Heineken cuts profit growth forecast as higher prices put off consumers

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Heineken cut its outlook for profit growth this year following a sharp slowdown in Asia and as US and European consumers balk at paying more for their beer.

The world’s second-largest brewer reported a 22 per cent decline in operating profits in the first half of the year, with its overall volumes dropping 5.6 per cent, a steeper fall than the 3.4 per cent analysts had forecast.

The Dutch company blamed the “cumulative effect” of price rises and a “challenging economic backdrop” for the subdued first-half performance that was marked by a particularly weak showing in Vietnam, where Heineken is the largest brewer.

With competitors AB InBev and Diageo also reporting half-year earnings this week, analysts are playing close attention to volumes for signs of consumer pushback against price rises as drink makers contend with high input costs.

Like its rivals, Heineken has steadily lifted prices in an effort to offset its own rising costs. However, chief executive Dolf van den Brink said he expected price increases to ease in the second half of the year.

The Heineken chief said demand in Asia-Pacific, the company’s most profitable region, was “considerably softer than foreseen due to an economic slowdown and our own underperformance in Vietnam”.

Bernstein analyst Trevor Stirling said the brewer’s poor performance was in large part driven by events beyond its control but added that the company could have responded more quickly to warning signs in Vietnam. The country’s export-driven economy has been hit by a slump in demand following the global economic slowdown, which has in turn affected consumer sentiment.

“Because Vietnam has been such a great market for so long, it’s taken them by surprise,” said Stirling.

Following the weak first half, Heineken said operating profit growth for the full year would be stable in mid-single digits, down from a previous prediction of mid- to high-single digits.

James Edwardes Jones, analyst at RBC Capital Markets, expressed doubts about the new guidance and said he was “bemused by Heineken’s unapologetic determination to push up prices into a worsening consumer environment”.

“This seems like a massive test of the pricing power of Heineken’s brands — a test that has been less than wholly successful if 1H’s volume decline of 5.4 per cent is anything to go by,” he said.

Shares in Heineken fell 5 per cent on Monday, erasing some of their advance this year.

Van den Brink told the Financial Times that the company had written down its Russia assets to zero, saying: “We just want to be out.” 

The Dutch group, which also makes Tiger, Amstel and Birra Moretti, said it had taken an impairment loss of €201mn so far from its partial exit from Russia.

In April, Heineken announced it had identified a buyer and submitted an application for approval to the Russian authorities. However the company’s status in the country has been complicated by the news earlier this month that its competitor Carlsberg, as well as French consumer goods group Danone, have had their Russian subsidiaries seized by the Kremlin.

Van den Brink added that pending a transaction the company could not make further comment in case it impacted their chances of approval.

“In no way do we intend to withdraw our transaction. We still intend to exit the country,” he said.