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Heineken - volumes fall but full-year guidance intact

Heineken's third-quarter net revenue grew 4.5% to EUR8.0bn on an organic basis, as 9.7% higher average selling prices offset 4.2% lower volumes.

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Heineken's third-quarter net revenue grew 4.5% to €8.0bn on an organic basis, as 9.7% higher average selling prices offset 4.2% lower volumes.

All major regions saw volume declines apart from the Americas, where Brazil and Mexico led performance. European volumes were negatively impacted by unseasonably wet weather in July and August. Asia Pacific volumes continued to be weighed down by an economic slowdown in the region.

Reported net profit was €1.9bn in the first nine months of the year, down from €2.2bn

Full-year underlying operating profit guidance remains unchanged, expected to grow organically in the mid-single-digit range.

The shares were broadly flat following the announcement.

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Our view

Heineken's showing signs that continued price hikes are leaving a bad taste in consumers' mouths. Volumes continued to fall in the third quarter, although the decline wasn't as bad as the market was expecting.

The Group owns high-end favourites such as Heineken, Birra Moretti, Beavertown and many more. For now, near double-digit price hikes are enough to keep nudging revenue in the right direction.

But the higher revenue didn't make its way down to the bottom line, as net profit fell year-on-year. This was largely driven by a sharp decline in the Asia Pacific region, which is the group's most profitable area. The region's feeling the effects of an economic slowdown which has hurt progress. Regardless, the group still sees it as a key area for growth. We're inclined to agree, and when the economy picks back up here, it should put plenty of wind in Heineken's sails.

Input costs are expected to moderate over the second half but will remain high, growing at low-teen levels. This will take a lot of work to fully offset, even with further price hikes. And increased marketing spend is also adding to the strain, causing a slight downgrade in the full-year operating profit outlook back at the half-year point.

Encouragingly, non-alcoholic offerings have continued to show strong growth momentum in Brazil and the USA. 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 margins. The platform captured EUR8.0bn in trading value over the first nine months, a 22% uplift from last year.

After increased borrowing in the first half, the ratio of net debt to cash profits rose from 2.1 to 2.7 times last we heard. That's slightly above management's long-run target of 2.5 times, but 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.

Despite double-digit price hikes, volumes had held up relatively well until recently. But Heineken's falling volumes could suggest some consumers have reached their saturation point. A return to growth in the group's key Asia Pacific market will be key to steering profits back in the right direction.

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.

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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: 25th October 2023