Heineken Holding

Good afternoon, everyone. Thank you for joining us for today's live webcast of our 2022 full 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 actual results may differ materially. For more information, please refer to the disclaimer on the first page of this presentation. I will now turn the call over to Doel.

Thank you, Federico, and welcome, everyone. We are pleased to be here to share our full year 2022 results. I would like to start with this slide from our Capital Markets event, a couple of months ago. It's a succinct way of visualizing what the Evergreen strategy is all about. Our ambition is to deliver superior balanced growth to consistently create long-term value. And we do this with a clear strategic focus on five priorities. The first one is top-line growth, our dream to shape the future beyond to win with the hearts of our consumers, as we remain first and foremost a superior growth company. The other four are digitizing the business to become the best connected brewery, adding productivity as a value creating engine for the company to both fund the growth and fuel the profit, stepping up in sustainability responsibility at the time the world most needs it, and unlocking the full potential of our people and our network. These priorities propel our growth algorithm, accelerating growth, unlocking productivity gains, reinvesting them to grow faster, and ultimately deliver long-term value creation. Harald will speak to how these moving parts played out in 2022. And we measure our success with our green diamonds. It embodies the balance we aim to attain. We want growth balanced between volume and value. We want growth and productivity and capital efficiency and making sure we deliver on our key commitments and ambitions on sustainability and responsibility. So let's dive into our performance in 22. We delivered a strong set of results in 22 despite the continuously challenging and volatile environment. Our growth was balanced and ahead of the beer category in the majority of our markets. Our top line and profits have fully recovered and are ahead of 2019. We delivered 1.7 billion of gross savings from our productivity program and are well on track to exceed the 2 billion target by 2023. We continued the decarbonization of our breweries. And I'm particularly proud that whilst navigating unprecedented levels of volatility and uncertainty, our employee engagement scores improved further this year ahead of the benchmark of high-performing companies. Let's take a closer look at the key financial highlights. Net revenue per hectare grew 21.2% organically versus last year, benefiting from volume and value growth. Revenue per hectare per hectare grew organically by 13.9%, driven by pricing for inflation and premiumization. Total volume grew 6.4% organically. The Heineken brand grew 14.5%, excluding Russia, significantly outperforming the markets. Operating profit buying grew 24.0%, and the margin was 15.7%, up 10 basis points versus last year, in line with our guidance. Net profit and EPS grew even faster due to lower interest, one-off gains in net financing expenses, and the normalization of the effective tax rates. Let's look at some of these metrics relative to 2019. Today, we have regained this momentum. Our total volume is close to full recovery, although impacted by delisting low margin soft drinks in Brazil, and our beer volume is ahead of 2019 by 2.7%. This has been driven by our premium portfolio, led by the very strong performance of the heineken brand that grew 31.5 percent net revenue is ahead of 19 organically by 17.6 percent this growth is entirely driven by price mix approximately two-thirds of this effect is the inflation-led pricing we have implemented over the last two years and one-third is coming from premiumization and revenue management effects operating profit is also ahead of 19 by 11.2 percent or close to half a billion supported by the significant savings of our productivity program. Moving on to the performance of the regions and starting with Ame. Net revenue grew organically by 21.8% and operating profit by over 31.5%, driven by strong revenue growth and disciplined cost management, with most of our operations growing double digits. Beer volumes grew 1.5% organically, price mix was up 19.7% on a constant geographic basis, driven largely by pricing with inflation and further boosted by premiumization. The premium portfolio performed strongly in Nigeria, South Africa and Ethiopia, but saw a small decline due to the steep drop of our premium volume in Russia. In Nigeria, our growth was led by assertive pricing to mitigate inflation. We outperformed the market led by our premium brands, Tiger, Desperados and Heineken. In Ethiopia, our volume grew significantly ahead of the market. We are sustaining our number one position achieved earlier this year, led by our mainstream portfolio with Harar and Walia. In South Africa, our volume recovered ahead of 2019, despite significant supply chain challenges. The growth was very broad-based across our entire portfolio. We remain very excited with the opportunity to bring together Distel, Namibian breweries and our business in South Africa to create a regional beverage champion. We are committed to being a strong partner for growth and to make a positive impact in the communities we operate in. The hearings by the competition tribunal in South Africa concluded three weeks ago and we now await their final decision, which is expected soon. Moving on to the Americas. Net revenue grew organically by 15.2%, mainly driven by Mexico and Brazil. Organic beer volume grew 3.7%, and price mix on a constant geographical basis grew by 15.6%, driven mainly by pricing to offset input cost inflation and premiumization. Operating profit buyer grew 1.8%, as the incremental revenues from pricing were offset by significantly higher input and logistic costs the disruption to our business in Haiti, and incremental investments to grow in Brazil and Mexico. In Mexico, the growth was led by pricing, lower promotional spend, and premiumization. The premium portfolio grew volume in the high teens, led by the success of Bohemia Cristal and the continued momentum of Amstel Ultra and Heineken. Our six stores continued to accelerate their growth. By the end of the year, we had added 1,700 more stores, and now have above 16,000 stores. In Brazil, we saw a strong performance ahead of the market, led by Heineken and Amstel, reaching record market share positions at the end of the year. Following the migration of our route to consumer last year, we have continued to digitize, and we have now more than 160,000 active customers on our eB2B platform. In the US, we saw a small revenue decline following severe supply chain disruptions. Despite this challenging context, our innovations continue to drive growth, especially Heineken 00 and Dos Equis lime and salt. During the last quarter of 22, we rebuilt inventories to restore service levels across our portfolio and prepare for the launch of Heineken Silver. In APEC, beer volume increased organically by 29.3%, following the strong recovery from the COVID-related restrictions last year. Net revenue Bayer was up 37.4%, with price mix up 12.6% on a constant geographic basis, driven largely by pricing and premiumization. Operating profit increased 45.3% organically. Vietnam managed a strong recovery in the second half of the year, outperforming the market, led by the premium portfolio with Heineken Silver and Tiger Crystal. BFY grew by more than 60%, accelerating the expansion outside our strongholds. And our eB2B platform is also key in this expansion, helping us to significantly increase coverage with close to 90% retention rate of customers. In India, volume recovered ahead of 2019. The premium portfolio outperformed, led by Kingfisher Ultra, and Heineken Silver was launched at the end of the year. And in China, Heineken Original and Heineken Silver continued their strong momentum. China is now the third largest market for the Heineken brand globally. The strong growth in the region was also supported by the strong double digit growth in revenue in Malaysia, Cambodia, Indonesia, Singapore, Myanmar, Laos and Japan. Moving to Europe, net revenue grew by 19.2%, with price mix up 11.8% on a constant geographic basis. primarily driven by positive mix effects from the reopening of the on-trade, premiumization, and responsible pricing. Operating profit grew organically by 5%, driven by the partial on-trade recovery as the gains in channel mix, premiumization, pricing, and substantial cost savings were more than offset by material increase in input cost, incremental brand support, and significantly higher central digital and technology charges. Beer volume increased organically by 4.6% versus last year, driven by the strong recovery in the first half. The on-trade grew in the low 30s, remaining below 2019 by a high single digit. The off-trade declined by a mid-single digit, staying ahead of 2019 by a mid-single digit. Premium beer volume outperformed, boosted by the launch of Heineken Silver, and the performance of our next-generation brands, including Desperados, Birra Moretti, and El Alguila. Overall, we gained our health market share in over two-thirds of our markets in Europe. The growth of our premium brands accounted for more than half of our total organic volume growth in 2022. This growth was led by the continued strong momentum of the Heineken brand, up 14.5% in the first half, excluding Russia. The momentum was very broad-based, as more than 50 markets grew double digits. The strong growth is led by Heineken Original, bolstered by the performance of its line extensions, Heineken 00, grew by 8.8%, excluding Russia, further strengthening its leadership position in the non-alcoholic segment. Heineken Silver more than doubled its volume, driven by excellent performances in Vietnam and China, and its global rollout, reaching 28 markets in total by the end of 2022. The launch of Silver in Europe was the number one across FMCG in 2022. The Heineken brand was recognized in Cannes as the most awarded food and drink brand for the creativity of its campaigns, and by Cantar as the fastest growing in brand value among top alcohol brands. Let's have a closer look at the quality of the growth behind some of our top brands. Growing volume remains critical. We need to continue to increase penetration, expand our channels and innovate into new locations. At the same time, we're investing to prove the power of our brands, to price for inflation and to prove our revenue and margin management capabilities. Look at these two great examples. The Heineken brand grew net revenue by 36% versus 19%, mainly driven by volume in markets like Brazil, where we have great momentum. In 2021, The strong growth continued, more balance between volume and price mix, as we needed to offset the significant inflationary pressures via pricing. Another good example is Tiger, that this year grew an impressive 54%, driven by volume, given the strong recovery in APEC. Relative to 2019, you can better appreciate the significant contribution of price mix to the growth of Tiger, where premiumization with Tiger Crystal has played a key role. To be able to deliver this type of balanced, sustainable growth, the top priority of Evergreen, across volume, price, and mix, we continue to invest behind our brands. This year, our marketing and sales percentage of net revenue reached 9.5%, a similar level to last year. Although relative to revenue, the level of investment is still behind 90, in absolute euros, we are ahead and will continue to invest more. We're also getting more out of these Euros, with higher consumer-facing spend reaching more than 70% in 2022. Another area of incremental investment is to digitize our business, another evergreen priority, with the aim to become the best connected brewer. I hope you all had the opportunity to see the presentation by Ronald Den Elsen, our Chief Digital and Transformation Officer, at our Capital Markets event in December last year. when he shared how we are accelerating the digitization of our route to consumer. One announcement we were not quite ready to share then, I'm delighted to share today. Whilst it was important to leverage the entrepreneurial spirit of our operating companies to move fast, 40 different eB2B platforms across the world is too many, and now we want to standardize to be more efficient. Today, I can introduce you to Ezo, business made easy. This is our new single brand name and identity, and we will start migrating all our eB2B platforms globally to Easel. The transition will enable better features at scale, resulting in improved customer experience with increased efficiency, helping them to grow their business. And the deployment of our eB2B business is moving fast. In 2022, we captured $9.2 billion in gross merchandise value through our platform. two and a half times the value of last year, and on route to 15 billion by 2025. We now connect more than half a million customers, over 50% more than last year. The growth was driven by Vietnam, Nigeria, Mexico, Brazil, the UK, Ireland, France, Italy, and Cambodia. Grow a Better World is our 2030 strategy to drive progress towards a net zero, fairer, and more balanced world. We're making good progress across all three pillars and are building executional momentum to deliver our ambitions. Relative to the 2018 baseline, we have reduced our absolute carbon emissions in scope 102 by 18% on the way to our ambition to reach net zero carbon emission in this part of our business by 2030. We reduced our net overall emissions even considering that UBL in India was included for the first time in this measurement. We're also driving progress in scope three by engaging our top packaging, cooling, and raw materials partners globally to set sign-based targets and unlock low carbon solutions. We continue to focus on healthy watersheds via water efficiency, water circularity, and water balancing. In 22, we reduced our water usage to 3.0 hectolitre for hectolitre in water stress areas. 25 of our 31 sites in water stress areas have become watershed protection programs. and around 30% of these sites are fully balanced. We're making progress when it comes to gender diversity. Over the last five years, we increased the percentage of senior management positions held by women from 19% to 27%. We're proud to be included in the Bloomberg Gender Equality Index 2023 for our commitment to a more equal and inclusive workplace. and we continue to use the power of our flagship brand, Heineken, to advance responsible consumption and make moderation cool. In 2022, our operating companies invested over 10% of Heineken Media's spend, reaching at least 1 billion unique consumers worldwide. This week, we made history with Heineken 00 as the first non-alcoholic beer brand advertising at the Super Bowl, partnering with Marvell's Ant-Man, with this powerful message to consumers on our commitment to responsible consumption. Don't drink and shrink, as we said in the commercial. And with that, I would like to hand over to Harald.

Thank you, Dolf, and a good day to you all. I'll first take you through the main items of our financial results and close with our outlook for 2023. Moving on to the first slide, again, a brief reminder of our evergreen growth algorithm. To deliver balanced, superior value creation, and to do this sustainably, we are putting our growth algorithm in motion. First and foremost, as Dolph said, we aim to be a growth company. Growth offers the opportunity to go after productivity improvements, which in turn frees up resources for investments that drive the next cycle of growth. With this framework in mind, let us take a look at the progress for 2022. Starting with our top line performance on slide 17, we posted an organic growth of 4.6 billion or 21.2%, reaching 28.7 billion net revenue buyer. Total consolidated volume grew 6.4% organically for the full year, growing ahead of the category in the majority of our market. It was led by the sharp recovery of Asia-Pacific in the second half of the year, the reopening of on-trade in Europe in the first half, and continued growth in the Americas and Africa, Middle East and Eastern European region. Net revenue per hectare was up 13.9% and the underlying price mix on a constant geographic basis was up 14.3%. This growth was driven by positive channel mix, by pricing for inflation and by premiumization in all regions. For the full year, the price component remained larger than the mix component in the Americas, AME and APEC regions, whilst in Europe price mix were more balanced. In aggregate, pricing was up around 10%. The translation of foreign currencies had a positive effect of 1.6 billion euros, adding 7.2% to the net revenue buyout. driven by the favorable currency developments from the Mexican peso, Brazilian real, Vietnamese dong, and the US dollar. Consolidation changes positively impacted net revenue Bayer by 517 million, or 2.6%, mainly from the consolidation of United Breweries in India. Moving on to the next slide. Operating profit Bayer for the year reached 4.5 billion, ahead of last year by 24% organically. excluding consolidation and currency translation effects. So let me start with the organic growth. The 4.6 billion of organic revenue buyer on the previous slide, translated to 800 million operating profit buyer growth, a conversion rate of around 17%. This relatively low conversion rate would roughly double if we exclude the inflationary pressures in our cost base for which we priced. In addition, we restored and expanded investments in our business behind our growth agenda. The Asia-Pacific region contributed the most to this profit growth, increasing by 45.3%, with strong underlying performance and benefiting from the recovery of top-line growth in Vietnam, Malaysia and Indonesia, amongst others. In AME, the profit growth of 31.5% was driven by revenue growth and disciplined cost management, with most of our operations growing by double digits. In Europe, operating profit Bayer grew 5% organically, driven by further on-trade volume recovery, premiumization, pricing, and substantial cost savings. However, there were also material increases in input and energy costs, incremental brand support, and significantly higher central digital and technology charges, as Joel already highlighted. The Americas closed the year with operating profit bear growth of 1.8%, despite the impact of higher logistics costs related to ocean freight into the USA and importing packaging materials to Brazil. The disruption of our business in Haiti should be mentioned and incremental investments behind growth in Brazil and Mexico. So a small but relevant side note for a second. We recorded a positive operating profit buyer in the head office relative to the negative figure of past years. This was driven by higher general proceeds from license fees and services in line with the growth of the business. But in addition, we revised the charging rate in 22 for significantly increased global digital and technology investments with an offsetting impact in the regions, most notably Europe, as I referred to earlier. Our operating profit margin VEA was slightly ahead of last year and included a 25 basis points negative impact from consolidation changes, mainly UBL and translational Forex. Now allow me to go into more detail on some of the key cost drivers. Our input cost VEA grew in the high teens per hectolitre with significantly higher prices from commodities and energy, particularly in Europe and premiumization. Transactional currency effects had a negligible year-on-year effect, and about 20% of the input cost inflation was mitigated by structural cost savings. Marketing and selling buyer expenses increased organically by 22.4%. And again, as Dolf showed earlier, we have continued to invest, bringing the absolute level well ahead of pre-pandemic levels, mainly driven by consumer-facing expenses. and our marketing and selling expenses expressed as a percentage of revenue, were therefore broadly similar to last year. Personnel expenses Bayer increased organically by 9.1%, largely driven by labor cost inflation and cycling prior year COVID support schemes in the first half of the year. Currency translation had a positive impact of 250 million euros from Mexico, Brazil and Vietnam. Consolidation changes had a small positive impact of €12 million, or 0.4%, on operating profit buyer. Now I would like to cover other key financial buyer metrics on the next slide. The share of net profit of associates and joint ventures buyer amounted to €263 million, a growth of 12.1%, primarily driven by the impressive performance of China Resources Beer. Net interest expenses were 6.8% lower, reflecting a lower average net debt position as the average effective interest rate stayed at similar levels to last year. All the net finance expenses Bayer amounted to 63 million euros, down 12.3% on an organic basis, driven by a one-off positive mark-to-market gain of long-term green energy contracts and obviously this was linked to the surge of market pricing for energy. Net profit buyer grew by 30.7% versus last year, driven by the growth in operating profit, lower interest, and net financing expenses, and the lower effective tax rate. The effective tax rate buyer was 27.7%, and last year was 29.9%. The decrease is driven by the increase of the profit before tax base, a more effective use of tax credits and lower non-deductible items. All in all, this resulted in 39% EPS growth to €4.92 ahead of 2019 by 12%. We will propose a dividend increase of 40% to €1.73 per share to the AGM. Finally, our net debt to EBITDA ratio improved to 2.1 times, well in line with the company's long-term target net debt to EBITDA ratio of below 2.5 times. Let us now turn to free operating cash flow on the next slide. Our free operating cash flow in the year was 2.4 billion, a reduction of circa 100 million versus last year. This was driven by higher capex, a negative change in working capital, and higher income taxes paid. Cash flow from operations before working capital changes and after provision and post-retirement obligations improved by close to 1.3 billion, driven by the strong growth in operating profit and a reduction in provisions of around 80 million. The working capital movement was adverse by 743 million compared to last year. mainly from an increase in inventories of 484 million. This was in part driven by our risk management response to growing uncertainty on supply, including energy-related risks and availability of raw and packaging materials. Overall, CAPEX came in just over the 2 billion mark, a significant step up ahead of last year and in line with our guidance. We previously flagged that CapEx was to an extent hampered by COVID-related restrictions over the last years, and activity resumed to a more normal pace in 2022. The main investments this year were for capacity expansions in Brazil, Nigeria, and Vietnam. Cash for interest, dividend, and tax increased in aggregate by 280 million, mainly from higher income taxes paid. Next, I want to return to the extra slide we produced last year to give you a perspective on the moving parts in our profit over the years. To the left of the slide shows the operating profit buyer since 2019, with our operating profit buyer at 4.5 billion, ahead of 2019 by half a billion. Now on the right hand side, We've updated the main drivers of our profit movement relative to 2019. Please note that this view is indicative and not meant as an attempt to fully reconcile the components of operating profit between the years. The first thing that you note is that we will have removed the COVID volume effect bar that you will remember stood out last year. This was, for reference, a 1.4 billion bar that was there. And this is an indication of our recovery. And in aggregate, this recovery is now fully complete. It is not uniform across regions, markets, and channels. As for example, the on-trade in Europe has not yet recovered back to 2019 levels, and tourism in markets such as Indonesia and Egypt remain below 2019. The larger red bar shows the inflation and transactional currency effects, a $5 billion impact over a three-year period and on a close to $20 billion cost base. Please note that the impact of inflation during 22 alone was substantial, more than doubling the size of this bar. Close to 80% is related to variable cost, and the remaining 20% came on other fixed costs, such as personnel expenses. the accumulated adverse transactional currency effect remains approximately half a billion. The far right on the slide indicates our progress in adapting to these challenges and responding assertively and intentionally. First price mix. From channel mix, from the recovery of on trade, continued momentum in our premium portfolio and our approach for pricing for inflation in a responsible manner on a euro for euro basis has achieved close to 4.3 billion. As we call it, this was reflected in price mix. And finally, the continued major significance of our 1.7 billion gross savings program towards restoring our profitability, whilst also enabling the full reversal of a half a billion of cost mitigation actions taken last year and the increase in investments for growth. Moving on to the outlook. On 30th of November 2022, ahead of our capital markets event, we reconfirmed our medium-term guidance and provided further precision to our 2023 outlook statement. These expectations remain unchanged, and let me reiterate them. For 2023, we expect operating profit buyer to grow organically mid to high single digit, subject to any significant unforeseen macroeconomic and geopolitical developments. This outlook is based on continued progress on Evergreen, a challenging global economic environment, and lower consumer confidence in certain markets. We expect further progress towards building great brands, our digital route to consumer, strategic capabilities, and our Brewer Better World activities, and they all will have commensurate investments. We also expect stable to modestly growing volume, increasing in developing markets and declining in Europe. We will continue the discipline to price responsibly as per local market conditions, aiming to cover most of the absolute impact of inflation in our cost base, yet ensuring market competitiveness. We anticipate an increase in our input cost in the high teens per hectolitre, and also we anticipate significantly higher energy costs, particularly in Europe compared to a year ago. We will deliver on our gross savings ahead of the 2 billion target relative to the cost base of 2019, increasing the ambition of savings in Europe. Overall, as a result, net revenue buyer will grow organically ahead of operating profit buyer. We also want to flag that due to investments and input cost inflation, the operating profit organic growth will be skewed towards the second half of the year. And finally, some other points that we wanted to bring your attention to for the year ahead. We expect in 2023 an average effective interest rates buyer of around 3.1%, a little bit up versus the 2.8% we had in 22. An effective tax rate of around 27%, down 70 basis points, and a significant increase in other net financing expenses, driven by expected foreign currency impact in some of our developing markets. And as a result, net profit buyer is expected to grow organically in line or below the operating profit buyer. We continue to expect that the transaction with Distel and Namibian breweries will close in the coming months. This will be EPS accretive already this year and margin accretive in the medium term. We also still aim to reach an agreement in the first half of 2023 regarding the transfer of ownership of our Russian operations. This will have a limited impact on our organic growth, and upon completion of the disposal, the cumulative foreign exchange losses related to Russia that are currently recorded on equity will be recognized in the income statement, in addition to the 88 million impairment that we've taken in our results in 2022. With that, I would like to hand over to Dolf for a closing comment before we take your questions.