Other beers still can't reach Heineken with turnover at €450m
Published 18/02/2013 | 04:00
I have always found beer bitter, but Heineken shares sweet. Now it is a global product and few breweries embrace this expansive role the way the Dutch giant does. Heineken drinkers certainly don't seem to find the group's products bitter – with the firm's turnover at some €450m.
Heineken's current dilemma is not in keeping up the sales momentum of its range of global brands – which it is doing quite nicely – but of positioning itself in the ever more complex world of international brands.
Heineken is well practiced at elbowing itself into key markets. It proved just how fleet of foot it was when history's greatest liquor marketing opportunity opened up in the US with the end of Prohibition.
It is reckoned it took Heineken just three days to land its first shipment of beer in the States and it has scarcely looked back since then.
It is now the third biggest beer company in the world after ABinBev (the company that produces Budweiser and Stella Artois) and Carlsberg.
Heineken was founded in 1864 by 22-year-old Gerard Heineken when he bought a brewery called the 'Haystack' in Amsterdam. Today, Heineken sells in 180 countries with operations in 71 of them, and employs 70,000 people worldwide. It has 250 brands, of which Heineken is the principal global brand. Other recognisable brands include Fosters, Amstel, Tiger, Bulmers, Newcastle Brown Ale and Murphys Stout. It also has a non-alcoholic beer, Buckler, known to be an occasional tipple of George W Bush and Joe Biden.
Rather like the Guinness family, Heineken had a dynastic ring to it. The company boasts four generations of Heinekens (Guinness had seven up to the advent of Diageo); however, in its case, the Heinekens still call the shots. The richest woman in Holland is said to be the Heineken heiress, Charlene, with an estimated wealth of €5bn.
The original founder of the company got lucky when he hired Dr Eduard Elion, a pupil of the famous Louis Pasteur, who identified the properties in yeast that the company still uses in brewing.
It has also had in its time an impressive succession of talented managers, especially 'Freddy' Heineken. In the 1970s and 80s he is credited with building the international brand. And results last week spelled out the interesting global dimension of this international success, as Heineken revenue for 2012 was €18.4bn, up from €17bn.
Interestingly, the company has shown a €1bn revenue increase each year for the last four years. Profits are almost double those of 2011, due mainly to an equity re-evaluation. Investors like revenue streams to be global and Heineken meets this criteria.
Another acid test for investors is increasing dividends. Heineken investors should be satisfied with an increased dividend of 7.5pc to €0.89 per share. Share price stands at €54 per share, giving the company a market cap of €32bn.
Heineken has a global footprint of five regions: western Europe, central and eastern Europe, Americas, Asia and Africa and the Middle East. Western Europe accounts for 40pc of Heineken profits. In the Americas the company has strong beer brands in 'Sol' and 'Bohemia' and significant markets in Mexico and Brazil.
This follows the acquisition of FEMSA (beer division), a Mexican conglomerate. However, the proposed tie-up between Grupo Modelo and ABinBev, could be a threat to Heineken in the US.
The merged company would control 46pc of the $80bn market. It is now being examined by the relevant US authority. It is unlikely Heineken will shed any tears should the merger not go ahead, for commercial or other reasons. They were not happy that ABinBev provided the EU with information as to price fixing in the Dutch Market. Heineken was fined €220m.
Central and Eastern Europe has sales in excess of €3bn.
While Heineken is number one in many European markets, it lags behind Carlsberg in the critical Russian market. In the Asia and Pacific region, Heineken recognises its growing importance. Recently the group concluded a joint venture with United Breweries in India. They were also successful in gaining control of Asia Pacific Breweries (Tiger Beers) for €5.3bn after a bruising battle last year. The Africa and Middle East region has a turnover of €2bn and the company has high expectations for Africa citing a growing middle class.
In summary, Heineken is a global brewer whose shares have performed well in recent times.
Dr John Lynch is a former chair-man of CIE. Nothing published in this section should be taken as a recommendation, either implicit or explicit, to buy or sell any of the shares mentioned.