Heineken’s gone, but he’s staying

When you buy a bottle of Bochkaryov beer in Russia, you’re still contributing to the state budget. Despite Heineken’s announcement that it would leave the Russian market, the exit has been far from complete. Together with Dutch journalist Olivier van Beemen and Follow The Money, Chronicles analyzed the financial statements of Heineken’s Russian subsidiary for 2021 and 2022. The conclusion: more than a year after the war began, the company remains owned and funded by the multinational corporation — growing profits and seizing the market share left behind by other departing global brands.

Loans to Russia

Heineken not only still owns the Russian United Heineken Breweries Ltd., but continues to manage and finance it.

Two weeks after the start of the Russian invasion of Ukraine, on 9 March 2022, Heineken’s parent company announced that it would stop selling its branded beer in Russia, give up revenues, royalties (a type of licence fee – for example, for the use of a trademark) and dividends from the Russian division, but that the breweries would continue to produce locally branded beverages. Since then, the company has made similar announcements on several occasions.

“Chronicles” together with colleagues from the Netherlands studied the audit report of the Russian subsidiary of Heineken for 2021. The document was prepared by the Russian division of the international company Deloitte (a member of the so-called “big four” audit and consulting companies of the world). The opinion was signed on 29 April 2022, that is, after the outbreak of war and the statement of the parent company about the curtailment of activities in the Russian Federation. This is reflected in the auditor’s report – in the section “Events after the reporting date”, which deals with changes following Russia’s invasion of Ukraine on 24 February 2022.

Heineken’s public statements for 2021, which covered the first months of 2022, stated that “in order to maintain liquidity and continue operating activities” of the Russian representative office, the parent organisation approved a loan to it. Thus, on 3 March 2022, before the announcement of the cessation of sales in Russia, the loan agreement was concluded with Heineken International B.V. (it owns the Russian company). The amount totalled €25 million. The first tranche of €6 million was received on 11 March 2022, after the announcement of the cessation of sales, income, royalties and dividends.

On 28 March 2022, Heineken’s parent company made its second announcement about operating in Russia. The multinational corporation announced that it would completely withdraw from the Russian Federation and transfer the local business to new owners. However, already on 30 March 2022, according to public statements, the Russian company received the second tranche of the “loan line” in the amount of 3 million euros. This is despite the fact that the repayment of foreign currency loans is limited by the decree of the Russian president of 5 March 2022, which Heineken’s Russian division writes about in its 2022 accounts.

Heineken responded in a comment to the Dutch publication Follow The Money that it was not a loan but a gift. The money was only needed to pay off debts, pay salaries and fulfil obligations to suppliers. No interest was charged for this “gift” and it does not need to be repaid. The €25 million credit line has not been recalled, but Heineken claims that after the second tranche was paid, it has not approved any new transfers to Russia and will not do so.

Nevertheless, the parent company has granted the Russian subsidiary a number of loans worth about 7.5 billion rubles (more than 80 million euros for 2023). These loans are still on the subsidiary’s balance sheet, Heineken admits, but the corporation says it will not demand repayment. Heineken does not want to name the exact amount, but said that the risk of non-payment of the loans was included in the write-off of 88 million euros for activities in Russia during 2022.

It should be noted that Heineken International B.V., according to the statements, has lent to the Russian subsidiary before, also in the form of three loans per year. In 2021 – for 7.4 billion rubles, in 2020 – for 8.9 billion rubles, in 2019 – for 6.9 billion rubles. But these were always loans at lower interest rates (1.75-2.6 per cent) than those the company took from banks (5.12-7.45 per cent). But, as the 2023 accounts show, after the start of the Russian invasion of Ukraine and the announcement that Heineken would be winding down its operations in Russia, amid the parent company’s refusal to pay royalties and dividends, rates on intra-group loans rose to 4.7-6.7%.

In fact, it turns out that the Dutch company, which announced its imminent departure from Russia, has continued to fund its operations in the country — with little prospect of getting that money back.

New beer for Russians

A few months ago, Follow The Money wrote that Heineken is not only not in a hurry to leave Russia, but even as if taking advantage of the situation: in 2022, the Russian division of the company registered a number of trade names, including those intended to replace the departed Coca-Cola and Pepsi.

In response, Heineken issued a statement in February 2023. The company denies that it has broken its promise to leave Russia, calls the subsidiary a fully independent legal entity and seeks to preserve the business from nationalisation. Heineken estimates the loss from the future sale of the Russian firm at 300 million euros. The brewing giant promised to completely get rid of its Russian assets in the first half of 2023.

In March 2023, The New York Times wrote that Heineken had allegedly received threats from Russian authorities that a rapid exit from the country could be considered a deliberate bankruptcy. This could be a reason to nationalise the business. That is why the company continued to operate in order not to look insolvent in the eyes of Russian officials.

For the public, the corporation updates a special page on its website with the most frequent questions about its remaining business in Russia. For example, Heineken writes that it will name the buyer of its breweries only when it receives all approvals for the deal from the Russian authorities. The corporation also points out that the Russian market has never been its main market.

In April 2023, the company published its 2022 financial statements, including notes to the balance sheet and statement of financial results. These documents show that the following brands were introduced to the Russian market: Dr Diesel Hard Zeltser, Okhota Platinum, Amstel Fresh, Black Sheep, Bochkarev Czech, Bochkarev British, Royal Cola, Tony Lemony, Botanic Secret and others. Public sources also contain data on new applications for registration of other trade marks.

Although the parent company Heineken still on 9 March 2022 announced that it refuses, among other things, royalties, according to the reports of the Russian representative office for 2022, the cost of them amounted to 1 billion rubles, which is comparable to the pre-war 2021 figure – 1.4 billion rubles.

Despite statements about leaving the Russian market and refusal to sell major beer brands, Heineken’s Russian division almost tripled its net profit for 2022 (RUB 2.6bn compared to RUB 879m for 2021).

Following this, the company’s estimated income tax payable to the Russian budget also increased from RUB 239 million for 2021 to RUB 601.5 million for 2022 (EUR 2.8 million and EUR 8.5 million respectively at the average nominal exchange rate of the euro in 2021).

However, the quarterly report of Heineken’s parent company says that the company is transferring ownership of the business to other entrepreneurs and has already submitted an application to the Russian authorities for approval.

The scandal has not shaken the corporation’s position. Since the beginning of the war in Ukraine, Heineken shares have risen by about 7%.

P. S. Economists at the Swiss University of St Gallen have calculated that less than 9 per cent of foreign companies have left Russia since the start of the war in Ukraine.

Heineken was founded in Amsterdam in 1864. Today the company sells beer in 190 countries and owns more than 300 brands. Among the brands of beer brewed in Russia are Heineken, Amstel, Edelweiss, Desperados, and Krušovice.

United Heineken Breweries Ltd. has been operating since 2002. The first brewery was opened in St. Petersburg. Today the company owns seven breweries: in St. Petersburg, Nizhny Novgorod, Novosibirsk, Sterlitamak, Yekaterinburg, Irkutsk and Khabarovsk.

The material was prepared with the participation of Olivier van Beemen and Follow The Money.