Heineken Holding

Thank you for joining us for today's exceptional live webcast. Your host will be Harold van den Boek, 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'll now turn the call over to Harold.

Yeah, thank you, Federico. And good morning, afternoon, evening, everyone. And whilst it is lovely to virtually connect to you all so soon after our year-end results, you are no doubt wondering why we have decided to hold, as Federico calls it, an exceptional and out-of-cycle call. So maybe good to explain that before we get used to this. You all know that we work to build the business for the long term and do not want to manage quarter by quarter. That would lead to short-termism that we don't believe in. Yet, I wanted to take you through some of the key performance highs and lows on the quarter because we've seen increasing volatility in some of the markets. driving positive and negative deviations from our expectations and some of the conversations that we had. Second, we are on track to close the Distel transaction next week. So I also wanted to take you through the expected impact of the consolidation. So if you allow me, I'd like to start with a brief summary of the quarter. At the start of the year, we reflected in our outlook on the context of our business environment. We said we anticipated the challenging global economic environment and inflationary pressures on consumer disposable income. Against this backdrop, we start the year with strong revenue growth, driven by pricing and disciplined revenue management, while we materially increase investment behind our brands. Business performance in Europe and America is encouraging, albeit early to call, as the full extent of inflation needs to work its way into consumer spend and behavior. Results in Asia and Pacific, Africa and Middle East, and Eastern Europe regions were disappointing, hindered by temporary volatility in Vietnam and Nigeria that I will come back to later. Brent Heineken continued to perform strongly, with volume up 5.7%, excluding Russia. Heineken Silver grew 47% and was launched in the US, gaining distribution at base. We continue to make consistent progress on Evergreen. investing towards building greater brands, our digital route to consumer, our strategic capabilities, and behind our Brewer Better World ambitions. So let us now look at the highlights of the numbers. Group revenue rose to 6.4 billion, an increase of 8.9% organically, with price mix on a constant geographic basis increasing by 12.1%. driven by pricing to offset inflation across all regions, complemented by revenue and mix management initiatives, more than offsetting a bare volume decline of 3% organically. Some highlights for key markets, starting with Africa, Middle East, and Eastern Europe. Net revenue Bayer grew 3.6% organically, with total consolidated volume declining 8.6%, and price mix on a constant geographic basis up 14.4%. Beer volume decreased organically by 8.3%, with a significant decline in Nigeria and South Africa, only partially offset by a strong performance in Ethiopia. The situation in Nigeria is quite extraordinary. This is our largest market in the region, and total volume decline in the mid-20s was in line with the market. The economy suffered from a temporary lack of availability of local currency, caused by an immediate withdrawal of old banknote denominations, impacting consumers' ability to purchase goods. Now, we expect the situation to progressively improve, as the validity of the old banknotes have been restored until the end of 2023, alongside issuing redesigned banknotes. Despite these challenges, the premium portfolio in Nigeria grew by a mid single digit with Desperados more than doubling volume versus the same period last year. As we move on to the Americas, we continue to see good performance in our strongest markets. Net revenue Bayer grew 14.8% organically with total consolidated volume up 3.1%. Price mix on a constant geographic basis was also up 13.6%, led by pricing in Brazil and Mexico, and continued premiumization of the portfolio. Beer volume increased organically by 3.4% in the quarter, and our premium portfolio grew by a high single digit, led by Heineken in Brazil and the US, Amstel accelerating in Brazil, and Amstel Ultra in Mexico. Now on to Asia Pacific. where, as we said, we had a soft start to the year, and net revenue buyout declined 5.4% organically. Total consolidated volume declined by 10.5%, impacted by the declines in Vietnam and Cambodia. Price mix on a constant geographic basis increased 4.7%. Whilst the premium portfolio declined in the low 20s, driven by Vietnam, Other markets contributed to an underlying mid-teens growth. So let me address the situation in Vietnam. Net revenue buyer declined in the low 20s, driven by lower volume due to the earlier debt season and temporary economic pressures impacting the market. Now, what happened is that given the steep post-COVID recovery last year, we have been building stock ahead of the debt season, expecting this momentum to continue. The momentum was halted early 2023 due to an economic slowdown attributed in part to real estate and export sectors. Market share, however, remains strong and encouragingly, Heineken Silver and Tiger Crystal grew in the high teens and by more than 30% respectively. So finally, some words on Europe. Net revenue buyer grew 13.5% organically, with total consolidated volume down 1.3%, performing ahead of our expectations, as consumers remain resilient so far, despite continued pressure from inflation across consumer goods. Price mix on a constant geographic basis was up 13.6%, driven by pricing earlier than the industry, more than offsetting a beer volume decline of 2.3% organically. Our premium portfolio was broadly flat, with continued momentum on our next generation brands such as Bira Moretti, Beavertown, Messina, El Aguila, Tessels and Gallia. Let us now move on to discuss the Heineken brand performance in more detail. Overall premium beer volume declined, driven by the situation in Vietnam and the stopping of sales of Heineken in Russia. Strong underlying momentum in premiumization continued elsewhere, led by Heineken, which grew 2.3% in volume, significantly outperforming our portfolio. And excluding Russia, as I indicated before, Heineken grew 5.7% organically. The growth continued to be very broad-based, with more than 25% markets growing double-digit, and in particular Brazil and China delivered strongly. Heineken 00 grew by 6.9% organically excluding Russia, with strong momentum in Brazil, US, UK, Spain, and the Netherlands. Notably, Heineken Silver continued its strong growth up 47%, including double-digit growth in Vietnam and China, and its continued global expansion. We're very pleased to have launched Heineken Silver in the USA, and are encouraged by the speed and scale of nationwide distribution bills and the placements that we've achieved. As we commented before, we're gearing up for a big launch activation, which started in April, and therefore it's a bit too early to comment on that and more to come in our first half update. I would like now to move to welcoming Distel to our portfolio. After many months of effort and great collaboration, On March the 9th, the South Africa Competition Tribunal approved Heineken's offer to acquire control of the Distel Group Holdings Limited, paving the way for the creation of a new Southern African beverage champion. The transaction with Distel and Namibian Brewers Limited is expected to be completed next week on 26th of April. We're very much looking forward to combining these three incredible, proud and independently successful companies and are welcoming over 5,000 Distel and NBL colleagues into Heineken. Let us move on to the next slide as a reminder of the compelling strategic rationale that sits behind this exciting combination. First and foremost, we see growth potential. Our ambition is to shape the future of beer and beyond by expanding our advantage footprint, scaling premiumization, pioneering low and no propositions, and exploring beyond beer. And with Distel, we can build on several of these areas. First, the transaction will significantly strengthen our number two position in South Africa with a unique multi-category portfolio of beers, ciders, wines, and spirits, and two highly complimentary route to consumer organizations. Secondly, it will allow us to consolidate our position in Namibia and benefit from greater access to local expertise while creating an opportunity to leverage our premium category building capabilities in this exciting market. Third, the transaction brings into Heineken a diverse portfolio and innovation capabilities. We will explore opportunities to grow Savannah Cider, Windhoop Beer, but also the grape-based Bernini Sparkling Spritzer outside their home markets. The new operating company will be serving 10 export markets, where the combination will enable increased efficiency and potential growth, especially in attractive markets like Kenya and Tanzania. We are impressed by the innovation capabilities of Distel and look forward to nurturing them and expanding them. And behind that, of course, there are also obvious synergies to be achieved from the creation of a new operating company amounting to around one and a half billion rand or 75 million euros to the EBITDA of the combined group. So moving on to share the main points for consideration on the consolidations. And this is important to get right. We expect to consolidate Distel and NBL as of the 1st of May, 2023. And on March 27th, the threshold scheme conditions of the transaction have been fulfilled, which is a formal way of saying that we can now confirm that shareholding in NewCo is 65%. And as a result, the consolidation of the newly acquired assets will imply the following. On gross revenue, we will add 1.6 billion euros or close to 5%. But if we take into account the accounting treatment of excise duties that we apply at Heineken, this will convert to 1.1 billion of incremental net revenue or close to 4%. Approximately 160 million of operating profit will be added. and a low single-digit net profit and diluted EPS contribution will come into play. Now, please note that these figures are backward-looking and illustrative only. They are intended to give a directional impact of the consolidation using the information provided in the prospectus. They are not intended as guidance because, as said, we will expect consolidation to happen on the 1st of May 2023. With that, let me move on to the last slide. I would like to reiterate that our full year expectations remain unchanged. We continue to experience the effects of a global volatile economy and remain cautious about the impact that this has on consumer demand. Now, at the same time, we are focused on strengthening our business in line with our evergreen strategy, including investment behind our brands and innovations, and delivering upon our growth savings ambitions. Following the start of the year, we see signals of a more resilient Europe, and we also see risks of a slower economic growth in Asia Pacific. And therefore, performance across markets may be different than what we previously anticipated. All in all, our full year outlook remains unchanged, and we expect operating profit buyer to grow organically mid to high single digit. We also expect that the growth in the operating profit buyer will come mainly, if not fully, in the second half of the year. A last point. We have submitted an application for approval regarding the transfer of ownership of our Russian business. I am limited in what I can say because that process is completed. and is now with the authorities of the Russian Federation. And with that in mind, I would like to open for Q&A on everything about Russia. Thank you very much.

Thank you. As a reminder, if you'd like to ask a question, you can press star followed by one on your telephone keypad. If you'd like to withdraw your question, you may press star followed by two. Please ensure you limit yourselves to one question and one follow-up question only. Thank you. Our first question for today comes from Mitch Collette from Deutsche Bank. Your line is now open. Please go ahead.