Established in 1964 and listed on Bursa Malaysia in the following year, Heineken Malaysia Berhad produces and sells beer in the country. It forms a duopoly in the local beer market alongside its competitor Carlsberg Malaysia.
Heineken Malaysia boasts a robust brand portfolio, featuring the premium Heineken beer, Tiger beer with its various variants, the classic Guinness stout, and the popular mainstream Anchor beer. Most of these brands enjoy strong brand equity. In 2023, the company celebrated the 150th anniversary of its Heineken brand.
Here are 10 things I learned from the 2024 Heineken Malaysia AGM.
1. Revenue decreased 7.6% year-on-year to RM2.6 billion in 2023 as the company posted a record year in 2022. The year 2022 marked the first year of recovery post-COVID-19, characterized by significant pent-up demand. Consequently, 2023 represented a year of market normalization. In general, consumer sentiment in Malaysia was below average during the first three quarters of 2023, with improvement seen only in the last quarter. A portion of Heineken Malaysia’s revenue was impacted by tourism and sports events.
2. Likewise, net profit decreased by 6.3% to RM386.8 million in 2023. This reduction was mitigated by the absence of the one-off prosperity tax during the year. Administrative expenses were also 12.7% lower at RM106.1 million in 2023 partly because of the organisational rightsizing it undertook a few years ago. The company recorded significantly improved results in 2023 compared to its pre-pandemic levels in 2019, as shown in the historical performance of dividend per share below.
The dividend payout ratio was 100% in 2023, consistent with the company’s past performance. The company will maintain its half-yearly dividend distribution frequency instead of dividend quarterly payment.
3. In Q1 2024, revenue improved 6.6% year-on-year to RM789.2 million because of the Chinese New Year festive season and successful marketing campaigns. It is indeed an encouraging start post normalisation of commercial activities. Net profit increased 11.4% year-on-year to RM122.5 million because of revenue growth and effective cost management. The management regularly eliminates non-performing brands to save costs.
In this quarter, the company benefited from a slightly longer sales period for the festive season. However, from a mid-to-long-term perspective, this effect should even out and should not be a primary focus.
4. Minority Shareholder Watch Group (MSWG) highlighted the increase in finance costs from RM2.9 million in 2022 to RM8.6 million in 2023 despite the decrease in total borrowings from RM170.0 million in 2022 to RM135.0 million in 2023. Finance Director Christiaan Johannes Folkerts explained that the overnight policy rate in Malaysia increased significantly in 2022 and 2023. He added that the company’s borrowings fluctuated throughout 2023 to support business operations. This resulted in higher finance costs in 2023, although borrowings remained at a healthy level.
5. Heineken Malaysia entered into a factoring arrangement in 2023 to support and optimise its working capital and cash flow. Under the programme, the company transfers its outstanding invoices (trade receivables) to a commercial bank (at a discount or with fees) in exchange for cash. After the transfer, the risk of non-payment falls on the bank.
6. The company’s online business-to-consumer platform Drinkies currently captures about 8% of the Malaysia drinking population. Its revenue contribution to the group is currently immaterial at 2% of revenue. It remains to be seen if Drinkies will be an important revenue contributor in the future. In comparison, approximately 40% of pubs in Malaysia were engaged with Heineken Malaysia’s business-to-business digital order transfer platform.
7. The weakening Malaysian ringgit increases input costs as raw materials are usually purchased in U.S. dollars. However, since beer is composed of 90% water, the impact of the weakening ringgit and rising material costs might be manageable. If the U.S. Federal Reserve reduces interest rates in 2024, it is possible that the ringgit could strengthen from its current low.
8. The management moderately increased the pricing of selected products in April 2024 to keep its margins afloat. There was no price increase in 2022 and 2023, despite the company being impacted by higher electricity and raw material costs. The management is committed to ensuring the company’s products remain affordable, a move that has garnered support from its trade partners.
9. Managing director Roland Bala explained to a shareholder that it is not easy for the company to diversify into non-alcoholic drinks like drinking water in Malaysia. The company’s non-alcoholic drinks, such as Heineken 0.0, would not be Halal-certified in Malaysia due to local laws and the Heineken brand. However, the company is diversifying its product portfolio to cater to evolving consumer preferences among younger generations, exemplified by the recent launch of Soju-infused Tiger lager beer. This strategy indicates that there is still room for growth in the mid to long term.
10. The management had discussed plant relocation before COVID-19. However, they concluded that the current factory site is strategic enough to support volume growth in the medium term due to its location within the Klang Valley. The company currently rents external warehouses and will review its long-term plans in line with future growth projections.
The company’s capital expenditure dropped 28% year-on-year to RM143 million in 2023. Some brewery upgrades in 2023 include the upgrade of technology and the modernisation of facilities and wastewater treatment plant, as well as the installation of solar panels at the rooftop of its brewery. The self-generated renewable energy will meet about 15% of the company’s total energy requirements.
The fifth perspective
Market concerns remain including the rising cost of living and weakened consumer sentiment due to the weakening ringgit. Additionally, some companies and brands are facing boycotts arising from geopolitical tensions, requiring Heineken Malaysia to navigate the current consumer landscape carefully.
However, positive signs exist. Tourist arrivals are on the rise, with 29 million visitors in 2023 primarily from Singapore, Indonesia, and Thailand. Furthermore, the company achieved positive quarter-on-quarter results in Q1 2024, suggesting the momentum will likely be maintained throughout 2024.
While beer is a discretionary good, the company can capitalise on its relatively inelastic demand. Beer cannot be readily replaced and is also the cheapest available form of alcohol. Overall, by remaining agile and implementing the right pricing and discount strategies, the company appears well-positioned for continued growth.
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