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Heineken - higher prices drive sales up

Heineken's full year net revenues rose 21.2% to €28.7bn on an organic basis, which excludes exchange rates.

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Heineken's full year net revenues rose 21.2% to €28.7bn on an organic basis, which excludes exchange rates. This was driven by higher average selling prices, up around 14%, as the group raised prices to combat cost inflation. There was also a continued trend in sales towards more lucrative ''premium'' drinks. And despite higher prices overall, total volumes rose 6.4%.

Organic operating profits grew 24% to €4.5bn, helped by the price increases and higher volumes, especially in Asia Pacific and Europe.

Net debt fell from €13.7bn to €13.5bn. Free cash flow moved down €0.1bn to €2.8bn.

Looking to 2023, Heineken will try and offset ''significantly'' higher energy costs with more price hikes. Operating profits are expected to grow in the mid to high single-digits, with the majority of this growth being skewed towards the second half of the year.

A final dividend of €1.23 per share has been announced, subject to approval.

The shares were broadly flat following the announcement.

View the latest Heineken share price and how to deal

Our view

Heineken has shown the benefits of having strong brands during tough times. The group owns high-end favourites such as Heineken, Birra Moretti, Amstel and many more. Despite consumers tightening their purse strings in other areas of the market, beer has remained as much of a staple as ever. Both sales and profits rose substantially as consumers drank more beer at higher prices.

Price hikes have been made as the group attempts to offset its significantly rising costs. And for now, at least, volumes are rising too, helping to push sales in the right direction. Heineken's current focus to premiumise its portfolio has also helped shift sales to more lucrative products. That looks to be the right move as consumers willing to spend money on more premium brands tend to be more resilient to cost of living pressures.

Encouragingly, non-alcoholic offerings have continued to perform well too. Headlined by the leading Heineken 0.0 brand, which grew sales in the low-teens and is set to be introduced on draught in pubs across the UK - a genuine milestone for non-alcoholic beer.

The main concern is if any real deterioration of beer demand comes to pass, given Heineken's 'EverGreen' strategy relies heavily on premium brands continuing to grow, it'll be particularly exposed to any major downtrading.

There are challenges to consider. Sales and profits are expected to moderate next year, cooling down to more sustainable levels of growth in the single digits. Input costs are expected to jump by a high teens percentage, which will be tough to fully offset, even with further price hikes.

Work done on the cost saving programme will help in this regard. The programme is on track to deliver savings ahead of its $2bn target in 2023.

We're pleased to see the ratio of net debt to cash profits has been coming down and now stands at 2.1 times the proportion of cash profits. That's now within management's long-run target of 2.5 times which 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.

Heineken's portfolio of strong brands, quality earnings and focus on premium offerings are clear benefits. With the group currently trading below its longer-term average, this could prove to be an attractive entry point for long-term investing, though as always there are no guarantees. Rising costs and consumers with less disposable income make for a tricky backdrop right now.

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. Overseas dividends can be subject to withholding tax which might not be reclaimable.

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
Aarin Chiekrie
Aarin Chiekrie
Equity Analyst

Aarin is a member of the Equity Research team. Alongside our other analysts, he provides regular research and analysis on individual companies and wider sectors. Having a keen interest in global economics, he knows how macro-events can impact individual companies.

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Article history
Published: 15th February 2023