(July 29): Heineken NV took an €874 million (US$949 million or RM4.40 billion) impairment on its stake in the largest brewer in China, as consumer spending is under pressure in that key market and in the US and Europe.

The Dutch brewer cited a decline in the valuation of its stake in China’s largest brewer, China Resources Beer Holdings Co, due to concerns about consumer demand in the mainland that have affected its share price. The company also flagged US weakness that’s clouding its prospects.

The shares fell as much as 7.4% early on Monday in Amsterdam, and they are down 7.3% over the past 12 months.

Overall, beer volume grew 2.1% organically in the first half, missing a Bloomberg estimate of 3.7%. Heineken narrowed its forecast for full-year operating profit.

Heineken acquired a 40% stake in the parent of Hong-Kong listed China Resources Beer for US$3.1 billion in 2018. The deal gave Heineken a partner with local distribution reach to navigate the world’s largest beer market. In turn, it allowed the Chinese firm to expand into the premium beer segment.

At the time of the investment, the Chinese consumer market was still surging, but spending has struggled to recover after pandemic lockdowns and a real estate crisis. The slump has taken a toll on European companies across a range of sectors.

The non-cash impairment was a “technical adjustment”, Heineken chief executive officer Dolf van den Brink said in an interview on Bloomberg TV. “We don’t believe this is a fair reflection of the underlying performance,” he added.

The CEO also said the US market continues to be depressed. “We remain cautious on the consumer sentiment, particularly in developed markets like North America and Europe,” he said.

The world’s second-largest brewer said its forecast for full-year operating profit would be between 4% and 8%. Heineken had previously forecast operating profit to grow organically in the low to high single-digit range.

Analysts at RBC said the results were underwhelming, with almost all metrics missing expectations. They highlighted a particularly weak performance in Europe. Competition in that region intensified, with cooler weather in recent weeks.

Van den Brink told Bloomberg TV that Heineken had expected sports events in June and July, which included the European Football Championship, to boost beer volumes. “That unfortunately didn’t materialise, we believe mostly due to the weather being much worse than we were hoping,” he said.

The company, which makes more than 300 beer brands including Amstel, Red Stripe and Sol, said it would step up investment in marketing in the second half, focusing on key markets. Van den Brink said the strength of the company’s premium beers, along with strong performance of its zero-alcohol beer Heineken 0.0, gave him the confidence to invest in countries such as Mexico and South Africa.

The company also said it remains committed to Nigeria, which is suffering from chronic inflation and a currency exchange crisis. Rival Diageo plc is selling its stake in Guinness Nigeria. But Heineken has a lot of capital deployed in the country, said Van den Brink. “We would be foolish to walk away from that,” he said.

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