Heineken grows net profit by 19.7% organically in a transformational year

Heineken Holding N.V. today announced:

• The net result of Heineken Holding N.V.’s participating interest in Heineken N.V. for 2010 amounts to €721 million;
• On an organic basis, a net profit (beia) increase of 19.7%, driven by solid EBIT (beia) growth and lower interest expense; Net profit of Heineken N.V. was up 41% to €1,436 million partly due to changes in consolidation scope;
• Organic EBIT (beia) growth of 8.6% as cost saving initiatives, improved pricing and sales mix and higher profit from Heineken’s joint ventures exceeded the effect of lower volume and revenue;
• Heineken brand premium volume growth of 3.4%, further strengthening its position as the world’s leading international premium beer;
• Successful completion of the integration of the beer operations of FEMSA. On a pro forma basis, EBIT (beia) of these operations increased 44% to €397 million for the 12-month period ending December 2010. Pre-tax cost synergies of €42 million have already been realised;
• Total Cost Management (TCM) programme delivered €280 million pre-tax savings in 2010;
• Strong free operating cash flow generation of €1,993 million resulting in a Net debt/EBITDA (beia) ratio of 2.2x, achieving target of below 2.5x ahead of plan;
• Proposed total dividend of €0.76 per ordinary share for 2010 over an enlarged number of shares outstanding (2009: €0.65).

*Including the beer operations of FEMSA on a 12-month pro-forma basis

1. For an explanation of the terms used please refer to the Glossary at the end of the press release

Heineken Holding N.V. engages in no activities other than its participating interest in Heineken N.V. and the management and supervision of and provision of services to that company.

2001 outlook

Heineken expects volume development in Latin America, Africa and Asia to benefit from ongoing robust economic conditions and marketing and investment programmes. Although Heineken expects an improving economic environment in Europe and the USA in 2011, the impact of austerity measures and high unemployment is expected to result in continued cautious consumer behaviour in these markets. The international premium segment will continue outgrowing the overall beer market, benefiting the Heineken® brand and supporting improved sales mix. Heineken forecasts a low-single digit increase in input costs and plans to mitigate this impact through increased pricing.

In Europe, Heineken will shift its prime focus towards volume and value share growth, with increased investments in marketing and innovation in Heineken® and other key brands, further supported by the international roll-out of higher margin brands. Whilst this is expected to affect profit development in Europe in the near term, it underlines Heineken’s commitment to strengthening its leadership position in the region. In addition, continued efforts will be made to improve the performance of companies acquired over the past few years. In the new markets of Mexico and Brazil, improved marketing effectiveness and the realisation of cost synergies will contribute to higher profitability.

The TCM programme will deliver further cost savings, although at a lower level than in 2010 following the earlier than planned realisation of savings in 2010. As a result of ongoing efficiency improvements, Heineken expects a further organic decline in the number of employees.

For 2011, capital expenditure related to property, plant and equipment is forecast to be approximately &EUR;850 million.

Heineken does not expect material changes to the effective tax rate (beia) in 2011 (2010: 27.3%) and forecasts an average interest rate slightly above 5.5%.

Free operating cash flow generation is expected to remain strong, further reducing the level of net debt in 2011. Following two consecutive years of substantially reduced capital expenditure and significantly higher cash flow generation, the cash conversion rate for 2011 will be around 100%.

Total dividend for 2010

The Heineken N.V. dividend policy targets a dividend payout ratio of 30%-35% of full-year net profit (beia). The payment of a total cash dividend of €0.76 per share of €1.60 nominal value for 2010 (total dividend 2009: €0.65) on an enlarged number of shares outstanding will be proposed to the annual meeting of shareholders of Heineken N.V. If approved, a final dividend of €0.50 per share will be paid on 5 May 2011, as an interim dividend of €0.26 per share was paid on 3 September 2010. The payment will be subject to a 15% Dutch withholding tax.

If Heineken N.V. shareholders approve the proposed dividend, Heineken Holding N.V. will, according to its articles of association, pay an identical dividend per ordinary share. A final dividend of €0.50 per ordinary share of €1.60 nominal value will be payable on 5 May 2011. The ex-final dividend date for Heineken Holding N.V. shares will be 27 April 2011.