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Heineken N.V. (AMS:HEIA) Amsterdam, 22 August 2008 - Heineken N.V. announced today that it has substantially completed its review of the acquired Scottish & Newcastle (S&N) businesses:
* It has increased the expected pre-tax synergies from the acquired (S&N) businesses to GBP 145 million from GBP120 million previously (EUR 184 million and EUR 142 million respectively at GBP/EUR 1.27), to be achieved in four years. At the end of August 2008, EUR 60 million of annualised cost synergies have already been realised. * It has prepared the unaudited provisional condensed opening balance sheet from 1 May 2008. In addition Heineken has compiled unaudited, pro-forma condensed income (beia)[1] information for the whole of calendar year 2007 for the acquired S&N businesses. The adjustments have no effect on cash flows. * It has refinanced in part its bank credit facilities related to the S&N acquisition through the raising of EUR 742 million of new long-term debt.
In addition, Heineken announced that it has changed the accounting treatment of joint ventures in the Group's reporting from the proportional consolidation method to the equity method as from 1 January 2008. The comparative figures have been adjusted for this change.
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[1] For an explanation of the terms in this press release please refer to the glossary at the back of the release Outcome of Heineken's review of the acquired S&N businesses
Increase of S&N costs synergies by 30% Heineken has substantially completed its review of the S&N businesses, which it acquired at the end of April 2008.
* Total expected pre-tax synergies over four years increase 30% to GBP 145 million before tax up from GBP 120 million, as a result of an increase in cost synergies to GBP 110 million (EUR 140 million). Based on its review Heineken is also confident that it will realise the expected revenue synergies of GBP 35 million (EUR 45 million). * Restructuring costs related to the synergies are expected to total GBP 95 million before tax (EUR 120 million), mainly related to cash redundancy payments. * Confirmation that the acquisition will be value enhancing by the fourth full year (2012). Due to declining consumer confidence and higher interest rates it is uncertain if the acquisition will be EPS (beia) accretive in 2009. * On an annualised basis, EUR 60 million of synergies related to S&N have already been achieved by the end of August 2008 mainly as a result of:
* Integration of Heineken's UK import organisation into S&N UK * Integration of S&N's import business in the USA into Heineken USA * Closure of the Head Office of S&N
Opening balance sheet and pro forma income (beia) information S&N acquisition
Heineken has drawn up the unaudited provisional condensed opening balance sheet per 1 May 2008. Heineken has also compiled unaudited pro forma condensed income (beia) information for the full year 2007 as if Heineken had acquired the relevant S&N businesses as per 1 January 2007. This pro forma information is derived from S&N's 2007 financial information and adjusted to reflect Heineken's accounting policies, taking into account certain transactions related to the acquisition and using the purchasing accounting method for acquisitions. This method requires measuring assets and liabilities at fair market value per the balance sheet date of 1 May 2008 for the opening balance sheet. The pro-forma condensed income (beia) information does not purport to represent what our actual result of operations would have been had the acquisition of the S&N acquired businesses actually occurred on 1 January 2007, nor are they necessarily indicative of future result of operations. The information is presented for information purposes only.
The adjustments are subject to revision once the provisional accounting has been finalised. Condensed pro forma income (beia) information of S&N businesses acquired by Heineken for 2007 *
2007 H1 2007 H2 2007 FY In millions Euro
Revenue 1,849 1,905 3,754
Raw materials & packaging material 329 340 669 Goods for resale 486 497 983 Marketing & selling expenses 187 163 350 Energy & water 30 27 57 Repair and maintenance 38 33 71 Transport and other expenses 365 343 708 Raw material, consumables and services 1,435 1,403 2,838
Share in profit of associates & joint 7 9 16 ventures
EBIT (beia) 89 214 303
EBITDA (beia) 148 265 413
*Unaudited
* All amounts represented are before exceptional items * Amortisation of brands and customer relationships is not included in line item depreciation & amortisation * Note that this is not an income statement because line items (interest, tax) are missing
Adjustments on pro forma EBIT (beia) of S&N businesses acquired by Heineken for 2007 *
In millions Euro EBIT (beia) as per shareholders' circular 343
Accounting policy alignment 14 Purchasing price allocation 2 Other pro forma -71 adjustments Exchange rate change 15
EBIT (beia) as per pro forma P&L 303
*Unaudited
Notes to adjusted EBIT (beia)
* All adjustments are non-cash items and, therefore, do not have an impact on cash flows of the acquired S&N businesses. * EBIT (beia) is based on historical financial information of the S&N acquired businesses. The pro-forma adjustments reflect the purchase price allocation, accounting policy alignment and other adjustments. * For 2008, the effective tax rate related to S&N income is expected to be in line with the rate of the Heineken Group. The average interest rated related to S&N debt is forecast at 5.8%.
Main adjustments on EBIT (beia): Accounting policy alignment
* Consolidation of pub estate and UK logistic partners. A pub estate partnership and a logistic partnership in the UK are now fully consolidated with minority interest, as opposed to reported under the equity method. + EUR 8 million. * Pension expenses. Pension interest income is reported as part of personnel expenses rather than below the EBIT line as interest income. + EUR 11 million.
Purchasing price allocation effect
* Depreciation and amortisation: Fair market valuation of property, plant and equipment and software led to a lower valuation and consequently a lower depreciation and amortisation. + EUR13 million. * Book gains on pubs. Book gains on the sale of pubs are eliminated as a result of the adjustment to fair value of pubs per 1 January 2007. -EUR 11 million
Main other adjustments
* Deferred income from terminated licence. Heineken will not longer report the amounts received annually in relation to the termination of the license agreement for the Beck's brand in the UK as revenue. -EUR22 million. * Pension expenses. Heineken's actuarial assumptions to calculate pension liabilities resulting in an increase in annual pension expenses mainly due to different mortality tables. -EUR 37 million.
Exchange rate change
* In the pro forma statements an average exchange rate GBP/EUR 1.39 is used versus GBP/EUR 1.35 in the shareholders' circular. + EUR 15 million.
Pro forma segment reporting 2007 S&N businesses acquired*
In millions Euro Revenue 2007 H1 2007 H2 2007 FY Western Europe 1,788 1,845 3,633 Central & Eastern Europe 7 9 16 Americas 46 42 88 Asia Pacific 1 1 2 Headoffice & Eliminations 7 8 15 Total 1,849 1,905 3,754
EBIT (beia) Western Europe 106 226 332 Central & Eastern Europe -3 -2 -5 Americas 9 7 16 Asia Pacific 4 4 8 Headoffice & Eliminations -27 -21 -48 Total 89 214 303
Consolidated Beer & Cider volumes (hls mln) Western Europe - beer 10.3 11.4 21.7 Western Europe - cider 2.1 2.4 4.5 Central & Eastern Europe 0.1 0.1 0.2 Americas 0.4 0.4 0.8 Total 12.9 14.3 27.2
*Unaudited Provisional Opening Balance Sheet per 1 May 2008 of S&N businesses acquired*
Carrying Fair value 1 May 2008 values adjustments Opening B/S Property, plant & equipment 1,681 -73 1,608 Intangible assets 747 1,198 1,672 Investments in associates & 211 389 600 joint ventures Other investments 409 173 582 Advances to customers 150 150 Deferred tax assets 1 7 8 Inventories 307 8 315 Trade and other receivables 931 - 931 Cash and cash equivalents 157 - 157 Assets 4,321 1,702 6,023
Loans and borrowings, interest 3,255 -82 3,173 bearing Loans and borrowings, 367 - 367 non-interest baring Employee benefits 44 172 216 Provisions 116 -9 107 Deferred tax liabilities 76 476 552 Current part loans etc, 590 590 interest bearing Current part loans etc, 1 1 non-interest bearing Bank overdraft 288 288 Other current liabilities 972 14 986 Liabilities 5,709 571 6,280
Net identifiable assets and -1,388 1,131 -257 liabilities Goodwill on acquisition 2,933
Consideration paid 2,676 Net bank overdraft acquired 131 Net cash outflow 2,807
Notes to the Provisional Opening balance sheet and income (beia) information of S&N acquired businesses
* Due to the seasonality of the beer, the provisional opening balance sheet shows a substantially higher working capital and net debt. * The consideration paid (purchase price) can change, as the final settlement with the consortium partner has not been completed. * S&N previously applied the equity accounting method for joint ventures and therefore the change in accounting policy has no impact. * Amounts were converted into euros at GBP/EUR 1.274 for the balance sheet and GBP/EUR 1.39 for the pro-forma income (beia) information. * Consolidation of the assets and liabilities of a pub estate partnership and a logistic partnership in the UK, resulting in an increase of debt by EUR 746 million * Financing from factoring is not netted against receivables anymore but presented as debt resulting in an increase in interest bearing debt of EUR 171 million. * Main fair value adjustments and accounting policy adjustments of the assets and liabilities of S&N:
o Fair value adjustments of intangible assets (excluding goodwill amounts to EUR 1,198 million resulting in a total of EUR 1,672 million of which related to brands (EUR 1,308 million), customer relations and other contracts (EUR 329 million) and software (EUR 35 million). Brands have been assigned a useful life of 15-50 years, customer relations a useful life of 5-8 years. The main brands capitalised are Fosters, Strongbow and Sagres. The amortisation of brands and customer relations are excluded from EBIT (beia) o Associates and joint ventures includes India, which is now valued in line with the pricing of a recent rights issue. o Beamish & Crawford, Ireland has been classified as "Other investments" awaiting the outcome of the review by the Irish Competition Authority o Employee Benefits has been increased by EUR 172 million as a result of the more conservative actuarial assumptions used by Heineken.
Heineken raises EUR 742 million of long-term debt
Heineken has successfully raised a total of EUR 742 million of unrated long-term debt to partially refinance the S&N acquisition bank credit facility and for general corporate purposes. The debt was issued in two markets: Private placement to institutional investors in the USA of unsecured notes for a total principal amount of USD 505 million (EUR 324 million). Repayment dates are: * August 2015 for USD 52.5 million * August 2018 for USD 452.5 million.
Issue of unsecured notes to institutional investors in Germany for a principal amount of EUR 418 million in 8 tranches. Maturity dates are between July 2012 and July 2015.
The average after-swap interest rate for the new long-term debt is 6.25%.
Change of accounting treatment of joint ventures
Heineken has decided to change the accounting treatment of the Group's joint ventures (JVs) from the proportional consolidation method to the equity method. Attached to this press release, Heineken provides the restated 2007 financial information for Heineken N.V.. The pro forma income statement of S&N is not included in the restated financial information.
JVs are those entities over which Heineken has joint control, as established by contractual agreement and requiring unanimous consent for strategic, financial and operating decisions.
Heineken based its decision on Exposure Draft 9 ('ED 9') as issued in September 2007 by the International Accounting Standards Board (IASB), which proposes to only allow the equity accounting method for JVs. It is expected that ED 9 will result in a new standard in 2009. The new accounting policy is also in line with most of Heineken's peers.
The restatement had no impact on equity and profit attributable to equity holders of Heineken.
The joint ventures involved are:
Brau Holding International GmbH & Co KgaA Germany Zagorka Brewery A.D. Bulgaria Pivara Skopje A.D Macedonia Brasseries du Congo S.A. Congo Asia Pacific Investment Pte.Ltd. Singapore Compania Cervecerias Unidas S.A. Chile Tempo Beverages Ltd. Israel Heineken Lion Australia Pty. Australia
