WEBVTT - Heineken CEO Talks Earnings

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Let's go to one of our top ones coming out

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<v Speaker 2>this morning. Heineken has taken a one time impairment of

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<v Speaker 2>more than eight hundred and seventy million euros for its

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<v Speaker 2>steak in China's biggest brewer, on concerns over consumer demand,

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<v Speaker 2>now the world's second large brewer, also narrowing its forecast

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<v Speaker 2>for its full year operating profit. Let's get a little

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<v Speaker 2>bit more insight on some of these numbers and bring

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<v Speaker 2>in the CEO of the company, Dolph Band and Brink

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<v Speaker 2>joins us around the tay Well, I was gonna say

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<v Speaker 2>around the table, but next time you'll have to join

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<v Speaker 2>us around the table. Dolph, this morning, you join us

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<v Speaker 2>down the line, walk us through some of these numbers,

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<v Speaker 2>especially when it comes to this empairment charge. What should

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<v Speaker 2>our audience know about this?

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<v Speaker 1>Good good morning, and thanks for having me from Amsterdam.

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<v Speaker 1>Indeed before talking to China, if you allow me very shortly,

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<v Speaker 1>we are very pleased with our first half performance. Beer

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<v Speaker 1>volumes of two percent, revenue up six percent, operating profit

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<v Speaker 1>of twelve and a half percent, so very good operating

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<v Speaker 1>leverage there, broad based growth across our four regions and

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<v Speaker 1>the quality of the volume growth was very good and important,

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<v Speaker 1>with beer volume up two, premium volumes of five and

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<v Speaker 1>the Heineker brand of nine, so we had a very

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<v Speaker 1>solid and positive first half of the year. Also, we

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<v Speaker 1>are quite pleased with our China partnership. The impairment that

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<v Speaker 1>we had to take a non cash impairment, is a

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<v Speaker 1>technical adjustment that we have to do because as a

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<v Speaker 1>minority participation, we need to value this on the share price,

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<v Speaker 1>and the share price of CRB listed in Hong Kong

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<v Speaker 1>dropped below the level that we acquired a company or

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<v Speaker 1>the stake in back in twenty nineteen. We don't believe

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<v Speaker 1>this is a fair reflection of the underlying operating performance.

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<v Speaker 1>Since we took the stake in twenty nineteen, the network

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<v Speaker 1>or CB has gone up by three hundred percent. Brand

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<v Speaker 1>Heineken volume have gone up by four hundred percent. Also

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<v Speaker 1>here today this year the heinekenvolume in China is twenty

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<v Speaker 1>five percent. So we're very pleased by the performance of

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<v Speaker 1>the unit, but we had to take this non cash

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<v Speaker 1>impairment as a technical adjustment.

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<v Speaker 2>So Doten walk us through that broader consumer story because

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<v Speaker 2>there's a lot of analysts. A lot of investors that

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<v Speaker 2>are waking up this morning were looking at these numbers

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<v Speaker 2>and saying, well, how much of this is a broader

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<v Speaker 2>China story, given that in other sectors across Europe and

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<v Speaker 2>across the world, Chinese weakness is a broader theme, how

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<v Speaker 2>much of that eats into your bottom line?

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<v Speaker 1>Yeah, we are actually very pleased to see that broad

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<v Speaker 1>based volume growth with modest pricing across the world. We

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<v Speaker 1>still have high pricing in Africa due to devaluations and

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<v Speaker 1>local inflation. If you take that out and look across APEX,

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<v Speaker 1>across Europe, across the Americans, we see much more modest

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<v Speaker 1>pricing than we have had in prior years. It really

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<v Speaker 1>allowed for volumes to bounce back. We are really looking

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<v Speaker 1>for that kind of balance growth of our revenue between

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<v Speaker 1>volume and revenue per hector lead key markets like Mexico,

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<v Speaker 1>Brazil very pleased with mid to high single digit revenue growth.

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<v Speaker 1>India very important, high single digit growth. Last year. We

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<v Speaker 1>really challenged in Nigeria, where I'm proud of our teams

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<v Speaker 1>are navigating some of the local volatility, but volumes of

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<v Speaker 1>high single digit So our key major markets outside of

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<v Speaker 1>Europe performing well in Europe. We saw volumes, beer volumes

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<v Speaker 1>slightly up, pricing slightly up year to date may look better,

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<v Speaker 1>but we took a bit of a step back in June.

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<v Speaker 1>We were expecting in June July upside from the sports

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<v Speaker 1>events from the cycle of last year. That unfortunately didn't materialize,

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<v Speaker 1>we believe mostly due to weather being much worse than

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<v Speaker 1>we were hoping. You saw that particularly impact north western Europe.

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<v Speaker 1>East central Europe doing doing better in that regard, but

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<v Speaker 1>in the aggregate at a half here mark, we're very

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<v Speaker 1>pleased by the two percent volume, six percent revenue across

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<v Speaker 1>our global global footprint. We remain cautious. Indeed, consumer sentiment,

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<v Speaker 1>particularly in developed markets like North America Europe are yeah,

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<v Speaker 1>still a bit subdued.

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<v Speaker 3>We would say, yeah, well, it's really fascinating. The sports

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<v Speaker 3>wasn't wasn't a catalyst for the business. But as you say,

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<v Speaker 3>you're you're blaming the weather on that front in northern Europe.

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<v Speaker 3>What are current volumes looking like right now, dool in

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<v Speaker 3>this the current quarter.

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<v Speaker 1>Yeah, we're always cautious to make those statements. Say we

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<v Speaker 1>will update the market at the first or at the

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<v Speaker 1>third quarter updates d of October. What We did say

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<v Speaker 1>in our release that some of that subdued volume in

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<v Speaker 1>June was flowing out, you know, over into July, and

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<v Speaker 1>we believe mostly rather related. As I said, year to

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<v Speaker 1>date May, our volume, a revenue growth in Europe looked

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<v Speaker 1>very promising. We're very happy to see that we took

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<v Speaker 1>a bit of a step back in June and now July.

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<v Speaker 1>We still have good you know, prospects for the for

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<v Speaker 1>the remainder of the year. We believe, indeed, it's quite

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<v Speaker 1>important that we keep the pricing models to allow the

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<v Speaker 1>category to regain its affordability. We're also making a major

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<v Speaker 1>step up in our marketing and selling investments in the

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<v Speaker 1>second half of the year as we really intend to

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<v Speaker 1>propel growth in the second half and the years to come.

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<v Speaker 3>That is that caution on pricing. Does that indicate you're

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<v Speaker 3>seeing a little bit of softness, You're saying a consumer

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<v Speaker 3>that it is a little bit more conservative right now?

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<v Speaker 1>Now. I think it has most to do with the

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<v Speaker 1>recent past. Over the last one two years, we and

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<v Speaker 1>orders the industry have to take disproportioned amount of pricing

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<v Speaker 1>due to incredible inputs cost inflation that impacted our volumes.

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<v Speaker 1>Last year. We had negative volume growth in our European

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<v Speaker 1>markets launch here, and that's why we're very happy to

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<v Speaker 1>see volumes bouncing back slightly up in the year to date,

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<v Speaker 1>with pricing revenue projectory leaders still slightly up. That's a

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<v Speaker 1>good place to be because it's really about stabilizing the

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<v Speaker 1>category in that kind of market. And then still a

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<v Speaker 1>lot of goals coming out of our global footprints.

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<v Speaker 2>So do what's zero in on that pricing conversation as well,

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<v Speaker 2>specifically in the States, because one of the conversations we're

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<v Speaker 2>hearing at least on the consumer front out of the

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<v Speaker 2>UK and likes of NeSSI, Unilever, etc. Is that as

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<v Speaker 2>the volumes drop, the pricing is what's making up the difference.

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<v Speaker 2>I'm curious how much headroom you have that should your

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<v Speaker 2>volumes drop, how much room can you actually raise prices.

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<v Speaker 2>Specifically when it comes to the American consumer.

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<v Speaker 1>Yeah, we are a relative smaller player in the US market.

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<v Speaker 1>Our depletions to retail, we're download single digits. We outperform

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<v Speaker 1>the market a little bit. So indeed, we still see

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<v Speaker 1>a little bit of a consumer in the America in

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<v Speaker 1>their market. I think for control the controllables, we're deliberately

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<v Speaker 1>keeping our pricing modest but still in positive territory. And

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<v Speaker 1>what's most important is invest in our brands. In our portfolio,

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<v Speaker 1>premium beer continues to do very well, up five percent

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<v Speaker 1>and a half year. Mark brand Heinek and up nine

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<v Speaker 1>point two very important and there's a lot of momentum there.

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<v Speaker 1>In zero zero beer, we are by far the global

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<v Speaker 1>market leader. We calculated that we captured around fifty percent

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<v Speaker 1>of the growth of the segment over the last five years.

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<v Speaker 1>With Heinek zero zero. We have the number one zero

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<v Speaker 1>zero beer brand on the planet up fourteen percent. So

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<v Speaker 1>it's control the controllables, invest in our brand portfolio, invest

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<v Speaker 1>in premium beers, invest in zero zero, and that's that

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<v Speaker 1>is what we will focus on going forward.

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<v Speaker 2>So Dolph, listen, talk about one of your competitors, if

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<v Speaker 2>we can, Carlsberg is venturing in to the soft daring space.

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<v Speaker 2>Is that something you would consider broadening out beyond beer.

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<v Speaker 1>I cannot make make statements, you know, on on future

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<v Speaker 1>M and A. We are selling softwrinks in different parts

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<v Speaker 1>of the world. We are proud to be softwrink bottlers

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<v Speaker 1>in part of our global footprint. When it makes sense

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<v Speaker 1>to local markets. We will, you know, proudly continue and

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<v Speaker 1>contemplate that kind of diversification. But we remain first and

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<v Speaker 1>foremost a beer company, a beer and cider company, and

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<v Speaker 1>we believe there's still a lot of embedded growth to unlock.

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<v Speaker 1>And again that's giving us the confidence to plan for

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<v Speaker 1>this material increase in our marketing and selling expenses in

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<v Speaker 1>the second half of the year and going forward.

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<v Speaker 2>Well, we look forward to seeing how that all play.

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<v Speaker 2>That Hanekase, Dolphin and Brink will have to leave the

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<v Speaker 2>conversation there. We thank you so much for joining us.