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Heineken - good results but outlook uncertain

Heineken had underlying net revenue of €1.9bn for the full year, up 12.2% on an organic basis. That reflects...

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Heineken had underlying net revenue of €21.9bn for the full year, up 12.2% on an organic basis. That reflects growth in all geographies, except Asia Pacific. That meant underlying operating profit grew 43.8%, to €3.4bn.

Beer volumes grew 4.6%, led by strong performance in the premium range.

The group expects to be "significantly impacted by inflation and supply chain resilience pressures" and plans to increase prices as a result - which "may lead to softer beer consumption."

The board is proposing a final dividend of €0.96 per share.

The shares were up 1.1% following the announcement.

View the latest Heineken share price and how to deal

Our view

Heineken managed to deliver some relatively good full-year results, after a lacklustre first half. Second half performance saw all regions beating the company's forecast, helping the group post operating profits above market expectations.

Coronavirus came at a time when Heineken was already reporting slowing beer consumption in developed markets. A trend being driven by the twin challenges of lower consumption among younger people and ageing populations.

These trends have been accompanied by increased demand for more premium brands. That's somewhere Heineken has something of an advantage - boasting a stable of brands that includes Amstel and Moretti - as well as the obvious one. Encouragingly, the premium portfolio has continued to perform well. As have their non-alcoholic offerings. Headlined by the leading Heineken 0.0 brand, they've made their way into over 100 markets and should be a genuine growth avenue for the business.

The group's focusing on these areas moving forward, a good move in our view.

Management gave a rather sombre outlook with respect to cost inflation, which is expected to remain a 'significant' headwind for the next year. But the groups strong branding in the premium product range should give them wiggle room on prices without hurting volumes too much. That's unlikely to be the case for the more value-oriented economy portfolio.

Despite rising costs, the group's still expecting to deliver 'stable to modest' margin growth in the new financial year. That's testament to the strength of the brands and work done on the cost saving programme, which is on track to deliver $2bn in savings by 2023.

We're pleased to see that as profits are recovering, the ratio of net debt to cash profits is coming down. It now stands at 2.6 times which is only a little over managements long-run target of 2.5 times, which feels about ok to us although we wouldn't mind seeing it a little lower still.

The worst should now be behind Heineken, and with a portfolio of strong brands and focus on premium offerings the groups foundations look solid. But there are certainly some challenges coming in the year ahead. Rising costs and a consumer base that's trending away from beer make for a tricky backdrop. We should also note that the group is trading ahead of its longer-term valuation, putting pressure on the group to deliver.

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.

Full Year Results (underlying and organic)

Premium beer volume rose 10%, accounting for over 60% of the total organic growth in beer. That was led by the flagship Heineken brand, which grew 17.4%. The Low & No Alcohol portfolio was up more than 10% with Heineken 0.0, the group's main non-alcoholic option, growing in the thirties.

Europe saw volumes up 3.8%, with market leading performance from the non-alcoholic portfolio. Bar and restaurant sales remain more than 30% down on 2019 levels. Net revenue grew 8.6% to €9.5bn as premiumisation helped fuel growth across all markets. Operating profit came in at €1.2bn, up 154%.

Beer volumes in the Americas rose 8.2%, driven mainly by Mexico which ended in line with 2019 levels. Net revenue grew 17.9% to €7.2bn, largely driven by pricing as premium brands performed well especially in Brazil. Operating profits for the region grew 19.5% to €1.2bn.

In Africa, Middle East and Eastern Europe consolidated beer volumes grew 10.4%, driven by Nigeria, South Africa, and the Democratic Republic of Congo (DRC). Net revenue rose 25.9% to €3.2bn, reflecting volume and price gains. That helped operating profits grow 89% to €442m.

Asia Pacific was impacted by a range of pandemic related closures and restrictions, meaning beer volumes fell 11.7%. Net revenue was down 6.1% to €2.8bn and operating profit came in at €753m, down 13.5%.

Free cash flow of €2.5bn was well ahead of €1.5bn in 2020. That helped net debt decrease to €13.7bn or 2.6 times underlying cash profits, slightly higher than management's target for 2.5 times or lower.

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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Written by
Matt-Britzman
Matt Britzman
Equity Analyst

Matt is an Equity Analyst on the share research team, providing up-to-date research and analysis on individual companies and wider sectors.

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Article history
Published: 16th February 2022