Heineken is mainly collecting dividends from its costly venture into emerging markets at the beginning of the century. Commercial performance in the Asia-Pacific and Africa-Middle East regions is offsetting the decline in sales and profits in Europe, North America and Brazil, where Heineken still sells two-thirds of its total volume.
In this context, the group's strategy of "premiumization" of its eponymous brand is working well. It enables the group to raise prices without sacrificing volume in emerging countries. The success of this equation depends largely on Heineken's success in China, where the Dutch company has established itself by acquiring a fifth of the capital of China Resources Beer, the large national brewer and state-owned company.
However, these successes cannot hide the difficulties encountered in Europe, where distributors, now grouped into formidable buying groups, are gradually eroding brewers' margins, or in the US, where Heineken now has to contend with a very punitive tariff in a market that is so sensitive to shelf prices.
The situation in the Americas is particularly worrying, precisely because of Brazil and the US. The Dutch company's sales fell by 12% in recent months, and its operating profit by 14.6% despite stable volumes; the fall of the dollar against the euro is another headwind this half-year.
This news has resulted in a 4.4% decline in Heineken's consolidated sales and pressure on cash flow, although management has announced that it should return to normal in the second half of the year. Last year, Heineken managed to generate €3bn in free cash flow. Seen in this light, its market capitalization of $40bn appears to be fairly reasonable.
MarketScreener analysts also believe that the Dutch company could announce an increase in capital returns – dividends and share buybacks – to shareholders. Over the past five years, it has returned only half of its cash profits to shareholders, no doubt in preparation for a new external growth operation.
However, given its valuation, its best investment may ultimately lie in its own shares. In an increasingly uncertain international trading environment, there is no doubt that many shareholders want this.
