Heineken launches TCM2

Hooft Graafland: input costs to rise 6% in 2012

Three-year objective of 500m euros in cost cuts

Heineken is launching a new round of cost-cutting, with a three year programme targeting 500 million euros in savings.

Total Cost Management 2 (TCM2) is to be implemented from this year through to 2014, and follows on from the just-completed original TCM programme, which identified savings of €614m over its three-year run.
 
According to Heineken chief financial officer René Hooft Graafland, there are four areas in which savings will be achieved with Global Business Services, Heineken’s shared service centre that was formed in 2012 which has responsibility for global procurement. This will “leverage our global scale as a company,” he said. “It will be enabler of the concept.”

Beyond this, supply chain will be a big contributor, “not so much by closing breweries but much more by increasing efficiencies in the breweries.” There will also be gains in the commercial realm, as Heineken reduces the number of advertising agencies globally and scales up those that remain, and in wholesaling.

Input costs per hectolitre are forecast to increase by 6% over 2012, with the cost of malted barley cited in particular. This will be a substantial amount of money: Hooft Graafland placed Heineken’s total input costs at €3.5 billion, equating a 6% increase to 200 million euros.

Capital expenditure on property, plant and equipment for 2012 is budgeted at €1.25 billion, a substantial increase over 2011’s €800 million. There will be investment in capacity additions in growth markets and expansion of returnable bottle fleets.

* Heineken announced the formation of its Global Business Services organisation in the summer of 2010, with Frans Eusman appointed the first GBS director. Heineken announced this week that creation of EBS will cost €200m through 2014, of which the first €32m was incurred in 2011.