After years of brisk growth Heineken NV is experiencing a slowdown in Africa that could bite into its earnings for some time.
The world’s third-largest brewer by sales said on Monday that a strong performance in Asia helped it to post a first-half profit that beat market expectations. But weaker developing markets, particularly in Africa, are expected to weigh on earnings in the remainder of the year, it said.
Heineken’s shares were down 3% in early trading in Amsterdam.
The Africa, Middle East and Eastern Europe division, which accounts for roughly 20% of group beer sale volumes, was the weak spot in Heineken’s latest earnings report. The unit posted a 19% drop in operating profit before exceptional items to €267 million ($298 million), while organic volumes fell by 1% in the period.
Amsterdam-based Heineken blamed the slowdown on a raft of challenges, ranging from negative currency developments and falling commodity prices to high inflation and weaker tourism.
Like other big global brewers Heineken has expanded into Africa in recent years as it seeks to benefit from the region’s growing middle class and young population. But the weakening of some African economies, largely because of a collapse in commodity prices, has made the region a drag on growth in recent quarters.
In Nigeria, Africa’s biggest economy and Heineken’s largest market in the region, sales and margins are under pressure as the oil-producing country struggles with lower crude prices, resulting in a shrinking economy and depreciating currency.
Heineken is also experiencing difficulties in Congo. The brewer took a €233 million impairment on its operations, reflecting a weaker economic outlook prompted by lower commodity prices and political uncertainty. It recorded a mid-single digit decline in volumes.
In an interview, Chief Executive Jean François van Boxmeer said the problems in Africa started to emerge last year after more than a decade of growth. The weakness is expected to continue in the medium term, he said. “We have to take a little dip here, it is very difficult to predict how long it will last.”
However, Mr. van Boxmeer said he remains optimistic on Africa’s long-term prospects.
Overall, Heineken reported a profit before exceptional items of €977 million ($1.1 billion) in the first six months of this year, up 7% from the corresponding period last year, while revenue rose 2% to €10.1 billion.
The profit increase was driven by a robust performance in Asia, which has remained an important pillar of growth in recent years. Operating profit in the Asia Pacific region rose 39% in the quarter, while organic revenue rose 12%, lifted by strong growth in Vietnam, Indonesia and Cambodia.
Heineken’s operating profit margin increased by 120 basis points to 16.9%, but the brewer stuck to its full-year guidance of a roughly 40 basis-point expansion, pointing at “adverse economic conditions” in some emerging markets and negative currency effects.
By: The Wall Street Journal.
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