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Heineken - volumes begin to stumble

Heineken's first-quarter net revenue grew 8.9% to €6.4bn on an organic basis.

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Heineken's first-quarter net revenue grew 8.9% to €6.4bn on an organic basis, driven by price hikes to offset inflation. Average selling prices were 12.1% higher, which offset a 3.1% decline in volumes.

Premium beer volume fell 5.7%, driven by a decline in Vietnam and stopping sales of Heineken in Russia.

Reported net profit came in at €403m, down from €417m in the same period last year.

The full-year outlook remains unchanged. Underlying operating profit's expected to grow organically in the mid-to-high single digit, weighted towards the second half.

The shares rose 4.2% following the announcement.

View the latest Heineken share price and how to deal

Our view

Heineken's beginning to show the first signs that continuous price hikes are leaving a bad taste in consumers' mouths. Volumes declined in the first quarter as some consumers struggled 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, Amstel and many more. For now, 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 net profit fell year-on-year. We weren't given much detail on what caused this decline - likely a combination of higher costs, marketing spend and investment in the digital business-to-business (eB2B) platform.

Despite this, the full-year outlook remains unchanged. Sales and profits are expected to grow by single digit percentages. Input costs are expected to jump by a high teens percentage, which will be tough to fully offset, even with further price hikes.

Encouragingly, non-alcoholic offerings have continued to show strong growth momentum in Brazil, the USA and the UK. 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 €2.3bn in gross merchandise value during the first quarter, a 51% jump from last year.

And last we heard, the cost saving programme was progressing nicely - on track to deliver savings ahead of its $2bn target later this year.

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 focus on premium offerings has greatly benefited the Group so far, as they've typically been more resilient to price hikes. But it's a double-edged sword. We're wary that falling volumes could suggest some consumers have reached their saturation point - no longer able to stomach the high prices. If this turns out to be the case, Heineken's high-end beer portfolio makes it particularly vulnerable to downtrading.

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.

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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Article history
Published: 19th April 2023