Heineken leaves a bad taste

The performance of Heineken Beverages continues to weigh on Remgro’s finances. Due to its premium pricing, its beer sales remain under pressure in South Africa. 

However, there are some positive signs for Remgro. The company’s cider and ready-to-drink portfolio continues to outperform its peers, thanks largely to Savanna’s dominance. 

Remgro has an effective 18.8% stake in Heineken Beverages, which was formed from the April 2023 merger of Heineken South Africa, Distell, and Namibia Breweries. 

Since the merger, the business has performed poorly, with Heineken writing down the value of the company by R10 billion in early 2024. 

This, and a change in how the company is valued, resulted in the value of Remgro’s stake in the company being effectively cut in half, from R12.49 billion to R6.6 billion. 

Remgro’s latest annual results, released Thursday, show that the company’s performance has not turned around, with its loss contribution widening to R297 million. 

Including accounting charges of R257 million from the amortisation and depreciation of additional assets identified following the merger, the loss widens further to R573 million. 

Heineken Beverages’ performance was a major reason Remgro’s earnings plummeted from R9.62 billion in 2023 to R1.24 billion in the past financial year. Its net profit for the year fell 78% from R5.70 billion to R1.28 billion.

“As a result of the challenges referred to above, the Heineken Beverages trading results for the year under review is not deemed to be an accurate reflection of the long-term prospects of the business,” Remgro said in its results. 

Remgro attributed Heineken’s poor performance to its beer sales coming under pressure amid strong competition and a difficult operating environment. 

While Heineken’s sales remain under pressure, its main competitor, South African Breweries (SAB), is producing and selling its beers at record volumes. 

This is largely due to Heineken’s beer portfolio being over-indexed towards the premium end of the market. As South African consumers come under financial pressure and hunt for value, its brands are unable to compete at the lower end of the market. 

Furthermore, following Ab InBev’s purchase of SAB in 2016, it has rapidly grown its premium brands, such as Stella Artois and Corona, while remaining dominant in other market segments through Black Label and its Castle range. 

There are some signs of a turnaround at Heineken Beverages, and its non-beer portfolio remains a market leader through Savanna, Hunter’s, and Bernini. 

Remgro said Heineken Beverages has implemented various measures to restore both market share and margins. 

In particular, the introduction of the returnable glass bottle of Heineken at the end of the first quarter provided a more affordable yet cost-effective consumer offering. 

Increased investment in support of the Heineken returnable glass bottle launch and revitalisation of the other beer brands will follow through the end of 2024 and into 2025. 

Another positive sign for the company is that its cider and ready-to-drink portfolio continues to go from strength to strength. 

The main reason Heineken wanted to merge with Distell was to acquire its dominant cider brands, Savanna and Hunter’s, as well as Amarula. 

This is part of the Dutch giant’s strategy to reduce its reliance on beer sales for revenue as consumption of the beverage continues to decline in developed economies. 

The spirits, wine, cider and ready-to-drink portfolios outperformed the market in their respective categories over the past year.

Within the cider and ready-to-drink categories, mid-single-digit revenue growth was achieved, with strong momentum continuing in Savanna and Bernini. 

In its latest investor conference call, Heineken said its brands in this category continue to outperform their competitors. 

CEO Dolf van den Brink said the company is seeing strong momentum in sales of its Savanna brand and, encouragingly, its Bernini products. 

The company also said it would increase investment in brands with the greatest long-term potential growth opportunities – singling out its South African brands, among others. 

“In the second half, Heineken will materially step up investment in its brands focused on the greatest opportunities for long-term sustainable growth. Notable increases will be in Mexico, Brazil, Vietnam, India, and South Africa,” it said.

However, Van den Brink said the Dutch giant has significant work to do in the beer segment of its South African business.