Heineken Financial Statement Analysis

ntroduction and key facts

Heineken is one of the world's leading brewers. Its flagship brands are the eponymous Heineken and Amstel, with the former accounting for around 20% of volume sales. Europe is Heineken's main market, accounting for an estimated 40% of profits. The company is the regional leader in beer, with Germany, France, Spain and Italy key markets. The US is another major sales area as is Nigeria. Overall, the company is active in over 170 countries worldwide.

Heineken NV: Key Facts

Company name & status: Heineken NV

Headquarters: Netherlands

Sector involvement (2004): Dark beer, Lager by origin, Lager by price platform, Non-/low-alcohol, Stout

Region involvement (2004): Western Europe, Eastern Europe, North America, Latin America, Asia Pacific, Australasia, Africa and Middle East

World ranking (2004): 4.0

World % share (2004): 5.7

Source: Euromonitor International from company reports

Brief history of Heineken

In 1864 Gerard Adriaan Heineken (he was 22 years old) bought a brewery in the centre of Amsterdam, and this is the starting point of the History of Heineken, that is now one of the most famous beer in the world. Since the first years we can see in Heineken's history the wish to increase its market and to spread its activity in foreign countries (right now it sells beer in over 170 countries).

The company's philosophy was to get a high quality product with low price, and with this key points it has become, leader in beer market. Different prizes has been gained by Heineken for the quality of its product and the most prestigious are the gold medals at the Paris Expo in 1875 and 1889, that allowed Heineken to became the beer suppliers of Eiffel tower restaurant.

In spite of the France market, gained in the first twenty years of activity, it is only in the late twenties of 1900 that Heineken has become a truly international company starting construction of breweries in Dutch East Indies (actually Indonesia), and developing its activities in China, south east Asia and New Zealand.

The II World War was a watershed for the history of the company because, if during the war quality of beer became lower, after the peace the leadership of Heineken was able to gain a big peace of market in U.S.

In 1989 Heineken has become the second largest brewer in the world with the world's most international brand, with over 60,000 employed and an annual capacity of 105 million of hectolitres of beer produced.

Organizational Structure

Heineken has wide international presence through a global network of distributors and breweries. Heineken owns and manages one of the world's leading portfolios of beer brands and is one of the world's leading brewers in terms of sales volume and profitability.

This section tells you more about how the Heineken group is organised and managed.

In the following chart is represented the structure of the organization of Heineken and the share ownership for every Legal Entity.

Heineken Holding N.V. holds a 50.005% interest in Heineken N.V. The shares of both companies are listed on Euronext Amsterdam. Options of both shares are traded on the Euronext.Liffe options exchange.

Every Heineken N.V. share held by Heineken Holding N.V. is matched by one share issued by Heineken Holding. The net asset value of one Heineken Holding N.V. share is therefore identical to the net asset value of one Heineken N.V. share. The dividend payable on the two shares is also identical. However, historically, Heineken Holding N.V. shares have traded at a lower price due to technical factors that are market-specific.

L'Arche Holding S.A., a Swiss company owned by the Heineken family in turn holds a 50.005% interest in Heineken Holding N.V. (see explanatory chart).

Standing at the head of the Heineken group Heineken Holding N.V. is not an ordinary holding company. Since its formation in 1952, Heineken Holding N.V.'s objective pursuant to its Articles of Association has been to manage or supervise the Heineken group and to provide services for Heineken N.V.

The role Heineken Holding N.V. has performed for the Heineken group since 1952 has been to safeguard its continuity, independence and stability and create conditions for controlled, steady growth of the Heineken group's activities. The stability provided by this structure has enabled the Heineken group to rise to its present position as the brewer with the widest international presence and one of the world's largest brewing groups.

The global beer market

The global beer market is running a deep geographic change, with the contribution of emerging markets to overall volume sales increasing rapidly. This change to the power base of global beer comes as the malaise affecting core developed markets, such as the US, the UK, Germany and Japan, is deepening. Notably, these four major sales areas have witnessed little or no growth in volume terms in recent years, while emerging market areas, such as Russia, China and Brazil, have performed robustly, with Mexico and South Africa also important. In these markets and on a broader scale, it is rising disposable incomes, greater urbanisation and increasing levels of foreign investment that are proving the major growth drivers. The momentum behind these factors has grown throughout the review period, with Brazil estimated to have overtaken Germany in terms of total volume sales in 2005, whilst by 2007, Russia is expected to have overtaken Germany.

The decline in developed markets has caused a scramble for assets elsewhere, a trend that has become increasingly acute. Following on from the merger of Brazil's AmBev with Belgium's Interbrew in 2004, to form InBev, the last 18 months has witnessed a series of emerging market buys from multinationals. Among the largest have been SABMiller's acquisition of Colombia's Bavaria and Heineken's investments in Russia, where it procured four local brewers