Russia rise beer tax: hangover for Heineken!

The world famous dutch beer company Heineken has kind of a situation in Russia. Russian government increased taxes over beer and Heineken’s revenue shrink in Eastern Europe, a region generating 20% of the company’s revenue! This Russian beer tax as well as recurrent instability in Nigeria are seriously harming the company’s revenue and shares.

What Bloomberg says about it:

Heineken NV, the world’s third- biggest brewer by volume, said first-quarter volume declined as an excise tax increase hurt sales in Russia and Nigerian instability caused slower growth in Africa.

Volume fell 5.3 percent in the three months through January, excluding acquisitions and disposals, the Amsterdam- based company said today. That missed the median estimate of 10 analysts surveyed by Bloomberg that called for a 4.8 percent decline. Revenue slipped 3.5 percent to 2.94 billion euros ($3.95 billion), less than the 2.99 billion-euro estimate.

Heineken gets about 20 percent of its revenue from central and eastern Europe, where volume fell 14 percent after Russia tripled its excise tax on beer to help curb alcohol consumption. In Africa, the source of about 12 percent of group sales, a decline in Nigerian consumption led to slower growth.

“The weakness can be put down to central and eastern Europe, which was expected, and to a slowdown in Africa, which wasn’t,” Andrew Holland, an analyst at Evolution Securities, said by telephone. He has a “neutral” rating on the stock.

Heineken fell 77 cents, or 2.1 percent, to 36.49 euros at 11:48 a.m. in Amsterdam trading, reversing a 1.7 percent gain. The stock has risen 10 percent this year, more than the nine- member Bloomberg Europe Beverages Index’s 8.6 percent advance.

Nigerian Decline

Heineken’s performance was “disappointing” in comparison with SABMiller Plc, which yesterday reported an unexpected 2 percent increase in volume over the same period, Evolution’s Holland said. SABMiller, the world’s second-biggest brewer, was “particularly strong in emerging markets,” he said.

Volume in Heineken’s Africa and Middle East region rose 1.7 percent in the quarter, less than the median estimate of a 4.5 percent increase. Nigeria showed a “mid-single digit” decline due to “the lack of credit in the market,” Chief Financial Officer Rene Hooft Graafland said on a call with investors. The country also faces violence in its oil-rich Niger River Delta region and, since November, a leadership crisis.

Russian sales fell about 40 percent in the quarter, more than the market average, after Heineken increased prices to recoup all of the excise hike in the country, Hooft Graafland said. The brewer is “deliberately giving up share in that market” to focus on its profitable products, he said.

Americas Region

Volume in the Americas region unexpectedly climbed 1.1 percent as stronger sales in Canada and the Caribbean offset “softness” in the U.S., Heineken said. The median estimate of the analysts was for a decline of 4 percent. Asia-Pacific sales climbed 1.7 percent, excluding asset disposals.

Earnings before interest and taxes were “significantly higher” on cost savings and a one-time gain of 142 million euros from asset transfers in Asia, the company said. Heineken increased prices across most of its markets in the quarter, “albeit at a lower level than in 2009,” the company said.

Heineken will increase marketing as a percentage of revenue to 2008 levels this year, though it expects volumes to remain “under pressure,” Hooft Graafland said. The company expects a “modest” benefit from price increases and consumers trading up to pricier brews in 2010, he said.

Sales of the Heineken brand outperformed the company average, rising 6.7 percent on “strong performances” in Italy, Nigeria, and South Africa, the company said.

Heineken said it expects to complete the acquisition of the beer assets of Fomento Economico Mexicano SAB on May 1. After adjusting for Heineken’s accounting policies, the unit’s 2009 earnings were 437 million euros, the statement shows. That means the deal multiple was 12.1 times earnings, rather than the 11.2 times multiple Heineken stated at the time of the acquisition, analysts at Evolution Securities said in a note today.


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