of premium beers and international
speciality beers to continue in 2003, perhaps temporarily
at a slightly slower rate, which will further benefit our
sales mix over the long term. Despite the uncertainties,
we are looking forward to sustained growth in net profit in
2003.
In developing countries, an economic slowdown will
depress beer consumption, because price becomes a sig
nificant factor for consumers in those countries if their
purchasing power is eroded. In the developed countries,
beer consumption will be relatively unaffected by an
economic downturn, though there may be a temporary
shift towards lower-priced beers, mainly at the expense of
mainstream beers. We do not expect the premium and
international speciality beer segments to decline, as price
is not a significant factor in those segments and the trend
towards 'less but better' is too strong. Given our strong
position in the premium segment, we can therefore look
forward to a further improvement in our sales mix.
Regions
If there is any growth in the beer market in Western and
Southern Europe, it will only be modest. Our operating
companies in these regions are concentrating primarily
on reducing costs, strengthening the brand portfolio and
improving the sales mix, by expanding sales of premium
and speciality beers. The main objective is to secure
the largest possible share of the profitable segments of
the beer market.
In Central and Eastern Europe, the upward trend in beer
consumption is only occasionally interrupted by tempo
rary factors, such as a poorly-performing economy or
increases in excise duty, so there is scope for us to grow
our sales in this region. Heineken has also invested a great
deal of effort in the region in keeping costs as competitive
as possible and improving the sales mix.
In North America, we predict sustained growth in the
imported beer segment in both the United States and
Canada. With Heineken and Amstel Light, we are ideally
placed to benefit from this trend. The popularity of
'malternatives' (ready-to-drink mixes), which are in com
petition with a part of the beer market, has passed its
peak. Against the background of slower economic growth,
our pricing policy in 2003 is likely to be more cautious than
in 2002.
In Latin America, the acquisition in early 2003 of a 50%
interest in IRSA, which owns 63% of CCU in Chile,
has created excellent opportunities for developing our
business in this region. CCU is to take over the production
and distribution of Heineken beer from our former Argen
tinian partner. Given the economic situation in Argentina,
it is difficult to predict the trend in beer consumption in
the region in the short term, but we are looking forward to
further sales growth in the longer term.
We do not foresee any significant changes in the
Asia/Pacific region. Beer consumption will continue to
rise, but the picture may differ markedly from one country
to another. We predict sustained growth of both the
Heineken brand and our local brands.
Africa has great growth potential, but whether that
potential is realised will depend largely on how consumer
purchasing power develops. Many of the local economies
are reliant on the world market prices for oil, minerals
and agricultural commodities. The future trend in these
prices is hard to forecast, making it difficult to give short-
term predictions for the beer markets in this region.
Acquisitions, investments and cost-savings
It is a requirement that new acquisitions must contribute
to Heineken's long-term profit growth. One of our primary
aims is to strengthen our position in attractive, growing
markets.
In Europe, we are planning further expansion of our
production capacity to meet the rising export demand.
The new brewery in Nigeria is scheduled to come on
stream in early 2003, but the brewery in Vietnam will not
be completed before the end of the year. Investments in
tangible fixed assets in 2003 will total around €750 million,
which will in principle be financed out of existing cash
reserves and cash flow and if appropriate supplemented
by external financing.
In early 2003, we acquired an interest in CCU, the
Chilean brewery group, and sold our holding in Quilmes
International Bermuda, resulting in a net cash outflow of
€272 million. The proposed acquisition of a 68.8% interest
in Karlovacka Pivovara in Croatia is also part of this com
bined transaction. We also agreed to advance a subordi
nated loan of approximately €150 million to the pension
fund in the Netherlands. These transactions will be funded
largely by external financing.
We shall continue to reduce costs and increase efficien
cy, which means that, excluding acquisitions, the steady
downward trend in the total number of employees is likely
REPORT OF THE EXECUTIVE BOARD
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