Amsterdam: The Dutch brewer Heineken NV reported an 87% fall in net profit for the full year 2008 on Wednesday, as the global economic downturn led to write-downs in the value of its businesses in Russia, India and Britain.
Net profit was €209 million ($263 million, Rs1,314 crore), down from €807 million in 2007. Sales rose 27% to €14.3 billion, boosted by the company’s €10.2 billion acquisition of Scottish and Newcastle (S&N) in May, which made it the largest brewer in Britain. The company doesn’t report quarterly earnings.
Downturn: Jean-Francois van Boxmeer, CEO of Heineken NV. Jock Fistick / Bloomberg
Chief executive Jean-Francois van Boxmeer said that “organic growth” in sales and operating profits was 7.4% and flat, respectively. Organic growth is a nonstandard measure that strips out the effects of acquisitions and write-downs.
However, reported earnings were hurt by write-downs, higher costs to finance debt, and the performance of newly acquired operations. Shares nonetheless rose 2.8% to €21.58 in Amsterdam.
Heineken wrote down the value of its Russian business by €275 million and its Indian operations by €200 million.
The decline in the value of the rouble will impact the company’s long term profitability as packaging costs are fixed in euros.
In India, Heineken bought a 37.5% stake in the country’s largest brewer, United Breweries (UB), as part of the S&N deal. It was forced to write down the value of that stake after a decline in the Indian company’s share price.
In Britain the company took €190 million in restructuring charges and write-downs.
“In particular, the performance in the UK was below expectations as the combination of recession...unprecedented excise duty rises, the smoking ban and the fall in the British pound made the market exceptionally challenging,” Van Boxmeer said.
He added that poor summer weather in much of western Europe had also hurt in Britain, making the situation there a “perfect storm”. Beer drinkers tend to drink more when the weather is hot.
Van Boxmeer said the company would cut costs, restructure parts of its business, invest in brands and adjust pricing in response to the economic downturn.