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Heineken sees 2011 cost pressure after strong Q1

Heineken NV (HEIN.AS), the world's third-largest brewer, increased beer sales in all regions of the world in the first quarter, but it warned that its strong earnings would not be replicated throughout the year.

Heineken, whose chief brands are Heineken itself and Amstel, Europe's number one and three beers by sales, reported consolidated volumes on Wednesday that were higher than expectations and the first annual increase since the end of 2008.

Growth was strongest in Africa and the Middle East despite unrest in Egypt, but beer sales also rose in the mature and flat western Europe market, due to more drinking in Britain, France and the Netherlands.

Beer consumption also rebounded in Russia from a year ago, when a tripling of excise duty on beer struck.

The Dutch brewer repeated its forecast of a low single-digit increase in input costs per hectolitre.

It also said that higher planned marketing spending this year was likely to impact profits, notably in Europe, still the dominant part of Heineken's business. Almost half of the Dutch brewer's revenue last year came from western Europe.

The growth of volumes and drive to reduce costs resulted in a like-for-like rise of operating profit before one-offs of more than 20 percent in the first quarter.

Chief Financial Officer Rene Hooft Graafland told a news conference that this growth in the first quarter, a less significant period for the group, was not an indication of Heineken's full-year performance.

Heineken's shares were down 1.0 percent at 39.78 euros at 0913 GMT, while the STOXX European food and beverage index .SX3PO was 0.2 percent stronger.

Brokers generally welcomed the trading update and said the weakness of Heineken's shares was likely a reaction to their outperformance in recent weeks -- an 11 percent rise compared with a 7 percent increase of the Stoxx sector index in the past month. "These are a good set of numbers. You can't get away from that," said Trevor Stirling of Bernstein Research. "But the shares have really run up in the past weeks. I think expectations were high among some investors."

JP Morgan Cazenove, which has a 'neutral' rating on the stock said in a morning note it recommended investors take profits, with tougher volume comparisons and higher marketing costs in Europe later in the year.

Consolidated volume rose by a like-for-like 5.5 percent to 33.8 million hectolitres, more than the 32.8 million on average expected in a Reuters poll of 12 brokers.

First-quarter revenue was 3.6 percent higher at 3.59 billion euros, against the average market expectation of 3.57 billion euros.

Rival SABMiller (SAB.L) on Tuesday beat forecasts with a 3 percent rise of beer volumes in the first three months of 2011, led by emerging markets in Africa and Asia. [ID:nLDE73E0W7] (Editing by Mike Nesbit)

21 Apr. 2011

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