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Heineken to cut spending as profit falls

HEINEKEN NV, the biggest Dutch brewer, reported plunging profit and announced plans to cut spending, citing disappointing sales from British assets acquired last year.

Heineken said yesterday that net income for 2008 plunged 74 percent to 209 million euros (US$263 million), hurt by 757 million euros of charges related to writedowns of United Kingdom and Russian assets.

The former Scottish & Newcastle units, whose brands include John Smiths and account for a quarter of Heineken's sales, had "lower-than-expected profits," Chief Executive Officer Jean-Francois van Boxmeer said by phone with Bloomberg News. The UK beer market shrank by 5.5 percent last year, hurt by a pub smoking ban and higher taxes, and has worsened as the nation slides into recession.

"They paid too much for S&N," Gerard Rijk, an analyst at ING in Amsterdam, said before the results. "They need to take action to fight the crisis."

Heineken didn't give any forecast for full-year profit growth. "I don't have a crystal ball," van Boxmeer said.

The median estimate of 10 analysts surveyed by Bloomberg was for a 1.07-billion-euro profit. Excluding acquisitions and the charges, earnings before interest and tax rose 8.7 percent, less than 2007's 20 percent increase.

Sales rose 27 percent to 14.32 billion euros. The quantity of beer sold, excluding acquisitions, gained 3.6 percent.

The shares rose 66 cents, or 3.1 percent, to 21.66 euros at 9:08am in Amsterdam as so-called organic net income, which excludes acquisitions and the writedowns, increased 11 percent. That beat Heineken's previous target of at least "mid-single digits" percentage growth.

The brewer will focus on cost-cutting "everywhere in the company" as it no longer expects the S&N deal to add to earnings per share by 2012, as originally planned. Cost savings from the acquisition have hit 40 million euros so far. "One thing that all the brewers have in common is the prospect of material cost savings," Investec analyst Anthony Geard said. "The market may take some comfort in this." He called Heineken's operating performance "surprisingly strong."


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