Heineken profits miss expectations as Africa, Russia and Middle East sales disappoint

Thomas Buckley
Monday 01 August 2016 11:44 BST
Weaker currencies have hit Heineken's earnings in the UK, Mexico and Nigeria - some of its biggest markets
Weaker currencies have hit Heineken's earnings in the UK, Mexico and Nigeria - some of its biggest markets (Getty)

Heineken, the world’s third-largest brewer, reported sales growth that missed expectations as demand waned in key regions such as Africa, Russia and the Middle East.

First-half beer volumes rose 4.1 per cent, the company said in a statement on Monday, less than the 4.3 per cent estimate, and revenue growth missed analysts’ expectations in all regions apart from Europe.

The below-par performance offset earnings that came in line with analysts’ estimates. Heineken shares fell 2.5 per cent in early Amsterdam trading.

Growth in the period was “modestly disappointing,” Eamonn Ferry, an analyst at Exane BNP Paribas, said in a note.

Heineken has come to rely more on sales outside of its home region amid fierce price competition and ebbing demand in Europe, which accounts for about half of its revenue.

Volumes dipped 5.9 per cent across Africa, the Middle East and Eastern Europe in the second quarter, hurt by a weakening consumer environment in Russia and Nigeria.

Jean-Francois van Boxmeer, chief executive, said cuts to investment and jobs are possible across the broader region if productivity targets are not met.

“While Africa Middle East and Eastern Europe continued to be challenging, performance was strong in some key developing markets such as Vietnam and Mexico,” van Boxmeer said in the statement.

He told CNBC that drinkers in Africa will likely choose its less-expensive brews for months to come.

Sales also missed estimates in the Americas, due to a “slight decline” in Brazil and the US, the company said.

On Friday, Heineken’s rival Anheuser-Busch InBev lowered its forecast for revenue from Brazil this year, now expecting it to be little changed from last year.

The gap between Heineken and market leader Anheuser-Busch InBev will widen if AB InBev completes its £79 billion takeover of SABMiller

Access to Africa is a major factor for AB InBev in the deal but Heineken's experience shows the road there can be bumpy.

Heineken also forecast a much heavier hit from currencies, with a translational impact of €200 million, more than double previous forecasts.

Weaker currencies include that of Heineken's largest market Mexico and the pound in Britain, where it is the market leader, as well as Nigeria's naira, which has abandoned its currency peg to the dollar and fallen by nearly 40 per cent.

The brewer also reiterated its forecast for year-on-year profit margin expansion.

© 2016 Bloomberg

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