Heineken Holding

Good afternoon, everyone. Thank you for joining us for today's live webcast. Your host will be Harold van den Broek, 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 Harold.

Thanks, Federico, and welcome, everyone. Thank you, as Federico said, for joining us today. And whilst we don't want to make it a habit to host conference calls with our quarterly results... We appreciate these are turbulent times, in which it might be helpful to give some additional context and offer the opportunity to ask some questions that may be on your mind. Our evergreen strategy, however, aims to create long-term sustainable growth and value creation, and a quarter is a short time period to assess performance against that. What might be also good to know up front is that it is not our intent in the call today is to be specific on our outlook for 2024 due to continued volatility in the world and the fact that we are in the middle of our planning process. But before I open up for questions, let me take some 10-15 minutes to give you a summary of the quarter. In the third quarter, we see a gradual improvement of our business performance, albeit somewhat slower than what we envisioned. We continue to focus on our evergreen priorities, and after having secured the pricing to compensate very high inflationary input and energy cost increases, we now see inflation-led pricing coming off its peak. Volume trends are somehow improving, somewhat improving, I should say, not somehow, somewhat improving across approximately half of our markets, with a strong performance in Mexico, Brazil, Ethiopia, and India. Similarly, in just over half of our markets, we are gaining or holding market share on a year-to-date basis. We continue to see the benefits of our productivity program coming through in our results. At the same time, we must recognize that macroeconomic and geopolitical conditions remain challenging. In our updated outlook statement for 2023 issued at the half year, we expected improvements in the APEC region and in Nigeria in the second half of 2023 relative to significant disruptions in the first half. This is only partially the case, and across various markets we observe a slowdown of consumer demand. In addition, relatively poor summer weather impacted volumes in Europe in the third quarter. All in all, whilst we left the outlook for 2023 unchanged, we have noted analyst estimates have shifted to the lower end of the range, and we are comfortable with that position. Let us now briefly look at performance for the group in the quarter and the year to date. In the third quarter, group net revenue Bayer was 8 billion, an increase of 4.5% organically. with net revenue Bayer per hectolitre increasing by 9.7%, particularly in Africa, Middle East and the European regions. This was driven by pricing actions taken earlier in the year to offset inflation, complemented by revenue and mix management initiatives, more than offsetting a beer volume decline of 4.2% organically. As we are currently providing you with essentially a top-line trading update, we do not disclose any further financial performance metrics. I do, however, want to point out that the net profit number in our press release includes the effect of exceptional items from our exit in Russia, the sale of our soft drinks business in the Netherlands, recognition of deferred tax assets in Brazil, and other effects like phasing of expenses. So please do not draw too many conclusions from this metric alone in the quarter. Looking at the first nine months, we posted an organic growth of 1.2 billion euros, or 5.8%, reaching 22.5 billion net revenue back. The net revenue per hectolitre increased by 11.6%. with underlying price mix on a constant geographic basis at 10.9%, remaining broadly in line with the weighted average inflation of our markets. The mix component remained positive, close to 1% from premiumization, as our premium portfolio outperformed in the majority of our markets. Total consolidated volume on an organic basis was down 5.2%, with the third quarter somewhat less negative at a decline of 4.8%. Half of this volume decline can be attributed to Vietnam and Nigeria. We returned to volume growth in the Americas, with strong performances in Brazil and Mexico. Asia-Pacific improved sequentially despite ongoing challenges in Vietnam, and where across the APEC markets, global economic conditions weighed on consumer demand. The Africa and Middle East region was impacted by volume declines in Nigeria and South Africa, and in Europe, volume in July and August was severely impacted by adverse weather, and trends improved in September. The translation of foreign currencies had a negative effect of 488 million euros, or minus 2.3% for the first nine months, mainly from the devaluation of currencies in Africa and partially offset by a stronger Mexican peso. Consolidation changes represented 507 million or 2.4%, mainly Distel and Namibian breweries in Africa. Now onto the next slide. And as anticipated, pricing is tapering as the inflation that pricing has been mostly implemented and commodity and energy prices have come off their recent peaks. We see a modest improvement in the beer volume trend in the third quarter, 340 basis points versus quarter two, and still held back by continued softness in APEC and Nigeria, as I just mentioned, and a below par summer in Europe. Let's now take a closer look at the regions. Let me start with Africa, Middle East, and the Eastern European regions. Net revenue Bayer grew 9.6% organically, with total consolidated volume down 8.6% and price mix on a constant geographic basis up 17.9%, driven by strong pricing to offset inflation, but also currency devaluation. Beer volume decreased organically by 10.1%, as double-digit growth in Ethiopia, Tunisia and Algeria was more than offset by declines in Nigeria and South Africa. Premium beer volume, excluding Russia, declined in line with the beer volume as a whole. In Nigeria, consumers' purchasing power continued to be under severe pressure due to inflation and the impact of structural economic reforms, like the removal of subsidies on diesel and petrol. affecting our premium portfolio disproportionately. Our leading non-alcohol malt proposition, Maltina, continued to significantly outperform the market and broadly held volume. In South Africa, we saw a decline in beer volume as we lost share in a challenging competitive environment at the time of integration of this delt. We integrated our sales teams, our ERP systems, aligned trade terms during the third quarter. So we can now move forward operating as a single entity, preparing for the key peak season in the coming months. Our non-beer portfolio grew revenue by a low single digit with an impressive performance of Savannah, Bernini and the Four Street wine. Obviously, all compared to the historical baseline of our distilled portfolio, because we've consolidated only recently. Moving on to the Americas. Net revenue Bayer grew 5.5% organically, as beer volume returned to growth in the quarter, up 2.2% organically, and price mix up 5.2%, driven by pricing across the region and continued premiumization. Mexico and Brazil led the growth, and our premium portfolio grew by a mid-single digit, led by Heineken. In Brazil, the growth was again led by Heineken, but also Amstel, as our successful portfolio and route-to-market strategy continues to bear fruit. In Mexico, we announced our plan to invest in a groundbreaking new brewery in Yucatan to propel growth, expand sustainable brewing practices, and foster community development. And we continue to see encouraging early results in distribution buildup, but also rate of sale of Heineken Silver in the USA. Now on to Asia Pacific. Whilst volume trend improved in APEC relative to the first half of the year, we continue to see demand softness given challenging microeconomic conditions. Net revenue Bayard declined 0.9% organically, whilst consolidated beer volume declined 4.6%, and price mix on a constant geographic basis increased 4%. Let me update you on the situation in Vietnam. The beer market continues to decline, we believe, by a high single digit, as per the Nielsen data we received, due to persisting economic slowdown. we are not paying that much attention to beer industry volumes because these numbers are starting to move around quite a bit so we really consciously talk about nielsen data here the slowdown is disproportionately affecting our strongholds and the premium segment as a result our volume decline at mid-teens is higher than the decline in the beer category despite this Heineken grew volume in the high teens, driven by the continued success of Heineken Silver up in the 40s, and our mainstream portfolio outperformed, with Bia Viet, Bevina and La Rue all gaining share in the segment. The APEC performance was also supported by strong results in India, up by a high single digit, despite being held back as we continue with route to market changes to create a sustainable future going forward. And finally, a word on Europe. Net revenue grew 3.9% organically, with beer volume down 7.6% and price mix up 12.1%. driven by our pricing at the start of the year and in line with inflation. Volume was significantly impacted by adverse weather during the key summer months of July and August. And again, as said, trends were improving in September. We gained or held share in the majority of our markets in the on-trade year-to-date, with more to do to recover share in the off-trade. Our premium and non-alcoholic beer and cider portfolios continue to outperform the wider portfolio in most of the markets. A brief word to discuss the Heineken brand performance in more detail. The Heineken brand continues to show great momentum and grew volumes 2.3% with double-digit growth in 28 markets. The brand saw its strongest growth in China up in the high 40s and Brazil up in the mid-teens. The growth was supported by strong performance of line extensions because Heineken 00 grew 3.5%, driven by the Americas, and Heineken Silver grew close to 40%. Again, China, Vietnam, and the launch in the US this year were the main contributing markets. Moving on to the last slide to close with the outlook for the year. At the half-year results presentation, I shared several shifts that we expected in the second half of 2023. Let me now revisit some of these themes and apply them to the current context. We expected pricing to moderate, with volume trends to gradually improve to a low single-digit decline, which we are starting to see happen, but more slowly than what we envisioned. This is partially because we are not yet experiencing an improvement in the external environment in Vietnam, nor Nigeria, and some other factors that I've highlighted in this call. We expect a further improvement in volume trends in the balance of the year. However, we still expect negative volume growth to persist. Consequently, we are bringing investments in line with our revised growth ambitions still seeking to continue to invest behind our strategic priorities. And we do experience lower pressure from inflation and remain firmly on track with our productivity savings to land well ahead of the initial 2 billion gross savings target. That fact has not changed since our mid-year update. Overall, our expectations for the full year of 2023 remains at a stable to mid single-digit operating Bayer growth organically. As said earlier, we see the upper end of the range as less likely and expect to be closer to the lower end of the range, provided there are no unforeseen events. Looking ahead to 2024, the unprecedented commodity and energy cost inflation in recent years will be partially reversed next year, with some easing already benefiting 2023 and easing the pressure on pricing. So we're adjusting pricing compared to relative input cost that we see coming through in the second half of this year. We're currently seeing variable cost of goods sold, including the energy coming down in Europe and the Americas in 2024, Yet there will be continued inflationary pressures in Africa and Middle East. We will also continue with the structural changes under Evergreen to set us up for a more balanced growth in 2024 and beyond. There's a lot of continue in this text, but we will also continue to invest in future growth, the continuous renewal of our portfolio towards premiumization, non-alcoholic and beyond beer, and fuel our ambition to become the best connected brewer and reach our sustainability and responsibility ambitions. At the same time, we will continue to shape and optimize the portfolio, as we have done with our most recent investments in South Africa and India, but also with the sale of our soft drink business in the Netherlands. Whilst we are confident in our ability to deliver on our strategic priorities, We also continue to see a challenging geopolitical and macroeconomic environment, with a consequent risk on the consumer demand in various markets. Whilst we acknowledge some events in 2023, such as the debt destocking in Vietnam, will not reoccur, these economic conditions may hinder a stronger volume growth next year. We will give a more specific update on our full year 2024 outlook at the presentation of our full year results in February. With that, I would like to open the line for Q&A and thank you for listening.

Thank you. Please press star followed by the number one if you'd like to ask a question and ensure that your device is unmuted locally when it's your turn to speak. If you change your mind and wish to withdraw from the queue, it's star followed by two. We kindly ask that you limit yourself to one question and one follow-up only. Our first question today comes from Olivier Nicolai of Goldman Sachs. Your line is open. Please go ahead.