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10 things I learned from the 2020 Heineken Malaysia AGM

Listed in 1965 on Bursa Malaysia, Heineken Malaysia Berhad is a brewer that carries a number of well-known brands including Heineken, Tiger Beer, Guinness stout, and Anglia shandy.

Recently, a slew of bad news has hit brewers in Malaysia. For example, Heineken’s brewery operations were temporarily suspended during the movement control order (MCO) period. Some members of the public even called for the suspension of all production and sales of alcoholic beverages in Malaysia as road traffic accidents involving drunk drivers have caught the public’s attention recently. The Kuala Lumpur City Hall has also decided to freeze new liquor licence applications in the capital. How would all this affect Heineken Malaysia’s results?

Here are 10 things I learned from the 2020 Heineken Malaysia AGM:

1. Revenue increased 14.3% year-on-year to RM2.3 billion in 2019 because of robust sales across all its products including the newly launched Heineken  0.0 and Tiger Crystal. Net profit excluding one-off items also improved 11.4% to RM300.8 million over the same period. Expense-wise, promotion expenses surged 69.9% to RM251.8 million year-on-year in 2019 as Heineken Malaysia had spent more promoting these new products during Chinese New Year.

Questions about the revenue contribution from new products and segmental revenue breakdown by channels were raised by Minority Shareholder Watch Group (MSWG) and several shareholders but were not answered by the management.

2. The company’s 1H 2020 revenue dipped 25.8% to RM769.6 million year-on-year because of COVID-19. Its production and business operations in the Sungei Way Brewery were temporarily suspended and it made zero revenue for 46 consecutive days. Its 1H 2020 net profit was down by 67.3% to RM38.8 million while beer volume declined 22%. It incurred an unprecedented net loss of RM18.2 million in the second quarter of 2020 alone.

3. Business activities are gradually recovering while Heineken Malaysia’s on-trade channels like pubs, bars, and coffee shops continue to be impacted. Twenty percent or 1,400 of Heineken’s modern on-trade outlets that operate with liquor licences are still not allowed to open during the recovery MCO period at the point of writing.This represents about 6,000 job losses and RM80 million revenue loss to the Malaysian government in the form of taxes. More consumers opted for takeaway and delivery options amid the pandemic, so Heineken Malaysia continues to help its business partners sell beer to cater to these groups of consumers.

4. The company strengthened its e-commerce presence and launched its business-to-consumer platform, Drinkies.my in 2018 to deliver chilled beer including draught beer to consumers. It expanded the geographic reach of Drinkies.my in Peninsular Malaysia in 2019 and will continue to scale up its operations there. Revenue from this platform reached an all-time high during the MCO period.

5. A shareholder asked if board members were going to take a pay cut. The chairman explained that there has been no revision to the directors’ remuneration in the past five years. Their remuneration is below than that of directors in other fast-moving consumer goods companies. The directors’ remuneration was about 3.2% of its net profit in 2019 while its directors’ remuneration accounted for 7.2% of its net profit in the same year.

6. The management expects its cash flow in 2020 to be impacted by COVID-19 as cash collection from trade receivables slowed. Heineken Malaysia relies on short-term flexible banking facilities to meet its working capital requirements and maintain liquidity during the MCO period. The company does not intend to raise any funds via equity exercises. It also helped its distributors arrange for credit facilities and flexible payment plans to meet their cash flow needs. The management also did not foresee any defaults and increases in its expected credit losses.

7. Dividends per share (DPS) stood at 108 sen in 2019, which translates to a dividend payout of 104.2%. DPS was 94 sen in 2018. Based on Heineken Malaysia’s share price of RM19.92 (as of 14 September 2020), its dividend yield is 5.4%. However, in the first half of 2020, no dividend was declared as the management wanted to be more prudent with its cash. Its 90% dividend payout remains unchanged.

8. Contraband beer makes up 28% of market share in Malaysia. Annually, the Malaysian government loses RM1.5 billion from taxes not paid due to illicit trade. On the other hand, the management will continue to focus its business on the domestic market, while its export business will remain small. New products are in the pipeline and a limited number of new products will be launched each year so that its marketing efforts can be more focussed.

9. Heineken Malaysia does not tolerate drunk driving. The management responded that about 10% of its media budget was allocated towards promoting responsible consumption. About 0.1% of road accident deaths in Malaysia are caused by drunk driving.

10. Heineken Malaysia aims to be water balanced by 2030. As the main ingredient of its products is water. For every hectolitre of water the company uses, it targets to return one hectolitre of water to the environment. Since 2014, it has reduced its water usage by 15%. Through its corporate social responsibility arm, SPARK Foundation, it built a 305-metre clay dyke in Raja Musa Forest Reserve, Selangor to store 150 million litres of water annually.

Liked our analysis of this AGM? Click here to view a complete list of AGMs we’ve attended »

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Shak Chee Hoi

Chee Hoi is an investor and research analyst at The Fifth Person. He was previously involved in wildlife conservation work with a non-governmental organisation as well as sustainability consultancy work. He personally believes in impacting society and the environment for the greater good.

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