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Speaker 1: Now Heineken has lowered its earnings guidance as consumers bought

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Speaker 1: less beer after it imposed its largest price increase in

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Speaker 1: more than a decade. The Amsterdam based brewer reported first

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Speaker 1: half operating profit down twenty two percent on an adjusted basis.

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Speaker 1: Beer volumes also dropped more than expected. Joining us now

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Speaker 1: is Dolf vander Brank, CEO of Heineken. Dolph, thanks so

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Speaker 1: much for joining Look on these volumes, because they're going

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Speaker 1: to have disappointed a lot of folks. What is the

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Speaker 1: biggest source of weakness that led to this drop?

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Speaker 2: Hi, good morning, Thanks for having me.

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Speaker 3: Look, we always knew that the first half of the

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Speaker 3: year would be about absorbing the extraordinary input cost inflation

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Speaker 3: that was hitting the company, particularly with our large supply

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Speaker 3: base in Europe, and we deliberately froomloaded the year on pricing,

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Speaker 3: and we always knew that that would have a effect. Oh,

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Speaker 3: in all, we are quite happy with our revenue growth.

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Speaker 3: We are growing our revenue strongly in three out of

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Speaker 3: four regions. We're having revenue growths between nine and ten

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Speaker 3: percent in Europe, in the Africa, Middle East region, in

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Speaker 3: the America's region. Actually, we are quite pleased to see

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Speaker 3: that we see some short term volume softness, but we

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Speaker 3: do expect that to sequentially improve going into the second

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Speaker 3: half of the year and next year. The APEC regions

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Speaker 3: somewhat different there In particular in our important market Vietnam,

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Speaker 3: we were hit by a big economic disruption and some

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Speaker 3: more ad hoc things hitting us in the first half.

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Speaker 2: There was a big de stocking happening in the first

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Speaker 2: half of the year.

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Speaker 3: We see that now also improving into the second half.

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Speaker 3: Now underlying the effect of pricing and looking in the

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Speaker 3: revenue growth, we are quite pleased with the quality of

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Speaker 3: the volume and we don't see downtrading. We see across

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Speaker 3: all regions except for Vietnam, we see premium significantly outperforming

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Speaker 3: our volumes, and our.

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Speaker 2: Yeah Fleck ship brand.

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Speaker 3: Heineken actually up three point seven percent.

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Speaker 4: Okay, good morning, delf You said that the kind of

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Speaker 4: volumes is all about pricing, and you said you frontloaded

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Speaker 4: the pricings. Therefore you expect less of a kind of

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Speaker 4: a headwind in that.

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Speaker 2: Regard going to the second half of the year.

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Speaker 4: Across your kind of portfolio, what's the kind of weighted

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Speaker 4: average of the price increase you've made in the first

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Speaker 4: half can you say roughly and are you saying you're

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Speaker 4: basically not expecting any major price increases at all the

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Speaker 4: second half or if you are expecting some kind of

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Speaker 4: amountain we expecting.

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Speaker 3: Yeah, our revenue per hect two liters, our average pricing

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Speaker 3: globally was up twelve point seven percent, which yeah, I

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Speaker 3: think is unprecedented in Europe, even more, which was notoriously

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Speaker 3: known for very low single digit annual price increases. We

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Speaker 3: had to take the pricing and we were glad that

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Speaker 3: we were able to deliver. The pricing extremely important to protect

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Speaker 3: our gross margins, which already were under pressure due to

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Speaker 3: the COVID disruption, so we knew we had to do it.

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Speaker 2: We lended the.

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Speaker 3: Pricing, and particularly in Europe, the volumes are basically in

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Speaker 3: line with our expectations. In the America's region the same thing.

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Speaker 3: Our volume was only down one point eight percent. In

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Speaker 3: the Africa Middle East reachion volumes down a little bit more,

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Speaker 3: but it was really driven by the economic crisis in Nigeria.

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Speaker 3: If you would isolate for Nigeria, our volumes in Africa

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Speaker 3: Middle East were actually up in the low single digits.

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Speaker 3: So yes, I would say unprecedented pricing we do expect

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Speaker 3: them to start motivating. We funt loaded it in the year,

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Speaker 3: and we do see input cost inflation now really starting

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Speaker 3: to step down.

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Speaker 4: Dolph.

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Speaker 1: I do wonder, though, considering inflation continues to bite for

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Speaker 1: the consumers, economic expectations aren't getting any better. Do you

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Speaker 1: fear that the fragility of consumers at this moment means

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Speaker 1: we've reached reached a tipping point in terms of their

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Speaker 1: willingness to pay up for beer.

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Speaker 3: Yeah, no, it's up abolutely something on our minds.

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Speaker 2: That's why.

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Speaker 3: Also we don't necessarily pass on all the input caused inflation.

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Speaker 3: We therefore kicked off a very large productivity program and

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Speaker 3: we committed to save up to two billion in growth

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Speaker 3: savings by the end of this year. We're well ahead

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Speaker 3: of to over deliver. And this kind of self help,

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Speaker 3: if I may call it, really helps to not have

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Speaker 3: to put more pressure on the pricing and to make

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Speaker 3: sure we keep our brands.

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Speaker 2: Affordable as seat.

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Speaker 3: We see some volume softness, but the quality of the

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Speaker 3: portfolio seems to be in a very good shape. So

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Speaker 3: therefore you can say people or maybe drinking less, but

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Speaker 3: they're drinking better. We see our premium brands across the board,

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Speaker 3: not only Heineken that I spoke to, but brands like Bira,

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Speaker 3: Moretti in the UK, Desperadoes, craft beers like beaver Town.

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Speaker 3: We see a lot of resiliency on our premium brands

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Speaker 3: and that's really important because that's our number strategic priority

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Speaker 3: of our evergreen strategy.

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Speaker 4: If you're saying you've front loaded the cost increases and

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Speaker 4: a lot of this is about passing on some of

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Speaker 4: the inflationary pressures from raw materials, is there a fair

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Speaker 4: implication here that you've seen significant easing in terms of

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Speaker 4: cost price pressures and therefore you just don't have those

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Speaker 4: cost worries anymore.

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Speaker 2: Yeah.

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Speaker 3: For this year, because we hatch our input costs on

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Speaker 3: the twelve month rolling we saw basically mid double digits

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Speaker 3: input costs in the first half. We see that moderate

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Speaker 3: to low double digit. The real relief will start to

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Speaker 3: come into next year. We have increasing visibility on our

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Speaker 3: input costs for next year and we see a lot

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Speaker 3: of favorability there, which really makes us confident in the

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Speaker 3: acceleration of the performance going into twenty four. For the

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Speaker 3: remainder of this year, it will be better, but there's

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Speaker 3: still some significant cost flowing through the P and L I,

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Speaker 3: we do believe we have taken the majority of the

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Speaker 3: needed pricing in the full tend of the year.

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Speaker 1: Dov, how are you thinking about marketing right now? How

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Speaker 1: are you spending that ad budget and has that changed

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Speaker 1: given the consumer appetite has changed.

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Speaker 3: Yeah, thanks for that question. In the end, we're all

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Speaker 3: about brands and marketing. By the way, important to note

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Speaker 3: that all these kind of challenges that we're facing, we're

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Speaker 3: actually increasing our marketing and selling expenses by two hundred

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Speaker 3: million euros. This is really to keep strengthening our brands

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Speaker 3: in our innovations. What, of course is very relevant first

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Speaker 3: and we try to be a leader in this field,

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Speaker 3: is the zero zero Beers, the alcol free beers Heindeken

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Speaker 3: zero zero is the largest alco free brand on the planet.

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Speaker 3: We're spending a quarter of our global bram bridget against it.

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Speaker 2: It's now a year six seven of its.

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Speaker 3: Launch and still growing in the mid single digit so

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Speaker 3: significantly outperforming our ow full volume trend in the US.

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Speaker 3: Four or five years after launch, it's growing in the

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Speaker 3: mid teens. You may have seen a new commercial that

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Speaker 3: we have made with the double Formula one world champion

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Speaker 3: Max for Stopper, who's become a brand.

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Speaker 2: Ambassador for zero zero.

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Speaker 3: So we take it very seriously and of course a

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Speaker 3: lot of new innovations starting to come through Dog.

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Speaker 1: That's got to be expensive though, playing paying up for

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Speaker 1: the F one Formula one champion, Come on, that's a

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Speaker 1: pricey ad budget, it is.

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Speaker 3: But he also really enjoyed working but another legendary Dutch brand,

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Speaker 3: so Heinek and a Max for stopping coming together was

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Speaker 3: you know, was a logical thing to do and it's

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Speaker 3: a delight to work with. In Formula one is gaining

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Speaker 3: so much momentum, it's gaining viewerships. The Netflix series Drive

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Speaker 3: to Survive have brought in a whole new generation also

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Speaker 3: much more multi gender to the franchise. And first it's

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Speaker 3: an absolute key pillar in our sponsorship strategy on Brent

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Speaker 3: brand Heineken.

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Speaker 4: If you're loving that, Danny asked, does questions give you

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Speaker 4: a chance to talk about those dads listen? Talking about

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Speaker 4: your big emerging markets, you mentioned some idiosyncratic situations in

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Speaker 4: Nigeria and Vietnam. You know, markets like South Africa. There

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Speaker 4: are all these marketers seeing big declining volumes. Now I'm

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Speaker 4: curious that you said, generally, across the portfolio, you're seeing

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Speaker 4: actually a premiumization of brands, people kind of moving up

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Speaker 4: the value chain, not yet cutting prices in the cost

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Speaker 4: of living crisis. Is that true across the board or

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Speaker 4: in emerging markets? Are you seeing a little bit of

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Speaker 4: depremiumization at all? And when do you expect there's emerging

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Speaker 4: markets to see the volume recovery?

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Speaker 2: Yeah?

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Speaker 3: Now, maybe somewhat surprisingly for many. Actually we do see

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Speaker 3: premium as more resilient than mainstream and economy segments.

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Speaker 2: We see that across all four regions. In the majority

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Speaker 2: of our markets.

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Speaker 3: If you correct for the d listing of brent Heinik

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Speaker 3: in Russia and Vietnam, if you take those two markets out,

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Speaker 3: our premium volume would be up in absolute terms. The

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Speaker 3: one market where we do see the downtrading is in Vietnam,

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Speaker 3: and there we are really making sure to make some

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Speaker 3: course corrections to make sure our events stay affordable. The

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Speaker 3: situation of the first half was really excavated by a

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Speaker 3: big dish stocking. We came out of last year when

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Speaker 3: we were growing twenty five percent plus. We really caught

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Speaker 3: off guard by the pivot in the market, so we

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Speaker 3: had a lot of stock to kind of work through

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Speaker 3: that has happened in the first half of the year. Therefore,

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Speaker 3: we do expect the situation to really improve in the

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Speaker 3: second half of the year in Fiadam, which is a

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Speaker 3: very important market to us.

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Speaker 1: Don thank you so much for joining us as the

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Speaker 1: Heineken CEO. Dolf Vanderbrington tell her stop in Mark and

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Speaker 1: I say, hi, why won't you Dolf there again? From

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Speaker 1: Heineken