Heineken Holding

Hello, everyone, and welcome to the Heineken Half Year 2023 Results Call. My name's Daisy, and I'll be coordinating your call today. If you would like to register a question, please press star followed by one on your telephone keypad. Please kindly only ask one question and one follow-up to allow others the chance. And I would now like to hand the call over to your host, Federico Castillo-Martinez, Director of Investor Relations to begin. So, Federico, please go ahead.

Thank you, Daisy. Good afternoon, everyone. Thank you for joining us for today's live webcast of our 2023 half-year results. Your hosts will be Dolph Van Den Brink, our CEO, and Harold Van Den Broeck, 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. For more information, please refer to the disclaimer on the first page of this presentation. I will now turn the call over to Dorf.

Thank you, Federico, and welcome, everyone. I would like to start with a quick reminder of our green diamond. This is how we measure the success of our evergreen strategy. It embodies the balance we aim to attain. We continue to focus on our evergreen priorities and to invest for long-term sustainable value creation, balancing growth, profitability, capital efficiency, and sustainability responsibility. In the first six months of 2023, we prioritized and delivered the front-loaded pricing required to offset unprecedented input to energy cost inflation across all markets. In Europe, the region with the highest inflationary impact, volume declined in line with our expectations, yet demand in APEC was considerably softer than foreseen due to an economic slowdown and our own performance in Vietnam. Our overall financial performance in the first half of the year was below expectations, driven by the challenging results in our most profitable APEC region. At the same time, we increased investments behind our branching capabilities with marketing and sales investments up by 0.2 billion globally to drive future growth. We expect a strong turnaround in operating profit growth in the second half as pricing moderates, volume trends gradually improve, and we accelerate our delivery of cost savings. For the full year, we have updated our outlook, and we now expect stable to amid single-digit operating profit organic growth. Let's take a closer look at the key financial highlights. Net revenue grew 6.6% organically versus last year, benefiting from inflation-led pricing, more than offsetting the volume decline. Revenue per hectolitre grew organically by 12.7%, driven by pricing for inflation and positive mix from premiumization. Total beer volume declined by 5.6% organically, and shortly I will provide more detail across the regions. The Heineken brand grew 3.7%, excluding Russia, significantly outperforming the beer portfolio. Operating profit declined by 8.8%, and the margin was 13.4%, down 260 basis points versus last year. Net profit declined slightly ahead of operating profit organically, and the diluted earnings per share ended at €2.03. Higher financing costs were offset by lower taxes and minority interest and a higher share of profits from associates, with a strong performance of CRB. Harald will speak later in great detail about some of these financial highlights. I will now turn to the regions starting with Europe. Net revenue grew strongly by 8.9% with price mix up 13.5%, primarily driven by pricing ahead of the industry to cover the disproportionate impacts of inflation on our cost base on the back of improving brand power. Beer volume declined organically by 4.8% versus last year, broadly in line with our expectations. The on-trade was up, benefiting from reopening tailwinds in the first quarter, and the off-trade declined, losing share in some markets because of earlier pricing ahead of the industry. The premium portfolio outperformed, led by our next-generation brands, including Galia, Biramoretti, and El Aguila, which grew by a low single-digit. Overall, we gained or held market share in over a third of our markets with improving trends in the second quarter. Operating profit declined marginally, remarkable in the context of the inflationary pressures in the first half and the large increase of our investment in our brands. In addition to the strong pricing, we delivered significant cost savings from our supply chain transformation program. Moving on to the Americas, net revenue grew organically by 8.6%, mainly driven by Mexico and Brazil. Organic beer volume declined by 1.5%. The price mix grew by 11.3%, driven by pricing and the continued premiumization of our portfolio, particularly in Mexico, Brazil, and Ecuador. Operating profit declined by 1.8% as revenue growth was offset by inflationary pressures on our product cost and a significant step up in marketing investment in Brazil, Mexico, and the U.S. In Mexico, net revenue increased organically in the low teens, driven by pricing, partially offset by a low single-digit volume decline due to the mixing of OXO, now complete and in its last year of impact. The premium portfolio outperformed up in volume in the high teens, led by Heineken Silver. Our sixth route to consumer continued expanding to reach more than 16.5 thousand stores in the first half. In Brazil, net revenue grew in the low teens, beer volume was stable, outperforming the industry while pricing ahead of the industry. Heineken continues as the number one beer brand by value in the off-trade and is now also the second largest beer brand in the total market by value. Amstel, the number one brand in the pure malt mainstream segment, continued its strong momentum and grew in the low 30s. Heineken USA shipments were down high single digit, while depletions were down by low single digit, outperforming the market in the second quarter. Heineken grew in depletions, driven by the launch of Heineken Silver, with encouraging early results in distribution buildup and rate of sale. Heineken 00 continues to be the number one non-alcoholic beer brand by value in the US and was up mid-teens. Moving on to Amey. Net revenue grew organically by close to 10%, as the decline in the beer volume of 6.5% organically was more than offset by strong price mixed growth of 16.7%, driven largely by pricing with inflation and further boosted by premiumization. The premium beer portfolio declined in the low teens, driven by the decline in Russia. Excluding Russia, the rest of the region registered low single-digit growth in premiums. Operating profit declined by 5.1%, as strong pricing and productivity gains mostly offset the impact from lower volume inflation and transactional currency effects. In Nigeria, net revenue grew low single digits, driven by pricing to partially mitigate inflation. Total volume declined in the low 20s, with consumers purchasing power and the heavy pressure from inflation, cash shortages, and the effect of structural economic reforms. Although these reforms have short-term impact on business and consumers, we believe they are beneficial to the long-term growth prospects of the country. Despite these challenges, premium beer volume was broadly stable. Important to note that if we were to exclude the impact of Nigeria in the first half, beer volume would have been up low single digit organically in the region, with broadly the same operating profit performance, given the impressive actions of our Nigerian organization to right-size the business to the new reality. We also received positive news that the government has reversed its decision to significantly increase excite duties this year. An Ethiopian volume was up in the low 20s, extending our market leadership with Harar, Bedele and Walia all outperforming. The premium portfolio volume was up close to 40%, led by Heineken and Bedelia Special. In South Africa, volume was impacted by a brewery disruption in the first quarter and the impact of power outages on consumer demand. Pricing was ahead of the industry, particularly on Amstel, with impact on our market share that is now being addressed. Heineken continued to drive premiumization and grew volume by a mid-single digit. Finally, we are making good early progress on the integration of Distel and Amemian breweries. Moving on to APEC. We had a very challenging first half in the region. Beer volume decreased organically by 13.2%. Net revenue declined by close to 7%, with price mix up around 5%. Operating profit declined by 34.4% organically, essentially driven by Vietnam. Deep diving in Vietnam. Volume declined by close to 25% for three key reasons. Firstly, the economic slowdown. impacted our strongholds and the premium segment disproportionately. We estimate that the total market was down by a high single digit in the second quarter. Secondly, more than half of the volume decline was a result of the destocking of the TET overhang. Our distributor stock levels have largely normalized, and our volume exit rate of June was close to the overall market decline in the quarter. Thirdly, downtrading, exacerbated by our pricing ahead of the market. particularly for Tiger, which we are currently addressing to restore consumer affordability. Overall, on a sell-out basis, our performance is broadly in line with the market, with stable share and premium, while we gain in mainstream. Mainstream brands like Biafjet and Bivina grew double digits, supported by the expansion into regions outside our strongholds. In India, we have seen the impact of deliberate route-to-market changes in certain states, as we are bringing UBL fully within our control. Excluding those states, beer volume grew by a mid-single digit. Whilst overall disappointing performance in APEC, very positively we continue to make strong progress in China. Heineken volume grew close to 60%, driven by the strong momentum of both Heineken Original and Heineken Silver. Let's now look at progress on our evergreen priorities, starting with premiumization. Overall premium beer volume declined by 6.5%, driven by Vietnam and Russia. However, beyond these markets, premiumization trends remain strong as premium volume grew low single digits ahead of the total beer portfolio in aggregate in the majority of our markets. In this slide, we are showing this view for the regions, and you can see a similar relative outperformance of the premium portfolio when compared to mainstream and economy-consolidated beer volumes. In Europe, premium beer improved 80 basis points in the mix, and our next-generation brands, including Gallia, Biramoretti, and El Aguila, grew volume low single-digit. As previously mentioned, in the Americas, we have impressive momentum on Heineken in Brazil as we continue the portfolio transformation. More than 75% of our volume is now in the premium and mainstream segments. In AME, despite the challenges in Nigeria, we see the biggest contrast with premium gaining 400 basis points in the mix. And remarkably, in Nigeria, Desperados doubled its volume versus last year. Finally, in APEC, excluding Vietnam, other markets grew premium beer high single digits. If we include Vietnam, this figure would be a low 20s decline. However, maybe somewhat surprisingly, In Vietnam, our low bitterness premium beers, Heineken Silver and Tiger Crystal, continue their strong momentum with volume up in the mid-teens and high-teens, respectively. Moving on to Brent Heineken, which continued to lead our portfolio and grew volume by 3.7%, excluding Russia. 1.7% included Russia in the first half. Growth was broad-based across 50 markets, most notably in China, Brazil, Mexico, and Ethiopia. Heineken 00 also grew 5.2%, excluding Russia, further strengthening its leadership position in the non-alcoholic segment. Heineken Silver is now present in 45 markets and grew volume by more than 45%, led by China, Vietnam, and Mexico. And indeed, in China, the momentum is impressive, with 60% volume growth, improving brand power. China is now the second largest market globally for brand Heineken. We're proud that Heineken, Heineken Silver and Heineken 00 are all contributing to the growth of the brand as we celebrate the 150th anniversary of the brand. Once again, our creativity and execution was recognized at Cannes, where Heineken was awarded 12 bronze, 7 silver and 1 gold lion for the closure campaign. Heineken was the third most awarded brand over all categories. Happy birthday indeed. We're also investing behind our ambition to become the best connected brewery. We continue to expand our eB2B platforms and by the end of the first half, we captured 5.2 billion in gross merchandising value, an increase of 36% versus last year. This means we have surpassed over 10 billion over the last 12 months and are well on track to reach our ambition of over 15 billion of gross merchandising value by 2025. We now connect more than 550,000 active customers in fragmented traditional channels, an increase of 31% versus the same period last year. As an example in Brazil, we continue to build skill and now connect over 150,000 active customers, 46% more than at this time last year. This translates into 20,000 customers placing orders per day. We're accelerating our deployments in Brazil beyond our direct customers and into our indirect distribution network of resellers. We continue to migrate our eB2B platforms under a single brand name and identity. Easel, business made easy. Nine of our operations in Europe have already migrated, enabling better features at scale, improved customer experience, and increased efficiency. Finally, let's move to our Brew a Better World 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. Please note the results on these graphs for the whole year are illustrative to show our progress as we report progress annually. we continue to reduce our absolute carbon emissions in scope one and two on the way to our ambition to reach net zero carbon emissions in production sites by 2030 with strategic investments in projects including the following. Together with Signify, Nobian, and Philips, we opened an onshore wind farm in Finland in June. The virtual power purchase agreement will generate renewable electricity to power 27 of our European production sites for the next 10 years. We're committed to launch Project Circle, which uses technology that extracts high-quality proteins from spent grain and uses the remaining fibers as biofuel in our breweries. We also announced an investment of £25 million into our Manchester brewery to install heat pumps that will reduce our need to source gas for heating. We continue to focus on healthy watersheds via water efficiency, water circularity and water balancing. We have implemented more than 150 initiatives to reduce water consumption in 2023 across sites with a further 800 plus under execution. Social. We're making good progress when it comes to gender diversity. Our goals are for Heineken to become a more gender-balanced company with 30% of our female males in senior management positions by 2025 and 40% by 2030. In a half year, we continue our good progress towards our 2025 goal with 28% females in senior management. On responsibility, I'm personally delighted with our new partnership between Heineken and double Formula One world champion Max Verstappen in the new global When You Drive, Never Drink campaign to encourage consumers to make the right choice when it comes to selecting a designated driver on a night out. And with that, I would like to hand over to Harald.