Heineken blames Australian drought for higher costs

Heineken, the Dutch brewer, on Tuesday said commodity costs this year would be higher as a result of the failure of barley harvests, estimating it would add as much as €180m ($236m) to its annual expenses bill.

Shares in the world’s fourth-largest brewer by sales fell nearly 2 per cent to €38.60 on the costs warning, which it attributed to price rises caused by demandfor crops from bio-fuelproducers.

Jean-Francois van Box-meer, Heineken chief executive, said that after a “disastrous Australian harvest, the market is almost dry of barley at this point”, adding that prices had also risen for aluminium, which it uses for packaging.

While the barley harvest was likely to prove an “exceptional” event, the bio-fuel development was “structural” – in part driven by European and US environmental regulations – and would, therefore, eventually be passed on to the consumer in terms of higher beer prices, Mr van Boxmeer said.

Although the impact of commodity prices affected the entire brewing industry – on Tuesday, Grolsch, a smaller Dutch rival, reported a similar trend – the issueis particularly acute at Heineken. That is because it spends heavily on packaging in launching new products, such as Heineken premium light, a low-calorie beer, launched in the US.

It estimated raw material and packaging costs would rise 7 to 8 per cent in 2007, or between €150m and €180m, and announced additional cost cuts of €90m to stay within guidance for net savings of €200m by 2008.

Separately, Heineken said it would seek to reverse falling sales at Amstel Light in the US, which it conceded partly reflected the fact that it had been concentrating on the Heineken premium light brand. Sales volumes were 8.6 per cent down in 2006. However, Heineken said it had “no intention to abandon” the product, pointing out that it was aimed at different consumers to those who typically bought its flagship US brand.

The group reported 2006 operating profit of €1.57bn, a 12.7 per cent annual rise, on sales of €11.8bn, 9.6 per cent higher. It forecast organic growth in net profit of 10 to 13 per cent in 2007, after recording net profit of €930m in 2006, 12.6 per cent higher. It proposed a dividend of €0.60 a share, 50 per cent higher than 2005.

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