Heineken's half-year net revenue grew 6.6% to €14.5bn on an organic basis, as double-digit price hikes helped to offset 5.4% lower volumes.
Underlying operating profit fell 8.8% to €1.9bn, driven by a decline in the group's most profitable Asia Pacific region. Revenue growth and productivity improvements were more than offset by inflated costs and increased marketing spending.
Free cash flow fell from an inflow of €1.1bn to an outflow of €467m. Net debt increased from €13.5bn to €17.6bn, driven by the cash outflow for acquisitions, shareholder returns, and higher levels of borrowing.
In the second half, volumes are expected to improve to a low single-digit decline. Full-year underlying operating profit guidance has been downgraded, now expected to grow organically in the mid-single-digit range.
The group announced an interim dividend of €0.69 per share.
The shares dropped 7.3% following the announcement.
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Our view
Heineken's showing signs that continued price hikes are leaving a bad taste in consumers' mouths. That caused volumes to come in well below market expectations in the first half as consumers struggle to justify ever-higher prices for their favourite beers amidst a cost-of-living crisis.
The Group owns high-end favourites such as Heineken, Birra Moretti, Beavertown and many more. For now, double-digit price hikes were enough to offset lower volumes, and helped the top line grow.
But the higher revenue didn't make its way down to the bottom line, as operating profit fell year-on-year. This was largely driven by a sharp decline in the Asia Pacific region, which is the group's most profitable area. The region's feeling the effects of an economic slowdown which has hurt progress. Regardless, the group still sees it as a key area for growth. We're inclined to agree, and when the economy picks back up here, it should put plenty of wind in Heineken's sails.
Input costs are expected to moderate in the second half but will remain high, growing at low-teen levels. This will take a lot of work to fully offset, even with further price hikes in the second half. And increased marketing spend is also adding to the strain. All of this has led to a slight downgrade to the group's full-year operating profit outlook, now expected to grow by mid single-digits.
Encouragingly, non-alcoholic offerings have continued to show strong growth momentum in Brazil and the USA. Headlined by the leading Heineken 0.0 brand, which is set to be introduced on draught in pubs across the UK - a genuine milestone for non-alcoholic beer.
The eB2B platform is another shining light. This makes it easier for business customers, like bars and pubs, to order in their selected drinks - while simultaneously cutting out sales reps to improve margin. The platform captured €5.2bn in trading value during the first half, a 36% uplift from last year.
After increased borrowing in the first half, the ratio of net debt to cash profits has risen from 2.1 to 2.7 times. That's slightly above management's long-run target of 2.5 times, but feels reasonable to us, given the quality of earnings. Heineken generates more operating cash flow than net profit, a sign of good cash generation and quality earnings.
Despite double-digit price hikes, volumes had held up relatively well until recently. But Heineken's falling volumes could suggest some consumers have reached their saturation point. A return to growth in the group's key Asia Pacific market will be key to steering profits back in the right direction.
Heineken key facts
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
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