Analysis - Will Heineken wobble in margin balancing act?
Heineken released its FY year results yesterday
But, they certainly appeared happier than at any other time in a difficult fiscal 2013, during which the brewer battled continued consumption falls in Europe and a slowdown in key developing markets.
Part of the optimism, we heard CEO Jean-Francois van Boxmeer explain yesterday, was caused by a late-year pick up in Nigeria, which accounts for about half of Heineken's earnings in Africa. The country had spent most of 2013 struggling with economic pressures, which dealt a corresponding blow to Heineken's volumes.
Africa, and by extension Nigeria, is an important market for Heineken as it is here that the company can fully realise the high margins it tirelessly defends for its brand Heineken. As a report from Bernstein Research pointed out last year, the continent's “series of local oligopolies” creates a very favourable pricing environment.
It is perhaps, then, because of renewed confidence in Africa - and in Mexico, where Heineken saw double-digit profit growth in 2013 - that Bernstein today (13 February) predicts a 70 basis-point margin expansion for the brewer in 2014. That prediction is also based on further gains from Heineken's TCM2 cost-saving programme that, according to Bernstein figures, has helped reverse margin declines since it was implemented at the start of 2012.
However, analysts Nomura warn today that Heineken may not have things all its own way with margins this year. While Nomura says that the brewer achieved 20 basis points of margin expansion to group operation profit in 2013, and agrees that Mexico and Nigeria will be “tailwinds” going forward, the analyst has also issued a warning. There's a chance that TCM2 may not deliver as many benefits over the next 12 months as previously, Nomura suggests. Meanwhile, a lacklustre Europe is in line for fresh investment, which will eat into any margin gains, as could the currently volatile foreign exchange market.
As Nomura notes today, Heineken's executives "would not be drawn on specific (margin) guidance for 2014", a move that suggests that, despite their improved mood, too many uncertainties remain for concrete predictions.
Of course, expanding margins is always a balancing act, no matter the environment. However, this year, Heineken will need to be on its toes more than usual if it wants to improve them further.
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