Heineken hangover at an end

Heineken Beverages has returned to profitability and, while challenges remain, proved to be a strong contributor to Remgro’s solid results for the first half of its 2025 financial year.

However, the company is not out of the woods yet, as challenges that have plagued the company from the start are still present.

Heineken Beverages is the South African unit of the Dutch brewing giant and was formed from the merger of Heineken South Africa, Remgro-owned Distell, and Namibia Breweries. Remgro owns an 18.8% stake in Heineken Beverages.

At the time of the merger, many believed Heineken would excel in South Africa, a country known for its high beer and other alcohol consumption. However, Heineken Beverages has had a difficult start to life in South Africa.

The company’s beer volumes have consistently been under pressure from consumers turning away from its premium brands towards cheaper alternatives.

Remgro CEO Jannie Durand has previously bemoaned the over-indexing of Heineken’s brands towards the premium end of the market. 

While Heineken’s premium brands, such as its namesake, Amstel, and Heineken Silver, allow it to have superior margins over competitors, they prevent the company from competing in the lower end of the market. 

This segment is still dominated by South African Breweries (SAB) brands such as Carling Black Label and the Castle stable of brands.

In 2024, Heineken wrote down the value of its South African business by R10 billion as its performance struggled due to lower beer sales.

This significantly impacted Remgro’s results, as the company faced millions in impairments. Both companies have gone to lengths to turn Heineken’s performance in South Africa around.

This includes launching a 650 ml returnable bottle with the aim of unlocking cost efficiencies through scale. 

The company has also benefitted from a steady decline in pricing pressures and an improvement in the economic environment, which saw a resurgence in Heineken’s beer volumes in South Africa.

These efforts seem to have paid off in recent months, as Remgro’s results for the six months ended 31 December 2024 showed an improvement in Heineken Beverages’ performance.

These results revealed that Heineken Beverages returned to profitability in the six-month period, driven by volume growth and margin recovery.

Heineken challenges remain

Unfortunately, Heineken Beverages’ contribution to Remgro’s headline earnings still amounted to a loss of R11 million, but this is a significant improvement from the previous year’s loss of R386 million. 

The company explained that Heineken Beverages’ contribution includes amortisation and depreciation charges of R77 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 profit of R66 million. 

In addition, excluding Namibia Breweries, Heineken Beverages achieved high-single-digit volume and revenue growth for the six months ended 31 December 2024. 

The company’s beer segment achieved low-teen volume growth, led by Heineken, Windhoek, and Amstel. 

It said the new returnable Heineken glass bottle was successfully launched in the first quarter of the 2024 calendar year at a more affordable price point whilst increasing portfolio profitability. 

The company’s Wine portfolio, led by Paarl Perle and JC Le Roux, achieved low-single-digit volume growth, while spirits achieved low-teens growth. 

Heineken’s cider and ready-to-drink portfolio outperformed the market, led by Savanna’s high-single-digit volume growth and Bernini’s high-twenties volume growth. 

Namibia Breweries achieved mid-teens volume and revenue growth. 

Therefore, things are looking up for Heineken Beverages in South Africa. Between June and December 2024, the company’s intrinsic value grew to R7.16 billion.

Remgro also explained that Heineken Beverages’ fair value exceeded its carrying value on 31 December 2024 by R555 million. 

The company considered whether a partial reversal of impairment was justified. 

However, it ultimately found that, although the investment’s turnaround strategy is bearing fruit, the factors that resulted in the initial impairment are still present. 

“Accordingly, it was decided not to reverse a portion of the impairment at this time,” Remgro said.