Heineken swallows $949 million charge as limping demand hits its Chinese business
Heineken NV took an €874 million ($949 million) impairment for the decline in valuation of its stake in the largest brewer in China as consumer spending in that key market and the US is under pressure.
The Dutch brewer cited a decline in the valuation of its stake in China’s largest brewer, China Resources Beer Holdings Co., due to concerns about consumer demand in the mainland that have affected its share price. The company also flagged US weakness that’s clouding its prospects.
The shares fell as much as 7.3% early Monday in Amsterdam, and they’re down 5.5% over the past 12 months.
Overall, beer volume grew 2.1% organically in the first half, missing a Bloomberg estimate of 3.7%. Heineken narrowed its forecast for full-year operating profit.
Heineken acquired a 40% stake in the parent of Hong-Kong listed China Resources Beer for $3.1 billion in 2018. The deal gave Heineken a partner with local distribution reach to navigate the world’s largest beer market. In turn, it allowed the Chinese firm to expand into the premium beer segment.
At the time of the investment, the Chinese consumer market was still surging, but spending has struggled to recover after pandemic lockdowns and a real estate crisis. The slump has taken a toll on European companies across a range of sectors.
Chief Executive Dolf van den Brink also said the US market continues to be depressed.
“Consumer confidence remains under historic levels, so we are cautious on our outlook,” he said on a call with reporters.
What Bloomberg Intelligence Says:
Heineken NV’s €874 million impairment on its stake in CR Beer could signal that consumer demand in China may continue to be under pressure amid a muted macroeconomic environment. Under IFRS standards, impairment is typically considered when there is a significant or prolonged decline in the investment’s fair value. CR Beer’s share prices dropped 25% to HK$26.25 as of June 30, down from HK$35 at the time of the 2019 acquisition.
— Duncan Fox, BI consumer-goods analyst
Heineken’s CR Beer Impairment Signals Prolonged Weakness: React
The world’s second-largest brewer said its forecast for full-year operating profit would be between 4% and 8%. Heineken had previously forecast operating profit to grow organically in the low to high single-digit range.
Competition intensified with cooler weather in Northern and Western Europe in recent weeks, the company said, with big sporting events in June and July failing to deliver a significant boost to beer volumes.
The company, which makes more than 300 beer brands including Amstel, Red Stripe and Sol, said it would step up investment in marketing in the second half, focusing on key markets. Van den Brink said the strength of the company’s premium beers, along with strong performance of its zero-alcohol beer Heineken 0.0, gave him the confidence to invest in countries such as Mexico and South Africa.
