On Monday, July 29, the stock price of Dutch beer manufacturer Heineken dropped nearly 8% as expectations for beer sales driven by sporting events fell short, while the company recorded an impairment loss of 874 million euros ($948 million) for its investments in China.
Heineken, the top-selling beer manufacturer in Europe, raised its full-year operating profit forecast, but some analysts are cautious about this projection. The company reported a 12.5% increase in operating profit in the first six months of this year, slightly below the analysts’ consensus forecast of 13.2%. At the same time, its first-half revenue and sales volume also fell slightly below market expectations.
Heineken now expects the organic operating profit growth rate for 2024 to be between 4% and 8%, still lower than the analysts’ current forecast of 8.2% growth.
Chief Financial Officer Harold van den Broek stated that the poor performance in Europe during June and July was partly due to the cool weather affecting Heineken’s sales in the region. Additionally, the anticipated boost in performance from sporting events did not materialize.
According to Reuters, Heineken and other European beer producers expect beer sales to increase this year, driven by events such as the 2024 European Football Championship hosted in Germany and the Paris Olympics in France.
Heineken’s competitors also saw their stock prices decline on Monday, with Carlsberg falling by 4% and Anheuser-Busch InBev dropping by 0.8%. Both companies have not yet released their semi-annual financial reports.
According to Bloomberg, Heineken recorded an impairment of 874 million euros ($948 million) for its stake in China’s largest beer producer.
The Dutch beer manufacturer noted that concerns over consumer demand in mainland China led to a decrease in the valuation of its stake in China Resources Beer Holdings Co., affecting its stock price.
Earlier on Monday, the company’s stock price fell by 7.4% in Amsterdam, accumulating a 7.3% decline over the past 12 months.
Overall, Heineken saw organic beer sales grow by 2.1% in the first half of the year, below Bloomberg’s expectation of 3.7%.
In 2018, Heineken acquired a 40% majority stake in China Resources Beer Company, listed in Hong Kong, for $3.1 billion, allowing the Chinese company to enter the high-end beer market.
At the time of this investment, the Chinese consumer market was still soaring, but consumer spending has faced challenges in the aftermath of the pandemic lockdowns and real estate crises.
Bloomberg analysts suggest that Heineken’s impairment of its stake in China Resources Beer by 874 million euros may indicate continued pressure on consumer demand in China amid a sluggish macroeconomic environment. Under the International Financial Reporting Standards, impairments are typically considered when the fair value of investments significantly or persistently decreases. As of June 30, China Resources Beer’s stock price has fallen from 35 Hong Kong dollars at the time of acquisition in 2019 to 26.25 Hong Kong dollars, a decline of 25%.