Outlook for 2004
With structural growth in the premium beer market expected to continue,
Heineken's sales mix can improve even further. We see opportunities for grow
ing our sales and improving our selling prices in a number of markets, and
we shall work unceasingly to reduce our costs. Heineken is confident of profit
growth in the long term and, barring unforeseen circumstances, we are looking
forward to sustained organic growth in earnings in 2004, to which our new
acquisitions, before amortisation of goodwill, are expected to make a positive
contribution. The adverse exchange rates for the dollar and other currencies
will, however, cancel out this profit growth.
With the economy showing signs of recov
ery, we predict a modest increase in the
imported beer segment in the United
States, in which we expect to increase
our market share.
In Europe, it will be some time before
the beer market benefits from the
economic recovery. The gradual down
ward trend in the beer market in Western
Europe due to demographic factors will
continue, but the Southern European
market will remain stable or grow a little.
The growth in the premium beer segment
throughout Europe will continue. Our
operating companies will focus mainly on
improving the sales mix by expanding
sales of premium and speciality beers,
optimising our brand portfolio and
reducing our costs. Beer consumption is
rising in parts of Central Europe and,
having strengthened Eleineken's position
in the region through BBAG, we are well
placed to benefit from this trend. We also
have scope for significantly reducing costs
through the integration and reorganisa
tion of various activities within BBAG.
Sales of the Heineken brand will continue
to grow.
Investments
Investments in tangible fixed assets in
2004 are expected to total around €750
million. These investments will in principle
be financed from cash flow, supplemented
where necessary with available credit
facilities.
Our successful bid in January and February
2004 for the remaining shares in BBAG
and Brau Union in Austria costs €742 mil
lion and will be financed from available
cash reserves and a credit facility negotia
ted in 2003. Our acquisition of an interest
in the Guangdong brewery in China in
early 2004 involves a net cash outflow of
€28.5 million, which will be financed from
existing cash reserves.
Heineken will continue to seek cost
savings and efficiency gains. Excluding
new acquisitions, we expect the downward
trend in the number of employees to con
tinue, helped by the continuous improve
ment in our business processes and the
integration of activities in Central Europe.
Profit forecast
The structural volume growth in the pre
mium segment of the world beer market
will continue, enabling Heineken to further
improve its sales mix. There is scope for
expanding our sales and raising our selling
prices in several markets, and we shall
keep cutting our costs wherever possible.
Barring unforeseen circumstances,
Heineken therefore expects to achieve
further organic profit growth* in 2004.
Our recent acquisitions will also make a
positive contribution to the result, before
amortisation of goodwill. At the current
exchange rates for the dollar and other
currencies against the euro relative to
the basis on which hedging contracts have
been entered into, Heineken's net profit
will again be severely affected by currency
movements. These effects will outweigh
the predicted organic profit growth and
the contributions to earnings in 2004 by
our new acquisitions. If the exchange rates
stay the same, the weaker dollar will still
have a significant impact on our results in
2005. Heineken's long-term profit forecast
is positive, given the strength of our brand
portfolio, our distribution structure and
the opportunities for efficiency gains.
Profit growth excluding foreign
exchange effects, acquisitions, exceptional items
and amortisation of goodwill.
REPORT OF THE EXECUTIVE BOARD
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