Off-trade discount snub lifts Heineken UK profit
Heineken's decision not to take part in deep discounting in the off-trade resulted in a loss of market share but strong profit growth in the UK for the half-year.
The Dutch based brewing giant said that lengthy price negotiations with some off-trade customers resulted in a temporary reduction in promotional activity and a temporary loss of volume in the off-trade.
Cost reductions including closing breweries at Reading and Dunston and selling off wholesaling arm Waverley TBS to Manfield Partners also helped increase profit.
"Today's interim results are encouraging for Heineken's UK business, particularly in light of a still fragile UK drinks market," said Stefan Orlowski, managing director of Heineken UK.
"Strong EBIT growth in the UK has been driven by benefits flowing from earlier cost base initiatives and progress towards firmer pricing for our brands; whilst focus has been given to a program of increased marketing investment and new communications for Strongbow and John Smith's have been particularly successful.
"A decision not to participate in some deep discount spring/summer promotions in the off trade has resulted in some loss of market share in the sector, but this is wholly consistent with our desire to achieve better value for our brands over discounted volume. Our share position in the on-trade remains firm for both beer and cider.
"The successful sale of Waverley TBS completed in June will enable us to better focus on our core business for the second half of the year; and new communications campaigns for Foster's; Bulmers; Heineken and Kronenbourg 1664 will feature over the autumn and winter period. We will also take on the distribution of FEMSA's Sol and Dos Equis brands from October."
Group beer volume in Western Europe fell 2.5% to 22.3m hectolitres with revenue down 3.9% to €3,929m and net profit up 6.3% to €383m.
Profits up
Overall, Heineken delivered a 17% increase in organic net profit for the half-year. It saw a 2.3% dip in organic beer volumes to 86.4m hectolitres impacted by the "weak economic environment and the effect of excise duty increases". Organic revenue was down 2% to €7,520m.
Heineken said it remained cautious because of weaker consumer spending and planned cost cutting measures in Europe and the USA.
"Heineken achieved strong organic net profit growth in the first half year 2010," said Heineken chairman Jean-François van Boxmeer.
"Trading conditions remained challenging in Europe and the USA, but we realised strong group beer volume growth in Africa and Asia. The effectiveness of our premium strategy was reinforced by the continued strong performance of the Heineken brand which once again outperformed our broader portfolio and the overall beer market.
"Furthermore, we delivered an incremental €104m of cost savings through our Total Cost Management programme."
Heineken expects the organic increase in net profit for the full year of 2010 to be "at least in low double digits".
