Heineken Heineken N.V N.V.:Global branding and Advertising
Presented By:
Howard Cheung Gursimm Gurs immer er Som Somul ul Angela Chang Amarr Pa Ama Pamm mma a
Key
Access to distribution channels ±
Factors Factors for a Successful Successful Business Model for Breweries
Try to minimize transportation costs
Effective Marketing Campaigns Campai gns ±
To distinguish distingui sh brand
±
Brand loyalty
Internationalization ±
Find growth opportunities elsewhere
History
The Heineken family entered the beer business in 1864, when Gerard Adriaan Heineken Heineken bought a brewery in the heart of Amsterdam 1873: Heineken Breweries was incorporated (Gerard Heineken is appointed President) 1980s: Start global expansion
History International
brewing groups (over 170 countries with 61,000 employees.)
the past 140 years, years, three three generatio generations ns of Over the the Heineken family family have built and expanded the brand and the company company in Europe and around the world
Profile
Core Businesses: Manufacturing Distribution
and Sales of beer
of soft drinks and other nonalcoholic
beverages.
orlds leading Worlds
brewing group Owns over 115 breweries in over 65 countries Owns and manages a strong portfolio of more than 120 top-selling brands
Profile
Ranks 2nd in the world beer bee r market market in profitability Principal area of activities: ±
Europe accounts for over over ½ of Heinekens Heinekens sales
Company Structure
Company Structure
LArche Holding S.A., a Swiss company co mpany owned by the Heineken family family in turn holds h olds a 50.005% interest in Heineken Heineken Holding N.V N.V. Heineken Holding N.V. holds a 50.005% interest in Heineken N.V N.V. The shares of both companies are a re listed listed on Euronext Euronext Amste Amsterdam. rdam. Heineken Holding N. N .V. objective obj ective has h as been b een to manage or supervise the Heinek Heineken en group group and to to provide servic services es for Heineken Hein eken N.V N.V.
Company Structure
Heineken Holding N.V N.V. does not engage in operational activities itself. These have been assigned within the Heineken group and its subsidiaries. Heineken Holding N.V.'s N.V.'s income consists of dividends received on its interest in Heineken N.V. Every Heineken N.V N.V. share held by Heineken Holding N.V N.V. is matched matched by one one share share issued issued by by Heineke Heineken n Holding. The net net asset value of one Heineken Holding Holdi ng N.V. N.V. share is therefore identical to the net asset value of one Heineken N.V N.V. share . The dividend payable on the two shares is also identical. However, However, Heineken Holding N.V. N.V. shares have traded at a lower price due to technical factors that are marketspecific.
Executive Executive Board Jean-François van Boxmeer Chairman of
the Executive Board/CEO (since 2005)
Marc J. Bolland
Member of the Executive Board/COO
René
Hooft Graafland Member
of the Executive Board/CFO Board/CFO (since (si nce 2005)
Executive Compensation
Remuneration package of the Executive Board includes a base salary, salary, an annual bonus and a long-term incentive. Fixed salary account for 45% of the total remuneration package. Variable remuneration is divided equally between short-term short-term and long-term.
Executive Compensation
Base salary of 418,000 for the Executive Board
Members and to 634,000 for the Chairman
Short-term ±
±
±
incentive: incentive:
Emphasis of short-term incentives based on annual operational performance. Organic net profit growth is the measure to assess operational performance Organic net profit growth is identified as growth in net profit excluding exchange rate effects, changes in consolidation, amortization of goodwill, exceptional items and changes in accounting policies
Executive Compensation
Long Term ±
±
±
Performance condition is total shareholder return, measured over a three year period. The total shareholder return is measured relative to a performance peer group. Performance Peer Group
Carlsberg
LOreal
LVMH/PPR
Nestlé
Unilever
Goals and Strategy Strategy The strategy to achieve this has four
elements:
Strive to reach a leading position in attractive markets. Focus on capturing an ever-growing share of the premium and specialty beer market segments. Work to improve efficiency and cut costs in operations. Grow through selective acquisitions, so long as they create shareholder value.
Acquisitions Western
Europe Year
Mln hl (100% sales equivalent)
% stake acquired
Price (millions)
Company
Country
Würzburger Brauerei
Germ any
2005
0.360
34
90.7
Fürstlig Fürstenbergische Brauerei
Germ any
2004
0.700
not disclosed
100
Hoepfner Brauerei
Germ any
2004
0.200
not disclosed
100
Ivan Taranov Breweries
Russia
2005
2.900
not disclosed
100
Baikal Brewery
Russia
2005
0.557
not disclosed
100
Stepan Razin Brewery
Russia
2005
1.400
not disclosed
100
Patra Brewery
Russia
2005
0,715 + 0,040 softdrinks
not disclosed
100
Nigeria
2004
0.965
not disclosed
50.1
0,430 + 0,620
280
99.9
Central & Eastern Europe
Africa
Consolidated Brew eries Al Ahram Beverages Com pany
Egypt
2002
Alm aza
Lebanon
2002
not available
not disclosed
69
Tem po Beer Industries
Israel
2004
0,500 + 1,800 softdrinks
EUR 11 m illion
40
Floridad Ice abd Farm Company (FIFCO)
Costa Rica and Nicaragua
2002
Cerv ecerias Barú-Panam a
Panam a
2002
Latin America
not available
not disclosed 0.35 .350
not dis discl clo osed sed
25 74.8
Sales Worldwide 2004-2005 8 7
+3
5%
2004
stab e
2005
6
5 +12
4 3
3%
+6.2%
2
+6.2%
+8.2%
Rest f mer cas
fr ca
1 0 est
r
e
e tra
r
e
US
s a ac ac f c
Sales Volumes Comparison Heineken Carls erg Corona Budweiser Amstel tella Artois Foster's Tu org Brahma Beck's 0.0%
5.0%
10.0%
15.0%
20.0%
19
Financial tatement Analysis
Financial Statements Consolidated Income Statement December 31, 2005
Key
figures figures 2005 (millions of ) 2005
Increase Organic growth
118.6
112.6
5.3%
1.8%
10,796
10,062
7.3%
2.2%
EBIT*
1,283
1,369
-6.3%
EBIT eia
1,392
1,377
1.1% 18.5%
Group eer volume Revenues
*
2004
Net
Profit**
319 761
334 642
Net
Profit eia
840
803
4.6%
2.9%
7.3%
Includes exceptional exceptional items efore tax in 2005: 2005: -¼102m and amortisation amortisati on of rands (in 2005: ¼7m, in 2004: ¼8m). ** Includes exceptional items after tax in 2005: -¼72m ( in 2004: ¼153m) and amortisation amortisati on of rands (in 2005: 2005: ¼7m, in 2004: ¼8m).
Financial Analysis
Heineken achieved organic growth in all key business metrics in 2005:
2.2% organic growth in Revenues, driven by a more positive price and sales mix, 2.9% organic growth in EBIT (beia) 7.3% organic growth in Net Profit (beia).
Net Profit increased increased by 37 million to 840 million, despite a negative currency effect of 27 million. Net Profit of Heineken Holding N.V. increased to 381 million.
Financial Statements Consolidated Balance Shee t (In millions of eur os os) Junun-05
Jun-0 n-04
Dec-04 -04
Dec-03 -03
Dec-02 -02
Dec-01 -01
Dec-00 -00
Dec-99 -99
Assets Intangible fixed assets Tangible fixed assets Financial fixed assets Total fixed assets
1,935 4,777 894 7,606
1,810 4,737 981 7,528
1,720 5,127 779 7,626
1,151 4,995 1,122 7,268
39 4,094 835 4,968
13 3,592 531 4,136
3,276 615 3,891
2,995 422 3,417
Stocks Receivables Secur ities Cash Total Current Assets
960 2,260 19 695 3,934
934 2,159 26 67 6 73 3,792
779 1,309 76 62 628 2,792
834 1,379 76 1,340 3,629
765 1,270 98 68 6 80 2,813
692 1,192 29 1,146 3,059
550 1,024 23 80 801 2,398
490 903 42 1,165 2,600
11,540
11,320
10,418
10,897
7, 7 ,781
7,195
6, 6 ,289
6, 6 ,017
3,589 492 4,081
3,095 440 3,535
3,379 483 3,862
3,167 732 3,899
2,543 393 2,936
2,758 381 3,139
2,396 124 2,520
2,618 248 2,866
332 689
325 714
568 680
1,367
981
1,024
976
770
26
31
875 1,892 6,289
490 1,860 6,017
Tot
Assets
Equit Gr oup oup Equity Shar eholde eholder's equity Minotir y inter est est in other gr oup companies Total Equity Pr ovisions Employee benef its Investment facilities equalization account
Liabilities Long-ter m borr owings Curr ent liabilities Total Equit and Liabilities
2,547 3,891 11,540
2, 2,705 4,041 11 11,320
2, 2,642 2,666 10 10,418
2, 2,721 2,910 10 10,897
1, 1,215 2,649 7,781
797 2,235 7,195
(In millions of euros) Consolidated Consolidated Cash Flow Statement (In
Jun-05 Cash flow from operating activities Operating profit Results of non-consolidated participating interest Am ortization/ depreciation and value adjustments Movements in provisions Movements in em ployee benefits Movements in working capital Cash flow from operations Interest paid and received T axation paid on profits Cash flow from operating activities Dividens paid / received Cash flow from operating activities less dividend paid Cash flow from investing activities Intangible fixed assets T angible fixed assets Consolidated participating interests Non-consolidated participating interests Result on participating interests disposed of Other financial fixed assets
Cash flow from financing activities Long-term borrowings Repaym ent of long-term borrowings hare issue by group com panies Other financing activities Net Cash Flow Other cash movements Changes in the consolidation Exchange differences ovement in cash M ovement The net cash position is made up of C as h ecurities Bank overdrafts osition at the end of the period
Jun-04
Dec-04
Dec-03
Dec-02
Dec-01
Dec-00
5 48 40 3 55 64 8 -303 7 12 -57 -94 5 61 5 5 66
57 9 48 3 45 31 -24 - 187 792 -61 - 160 5 71 3 574
1,248 33 77 3 -25 -27 93 2,095 -192 -383 1,520 -243 1,277
1,222 30 64 4 95
1,282 48 5 29 -8
1,125 45 4 76 -32
9 21 59 468 -26
92 2,083 -132 -314 1,637 -241 1,396
-223 1,628 -103 -341 1,184 -187 9 97
-42 1,572 -74 -333 1,165 -168 9 97
-29 1,393 -67 -291 1,035 - 160 875
-7 -402 54
-10 - 37 7 - 890 45 -46 1,278 - 1,278
-26 -611 -1,339 -5 71 -170 2,080 - 2,080
-35 -696 -799 -423
52 -39 342 - 342
-20 -637 -1,051 2 17 18 1,671 - 1,671
1,973 - 1,973
-17 -578 -148 -74 52 -18 783 - 783
5 44 -653 -2 -153 264 - 264 -40
82 -140
20 1 -324 -2
1,501 -271 3
4 84 -56 -1
86 -182 57
198 - 198
- 125
- 902
-519
1,233 54 9
427 -549
40 - 40
902 - 902
-32 1 - 550
-88 -36 - 673
1 46
70 2
1 06
- 200
- 20
62 8 76 -517 18 7
1,340 76 -679 73 7
6 80 98 -573 2 05
79 9 51 42 8 -27 -46 1,205 -42 -227 93 6 -113 82 3
-441 -55 -33
-39
2
1,503 - 1,503
527 - 527
- 39 1 75
480 -187 41 1 33 5 - 293
83 -97 0 1 13 - 13 28 3
99 -14 260
-74 -6 - 373
-74 11 220
- 140
- 32 15 532
-418 -939 -107
Dec-99
1,146 29 -297 8 78
801 23 - 206 618
1,165 42 -216 99 1
Consolidated Cash Flow Statement
Consolidated Cash Flow Statement (contd) (contd)
Financial Analysis
Cash flow from operations was once again strong and amounted to 2.213 billion. o cash flow flow increased increased as a result of the reduction reduction of networking capital by 114 million.
Cash conversion conversion continued at a high level, reaching 120%. Real estate assets acquired with the BBAG business divested, divested, which contributed 270 million to net cash flow.
Financial Analysis Key Ratios W orking capital Debt / Equity ong-term debt / Equity ROE ROA
Jun-05 Dec-04 43 126 1.83 1.70 0.62 0.68 8.45% 13.90% 2.99% 5. 5.15%
Dec-03 719 1.79 0.70 20.47% 7. 7.32%
Dec-02 Dec-01 Dec-00 164 824 506 1.65 1.29 1.50 0.41 0.25 0.35 27.08% 24.43% 24.64% 10.22% 10.66% 9. 9.87%
Dec-99 740 1 .1 0 0 .1 7 1 8 .0 0 % 8. 8 .5 8 %
The leverage ratio displayed by the company is the result of its continuous process of acquisitions in the industry. This process is also reflected in the increment of its long-term debt throughout time The profitability of the company has been decreasing over time due to the tight competition in the American market and the downside in many European economies during the last years
Financial Analysis Exchange Rate Eff ects ects
Heineken hedges fluctuations in the USD/EUR exchange rate exposure to the US dollar. Negative impact of currencies on EBIT and Net Profit of 48 million and 27 million milli on respectively, respectively, primarily due to the US dollar.
Financial Analysis: Review by Region
Stock Price Information As of March 20, 2006 Traded on U.S. OTC Symbol: Current Price: (2:1 stock split Mar 8/06) 52-week HIGH: 52-week LOW: Outstanding Shares: Market Cap: EPS (ttm): P/E ratio (ttm): Dividend Yield:
HINKY $19.10 $19.40 $11.00 489.975 million 9.211529 billion $1.01 $30.60 0.730
Stock Analysis (5 (5 years)
Splits:05-May-98 [25:4], 01-May-01 [5:4], 17-May-04 [5:4], 08-Mar-06 [2:1]
Stock Price Information Heineken also listed on the Euronext Amsterdam Exchange
3 year stock performance performance
Stock Analysis Gordon¶s Growth Model
This model can be used to valuate a company in a mature industry. Heineken¶s dividend growth is likely to be steady, therefore: Value of stock = DPS1/(k-g) and DPS1 = DPS0(1+g) k = (DPS1/P0)+g Where: DPS 1 = expected dividend paid out in one year k = required rate of return on investment g = the assumed constant growth rate for dividend P 0 = current stock price
Stock Analysis
In this case g = 0.05 (the average of the last 5 years dividend growth on the stock) Dividend: 0.40 = $0.484 $1= 1.21
DPS1 = $0.484(1+0.05)
k = (DPS1/P0) + g
DPS1 = $0.5082
k = ($0.5082/$19.10) + 0.05 k = 0.076607
Value of stock = DPS 1/(k-g) = (0.5082) (0.5082) / (0.076607 (0.076607 0.05) = $19.10
Recommendation
The actual price of the stock is US$19.10 which is in line with the value obtained Expected growth in the beer industry minimum or flat, declining sales in Europe, and the continuous process of consolidation in the industry. HOLD
Industry Outlook
Bigger brewers acquiring smaller brewers all over the world ´The era era of global brand brandss is coming coming..µ ² Alan Clark, Clark, SABMiller Market for premium beer will expand 84% by by 2012
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Value Chain Analysis (Primary Activities)
Operations Operations Inbound logistics
Heineken is distributed globally, stored in warehouses strategically placed throughout to minimize shipping costs to stores.
Heineken was limited to grabbing smaller brewers but in 2003, it acquired BBAG for $2.1billion dollars making it the biggest beer maker in sever countries across Eastern Europe.
Outbound logistics
Marketing arketing and sales
Heineken has brewers throughout the world so that it can ship its finished products to local areas to minimize shipping costs.
Heineken is the 5th most recognized brand of beer in the world. By acquiring smaller brewers in the world they spread their label even more.
Servic ervice e
Heineken has recently ventured out in the fields of nonalcoholic malts and fruit flavore f lavored d drinks as an avenue into other customer areas.
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Value Chain Analysis (Secondary Activities)
erall Genera Administration Administra tion
Human Re Huma Resou sourrce Management:
Technology Deve evelo lop pment:
Heineken wa wass the leading premium brand brand of beer for decades. Was the best selling imported beer in the US until Corona took over. So, at the same time Heineken pushed on other brands brands that would would reduce is reliance reliance on it core brand. Introducing Introducing Amstel Light, which has become the leading imported light beer in the US.
Heineken created created management positions positions that be responsible for five different operating regions and nine different functional functional areas. The new stricture encouraged encouraged more risk taking and boosted the level of energy within the firm.
Heineken uses their technology to keep detailed documents of shipping, shipping, in their warehouses wa rehouses to make beer more efficiently and for shipping purposes.
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Porter·s 5 Forces of competition Suppliers
+/-
New ent ntrry
Industry competitors
++
-
Substitute Substitut es
+ Rivalry among existing firms
Buyer Buy ers s
+
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Porter·s 5 Forces of competition Threats Threa ts of substitute substitutes
reats Threa Th ts of new ent ntrr y
$250
very little technical composition of beers Growing
appreciation for wine
million needed to build 4 million barrel brew b rewery ery Entry
is risky since not many alternative uses for breweries breweries No
new entrant in beer industry has cracked the the top 3 sellers since WWII.
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Porter·s Five Forces of competition (cont·d)
arg ers Bar gaining Power Power of Buy Buyer s
No loyalty to any particular brand
Demand
´beerµ is inelastic: E=-0.7
arg ers Bar gaining Power Power of Supp Suppli lier s
fewer brewers and Larger plants
170 Horizontal mergers between
1950-1983 ´Budweiserµ is Demand ´Budweiserµ
elastic: E=-5.0 Rising
cost of key commodities like grain, glass and aluminum
Many
Buying supplier supplier of inputs (wheat field)
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Porter·s Five Forces of competition (cont·d)
vallr y b etwee ween ablish ed compe Riva Ri be n est sta blishe competito titorrs
1947:
Top Top 5 firms -19% of market in the U.S.
2001: Top Top 5 generate 87% of the market mar ket in the U.S.
Highly Lost
competitive industry, many brewers leave the industry losing $
of advertising for for product p roduct differentiation differentiation
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SWOTT Analysis SWO Analysis rength Stre St ngth
Brands in over 13 markets mar kets Very Differentiated
Global brand/pioneer of international strategy strategy Has made many acquisitions with national breweries
Bottle Recognition and different dispensing instruments Green Bottle
Mini keg
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SWOTT Analysis SWO Analysis eakn ness Weak
Conservative/µPlay Conservative/µPlay it safeµ culture Struggle to obtain large breweries breweries
Not drank by younger beer drinkers Although consumption consumption age has dropped from from 40 4 0 to 30
Price when compared to U.S. domestic beers $10 per six pack³Heineken
$7 per six pack--Domestic
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SWOTT Analysis SWO Analysis Threats Threa ts
Increase in Drunk-driving Dr unk-driving laws
Competitors increasing market share U.S. Industry
Mergers and acquisitions acquisitions of other breweries Other Breweries are becoming much muc h larger than Heineken·s Brewery Brewery
´In danger of becoming a tired, reliable, but unexciting brandµ John A. Quelch
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SWOTT Analysis SWO Analysis Oppo Opp or tunity
Low calorie calorie beer be er Society is pushing for a ´healthyµ beer
Russia/Asia Population Population increasing dramatically dramatically
Have greater market share
Hispanic consumer·s are growing growing rapidly U.S. Industry
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