Euro drinks giants raise a glass to profits

Feb 24 2010 by Iain Laing, The Journal

THE European drinks giants which own Scottish & Newcastle say they are taking a bigger share of a shrinking beer market.

Heineken and Carlsberg both saw their profits rise last year partly because of a cost-cutting strategy which will include the controversial closure of the Dunston brewery in Gateshead which brews Newcastle Brown Ale.

The companies bought S&N in 2008 and last November unveiled plans to shut the Federation brewery this summer with the loss of more than 60 jobs and move production of Tyneside’s famous ale to Tadcaster in Yorkshire.

The assets of Scottish & Newcastle were split between the two firms, with Heineken taking most of the UK assets while Carlsberg took full control of the BBH Russian venture.

But yesterday’s results showed a contrast between their individual successes with Heineken’s profits up by 4% to nearly £15bn and Carlsberg’s rise by 38% to £425m thanks to Asian and Eastern European markets.

Heineken said it “significantly“ outperformed a 4% fall across the wider market, led by 2.6% volume growth for Foster’s as the Amber Nectar benefited from a relaunch.

Danish rival Carlsberg was helped by the premium San Miguel brand as it grew its UK share by 1.1% to 14.4%. Carlsberg saw gains in Russia despite the beer market there shrinking by around 10% in 2009 – its own beer volumes rose 1% as beer sellers stocked up ahead of a 200% rise in beer excise taxes in the country from January 1.

The duo both noted the steady shift from pubs to off-licences as cash-strapped Britons drink at home. But they grew UK profits through cost-cutting drives, such as Heineken’s move to close breweries in Berkshire and Gateshead inherited with S&N.

Heineken also reported strong growth of 8% across the UK cider market. Sales of Bulmers have benefited from the growing popularity of bottled ciders among drinkers, the group said.

But across the group as a whole, underlying volumes fell 4.6 to 15.9 billion litres. Revenues were virtually flat at £13bn during last year, although underlying earnings rose 14% to £1.9bn.

Chief executive Jean-Francois van Boxmeer said the group would pass on excise duty rises in higher prices this year, although increases will be at a lower level than in 2009.

The group’s tight focus on costs helped the firm weather “one of the most challenging trading environments ever witnessed in our industry“, Mr van Boxmeer added.

He also warned that the difficult climate would mean lower beer consumption as well as down-trading in “a number of regions“ during 2010.

Carlsberg also registered a 4% fall in underlying volumes but worked to slash debts and made strong advances in fast-growing markets such as Russia, the Ukraine and Asia.

The company predicts a slight decline in Western European markets this year, as well as a bigger fall in Russia due to a sharp rise in excise duty, but said Asian markets would continue to grow.

“Although there are positive signs in some markets, consumer dynamics will remain challenging,” Carlsberg said.