The global brewer announces a huge impairment on its 40% stake in China Resources Beer
Heineken NV, the world’s second-largest brewer, has announced a EUR874 million (USD949 million) impairment on its stake in China Resources Beer Holdings Co, the largest brewer in China.
The Dutch brewer attributed the impairment to a decline in the valuation of its 40% equity stake in China Resources Beer. The decreased valuation stems from worries about consumer demand for beer in China which has badly impacted the share price of the company. Weaknesses in the U.S. and European markets are also clouding Heineken’s overall business outlook.
Following the announcement, Heineken’s share price dropped as much as 7.4% in early trading in Amsterdam, and it has fallen by about 7.3% over the past 12 months.
In terms of performance, Heineken reported a 2.1% organic growth in beer volume for the first half of the year, falling short of the 3.7% growth anticipated by Bloomberg analysts.
This shortfall has led Heineken to narrow its forecast for full-year operating profit growth to between 4% and 8%. Previously, the company had projected operating profit to grow organically in the low to high single-digit range, although market analysts had anticipated growth at the higher end of this range.
Heineken’s investment in China Resources Beer for US$3.1 billion in 2018 was aimed at gaining a foothold in the world’s largest beer market through a local partner with extensive distribution capabilities. The partnership also provided China Resources Beer with an opportunity to expand its brews into the premium beer segment.
However, the expected gains from this investment have been dampened by China’s slow recovery from pandemic lockdowns and an ongoing real estate crisis, which have collectively hindered consumer spending.
Despite the non-cash impairment, Heineken’s CEO Dolf van den Brink described the impairment as a “technical adjustment”, and maintained that it does not accurately reflect the company’s underlying performance. In an interview with Bloomberg TV, van den Brink still expressed caution about future performance because of consumer sentiment, particularly in developed markets such as North America and Europe, which remain depressed.
