Heineken Holding

Ladies and gentlemen, hello and welcome to the Heineken NV 2020 half-year results. My name is Maxine and I'll be coordinating the call today. If you would like to ask a question during the presentation, you may do so by pressing star followed by one on your telephone keypads. I will now hand you over to your host, Heineken, to begin. Please go ahead when you're ready.

Good morning, everyone. Thank you for joining us for our 2020 half-year results conference call. Today's call will be hosted by Dolph Van Den Brink, our CEO, and Laurence Debreu, our CFO. Following the presentation and our results, we will be happy to take your questions. Some of the information provided during today's call contains statements of future expectations and other forward-looking statements. These expectations are based on management's current views and involve known and unknown risks and uncertainties. It is possible that the actual results may differ materially from those expressed in the forward-looking statement. With that, I would like to hand the call over to Dolf.

Thank you, Federico, and welcome everyone. Today is my first time speaking to you as the new CEO of Heineken, and on behalf of all of us at Heineken, I truly hope you and your families are all well and safe. Following in the footsteps of Jean-Francois, I would like to start by paying tribute to him. Jean-Francois has made countless contributions during his 15 years as our CEO, making Heineken the proud and independent brewer it is today. He's not only an incredible leader, but also a very special person. I want to thank him for his many contributions and personally for his support, especially over the transition period. I feel humbled and honored to have assumed this responsibility. It feels like yesterday that I started at Heineken as a commercial management trainee here in the Netherlands. In these 22 years, Heineken took me and my family on an incredible journey all over the world, living and working in all four of our regions. I've enjoyed working in all those different places, and these experiences have shaped me into the person and the leader I am today. I'm now very happy to have returned home. My new role started in the midst of a crisis unlike any other we have faced in our lifetimes. Having witnessed this pandemic and its effects from the very start in Asia, it's clear to me how much our lives and livelihoods are being impacted. Our first priority has been and continues to be the health and safety of all our people, our families and our communities. I'm so proud and impressed by how all at Heineken have taken care of each other and of our customers, suppliers and local communities. We all adapted to new ways of working. We have supported local communities and frontline medical facilities with donations worth 23 million euros, including water, non-alcoholic beverages and hand sanitizers. Throughout, our Heineken values have been our guiding stars like never before. We know that for Heineken to do well, our communities and the environment around us need to do well too. And that's why supporting our customers is and will remain one of our key focus areas. In the slide you see just a small selection of the right range of initiatives to support our customers. We provide advice and tools to safely reopen. helping them set up home delivery and online businesses, and in some cases, providing some financial support, for instance, by waiving rental payments where lease agreements are involved. In more than 20 markets, our Back the Bars initiative has helped more than 50,000 outlets, with 300,000 vouchers raising over 10 million euros. These can be redeemed when the bars open again and the owners receive the monetary value immediately to enable them to continue paying their fixed costs. We are proud to have been able to provide this support. However, it is essential that we don't get lost in just managing the crisis and make sure we also build the future and sustain our growth in a fast-changing world going forward. We're not underestimating the pandemic's impact and are mindful of the material effect it's having on our business. No one knows how long this pandemic will last, nor how large the impact will be. But we are Heineken, and in our 155-year history, we've weathered countless storms. And in moments of profound change in the world, we often have had the courage to act as pioneers. I believe, as such, our best times are still ahead of us. With our entrepreneurial spirit, once again, we can and will be pioneers, continuing our long success story. So today, we would like to do two things. We would like to cover our half-year results and explain how we are navigating the crisis. Throughout the presentations, Laurence and I will be reflecting on our three key focus areas as highlighted on this slide. Focus on people and safety, focus on consumers and customers, and focus on cost. I will come back later to explain what we are doing to build the future. Now let's first cover our results for the first six months of the year. Our markets and businesses were materially impacted by the COVID pandemic. Our top-line performance suffered as multiple countries took far-reaching measures to mitigate the spread of the virus. Beer volume declined organically 11.5%. The low point was definitely in April. Since then, we have seen week-by-week improvements across the majority of our markets, although a slow recovery. June was a strong month, but not a reference to use for the coming months as it was flattered by customers rebuilding inventories after the lockdowns. The situation is still very volatile, and in recent weeks we have seen renewed bans on the sale of alcohol in South Africa and in some states in Mexico, and a resurgence of the pandemic in several countries. However, in this very volatile world, the Heineken brand again demonstrated its strength and declined by only 2.5%. I will come back to talk more about this good performance. Net revenue per hectare was down 3.6% organically due to adverse channel mix, most acute in Europe, and negative product mix effect as consumers shifted to larger packaging formats. Our operating profit buyer declined organically 52.5%, so more than three times our net revenue organic decline of 16.4%. This deleveraging effect was mainly caused by the decline in the on-trade in Europe. We took action in March and initiated a number of cost-mitigating initiatives that drove a net reduction of half a billion euros. Laurence will cover all these in more detail later. Net profit buyer declined organically by 75.8%, leading to a diluted EPS buyer result of 39 cents. And we also booked 548 million euros of impairments, mostly in emerging markets, as exceptional items. I will start a brief review of the performance of each of the regions. And it will start with Africa, Middle East and Eastern Europe, or AME, as we call it. This region was the last to be affected by the COVID-19. Many markets introduced containment measures. As a result, beer volumes declined by nearly 15.9%. with the largest impact in South Africa. Our operations were entirely suspended in April and May, and after resuming in June, a new ban on alcohol sales was implemented since mid-July. In the first half, Heineken 00 grew strongly, placing South Africa just behind the US and Mexico in driving the global growth of the brand extension. Nigeria implemented a ban on the distribution of alcohol in some states. However, we outperformed the market and beer volume declined in the low teens. Maltina, our non-alcoholic malt drink, was broadly stable as we continued to produce and sell our non-alcoholic portfolio. In Ethiopia, our volumes declined in the low 20s as we have reflected in our prices the steep increase in excise duties of mid-February. Across 12 markets, including Nigeria, our premium portfolio also continued to grow. In Ethiopia, the growth came from Bedele Especial, our local premium brand, and in the Ivory Coast from Brand Heineken as we started local production last year. For the region, net revenue declined organically by 16.6% and operating profit by 61.7%, with the largest impact coming from South Africa. Moving On to the Americas. In March, the pandemic started to affect our operations, resulting in overall organic decline in beer volume of 15%. Our operations in Mexico were suspended in April and May, and we resumed sales in June when our customers began rebuilding inventories. In July, unfortunately, we observed an increase in market restrictions, including alcohol sales bans in some states and on-trade restrictions. A few bright spots. Heineken 00, introduced only last year, is already one of the main growth drivers globally for the brand extension. And on the e-commerce front, impressive growth of our six-to-go home delivery operations. But I will come back to that later. In Brazil, consumers continue to show strong demand for our premium and mainstream portfolios, which grew double digits, led by the growth of close to 50% of brand Heineken, and the continued momentum of Amstel. During the quarter, we reached our highest market share ever, and we are particularly pleased that our strategy to rebalance the portfolio is working, and our value share is now ahead of our volume share. In the U.S., Brent Heineken had a good relative performance, boosted by the growth of Heineken 00, while the Mexican portfolio was affected by supply chain constraints. Net revenue declined 12.2% organically, with price mix up 5.2% on a constant geographic basis, driven by the low teens' growth in Brazil. Operating profit value declined 31% organically, mainly from the impact in Mexico and higher costs in Brazil. On to Asia-Pacific, where the pandemic started early in the first quarter, impacting our beer volume relatively modestly, with a decline of 4.7% organically. In Vietnam, there was a steady reopening of the on-trade during the second quarter. Our volume grew significantly ahead of the market, driven by our mainstream brands and innovations to expand our total portfolio, like Heineken Silver, Strongbow, and most recently Heineken 00, and In many of our countries, and most notably in Cambodia and Indonesia, lower exports and the absence of tourism had a significant impact on the economies. Consumer income and confidence were under pressure, which resulted in significant volume losses and down-trading. We continued to make progress outside of our core markets in the region. For example, the Heineken brand became the number one brand in the premium segment in South Korea. For the region, net revenue declined 10.4% organically, operating profit by a decrease of 15.7%, showing the lowest operational deleverage effect across our regions due to the strong performance of Vietnam. And finally, moving to Europe, where the pandemic curves stabilized across the continent at the end of the semester. For the first half year, beer volume declined organically by 8.1%, On-trade outlets, which represent 35% of the beer volume, were closed for several months in most countries, and as a consequence, our on-trade volume declined by about 50%, which more than offset the mid-teens growth in the off-trade. Our strong position in on-trade and our vertical integration into wholesale and pubs is a long-term competitive advantage, but there's no doubt that this year it is a drag on our performance. Given the demand shock induced by COVID, a segment with structurally higher variable profits, but also higher fixed costs, causes a disproportionate negative deleveraging effect. These businesses allow us to be close to our consumers and customers, which will serve as well during the recovery. Just to illustrate, towards the end of July, 85% of our own estate of 2,500 pubs in the UK had reopened, within four weeks of the bans being lifted. In contrast, we observed only 51% of licensed pubs to have reopened. More broadly, across the region, we see that close to 90% of our on-trade customers have reopened. However, demand remains subdued as social distancing restrictions continue to limit their capacity to serve. The off-trade performed strongly as consumers adapted and our brands continued to do well. with market share gains across a majority of our key markets, including the UK, France, Italy, and the Netherlands. And premiumization is still there, outperforming in this channel across the region. For example, we had an excellent performance and strong growth on Desperados, Aflichem, Bira Moretti, and Ignusa. All in all, net revenue declined 20.8% for the region, with a negative price mix of 6.4%, on a constant geographic basis due to the channel and product mix effect. Operating profit was down by 87% organically due to the big operational deleveraging effect from the closure of the on-trade. Now, the Heineken brand performed strongly given the circumstances. Excluding South Africa, the brand would have been in positive territory. Consumers are turning towards brands they trust. So it's a good thing that, as measured by Cantor, the Heineken brand stands as the most trusted international beer brand in the world. Brand Heineken is clearly outperforming in the category, and in fact we observed stable or growing share in over 80% of our key markets. The brand even grew double-digit in 14 markets, including Brazil, China, the UK, Poland, Germany, Ivory Coast, and South Korea. Regarding China in particular, we successfully started our partnership with CRB. They completed the integration ahead of schedule and have accelerated the performance of the brand with double-digit growth quarter over quarter. Heineken 00 grew double digits with growth across all regions and particular strength in the US, Mexico and South Africa. The latest line extension of the brand, Heineken Silver, is performing ahead of expectations in Vietnam and was introduced in China in April. Nearly all events linked to our global sponsorship platforms were paused in the first half, but they're starting up again in the second half. Now, let me come back to comment further on e-commerce. Consumers and customers have embraced e-commerce since the start of the crisis, and we have been able to leverage this momentum and be more connected to them through our platforms across many countries. As consumers have created new consumption locations at home, our direct-to-consumer platforms across 17 countries benefited and saw a significant acceleration during the lockdowns. For example, BeerWolf, our online platform in Europe, saw 3.3 million visitors, of which half was new, and compared to last year, sold more than double of our home draft systems like The Sub and Blades. Consumers are also more cautious and not willing or unable to go to the shops, resulting in a significant spike for in-home delivery within the hour. For example, six to-go in Mexico received 10 times the number of orders in the last six months versus the full year of 2019. Regarding our customers, we currently have digital B2B platforms operational in 24 markets, which is seven more since we last updated you. connecting more than 60,000 customers in traditional channels and representing more than 1 billion euros of our revenues last year. We have accelerated their growth and expect to more than double the number of customers connected this year. These platforms have proven to be very effective to engage with customers during the lockdowns, helping increase frequency and size of orders. Overall, we are encouraged by these results and are firmly committed to continue and, where appropriate, accelerate our investments behind these B2C and B2B platforms. And with this, I would like to hand over to Laurence. Over to you.