Heineken reported underlying net revenue of €14.8bn in the first half, up 6.0% on an organic basis. This was driven by 4.3% higher average prices and a 1.3% uplift in volumes, with all regions seeing growth.
Underlying operating profit was up 12.5% to €2.1bn, helped by the top line growth and €300mn of cost savings.
Free cash flow improved from an outflow of €0.3bn to an inflow of €0.8bn. Net debt was €16.2bn at the half-year mark.
Full-year guidance has been narrowed, with Heineken now expecting underlying operating profit growth of 4-8% (previously low-to-high single digits).
An interim dividend of €0.69 per share has been announced, in line with last year.
The shares fell 4.4% following the announcement.
Our view
Heineken’s first-half results were a bit of a mixed bag. Volumes and sales weakened over the period, and growth in Europe fell short of market expectations. Despite this, operating profits rose at double-digit rates, giving management the confidence to tighten full-year guidance.
The group owns high-end favourites such as Heineken, Birra Moretti, Beavertown and many more. The ongoing shift by consumers towards these more premium brands remains strong and should help to boost profitability going forward.
The Asia Pacific region is a key market for the group. 2023 saw a sharp sales decline in the region as it wrestled with the effects of an economic slowdown. Comparing to a lower base has helped to flatter first-half growth numbers, but still, things are moving in the right direction. We view this area as a key growth driver for Heineken, but would like to see some more concrete signs of the economy picking back up before getting too excited.
Encouragingly, non-alcoholic offerings have continued to show positive momentum. Headlined by the leading Heineken 0.0 brand, the group has a growing portfolio of non-alcoholic beers and ciders, and holds the number-one spot in many of its markets.
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 margins.
Efficiency improvements helped to deliver €300mn of cost savings in the first half, giving a clear line of sight on the full-year target of €500mn. That’s freeing up cash to deploy into other areas of the business, with a material step up in its marketing efforts being top of the agenda. Mexico, Brazil, India and Vietnam look set to capture most of this spending, with these markets being seen as the group’s route to sustained long-term growth.
The ratio of net debt to cash profits (EBITDA) was 2.4, just inside management's long-run target of under 2.5 times. We're not concerned at this point, but with higher interest rates pushing up the cost of funding this debt, we'd like to see this ratio move lower in the near future.
All in, we’re pleased by the improved operational performance and the positive effect it’s having on profitability. But there’s still plenty of work to do to sweeten investor confidence. A sustained period of growth in the key Asia Pacific market is needed to help put the wind back in Heineken’s sails. Until more concrete signs of that begin to emerge, we don't see many catalysts for a material uplift in the valuation.
Environmental, social and governance (ESG) risk
The food and beverage industry tends to be medium-risk in terms of ESG though some segments like agriculture, tobacco and spirits fall into the high-risk category. Product governance is a key risk industry-wide, especially in areas with strict quality and safety requirements. Labour relations and supply chain management are also industry-wide risks, with other issues varying by sub-sector.
According to Sustainalytics, Heineken’s management of ESG risks is strong.
Heineken aims to reach net zero in scope 1 and 2 emissions, as well as reduce scope 3 emissions by 21% by 2030. Net zero across the entire value chain is expected by 2040. Investors should keep in mind that product consistency and quality is a major selling point for Heineken. Any slip-up on this front could lead to brand damage and the potential to lose market share and revenue.
Heineken key facts
All ratios are sourced from Refinitiv, based on previous day’s closing values. 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.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.