Authorization

Heineken's half-year profits drop amid tough trading

During the last two years, Heineken has moved from three to two in the pecking order of global brewers, although this is nothing to do with it becoming larger.
The Dutch group's rise up the rankings solely reflected the €79bn takeover in late 2016 of the world's number two player, UK-listed SAB Miller, by the market leader AB InBev.
The deal was the biggest and most dramatic step in the consolidation of the global brewing industry.Just over a decade ago, 10 big brewers accounted for half of the global beer market, whereas today just four companies do: AB InBev, Heineken, China Resource Enterprise - owner of the country's top-selling Snow brand - and Carlsberg.If one is measuring by profits, as opposed to volumes of beer brewed, the concentration is starker still.Today's results from Heineken, however, suggest that big is not necessarily beautiful.The Dutch brewer, which apart from the eponymous lager also owns drink brands including Newcastle Brown Ale, John Smith's, Dos Equis, Murphy's stout, Amstel and Strongbow cider, reported a 3% drop in half-year operating profits, to €1.75bn (€1.56bn), in spite of sales rising by 4% to €10.8bn (€9.6bn).
Heineken's half-year profits drop amid tough trading

Image:
Heineken is the biggest brewer in Britain
The shares fell by 6% in early trading, not just because net profits came in below expectations, but also because the company warned profit margins will be hit this year by the translation from earnings overseas into the strong euro.The underlying picture, though, points to a company growing reasonably strongly.While mature markets such as the US and the UK remain challenging due to changes in consumer tastes, notably the craft ale revolution and millennial consumers drinking less alcohol, the real excitement in global brewing is in emerging markets.Here, Heineken has been just as involved as some of its competitors in the consolidation process, buying Asia Pacific Breweries in 2012 and, in 2017, acquiring the loss-making Brazilian operations of Japan's Kirin for $1.2bn.The company admitted today that the acquisition has contributed to its lower guidance for the rest of the year.AB InBev, whose chief executive Carlos Brito is Brazilian, is not giving up its domination of the world's third-largest beer market - it accounts for 33% of beer sales in the country to Heineken's 20% - without a fight and competition is intense.
Heineken is investing heavily in the country, introducing brands such as Amstel and rolling out its "value" offering Schin to more bars, but growing the business is coming at a cost.AB InBev, meanwhile, is also taking the fight to Heineken in markets where it has been stronger, such as Mexico and Nigeria, following its takeover of SAB Miller.Yet there are emerging markets where beer volumes are still growing strongly.Vietnam, Malaysia, Cambodia, Russia, South Africa and Ethiopia were among the countries where beer volumes rose by more than 10%.In Britain, where Heineken is not only the biggest brewer but one of the biggest pub operators - courtesy of its joint takeover of Scottish & Newcastle with Carlsberg in 2008 - things were tougher.Beer volumes slipped, due partly to cold weather during the first three months of the year and the CO2 shortage in June, but the hot summer weather helped make up for that to a degree.The company is investing in its UK pub estate and it appears to be paying off, with stronger sales of its core lager brand.But this is a global game and, as Heineken's results today show, it is more competitive than ever despite the growing concentration in the market.At the same time, the industry faces additional challenges, with even consumers in emerging markets drinking less beer but looking for better quality when they do drink.
More from Business

JLIF investors rebel over ?1.4bn consortium bid


Theresa May dismisses calls for second Brexit referendum in wake of Sky Data poll


GVC and MGM Resorts confirm $200m joint venture


Mirror publisher Reach suffers ?113m loss as regional titles take a hit


Brexit: Farmers fear more crops will rot in fields as EU workers move abroad


Back on track? Northern rail reinstates 75% of cancelled trains

And in some markets, consumers are switching away from beer altogether and substituting it with wine and spirits like gin, as last week's results from Diageo reflect.The competition looks to remain intense for a while.
See also:
Leave a comment
News
  • Latest
  • Read
  • Commented
Calendar Content
«    Декабрь 2018    »
ПнВтСрЧтПтСбВс
 12
3456789
10111213141516
17181920212223
24252627282930
31