UK goes flat for Heineken as S&N deal costs it £45.5m

BREWER Heineken is to slash the value of its UK business by 50 million (£45.5m) less than a year after it bought into the British market through its acquisition of Scottish & Newcastle.

The writedown at the UK arm, which is dominated by the former S&N assets, came as Heineken chief executive Jean Francois van Boxmeer admitted that 2008 had been an extremely tough trading year in Britain for the beer giant.

But the Dutch brewer, which snapped up the UK operations of S&N last spring in a £7.8 billion carve-up with Denmark's Carlsberg, denied yesterday that the writedown meant it had overpaid for the Scottish drinks firm.

Van Boxmeer said: "The price we paid was last year (since when the value of sterling has plummeted].
"With hindsight you can say whatever you like. But the strategic rationale remains intact despite the recession."

Heineken yesterday revealed that global sales rose 27 per cent in 2008, but net profit dipped 9.5 per cent to 1.01bn.

The latter figure contrasted sharply with results from Carlsberg, which yesterday posted a 52 per cent rise in operating profit to 8 billion Danish kroner (£947m). Carlsberg took over S&N's Russian, French and Chinese operations as part of last year's takeover.

Analysts said acquisitions, of which S&N was easily the biggest, dragged back Heineken's organic performance, where profits were up 11 per cent. As well as the UK writedown there were also impairment charges against its Russian and Indian businesses. Van Boxmeer said that, in the UK, the company had been hit by "a severe recession, two excise duty increases, the smoking ban and one of the worst of British summers".

Heineken's on-trade volumes in the UK plunged 8.9 per cent. This was nearly twice the fall in the UK brewing market, with Foster's the worst performer, down 10 per cent.

Van Boxmeer said Foster's was the major disappointment, but that the group remained committed to the brand, one of those inherited from S&N along with the likes of Kronenbourg 1664 and Newcastle Brown Ale.

The Heineken brand, now integrated with S&N in the UK, performed far better, with volumes up 24 per cent.
Meanwhile, volumes at the former S&N cider operations, including flagship brands Bulmers Original and Strongbow, rose 8.6 per cent.

The Heineken chief executive said it would be difficult in the UK in 2009. "I hope it will be less tough (than 2008] but I don't have a crystal ball," he said.

Van Boxmeer, who yesterday launched a three-year costcutting programme globally following 486m taken out of the costbase in the past three years, indicated further job cuts were likely.

"It is indeed true that, as we go for further restructuring, more jobs will go," he said.

No precise targets, or geographical breakdowns, were given. A total of 700 UK redundancies have already been announced, including 200 when the S&N brewery in Berkshire closes in 2010.

Heineken shut S&N's former company HQ in St Andrew Square in Edinburgh last August with the loss of about 85 posts. The group's UK head office is now in The Gyle, Edinburgh.

Van Boxmeer added that non-core asset sales would be considered to improve cash flow in the recession. But he said Heineken remained committed to the 2,000 pubs it had inherited from S&N.