Heineken predicts more volatility as profits drop 15%

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Heineken is predicting continued volatility in economic conditions and unfavourable currency movements this year, as it posted a double-digit fall in full-year profits but improved operating profit margins.

The Dutch brewer, the world’s second largest by sales, reported a 15 per cent drop in pre-tax profits to €2.4bn in 2016. Operating profit growth slowed in the second half of the year, it said, knocked by “increased currency headwinds” and challenging conditions in its Africa, Middle East and Eastern Europe region.

However, the statutory profit figure was also dragged lower by higher exceptional costs, while the previous year’s results had benefited from an exceptional gain of €379m from the sale of its Mexican packaging business. In contrast, the company’s preferred performance measure – earnings before interest, tax, exceptional items and amortisation of acquisition-related intangible assets – increased by 4 per cent.

The group, which has a target of improving operating profit margins by 40 basis points (0.4 percentage points) a year, recorded a 54 basis point improvement to the margin, which stood at 17 per cent in 2016. Full year revenues grew 1.4 per cent to €20.8bn.

Heineken said it expected operating profit margins to expand at the 0.4 percentage point rate in 2017.

Jean-François van Boxmeer, Heineken chief executive, said:

Excluding major unforeseen macroeconomic and political developments as well as the impact of the proposed acquisitions in Brazil and in the UK, we expect continued margin expansion in 2017 in line with our previous guidance.

Earlier this week, Japanese brewer Kirin announced it had agreed to sell its Brazilian beer business to Heineken for ¥77bn ($700m), in an acquisition that is “expected to be dilutive” to Heineken’s margin in 2017, the Dutch company said on Monday.

In December it also agreed a £402.7m takeover UK pub operator Punch Taverns in partnership with private equity group Patron Capital, as it attempts to keep up with market leader Anheuser-Busch InBev, which took over SABMiller for £79bn last year.

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