Heineken NV (HEIA) Eur1.60 (CDI)

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Heineken’s net revenue organically grew by 5% in 2024 to €29.9bn, with 1.6% growth in beer volumes and a higher growth contribution from price. All regions were up on the previous year, with premium and non-alcoholic products particularly strong.

Underlying operating profit increased 8.3% to €4.5bn, ahead of expectations.

Free cash flow was up by €1.2bn, to €3.1bn, benefitting from the favourable timing of cash collections and payments. Net debt fell from €15.8bn to €14.7bn.

A final dividend of €1.17 per share has been proposed taking the annual total to €1.86, up 7.5% on last year. Heineken has also launched a €1.5bn share buyback to be completed over a two-year period.

In 2025 underlying operating profit is expected to grow by 4-8% (6% expected).

The shares were up 8.1% after the announcement.

Our view

Heineken sold more beer at higher prices over 2024, with better- than-expected results providing a much-needed boost to investor sentiment on the day. The pivot towards premium products continues to pay off. The timing of certain holidays is likely to drag on the first quarter but, overall, the 2025 outlook looks positive.

The group owns high-end favourites such as Heineken, Birra Moretti, Old Mout Cider 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 (APAC) region is a key market for the group. Vietnam is one area of opportunity where the group is successfully navigating emerging competition and new regulations. They have seen strong growth in India too, where Heineken owns the country’s leading brand Kingfisher. However, there are still pockets of weakness in the region to watch out for. APAC has some heavy-lifting to do if it’s to offset the sluggish growth being seen in the more mature American and European markets. Currency weakness in developing regions is one particular risk that investors should pay close attention too.

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.

Heineken delivered significant efficiency gains in 2024, beating its internal target of €0.5bn in cost savings, and a further €0.4bn earmarked for 2025. 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.

The ratio of net debt to cash profits (EBITDA) sits at 2.2 times, just inside management's long-run target of under 2.5 times. There’s scope for further progress if this year’s guidance is delivered.

All in, we’re pleased by the improved operational performance and the positive effect it’s having on profitability. Valuations across the sector have been put under pressure by demand concerns and Heineken is no exception. The group’s 2024 results have settled investor nerves for now and if progress is made there’s scope for the valuation to further close the gap with the long-term average. However, the macro-economic picture remains uncertain which adds risk.

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.

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.

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