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This article first appeared in The Edge Financial Daily on August 29, 2018

KUALA LUMPUR: Heineken Malaysia Bhd is upbeat about its prospects in the Malaysian market in the second half of the year (2H18) as it expects consumer sentiment to remain buoyant.

“We expect it (consumer sentiment) to be positive but maybe a little lower. We’ll have to see if it will change after the SST (sales and services tax) [returns] or after the [tabling of the national] budget, but we still believe it will be high,” Heineken finance director Szilard Voros told reporters after the group’s briefing on its results for the first half of the financial year ended June 30, 2018 (1HFY18).

According to the Malaysian Institute of Economic Research (MIER), the Consumer Sentiment Index breached the 100-point optimism threshold to a 21-year high at 132.9 in the second quarter of this year (2Q18).

For Heineken Malaysia, this positivity translated into a strong year-on-year revenue growth of 8.4% in 1HFY18 to RM855.38 million from RM788.87 million, driven by its commercial campaigns for the Chinese New Year festive period in 1Q and a month-long football campaign in 2Q, thanks to the World Cup season.

The stronger top line, however, failed to boost the bottom line as the brewer incurred higher advertising and promotional (A&P) expenses, which could not be fully mitigated by favourable operational overheads; its net profit retreated 6.2% to RM103.7 million from RM110.6 million.

Heineken Malaysia managing director (MD) Hans Essaadi said the group had spent a lot on A&P to retain market share amid improving consumer sentiment.

“These results demonstrate effective commercial execution in growing our top line, leveraging on Tiger Beer's leading position to deliver an exciting football-inspired campaign to consumers. However, profit before tax declined from last year due to a higher commercial spend and the timing of marketing expenses on these activations,” Essaadi said.

In 1HFY18, the brewer recorded volume growth across its segments, with growth in the mainstream space outpacing premium beverages.

Essaadi, Heineken Malaysia MD since 2013, will be moving on to become Heineken Egypt’s MD from Sept 1. He will be succeeded by Roland Bala, who was recently MD of Cambodia Brewery Ltd, Heineken’s operating company in Cambodia.

 

Beer prices to rise post-SST, but will be lower than under the GST

On the SST's reintroduction, Voros said Heineken Malaysia will pass on the cost increase to consumers, which will lead to higher prices for beers from Sept 17. However, beer prices will still be cheaper than that under the goods and services tax (GST) regime, he said.

Voros also does not expect the new SST to have a big impact on the brewer’s volume growth. “We believe consumer sentiment will continue to be on a high level. So, I hope the volume growth in the first half of the year will [still] be there. For the SST, we don’t expect a big impact but it will still open up a [price] gap compared to [that for] contraband. This is something we have to be careful about,” he said.

He added that A&P expenses for 2HFY18 are expected to moderate compared with that in 1HFY18, to a level comparable with the previous year’s corresponding period.

As for how the three-month “tax holiday”, following the zero-rating of the GST in 3Q, would benefit the group, Voros said: “It is very difficult to say because there are many things [involved] such as the activation of events. We will say it must have been positive because the GST went from 6% to 0% but we have also done a lot in terms of activating our brand.”

Heineken Malaysia shares slid 2.2% or 50 sen at RM22.08 yesterday, with a market capitalisation of RM6.67 billion. The stock has climbed 24.5% from a year ago.

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