Johann Rupert’s Remgro takes huge Heineken hit

Johann Rupert’s Remgro suffered a loss of R386 million from its investment in Heineken Beverages due to slow industry growth, load-shedding and poor performance of its premium brands.  

This was revealed in Remgro’s results for the six months to the end of December 2023, which showed a disappointing performance from the investment holding company. 

On 26 April, Heineken completed the acquisition of Distell and Namibia Breweries, which have been combined with Heineken South Africa into Heineken Beverages. 

The Dutch giant said the reason for this acquisition was to access significant future growth opportunities in southern Africa and expand its non-beer business. 

Buying Distell gave Heineken ownership of some of the largest ready-to-drink brands in the world, including Savanna and Hunter’s, as well as other brands such as Amarula. 

However, the beginning of this partnership has not gone well, with Heineken writing down the value of the South African business by €491 million (R10 billion) – 16% of the entire business. 

This was due to declining sales volumes of the company’s beer brands, resulting in the South African unit’s revenue declining by low single digits.

Inflationary pressures and higher promotional activity to address a more challenging competitive environment also played a part, Heineken said in its results in February. 

The poor set of results from Heineken Beverages and the decline in value of the business resulted in its contribution to Remgro’s earnings being a R386 million loss. 

This included amortisation and depreciation charges of R178 million relating to the additional assets identified when Heineken Beverages obtained control over Distell and Namibia Breweries. 

Excluding these charges, Heineken Beverages’ contribution amounted to a loss of R208 million. Margins were also negatively impacted by non-recurring expenses related to integration and supply chain challenges. 

“The trading results for six months to 31 December 2023 of Heineken Beverages are not deemed to be an accurate reflection of the long-term prospects of the business,” Remgro said. 

Remgro said Heineken Beverages’ volumes were impacted by lower industry growth, load-shedding, a shift from premium to mainstream, and a challenging competitive environment. 

Heineken Beverages’ portfolio is over-indexed towards premium brands such as Heineken, Heineken Silver, and Amstel. 

In an environment where consumers are under immense pressure from the rising cost of living, they tend to buy down and avoid premium brands. 

However, even in this sector of the market, Heineken seems to be losing ground to AB InBev’s premium brands in South Africa, such as Stella Artois and Corona.

Heineken Beverages’ main competitor in South Africa, South African Breweries (SAB), is producing more beer than ever in the country. 

AB InBev purchased SABMiller in 2016, uniting the world’s two largest brewers to form the largest beer company. 

The South African unit was one of the standout performers for AB InBev in its latest results, managing to report double-digit revenue growth and high single-digit profit growth. 

Its core beer portfolio, including brands such as Black Label and Castle, continued to outperform. Its global brands grew volumes by more than 30%, driven by Corona and Stella Artois.

SAB also said that beer’s share of the alcoholic beverage market had grown to above pre-pandemic levels in South Africa.