Heineken earnings hit overshadows Tiger bid success
SINGAPORE, Aug 22 – Higher input costs and weak European sales depressed Heineken NV’s earnings in the first six months, overshadowing its promise of a better second half and a minor success in its battle for control of Asia’s Tiger beer.
The world’s third-largest brewer suffered a 4 per cent decline in first-half net profit before one-offs on a like-for-like basis, against market expectations of growth, hit by rising production costs, weakness in Europe and investments in Africa.
Heineken said beer drinking would stay subdued in western Europe in the second half, underlining its need for scale in faster-growing markets such as southeast Asia where it is battling for control of Asia Pacific Breweries (APB).
Heineken raised its stake in APB to about 44.6 per cent after buying shares which sources said were from Singapore’s Temasek Holdings and other shareholders, underlining its resolve to fend off rival Thai Beverage.
The Dutch company, a co-owner of APB since 1931, is seeking control of the Singapore-listed company to gain a larger slice of one of the last beer markets that is still growing rapidly and is not yet dominated by a global brewing group.
Heineken Chief Executive Jean-Francois van Boxmeer told a conference call today that the Heineken and Tiger brands had taken off in southeast Asia in the past 15 years.
“This is the most rapidly growing area with the strongest demographics and strongest economic growth in Asia and we deem that a strategic interest for us,” he said.
Big brewers have sought to boost volumes in emerging markets and steer developed world drinkers to pricier beer. Heineken is among the most reliant on the stagnant European market, which contributed 60 per cent of its revenue and 40 per cent of operating profit in the first half.
Heineken’s first-half operating earnings fell in both western and eastern Europe, but grew in other regions. Cold, wet weather in northern Europe meant far lower sales of thirst-quenching lager.
Group net profit before one-offs dropped to €705 million (RM2.74 billion), at the bottom of the €703-789 million range in a Reuters poll of eight banks and brokerages, for which the average was €737 million.
Heineken shares were 2.5 per cent lower at 1010 GMT, making them among the weakest performers in the FTSEurofirst 300 index of leading European stocks.
The company pushed into Mexico in 2010 and has now set its sights on control of markets including Indonesia, Singapore, Thailand and Vietnam, even if it was only stirred into action by Thai billionaire Charoen Sirivadhanabhakdi.
Charoen, owner of Heineken rival Thai Beverage, has in the past month built up a stake of 26.4 per cent in Fraser and Neave (F&N), the Singapore holding company whose joint venture with Heineken controls APB.
Heineken has bid S$7.94 billion (RM20 billion) for F&N and for all of the APB shares held by others. F&N’s board has approved its S$53 per share bid, but must win backing from shareholders, which also include Japan’s Kirin.
The Dutch brewer also has to prevent Kindest Place, owned by Charoen’s son-in-law, from building its 8.6 per cent stake in APB to 10 per cent, a level that could prevent Heineken from delisting APB.
By buying Temasek’s holding, Heineken has kept it out of the hands of its Thai rivals.
Buying Temasek’s small stake is just another step Heineken is taking to strengthen its grip on APB and to “prevent the Thais from throwing another spanner into their plan,” said Andy Sim, an analyst at DBS Vickers in Singapore.
The S$53 per share offer announced by Heineken on Friday has placed the spotlight back onto Charoen, Thailand’s second-richest man, and Kindest Place, which offered to buy F&N’s direct stake of 7.3 per cent in APB for S$55 a share.
APB shares were flat at S$53 while F&N shares fell 1 per cent to S$8.27. – Reuters