Heineken Holding

Good afternoon, everyone. Thank you for joining us for today's live webcast of our 2024 half-year results. Your hosts will be Dolf van den Brink, our CEO, and Harald 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 Dolf.

Okay. Thank you, Tristan. And before we start, welcome to the team. And I also wanted to personally say a big thank you to Federico, who is here with us in the room. After seven years as the IR director, he will be moving to be our new finance director in the Netherlands, and I want to wish him a lot of success. Thanks, Federico. So welcome, everyone. We delivered a solid first half of the year, demonstrating progress on our multi-year transformation strategy, Evergreen. Before we delve into the results, let's start with a brief reminder of our strategy, which continues to shape our business. Our ambition is to deliver superior balanced growth to consistently create long-term value. And we do this with a clear focus on our five strategic priorities embedded in the business, as indicated on the left. These priorities propel the flywheel of our growth algorithm, with at the top first and foremost growth. We are after superior balanced growth, both volume and value growth. Growth enables gains in productivity and fuels resources for investing in future growth and to improve profitability. We delivered on this in the first half, and we will double down in the second half of the year by reinvesting significantly more of our case cost savings behind our brands. We're on track and working towards sustainably delivering the balance and bodies in our green diamonds. Growth, balance between volume and value, continuous productivity, better capital efficiency, and realizing our ambitions on sustainability and responsibility. So let's take a closer look at the results highlights. We achieved a solid first half of the year. Net revenue buyer grew 6.0% organically versus last year. Significantly, our growth was balanced and broad-based as net revenue per hectare liter Bayer grew by 4.3%, while total beer volume was up by 2.1%. The momentum behind the Heineken brand accelerated to grow 9.2%. Operating profit Bayer grew by 12.5%, and the margin was 14.0%, up 60 basis points versus last year. Notable was the strong improvement in the Americas. Net profit improved by 4.4%, with the operating growth partially offset by higher financing and tax expenses. Diluted EPS ended at €2.15. Harald will cover this in more detail later. The delivery of our growth in the first half has been balanced, and moreover, the volume growth itself has been of high quality. Our premium beer brands grew 5%, more than double the rate of our total beer portfolio. The growth has been delivered by a wide range of premium brands and extensions across our regions, including Kingfisher Ultra in India, Bira Moretti in Europe, Dos Equis in the Americas, and Desperados in Nigeria. And, of course, led by Heineken, which was up more than 9%. The growth was broad with 27 markets in double digits, most notably in Brazil, China, and Vietnam. Additionally, our non-alcoholic beer and cider portfolio grew close to 10%, I will expand on our leadership position in this segment later in the presentation. This high-quality volume growth led to 6% net revenue growth with positive price mix in all regions, particularly Africa and Middle East. And operating leverage led to a good revenue-to-profit conversion as the growth in operating profits was more than two times the growth in net revenue. Now let me take you through the performance in our regions. First, Africa and Middle East. where we achieved volume growth under challenging conditions and landed the pricing required to offset inflation and currency devaluations. Net revenue grew organically by 27%, with 1.5% bear volume growth and a strong price mix of 24%, mainly by pricing for inflation. Operating profit grew 21% as pricing, volume growth, and continued productivity gains more than offset inflation and the impact of devaluations in our costs. In Nigeria, net revenue grew disproportionately with steep pricing to mitigate the impact of inflation and the Naira devaluation. Despite difficult economic conditions, volume grew in the mid-teens, led by Goldberg, Life, and our premium brand Desperados. We're reshaping the balance sheet of Nigerian breweries to set it up for sustainable future growth, which Harold will explain later. In Ethiopia, revenue grew in the mid-teens as inflation and pricing more than offset the volume decline. There's continued civil instability in key regions of the market. Consumer purchasing power remains under pressure from the effects of hyperinflation. Last night, the Ethiopian government announced an economic reform program, which we believe will be good for the country's long-term prospects. In South Africa, we achieved a first-year milestone integrating the distal acquisition, enabling a competitive multi-category business model to capture the growth. Our wine, distal spirits, cider, and ready-to-drink portfolio outperformed the market in the respective categories, led by the continued momentum behind Savannah and Bernini. We have more work to do in the beer segment and are excited about the prospects for the 65-cl returnable glass bottle for Heineken introduced in the first half. On to the Americas, which really stood out in the first half in its strong operating profit performance. Net revenue grew 4% and bear volume up a percentage point. Price mix grew by 4%, driven by pricing and premiumization. Operating profit value grew 37%, driven by the top line and significant improvement in variable expenses, benefiting from near-shoring initiatives, lower transportation and commodity costs, and favorable transactional currency effects. In Mexico, revenue increased organically by a mid-single digit, driven by volume growth and revenue management initiatives. The volume growth was led by our core portfolio brands Dos Equis, our affordable premium position, and Indio, the mainstream segment. Heineken 00 grew volume by a mid-single digit and remains the number one non-alcoholic brand in the market. In the USA, sales to retailers outperformed the markets, Heineken's brand power continued to improve, supported by Heineken Silver and Heineken Zero Zero, which recorded its 19th consecutive quarter of growth. Dos Equis continues its positive momentum across the Sun Belt and is the number one brand in draft in Texas. In Brazil, revenue grew by a high single-digit and low single-digit volume growth, which was again of high quality. Our premium beer portfolio grew volume in the low teens, Driven by the continuous strong momentum of Heineken, reinforcing our leadership position in the premium segment. Amstel grew in the low teens, further entrenching its leading position in the pure malt mainstream segment. So moving on to APEC, where we refer to growth led by India and with signs of market stabilization in Vietnam. Net revenue grew by 8%. Beer volume by 7%, the price mix 1%. Operating profit by increased by 7%. In Vietnam, we see signs of stabilizations in the beer market, though the premium segment and the on-trade continue to be impacted disproportionately from the stricter enforcement of degree 100. The Heineken brand grew volumes in the 60s, led by Heineken Silver, which recorded its 11th consecutive quarter of growth. Brands Biafjet, Bivina, and our innovation La Rue Smooth grew by double digits as we continued to strengthen the mainstream portfolio. In India, volume was up by a high single digit as our momentum continues and we remain optimistic about the future. The premium portfolio grew in the 30s, gaining share in the segment, led by Kingfisher Ultra and Ultramax. In China, Heineken continued its strong growth trajectory in the premium segment. Volume was up more than 25%, driven by the strong momentum of both Heineken Original and Heineken Silver, the latter growing close to 50%. Now onto Europe, where we're focusing on rebalancing our growth after periods of high inflation. We recognize that consumer sentiment remains muted, and we will continue to ensure our competitiveness, actively adapting and shaping our portfolio with our mainstream and premium propositions. Net revenue declined by 1%, partly due to lower intercompany exports, with price mix up 1%. Operating profit value was stable organically, as lower variable cost and productivity savings were fully reinvesting for growth and competitiveness. Bear volume grew 1%. We posted solid growth ahead of our plans up to May, which unfortunately was offset by a third weather in June, which has carried over to the beginning of July. The weather especially impacted the volume declines in the on-trade and our related wholesale business. We gained market share in most of our markets, most notably in the UK, led by Birra Moretti, Beavertown, and Cruz Campo, our authentic Spanish mainstream lager from Sevilla, which became the largest launch in the off-trade in more than a decade across beers, wines, and spirits. Premium beer volume outperformed our border portfolio, led by Heineken and our next-generation brands, such as Birra Moretti, Gallia, El Aguila, Messina, and Tessels. The non-alcoholic beer and cider portfolio grew by a high single digit, led by Heineken 00. Moving on to Brent Heineken, leading our portfolio. The sustained momentum behind Heineken continues to pace. The innovations of Silver and 00 have been additive to growing the Brent power and the volume of Heineken original. In the last five years, we have grown volume by 50%. This continues into 2024, in the first six months adding another 9% at points of growth. with 27 markets in the double digits, most notably in Brazil, China, Vietnam. Heineken Zero Zero and Heineken Silver have been once again strong contributors, up 14% and 41% respectively in the first half of the year. I'm also especially proud that the Heineken brand continues to be admired for its creativity in both idea and execution. Heineken was recognized as the number one most creative brand in the alcoholic drinks category and the number two most creative brand across all categories at the prestigious Cannes Lions Festival Creativity, taking home a record 22 awards. Let's zoom into Zero Zero for a moment. We are the global leader in non-alcoholic beer, a category that delivers growth, profitability, and moderation. Our share of non-alcoholic beer is 1.5 times our share in total beer. And we have captured half of the total global growth in non-alcoholic beer over the past five years. We have achieved this on the back of Heineken 00, the largest global brand in 00, revolutionizing the category. It's now available and admired in 115 markets and grew by double digits in 23 markets in the first half. Specifically in the U.S., Heineken 00 has had 19,000 consecutive quarters of growth since its introduction. Moreover, we continue to introduce 0-0 variants of our tea brands, amongst more recently, Soltero in Brazil, and El Aguila Sintra 0-0 in Spain, and broaden the range of 0-0 flavors in Poland. Moving to our next strategic priority, digital, we aim to become the best-connected and most relevant brewer for our customers And the focus, first and foremost, is for the beer category and our portfolio to grow our customers' businesses. We are unlocking incremental value for our customers through our digital ecosystem, Easel, which expands our market coverage and enables better service. By the end of the first half of the year, we captured over 6 billion in gross merchandising value on our digital platforms. We now connect almost 650,000 active customers, accounting for close to two-thirds of our customers in fragmented traditional channels globally. And of course, Brew a Better World, our strategy to deliver on our environmental, social and responsibility ambitions, where we are progressing across all three pillars. In our ambition to achieve net zero carbon in scope 1 and 2 by 2030, we continued to make progress and have further reduced our emissions in the first half of the year. For example, we opened a large-scale solar thermal plant in Valencia, Spain. On our journey towards healthy water sets, we have further improved the water use efficiency in our breweries and now have over 32 water balancing projects, most recently adding the production sites in Mallorca in Mexico and Quiqueca in Burundi. On the social pillar, we are on track to achieve our targets of at least 30% women in senior management roles by 2025 and 40% by 2030. with good progress this year. On responsible consumption, as I indicated earlier, as category leaders, we continue to make progress to make sure that zero alcohol options are always the choice and broadly available. Before I hand over to Harald for the financial highlights, I would like to recognize the efforts of our team at Heineken. We've had a solid start of the year, returning to balanced top and bottom line performance. Evergreen's strategy has been and continues to be our compass And I'm proud of the progress that we're making and how we're building the foundations for long-term value creation. And with that, over to you, Harald.

Thank you, Dolf, and a good day to you all. I will take you through the main drivers of our first half financial results and our outlook for the full year 2024, starting with our top-line performance. We posted an organic growth of 900 million or 6%, reaching 14.8 billion net revenue buyer. We restored balanced volume and value growth, despite experiencing economic volatility in certain markets. The underlying price mix on a constant geographic basis was up 4.9%, with pricing up 4.5% and all regions in the positives. It was most pronounced in Africa, Middle East, as we priced for inflation and currency devaluations. Overall, our pricing was broadly in line with the weighted average inflation of our markets. The mixed component was positive 0.4% from premiumization. The consolidated volume on an organic basis was up 1.7%, and the growth came mainly from our largest operating companies in Nigeria, Vietnam, India, Mexico, and Brazil. Growth in the second quarter was lower as Easter fell in the first quarter in 2024 compared to the second quarter in 2023. Competition intensified in the economy segment in Brazil and we suffered from poor June weather in Europe. The translation of foreign currencies had a negative impact on 625 million or 4.3% for the first six months. Close to 600 million of this impact was due to the 48% devaluation of the Nigerian Naira versus the Euro. Using current spot rates applied to the results of last year, the negative effect of translation in the second half will be similar, with lower impact from African currencies and a higher impact from devaluation of the Mexican peso and the Brazilian real. Consolidation changes added 51 million, the net result of the distilled Namibia breweries acquisitions, the sale of Ruona in the Netherlands, and our exit from Russia. Moving on to the next slide. We delivered 2.1 billion operating profit buyer for the first half year, representing an operating profit margin buyer of 14%, up 60 basis points versus the comparable period last year. The 900 million of organic net revenue growth on the previous page translated into 242 million operating profit organic growth for the first half. Pricing and strong growth savings delivery from productivity initiatives more than offset in aggregate modest inflationary pressures in our cost base and funded incremental marketing and selling expenses and digitization and sustainability investments. Our variable cost per hectolitre increased organically by low single digits, in line with our guidance, as lower commodity and energy costs in the Americas and Europe were more than offset by double-digit increase in Africa and the Middle East, the latter driven by high local inflation and exchange rate devaluations in key markets such as Nigeria and Egypt. Marketing and sales investments as a percentage of revenue reached 9.9%, similar to last year, yet reflecting an organic increase of 55 million, mainly in the Americas and African Middle East. We delivered more than 300 million of growth savings across variable and fixed expenses and across regions. We are confident to achieve a 500 million target for 2024. Whilst all regions contributed to the growth in operating profit data, the main contributor was the Americas region, of 37% in the first half year. Next to top line growth leverage, this was driven by a significant improvement in variable expenses, benefiting from lower commodity costs and favorable transactional currency effects. An important contribution also came from structural productivity savings that delivered outstanding results, especially in Mexico and Brazil. For instance, we made major steps in near-shoring and local sourcing, collaborating with strategic suppliers. We no longer import 1 billion bottles for Brazil, and we're able to systematically lower our distribution costs and deliver fixed-cost productivity. The Africa-Middle East region achieved the pricing needed to offset the impact from inflation and transactional currency effects, and volume leverage and productivity savings flowed through to operating profit-buyer growth. In Asia-Pacific, good performance from India and the top-line recovery in Vietnam fueled the operating profit via growth. Europe saw a slight organic increase as lower variable cost and productivity gains were fully reinvested behind growth and competitiveness. Consolidation changes had an impact of 40 million. The transactional currency effect was 62 million negative, mainly from the devaluation of the Naira in Nigeria. Now let me cover other key financial data on slide number 17. Most are on a Bayer basis. I will also bridge between the net profit Bayer and the reported net profit. Started with our share of profits from associate and joint ventures that grew 10.1% Bayer, led by a strong profit growth of our associate partner in Costa Rica and increased contributions from CCU and CRB. Net interest expenses increased organically by 28.2% to 284 million, in line with our expectations. The increase reflects a higher average net debt position and a higher average effective interest rates, mainly from local borrowings in Nigeria. All the net finances expenses increased to 180 million, mainly due to the non-cash revaluation of foreign currency payables, with the largest impact coming from the devaluation of the Nigerian Naira. To be doubly sure, this is what we flagged in our full year 2023 results announcement. Net profit Bayer increased 4.4% organically to 1.2 billion. On a reported basis, we recorded the net loss for the half year, mainly impacted by the non-cash impairment of China resources peer as required by IFRS standards and driven by the decline in their share price as per the reporting date. The next slide will go into more detail. The effective tax rate buyer was 28.8%, about 80 basis points higher than last year. Here, the profit mix played a role as well as the new tax law changes in Brazil. All in all, this resulted in an EPS buyer increase of 5.9% to €2.15. In line with our dividend policy, interim dividend is set at 40% of the total dividend of the previous year, leading to an interim dividend of 69 cents per share, equal to last year. Finally, our net debt to EBITDA ratio came down to 2.4 times, in line with the company's long-term target of below 2.5 times. Let me for a moment come back to CRB, started with some business performance indicators. Between 2019 and 2023, CRB's turnover grew by 17% and net profit three times as reported under the Hong Kong financial reporting standards per calendar year. The strong operational performance was supported by the growth of the premium portfolio, led by Heineken, up in volume four times during that four-year period. Also, CRB's contribution to Heineken's result is meaningful, and increasingly so. royalty income from CRB and CRB's share of profits to Heineken for the first six months of 2024 represented more than 7% of the diluted EPS buyer, making it a top five contributor to our total net profit. However, the share price trajectory of CRB has deviated from the strong operational results. At the time of acquisition, the CRB share price was HK$1.35, And after a rally lasting until mid-2023, it declined to Hong Kong dollar 26.25 as per the 30th of June 2024, possibly reflecting concerns on the macroeconomic environment in China and its impact on consumer demand. As required by IFRS standards, we have recorded a non-cash impairment of 874 million. This may reverse if the share price rises meaningfully. Let me now turn to free operating cash flow. We recorded the cash inflow for the first six months of the year of 655 million, a 1.1 billion increase from last year. The improvement came for a big part from working capital improvement. You may recall that last year our inventory and payables positions were affected by higher safety stocks on scarce materials and impacted by lower volume and other phasing effects. This year, we see those effects normalized. In addition, we are beginning to see results of specific interventions to further improve our working capital positions, for example, by using AI in our forecasting processes and by working with suppliers to bring our payment terms closer to industry standards. CapEx in the first six months was close to 1.2 billion, lower than last year by 212 million, and representing 8.8% of net revenue in line with our guidance to be below 9%. Cash flow from operations before working capital changes was higher by 94 million, driven by the higher operating profit and a change of 52 million in provisions. Cash for interest, dividends, and tax increased in aggregate by 60 million, mainly from lower income taxes paid. Let me now turn to the outlook for the rest of the year in the next slide. Our Evergreen strategy is a multi-year journey, and we are pleased with the solid progress in the first half of 2024. While several key emerging markets had to navigate a volatile macroeconomic environment, overall, we achieved a more balanced volume and value-led revenue growth and good operating leverage. We also continue to deliver against our premiumization, digital, and sustainability ambitions and funded by growth savings and productivity gains. We continue to expect variable costs to increase organically by a low single digit on a per hectolitre basis. The benefit from lower commodity and energy prices compared to 2023 is more than offset by inflation and currency devaluations in Africa. We have clear line of sight on our cost savings initiatives and are therefore confident to achieve our circa 500 million ambition for 2024 ahead of our medium term commitment of 400 million. We are increasingly reinvesting a larger proportion of these savings into marketing and sales, which we expect will grow significantly and materially ahead in the second half of the year compared to the same period last year. We will do this behind key brands and markets, obviously applying good financial discipline. Volatility remains a reality. Consumer confidence and economic sentiment in developed markets remain below their historic average. The Africa and Middle East region continues to experience challenging conditions. Looking ahead, there is a risk of material currency devaluation that occurred last night, as Dolph just referenced, and also hyperinflation in Nigeria and Egypt. We are confident that we're able to adapt, yet this continues to bring some short-term uncertainty. We update our full-year outlook to grow operating profit buyer organically in the range of 4% to 8%. The narrowing of the range reflects our confidence in delivery as we are pleased with the solid performance to date, which is why we removed the lower end of the range. At the same time, we have not seen the best of summers, and main sporting events did not give the uplift that we hoped for. And most importantly, we reiterate our commitment to materially invest behind category and our brand portfolio growth, and this includes a step-up in half two versus last year. This is reflected in the adjustment at the upper end of the range. I want to highlight two more elements. A brief update on the rights issue by Nigerian breweries. As Dolph has mentioned, we are actively managing the volatility we are facing in Africa to ensure operational resilience and sustainable profitable growth. In Nigeria, a country of close to 230 million people and one of our largest markets in volume terms, the steep devaluation of the Naira, hard currency shortages, and high interest rates led to significant pressure on the balance sheet and the net profit of Nigerian breweries. The planned recapitalization is on track and will help alleviate these pressures. We aim to use the proceeds of the rights issue of around 600 billion naira to reduce the company's liabilities. We expect the transition to complete this year, and Heineken will take up its right in full in recapitalization. You will have noted from our results highlights that the team on the ground is doing an amazing job, giving us confidence in the long-term potential of Nigeria and our ability to build a sustainable future for the business. Second, a comment on the revised outlook for the items between operating profit and net profit. Our effective interest rate is expected to remain unchanged. If current conditions prevail, we expect more stable other net finances expenses in the second half of the year as we made progress in reducing hard currency exposures and are on track with the rights issue in Nigeria, as I just mentioned. And last, we have updated our view on the average effective tax rate buyout and now expect this to land at around 28%, an improvement relative to the previous guidance of 29%, including further insights into Brazil's 2024 tax changes. As a result, we revised the expected organic net profit buyer growth to be more closely in line with the expected operating profit buyer growth. Before the QEA, to summarize, we had a solid performance in the first half of the year as we restored our balance volume and value-based growth and delivered operating leverage. We are confident in our cost projections and have clear visibility and increased confidence on our expected growth savings for the year. We will materially increase our marketing and sales investment in the second half of the year, and for this reason, we have revised our guidance to 4% to 8% operating profit by our growth. Over the medium term, we continue to aim to deliver superior balanced growth with operating leverage over time. With that, I would like to open for Q&A.