Release Date: July 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Heineken NV (HEINY, Financial) achieved a solid first half of the year with a 6% organic growth in net revenue.
- Operating profit (beia) grew by 12.5%, with a margin increase of 60 basis points to 14.0%.
- The Heineken brand saw a 9.2% growth in momentum, with premium beer brands growing 5%, more than double the rate of the total beer portfolio.
- Significant growth was observed in the Americas, with a 37% increase in operating profit driven by top-line growth and cost efficiencies.
- The company is making substantial progress in sustainability, reducing emissions, and improving water use efficiency, with notable projects in Spain and Mexico.
Negative Points
- Economic volatility in certain markets, particularly in Africa and the Middle East, continues to pose challenges.
- Higher financing and tax expenses partially offset net profit improvements, with diluted EPS ending at EUR2.15.
- The European market faced a decline in net revenue by 1%, impacted by adverse weather conditions in June and muted consumer sentiment.
- The competitive landscape in Brazil and South Africa remains challenging, particularly in the low-end portfolio and beer segment, respectively.
- Currency devaluations, especially the 48% devaluation of the Nigerian naira, had a significant negative impact on financial results.
Q & A Highlights
Q: Could you talk about the assumptions around the bottom and top ends of your guidance range for the year?
A: (Dolf van Den Brink, CEO) We are pleased to see the normalization of our top line in the first half, with good volume growth and revenue per hectoliter. This gives us confidence in the future of the category. We intend to increase our investment behind our brands and the category, focusing on brand power and pricing power. (Harold van den Broek, CFO) We removed the bottom end of the range due to solid first-half results and managed volatility in Africa. However, uncertainty remains, such as potential currency devaluations and hyperinflation in Nigeria and Egypt. The top end assumes normal summer weather and increased investments in the second half.
Q: You flagged an increase in promotional activity in Europe. Was it linked to the Euro Cup or poor weather in June? Will it continue into Q3?
A: (Dolf van Den Brink, CEO) Promotional pressure was related to sports activities and the normal summer pattern. Despite a disappointing start to the summer, we aim for positive volume effects with modest pricing, focusing on premium volumes and brand Heineken. (Harold van den Broek, CFO) Two-thirds of markets gained or held share, and we are investing in promotional activity and brand portfolio support. We believe in the long-term profitability of Europe and expect operating margins to expand with continued savings and portfolio mix improvements.
Q: Can you discuss the scale of the marketing increase in the second half of the year? Is it higher than planned six months ago?
A: (Harold van den Broek, CFO) The marketing percentage in the second half will see a material step-up compared to last year. Last year, high pricing led to volume declines, and we had to adjust our investments. This year, with volume growth and market stabilization, we are consciously increasing investments to drive category growth and brand power. The step-up was always in our plans, and we aim to normalize investment levels for consistent growth.
Q: How do you measure the impact of A&P investments? What mix of short-term promotions and long-term brand equity investments do you have?
A: (Dolf van Den Brink, CEO) We use sophisticated marketing mix models to scenario play our investments and return on investments. It includes a mix of long-term ATL to drive brand power and awareness, and short-term BTL to activate brands close to the point of consumption. Sales promotions are more reflected in our net revenue line. We believe we can spend effectively and disciplined, targeting the biggest opportunities.
Q: Can you elaborate on the competitive landscape in Brazil and South Africa?
A: (Dolf van Den Brink, CEO) In Brazil, we see continued momentum in premium, with double-digit increases in our premium portfolio. We are focusing on mainstream and premium segments with brands like Amstel and Heineken. In South Africa, the Distell acquisition categories are performing well, but we have more work to do in beer. We launched a returnable bottle for Heineken, which will improve gross margins. We are pleased with the integration progress and share performance in Distell categories.
Q: Can you explain the margin pressure in Vietnam despite strong revenue recovery?
A: (Dolf van Den Brink, CEO) The market is stabilizing, but the on-trade channel and premium segment are still trailing. We benefited from cycling destocking effects in the first half, but this won't persist in the second half. We are rebalancing our portfolio, focusing on mainstream brands like Bia Viet and Bivina. The historic high margins won't return, but we aim for high-20% margins. India's growth also impacts regional margins due to its lower margin profile.
Q: With the balance sheet deleveraging, how are you thinking about potential cash returns?
A: (Harold van den Broek, CFO) Our priority is to invest in organic growth, maintain our dividend policy, and ensure a healthy net debt to EBITDA ratio. We are also investing in sustainability and digital initiatives. Inorganic opportunities will be considered before buybacks. We are keeping an eye on opportunities but remain focused on strategic investments.
Q: Is the marketing reinvestment in H2 higher than planned six months ago?
A: (Dolf van Den Brink, CEO) The step-up in marketing was always in our plans. We are confident in our first-half results and managing volatility in Africa. The increased investment is to normalize our marketing levels and balance between the first and second half. We aim to deliver solid results this year while setting up for strong future performance.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
