Release Date: July 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Heineken Holding NV (HKHHF, 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, contributing significantly to the overall performance.
- Premium beer brands grew 5%, more than double the rate of the total beer portfolio.
- The company made significant progress in sustainability, reducing emissions and improving water use efficiency.
Negative Points
- Economic volatility in certain markets, particularly in Africa and the Middle East, posed challenges.
- Higher financing and tax expenses partially offset the operating growth, impacting net profits.
- The European market faced adverse weather conditions in June, affecting beer volume growth.
- The devaluation of the Nigerian naira and hyperinflation in Egypt and Nigeria created financial pressures.
- The competitive landscape in Brazil and South Africa remains challenging, particularly in the low-end market segments.
Q & A Highlights
Q: Could you talk about the assumptions around the bottom and top end 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 positive 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, particularly in key growth markets. (Harold van den Broek, CFO) The bottom end of the range reflects potential macroeconomic uncertainties, such as currency devaluations and hyperinflation in key markets like Nigeria and Egypt. The top end assumes a normal summer weather and increased investments in the second half.
Q: You flagged an increase in promotional activity in Europe. Was this linked to the Euro Cup or poor weather in June? Do you see this continuing into Q3?
A: (Dolf van Den Brink, CEO) The promotional activity was partly due to the Euro Cup and the onset of summer, which is a normal pattern. Despite the poor weather in June, we aim for positive volume growth for the year with modest pricing. We are also investing in brand power to protect pricing power, especially in Europe.
Q: Can you talk about the competitive landscape in Brazil and South Africa, particularly at the low end of the portfolio?
A: (Dolf van Den Brink, CEO) In Brazil, we see continued momentum in premium brands like Heineken and Amstel, despite a price war in the economy segment initiated by a local competitor. In South Africa, the Distell categories are performing well, but we have more work to do in the beer segment. We are optimistic about the prospects for the 65 cl returnable glass bottle for Heineken introduced in the first half.
Q: Can you elaborate on the scale of the marketing increase in the second half of the year?
A: (Harold van den Broek, CFO) We are stepping up our marketing investments significantly in the second half, focusing on key brands and markets. This is part of our strategy to drive category growth and invest behind the power of our brands. The increase will not fully return to pre-pandemic levels but will be a material step-up.
Q: How do you measure the impact of A&P (advertising and promotion) investments?
A: (Dolf van Den Brink, CEO) We use sophisticated marketing mix models to scenario-play our investments and measure the return on investment. This includes a mix of long-term ATL (above-the-line) activities to drive brand power and short-term BTL (below-the-line) activities to drive sales. AI is becoming a more relevant lever in these models.
Q: Is the reinvestment in marketing for H2 higher than what you planned six months ago?
A: (Dolf van Den Brink, CEO) The step-up in marketing was always in our plans. The narrowing of our guidance range at the top end reflects some of the upside we had hoped for in Europe not materializing. We aim to balance delivering solid results this year with setting ourselves up for strong results in the future.
Q: Can you explain the margin pressure in Vietnam despite strong revenue recovery?
A: (Dolf van Den Brink, CEO) The market in Vietnam is stabilizing, but the on-trade channel and premium segment are still trailing. We are rebalancing our portfolio to reduce over-reliance on premium. The historic high margins won't return, but we aim to operate at around 30% margin going forward. The mix effect from high growth in India, which has lower margins, also impacts the regional results.
Q: How are you thinking about potential cash returns given the fast deleveraging of the balance sheet?
A: (Harold van den Broek, CFO) Our priority is to invest in the organic part of our business, maintain our dividend policy, and expand into organic growth. Only when we run out of other options will we consider buybacks. We are keeping an eye on opportunities but remain focused on our strategic priorities.
Q: What are your thoughts on the competitive landscape in key emerging markets like Brazil and South Africa?
A: (Dolf van Den Brink, CEO) In Brazil, we continue to see strong momentum in premium brands like Heineken and Amstel, despite challenges in the economy segment. In South Africa, the Distell categories are performing well, but we have more work to do in the beer segment. We are optimistic about the prospects for the 65 cl returnable glass bottle for Heineken introduced in the first half.
Q: How do you measure the impact of A&P investments?
A: (Dolf van Den Brink, CEO) We use sophisticated marketing mix models to scenario-play our investments and measure the return on investment. This includes a mix of long-term ATL activities to drive brand power and short-term BTL activities to drive sales. AI is becoming a more relevant lever in these models.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
