The heavy weight has been European beer demand, which fell as much as 4 per
cent during 2009. Mercifully, though, cracks are appearing.
Heineken said yesterday that its organic volumes last year rose 3.6 per cent –
with western European volumes increasing, though only slightly. Although its
earnings per share fell 5 per cent, investors added 5 per cent to the Dutch
company’s shares.
Net debt
Should this return to volume growth be sustained, the world’s top four brewers
by sales would be able to cease their scramble to consolidate in the face of
a declining market and return to regular business: that is, distributing
beer as efficiently as possible. But investors would be mistaken if they
think that will encourage beermakers to adopt a utility-like business model.
For starters, brewers maintain very different levels of net debt (in contrast
with the high leverage of most utilities). Heineken and Carlsberg both carry
debt of about 2.4 times their respective earnings before interest, tax,
depreciation and amortisation. SABMiller has about 1.5 times, and
Anheuser-Busch InBev almost 3 times.
Strategy still matters
And unlike utilities, where higher leverage usually equates to higher returns,
this is not the case for brewers. Lower-leveraged SABMiller’s return on
equity of 13 per cent is almost double that of more-indebted Carlsberg,
according to Bloomberg data.
What it shows is that strategy still matters. Heineken is the most exposed of
the big four brewers to Europe. And despite the recent market jump, Europe,
with its sick economy, is still the lowest-growth beer region in the world.
Before investors become too excited about Heineken’s prospects, they should
wait until the brewer can prove its good result has become a trend.
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