Heineken N.V. Annual Report 2004 Report of the Executive Board Outlook 2005
in Europe, a continuing modest growth of the imported beer segment in the United States and a
further increase of beer consumption in emerging markets, we expect again to increase our sales
volume in 2005.
The most challenging trading environment in 2004 was Western Europe. In 2005 we believe the
gradual improvement in the economy will have a positive effect on the traffic in the on-trade and
result in a lessening of the promotion pressure in the off-trade. Our sales volume in emerging markets
will be positively affected by the increase of purchasing power of the local populations as well as by
shifts away from traditional drinks towards beer. In the USA the addition of the brands of the Mexican
brewer FEMSA to our existing portfolio will add to our sales volume and profitability. Heineken has
in the recent past expanded its presence in growing beer markets such as Central Europe, Russia,
China and parts of Africa.
Uncertainty remains in the field of government actions in the form of excise duty increases,
advertising limitations and smoking bans in the on-trade. In the short-term, government intervention
can have a disruptive effect on the beer market and our sales volume.
Worldwide, the premium segment of the beer market is expected to develop well and to capture
an increasing part of the market. Our flagship brand Heineken will benefit from this development
and will contribute to the improvement in our sales mix and operating result, although part of this
effect will be undone by a shift of beer sales from the on-trade to the lower margin off-trade sales
channel. The efforts of our operating companies in their markets to strengthen their portfolio of local
and international brands will also have a beneficial effect on the product mix. Innovation and new
marketing initiatives will fuel the further growth of our key brands.
We will continue to reduce cost and increase efficiency at our breweries, in our distribution
network and in other areas of the business. The unlocking of the identified synergies at Brau Union,
in Central Europe, and at the newly acquired companies will also contribute to our profitability.
Increasing competition, also from premium spirits and wine, and the introduction of our new home
draft beer systems and other packaging innovations, will require higher marketing investments.
The cost of raw material and packaging materials are expected to increase in line with inflation.
Investments
Investments in tangible fixed assets in 2005 are expected to total around €850 million. Most of the
investments are related to replacement of equipment. In 2005, the start of building the new brewery
in Seville accounts for a capital expenditure in 2005 of €102 million.
These investments will in principle be financed from cash flow, supplemented where necessary with
available credit facilities.
In 2005 we will invest an additional €100 million in sales, marketing and innovation initiatives.
Our acquisition of a participating interest in Würzburger Hofbrau A.G. announced in early 2005
involves a net cash outflow of €17 million, which will be financed from existing cash reserves.
Heineken will continue to seek continuous improvements and efficiency gains. In Central Europe
the streamlining of our operations will continue, while in Western Europe a number of larger
reorganisations are in progress. Therefore we expect that, on a like-for-like basis, the downward
trend in the number of employees will continue.
