Heineken Holding

Ladies and gentlemen, hello and welcome to the Heineken half-year results call. 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 keypad. I will now hand you over to Federico Castillo-Martinez, Director of Investor Relations, to begin. Federico, please go ahead when you're ready.

Good afternoon, everyone. Thank you for joining us for today's live webcast of our 2021 half-year results. Your hosts will be Dolph Vandenbrink, our CEO, and Harold Vandenbroek, our CFO. Following the presentation, we will be happy to take your questions. The presentation includes forward-looking statements and expectations based on management's current views and involve known and unknown risks and uncertainties, And it is possible that the actual results may differ materially. I will now turn the call over to Don.

Thank you, Federico. And welcome, everyone. Good morning, good afternoon, and good evening, wherever you may be. I hope you and your families are all well and safe. I'm delighted to be here together with Harald today to share with you our first half 2021 results. Harold joined the business on the 1st of June this year and brings a wealth of experience from previous roles at great companies like Unilever and Racket. And I'm certain he will continue enormously to our future success. I would like to start today with some reflections on my first year in the role. From my very first day, we adopted as a mantra that we need a balance. We need to navigate the crisis, but also build a brighter future. This remains true today as the pandemic continues to impact the world and our business. I would like to thank our teams across the world for their energy, commitment, and resilience. They make us very proud, working hard every day to deliver for the business whilst taking care of each other, our customers, and their communities. We see positive signs in some countries and regions, but we also see continued or new waves and lockdowns in other countries. Our teams have been fast to service our customers and consumers where markets reopened, yet remained agile whenever restrictions were reintroduced. At the same time, we have been building the future on the strong fundamentals of the business. We launched Evergreen, our balanced growth strategy, to deliver superior and profitable growth in a fast-changing world. We have moved fast into implementation, and I will come back to that in a moment. One of these fundamentals is our number one asset and flagship, the iconic Heineken brand. We have incredible momentum with the brand globally and a big part of this because Heineken connects meaningfully with our consumers across time. Over the last year, it has been especially important for the brand to be relevant. People everywhere have faced the challenges of lockdowns, social distancing, and have been longing to meet again. share a beer and chat a lot with friends. Heineken Brand has accompanied them with spot-on communications through this journey. I'm proud of the different commercials we have aired over the last year, from showing empathy at the start of the crisis as we dealt with the challenge of social distancing with the commercial O2 Close, to support to our customers with Back to Bars, and to celebrating the reopening in Europe and the opportunity to be finally together and to be rivals again with our Euro 2020 campaign. Heineken achieved great recognition for this creative work. In addition, we have and will continue to support the hospitality sector and the communities where we operate. Now, you may recall that when we introduced Evergreen, we shared with you our balanced growth algorithm. This flywheel shows how the different elements of our strategy contribute to long-term value creation for all stakeholders. At the top of the framework, you find superior growth, our first and foremost intention as a growth company. Here we have made exciting progress. First, United Breweries in India has joined the Heineken Group, an historic milestone last week that further strengthens our footprint and gives us an even sharper growth advantage. Second, the growing momentum of the Heineken brand in many parts of the world. And third, we have expanded our portfolio in many of our markets with innovations to better serve our consumers. To name a few examples. To amplify our strong position in premium, we launched Dos Equis Ultra in Mexico and Bira Moretti Filtrada Alfredo in Italy. To further extend our global leadership in non-alcoholic, we complemented our range with Desperados Virgin Mojito. and Lagunitas Non-Alcohol IPA. And we're stretching beer with low bitterness variants in many markets globally, like Tiger in Brazil and Bintang Cristal in Indonesia, and continue to move beyond beer with the launch of Inches Cider in the UK and our experiments with Pure Peranya Seltzer in Mexico, New Zealand, and Europe. I will be coming back to illustrate further how we are shaping our future growth as I walk you through the performance of each of our regions in the first half. Then in the lower part of the framework, we have the continuous productivity improvements that are needed to accelerate investments to drive future growth. Hagel will speak later to these elements, but let me just say we are building great traction with our productivity programs. For example, we've implemented in the first half the organizational redesign, including the head office. This was a difficult process, as we saw colleagues leave, but necessary to make sure we come out of the crisis stronger. Then, at the heart of the flywheel, aligned with our values, our sustainability, responsibility, and people strategy. You may recall that on Earth Day last April, we launched our Brewing a Better World 2030 ambitions. with bold targets on environmental and social sustainability and responsible consumption. I will also come back later to this to share some of the early progress. Overall, I'm very encouraged with the early momentum we are building towards our evergreen ambition. Now let's jump into our results, touching on a few highlights. We are pleased to report a strong set of results for the first half year. Net revenue buyer grew 14.1% organically, benefiting from both a strong volume growth and revenue per hectolitre growth. Beer volume grew 9.6%, and Heineken up strongly, 19.6%, with very broad-based growth. Our operating profit buyer more than doubled, and the margin was 16.3%, driven by top-line growth leverage, continued cost mitigation actions, and structural cost-saving delivery. further helped by the phasing of marketing and sales expenses into the second half as per our original brand plans, investing behind growth. The net profit increased even faster given the low profit from last year, higher profits from our JV partners and lower financing costs. Now, as strong as these results are, there's a reason for caution too. COVID remains a factor and we see a rise in commodity costs. Overall, we expect full year financial results to remain below 2019. Now allow me to briefly update you on our performance by region. Starting with Ame, the Africa Middle East region. Net revenue grew organically by 30.4%, and operating profit by 190.2%, with strong growth in the majority of our operations, particularly South Africa and Nigeria. Beer volume grew 16.8% organically, with Nigeria, the DRC, Ivory Coast, Burundi, Rwanda, and Lebanon ahead of 2019 volume. Price mix was up 9.5%, mainly driven by assertive pricing in Nigeria, Russia, and Ethiopia. The strong recovery in Nigeria continues, gaining share in the market. The premium portfolio grew close to 60%, driven by Heineken, Tiger, and newly launched Desperados. The low and no alcohol portfolio grew in the high 20s, driven by Maltina and its expanded range of flavors. In South Africa, total volume grew in the 50s, ahead of the market, and side of volume more than doubled. The market has been impacted by alcohol bans in January, Easter, and more recently during July. Moving on to the Americas. Net revenue and operating profit buyer grew organically by 25.7%, and 85.7% respectively, mainly driven by Mexico and Brazil. Organic beer volumes grew by 16.7%, coming close to the volume of 2019. Price mix on the constant geographic basis grew by 9.4%, mainly driven by Brazil. Mexico, beer volume recovered strongly with growth in the mid-30s ahead of 2019. Revenue came even further ahead, as price makes an increase by a low single digit this year, despite the reinstatement of our promotional activity, which was suspended last year during the second quarter. The premium portfolio grew in the 50s, and we launched Dos Equis Ultra, the first Mexican ultra to further accelerate premiumization. Our six stores accelerated the expansion of new stores and grew strongly in the same store sales, including the development of non-bear categories. In Brazil, we continued to rebalance our portfolio and gain share in premium and mainstream. Heineken continued its remarkable momentum and became the number one brand in value in the off-trade. Price mix grew in the high 20s following our price increases last year, lower promotional activity this year, and the rebalancing of our portfolio. Early July, we implemented an additional price increase. We started successfully the transition of our route to market on July 1st and launched Tiger through the Coca-Cola Bottles Network. Heineken USA grew ahead of the markets, driven by Heineken and Dos Equis, which benefited from innovations like Dos Equis Ranch Water and Dos Equis Lime and Salt, and the reopening of the Entree. We observed strong growth across the majority of our markets in the region, especially Panama, Peru, and Ecuador. Next up, Asia-Pacific. Beer volume declined 1% organically, with beer volume down 5.6% versus 2019. Net revenue by increase 5.4% organically, with price mix up 3% on a constant geographic basis. Operating profits increased 15.9% organically, driven by Indonesia, Malaysia, and restructuring of our business in the Philippines, partly offset by Cambodia. Following a strong start of the year in Vietnam, the last two months we saw a steep decline following restrictions to contain COVID to several regions, especially in our strongholds like Ho Chi Minh City and the Mekong Delta. Heineken Silver more than doubled its volume, and the mainstream portfolio grew in the low teens, led by Leroux and Bia Viet, as we continue our expansion strategy outside of main cities. In China, Heineken grew by strong double digits, led by Heineken Silver. The initial volume and coverage reached by Amstel in the very first few months of introduction are encouraging. Indonesia partly recovered, although still significantly behind 2019. We introduced Bentang Kristal, a smooth cold-brewed variety with low bitterness. Restrictions remain nationwide, including the key regions of Bali and Java. Beer volume grew double digits, in Singapore, South Korea, and Laos, and other markets in the region, driven by the growth of our premium portfolio. Now, as you may have seen, last week, United Breweries Limited became part of the Heineken Group, a special moment after 13 years of strategic patience, after we took an initial position as part of the acquisition of Scottish New Council in 2008. My special gratitude to Jean-Francois and many others that have helped this happen over so many years. And it is with great delight that we now welcome all of our colleagues at United Breweries to the Heineken family. We believe India provides fantastic long-term growth opportunities with a population of 1.4 billion, a strong emerging middle class, and low per capita beer consumption. UBL has a proud history dating back more than a century. It built its position as the undisputed market leader in India with a strong network of breweries across the country and a fantastic brand portfolio, including its iconic Kingfisher brand family. We are honored to build on this legacy and look forward to work with our colleagues at UBL to continue to win in the market, delight consumers and customers, and unlock future growth. UBL will be a top Heineken operating company and Kingfisher a top five global brand. We have initiated procedures to integrate UBL into our network of operating companies. Finally, moving to Europe, Net revenue grew by 3% with price mix growing 0.8% with a relative stable channel mix. Operating profits grew materially from a very low base. Following the beer volume decline of 9.7% in the first quarter, in the second quarter volume grew 13% to finish with a 3.2% growth for the first half. On-trade volume was down by a low single digit for the first half. despite the easing of restrictions during the second quarter. Compared to 2019, on-trade volume was down circa 50%, and looking at the exit rate of June, with around 80% of the on-trade reopened, volume was behind 2019 by a high single digit. The off-trade, on the other hand, is growing ahead of 2019, driven by our premium portfolio, and outperforming in markets like Italy, Spain, and France. The premium portfolio grew in the low teens versus last year, driven by Heineken, Desperados, and Biramariti. The low and no L portfolio grew around 10%, led by Heineken, 0-0, and Desperados, Virgin. The Heineken brand shows continued strong momentum, growing 19.6% versus 2020 and 16.7% versus 2019. The growth came from a very broad base of markets, with more than 50 markets growing double digits, including Brazil, China, Vietnam, Nigeria, South Africa, Italy, Mexico, Poland, and Colombia. Heineken 00 grew close to 40% and is now available in 95 markets. Heineken Silver quadrupled its volume, driven by strong growth in Vietnam and China. Now, we are also making big strides in our ambition to become the best connected brewer. Our business-to-business or B2B digital platforms continued their strong momentum and captured more than $1 billion in digital sales value in the first half of this year, more than double versus last year. We're now connecting more than 200,000 customers in traditional channels. That is more than four times the number we had last year, with the biggest expansion coming from Mexico and Brazil. In Mexico in particular, we accelerated the deployment of our high-shop B2B platform, and in June we captured orders representing 58% of the net value from traditional channels. In Brazil, we expect growth to accelerate as part of our plans to transition and expand our own route to market in the coming months. We have also expanded our B2B markets to new markets, so now we cover 30 operating companies in total. Our direct-to-consumer platforms, D2C, also continue to grow strongly. BeerWolf in Europe grew its net revenue by close to 60%. with particular strong growth in home draft with the sub and blade. In Mexico, our D2C activities grew around 90% of the volume. Now, lastly, I would like to share with you some of our early progress on our sustainability responsibility ambition. We raised the bar on our environmental social responsibility actions in April with our Refresh Brew a Better World 2030 commitment. We are further integrating and operationalizing our SNR agenda into our business, improving our data reliability to ultimately allow for more transparent reporting. On our path to zero environmental impact, several of our markets have already committed to reaching carbon neutrality in their production ahead of our global commitment, such as Brazil by 2023 and Indonesia by 2025. You might have noticed at the recent Formula E race hosted in the UK, we also launched the Greener Bar, showcasing innovative ways to reduce waste and carbon by using only recycled materials. To show our commitment to an inclusive, fair and equitable world, we will leverage the strength of our brands to raise awareness and support on social issues. One recent example in Brazil was the I Am What I Am Amstel campaign, with a commitment to spend 10% of the brand's Brazilian media budget to raise awareness and support the LGBT plus community. On the path to moderation and no harmful use, we will ensure a zero alcohol line extension for at least two strategic brands across the majority of our operating companies, accounting for 90% of our business, of which a third is already in place. So to summarize, there's early momentum building towards Evergreen with initiatives kicked off in all parts of the flywheel. Brent Heineken shows strong momentum for strengthening our ability to drive consumer-centric innovation building traction on our productivity program and shaping our path to meet our Brew a Better World commitments. I'm confident that we're heading in the right direction. And with that, I would like to hand over to Harold.