The Joy of Six: Heineken’s ‘compelling’ rationale for APB buy

By Ben BOUCKLEY contact

- Last updated on GMT

Picture Copyright: Niek Beck/Flickr
Picture Copyright: Niek Beck/Flickr
After Heineken successfully netted Asia Pacific Breweries (APB), CEO and chair Jean-François van Boxmeer told investors that there were ‘six key reasons’ why the capture was compelling.

Dust has yet to settle on the blockbuster deal of up to S$8bn ($6.53bn) but Heineken expects to complete it in November following regulatory approvals in Singapore and New Zealand.

1. Penetrating Southeast Asia

APB saw PBIT up 28.5% to S$615m, and van Boxmeer (below) said the main rationale was “direct access”​ to two of the fastest-growing global beer regions: Firstly, Southeast Asia (SEA) & the Pacific Islands, and secondly, China.


Citing Plato statistics, Heineken's chief noted CAGR estimates of 4.8% from 2011-2020 in SEA and the Pacific Islands, which offers a profit pool of €1.3bn/US$1.69bn and an attractive 53% of consumers under 30 within a 614m population.

China offers a 3.6% CAGR over the forecast period and a population of 1.399bn.

“We will be able to increase the speed of execution and fully exploit growth possibilities in these fast-growing beer markets,” ​van Boxmeer said.

Stressing that SEA represented 10% of Asia Pacific volumes but yielded a profit pool of 25%, van Boxmeer added: “It is important to note that while China accounts for 70% of Asia Pacific regional volumes, it only accounts for around 20% of the profit pool.”

2.  APB’s strong regional foothold

APB has number 1 and 2 positions in 10 SEA and Pacific markets, versus Kirin (5) and Carlsberg (4), which van Boxmeer said was a “strong strategic advantage” ​in capturing future growth.

3. ‘Tyger! Tyger! burning bright!’

Archaic English spelling of ‘tiger’ aside, Heineken plans to target the international premium segment with Tiger as well as its eponymous brand, van Boxmeer said, citing Plato growth estimates of 8% per annum growth (2011-2020) in SEA and the Pacific Islands and 12% in China.

“By the end of 2011, Vietnam overtook France to become the second-largest market globally for the Heineken brand,”​ he said, adding that the brand had averaged 10.2% growth in Asia since 2001.

While Tiger is brewed in 10 markets and exported to 65+ countries, Boxmeer said more opportunities existed to exploit its international potential given 5% CAGR growth over the last 10 years.

“Direct ownership of Tiger will reinforce Heineken’s position as the world’s leading premium beer maker. We plan to leverage Heineken’s extensive sales and distribution reach to increase availability of Tiger across certain of our markets,”​ he said.

4. Bolstering regional brands

Given APB’s diverse portfolio of local and regional brands, van Boxmeer said brands such as Bintang, Larue, Tui and Anchor “strong heritage and established positions that address local needs”.

“These brands have significantly contributed to the success of APB, and are vital to Heineken’s ongoing success in the region,” he added.

5. Cracking the China Syndrome

While Plato forecasts that the Chinese beer market as whole will average 4% growth to 2020, van Boxmeer said the analysis firm estimated that the premium segment would offer 12% per annum.

“Our strategy in China is focused on capturing growth in the profitable and developing international premium segment with both the Heineken and the Tiger brands,” ​van Boxmeer said.

“Growing consumer appeal for international brands, increased urbanization and new outlet development in the on premise channels are all expected to lead increased demand for premium beer.

“While profitability in China is low, the international premium beer segment offers superior pricing and correspondingly higher profitability.”

6. Boosts emerging market exposure

Finally, van Boxmeer said the APB deal increased Heineken’s emerging market exposure: post completion group exposure to emerging markets will rise from 59% to 62%, where the latter represents 178mhl.

Heineken is now the No.2 brand by volume in SEA and the Pacific Islands and No 2. In the international premium segment in China.

It is the market leader in India/Sri Lanka, No.2 in Africa and the Middle East, No.2 in Latin America and No.2 in Eastern Europe (including Russia).

“By gaining access to Southeast Asia, the Pacific Islands and China, Heineken will have the broadest emerging market footprint compared to its international brewing peers,” ​van Boxmeer said.

The APB markets of Vietnam and Thailand are two of the top countries globally for incremental volume growth through to 2020.”

Van Boxmeer added: “Importantly, Heineken also has a well-diversified geographic footprint with a lack of dependency on any particular country or region.”

Analyst queries APB changes

So what will change at APB? Answering this question (on a call) from Nomura analyst Ian Shackleton, van Boxmeer said: “This is not a deal where synergistic costs lead, what leads is markets in Asia, the speed and ambition we can have in developing existing APB markets and new markets in Asia.

“Secondly, full ownership of the Tiger brand gives us an additional incentive to invest behind the brand in other regions beyond APB’s traditional territory.”

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