Dutch brewer Heineken, the owner of Savanna ciders, JC Le Roux sparkling wines and Klipdrift brandy in SA, has written down value of its local business by R10bn as a result of inflation and a tough competitive environment, casting doubt on future earnings and the group’s cost of capital.
On Wednesday, the world’s second-largest brewing company reported its 2023 annual results to end-December that included a 4.7% drop in sales volumes of beer and other alcoholic drinks globally. Nigeria and Vietnam were to blame for 60% of the decline in consumption as economic and political conditions hurt sales in those markets, Reuters reported.
In a media release accompanying its results, Heineken said impairments of its SA business amounted to €491m, or 16%, of the local business’s value. The Heineken Beverages SA business includes Amstel and Namibian Breweries, which produces Windhoek and the former Distell brands.
The note was not clear whether the impairment includes Heineken’s Namibian assets, their local beer business or part of the Distell business, which they bought for R40bn in 2021. The former Distell business includes the Nederburg and 4th Street wines and Hunters Dry brands.
Heineken said in its release “inflationary pressures” and having to spend more to support or advertise its brands to address a more “challenging competitive environment” played a role in the impairment.
In SA, Heineken competes with SAB, a division of AB InBev — the world’s largest brewer.
The results also show that revenue from its SA business fell by low single digits, albeit with a recovery in the fourth quarter, but still lagged behind the total global alcohol market.
The improvement in sales in the last three months of 2023 in SA was led by Heineken beer following the launch of the Heineken silver brand and sturdy sales of Windhoek and Amstel beers after it increased prices.
Reuters reported that beer makers globally have increased their prices to offset higher production costs.
Heineken’s Savanna and Bernini brands also performed well, the group said, noting that “in SA our cider portfolio outperformed the category and strengthened our leadership position, driven by the strong performance of Savanna”.
Overall, Africa’s beer volume fell 6.3% in 2023, with double-digit growth in Ethiopia, Tunisia and Algeria more than offset by falling volumes in Nigeria and SA.
One reason Heineken bought Distell was to counter US consumers moving away from beer to flavoured alcoholic drinks, and ciders. Its “beyond beer” strategy adds drinks with lower calories, flavours or a lower alcohol content to the portfolio.
“Following the acquisition of Distell, Heineken is now the number one player outside the US in beyond beer alcohol, the fastest-growing space in alcoholic beverages,” the company said.
“We are investing to further unlock new growth opportunities beyond beer for flavoured, moderate alcohol propositions to meet different consumer occasions.”
Heineken said it also was experimenting with premium soft drinks made with natural ingredients in Brazil and in SA, where it launched the Vitafit Aday brand.
For the 2023 financial year globally, Heineken reported 1.7% growth in operating profit to €3.2bn while net income was down 4.3% to €2.3bn.
With Reuters
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