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Heineken expands in China

04-Apr-2005

Heineken last week announced its decision to acquire a 40 per cent stake in the Chinese brewery Jiangsu DaFuHao, after intimating in its February results that it would continue to look for investment opportunities.

The Dutch beer company said the agreement had come about through its associated company, Heineken-APB (China) Pte Ltd (HAPBC) and Nantong Alcohol Industry.

The total acquisition is said to be valued at $28.6 million (€22.1 million) of which Heineken will take a 46.1 percent (€10.2 million) share.

The transaction - which should strengthen the beer giant's market position in the regions of Jiangsu and Shanghai - will be funded from existing cash resources and the investment is expected to be earnings accretive in 2005, according to Heineken.

"Jiangsu DaFuHao's profitability in a competitive market such as Jiangsu, is a testament to its strength," said Thony Ruys, Heineken's chairman.

"With a strong position in one of the key beer markets in China, the acquisition of DaFuHao is a further step in our long-term growth path in China," he added.

Back in February when discussing the company's results, he had said that Heineken would continue to look for selective investment opportunities, but acknowledged that the benefits of additional volumes from acquisitions were likely to be more than offset by the impact of currency exchanges and additional marketing expenditure.

China, in the past, had in particular been highlighted as a market of interest.

DaFuHao is based in Nantong in the Jiangsu Province, on China's southeast coast. According to Heineken, it is one of the most profitable breweries in Jiangsu, owning a total of four breweries with an overall production capacity of 3.5 million hectolitres.

It brews, markets and distributes major beer brands including "BBOSS", Tongzhou and Changjiang.

The DaFuHao stake is HAPBC's second recent investment in China. In January 2004 it acquired a 21 per cent interest in Kingway Brewery, which brews the beer of the same name in the Guangdong province.

China is the largest beer market in the world with a sales volume of 291 million hectolitres of beer in 2004 and an annual growth rate of about 15 percent.

Heineken's results, as reported in February, were a mixed bag that highlighted the need to cut costs and increase advertising expenditure.

The brewer reported net profits down 32.7 per cent at €537 million for 2004, partially as a result of the €190 million charge relating to the write down of its investment in Brazilian brewer Kaiser. But the company - which describes itself as the world's most international brewer - also struggled to cope with currency fluctuations during the year, with the US dollar contributing in particular to a €99 million negative impact.

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