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Brewer Heineken Warns on Dollar Impact

Dutch brewer Heineken NV warned on Thursday about the possible negative impact of the dollar on 2005 earnings with sales to the United States making up 10 percent of group turnover.

While the company has hedged 50 percent of its current exposure for 2004, it has no currency cover in place yet for 2005 and a spokeswoman confirmed the world’s number-three brewer had told analysts the impact on operating profits could be 50 million euros in 2005 if current rates continue.

The remarks by Heineken caused a slide in its share price as it reminded investors of the corporate pain for euro-based companies due to its current high exchange rate of $1.24.

At 5:41 a.m. EST Heineken shares were down 1.99 percent at 30.09 euros after a decline of 17 percent in 2003 so far.

Several analysts said on Thursday they had changed their outlook after contacts with the company and spokeswoman Manel Vrijenhoek on Thursday confirmed a "rough guidance based on hypotheses."

"Our closed period starts on Friday so many analysts are calling the investment relations department for a last chat. We have not changed the outlook but the dollar is, of course, impacting a company like ours that does a lot of business in the United States," she said.

Heineken is the second-biggest importer of beer in the United States. Turnover in the United States makes up $760 million on an annual basis.

In September Heineken said the weakening dollar would hurt 2003 profits by 28 million euros and the 2004 figure by 59 million. But the euro was trading around $1.10 at the time and has climbed 12 percent to $1.24 since then.

The brewer reported a small one percent rise in first-half profits to 334 million euros, on a net profit before exceptionals and goodwill amortization level, and predicted similar growth for the full year.

Heineken had earlier this year warned that sales in the United States were hit by bad weather in its main sales regions there.

ABN AMRO downgraded its investment rating on Heineken shares to "reduce" from "hold."

"Our trading update with Heineken reveals the negative impact of exchange rate movements and trading prospects in several of Heineken’s major beer markets are worse than we had anticipated," ABN AMRO analyst Andrew Holland wrote in a note for clients.

"The profit contribution from the U.S. will have fallen from an estimated 260 million euros in 2002 to 57 million in 2005. Forecast 2005 earnings per share growth falls from 17 percent to 13 percent," he added, saying this 2005 downgrade "undermines the bull story for Heineken."

Citigroup Smith Barney lowered its share price target for the brewer to 32 euros from 33.5 euros and kept a "hold" rating. Their analysts said they had a long meeting with Heineken earlier in the week and the bank published a detailed 10-page review including new sales figures which it said came from the company.

Citigroup said Heineken had increased the expected dollar impact on 2003 operating earnings slightly to 45 million from 43, while the 2004 figure was much bigger at 120-130 million euros from 90 million in September.

"For the first time in a meeting with us, Heineken said that growth of its U.S. volumes could be on a slowing trend," Smith Barney said.

Heineken’s main rivals are Anheuser-Busch, SABMiller Plc and Interbrew. Shares in SABMiller were down two percent and Interbrew stock slipped 0.20 percent.

Marcel Michelson

Reuters - 19 December 2003
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