Heineken N.V. reports 2023 half year results

Amsterdam, 31 July 2023 – Heineken N.V. (EURONEXT: HEIA; OTCQX: HEINY) announces:

Key Highlights

• Revenue growth 6.3%
• Net revenue (beia) 6.6% organic growth; per hectolitre 12.7%
• Beer volume organic growth -5.6%; Heineken^® volume 1.7% growth (excluding Russia 3.7%)
• Operating profit growth -22.2%; operating profit (beia) organic growth -8.8%
• Net profit growth -8.6%; net profit (beia) organic growth -11.6%
• Diluted EPS €2.04; diluted EPS (beia) €2.03
• FY 2023 outlook updated. Operating profit (beia) stable to mid-single-digit organic growth.
  

CEO Statement

Dolf van den Brink, CEO and Chairman of the Executive Board, commented:

"We continue to focus on executing our EverGreen priorities and to invest for long-term sustainable value creation. We prioritised and delivered the front-loaded pricing required to offset unprecedented input and energy cost inflation. In Europe, the region with the highest inflationary impact, volume declined in line with our expectations, yet demand in APAC was considerably softer than foreseen, due to an economic slowdown and our own underperformance in Vietnam.

Net revenue (beia) grew by 6.6% organically while our financial performance in the first half of 2023 was below expectations. This was primarily driven by challenging results in our most profitable APAC region. At the same time, we increased our investment in marketing and sales by €0.2 billion globally to drive future growth.

Our premium portfolio, led by the Heineken^® brand, continued its growth momentum outside Russia and Vietnam. Our digital platforms captured €5.2 billion of gross merchandising value, an increase of 36% vs. last year. We are advancing well on the integration of Distell and Namibian Breweries.

In the second half, we expect pricing to moderate with volume trends gradually improving to a low-single-digit decline. On productivity, we expect a significant acceleration relative to the €200 million in gross savings of the first half. Overall, we expect a strong turnaround in operating profit (beia) growth in the second half and for the full year expect stable to a mid-single-digit operating profit (beia) organic growth."

Financial Summary1

IFRS Measures	€ million		Total growth		BEIA Measures	€ million		Organic growth2
Revenue	17,436		6.3%		Revenue (beia)	17,423		5.5%
Net revenue	14,524		7.7%		Net revenue (beia)	14,514		6.6%
Operating profit	1,611		-22.2%		Operating profit (beia)	1,939		-8.8%
					Operating profit (beia) margin	13.4%
Net profit	1,156		-8.6%		Net profit (beia)	1,150		-11.6%
Diluted EPS (in €)	2.04		-7.3%		Diluted EPS (beia) (in €)	2.03		-12.0%
					Free operating cash flow	-467
					Net debt / EBITDA (beia)3	2.7x

1 Consolidated figures are used throughout this report, unless otherwise stated. Please refer to the Glossary for an explanation of non-GAAP measures and other terms.
Page 36 includes a reconciliation versus IFRS metrics. These non-GAAP measures are included in internal management reports that are reviewed by the Executive Board of
HEINEKEN, as management believes that this measurement is the most relevant in evaluating the results.
2 Organic growth shown, except for Diluted EPS (beia), which is total growth.
3 Includes acquisitions and excludes disposals on a 12 month pro-forma basis.

Operational Review

During the first half of 2023, we focused on executing our EverGreen strategy to deliver superior and balanced growth in a fast-changing world while transforming our business to be future-ready. We are making progress, albeit some short-term challenges given the volatile economic context, with the slowdown of the economy in some countries and unprecedented inflation levels.

Our focus has been on our EverGreen priorities, starting with our dream to shape the future of beer and beyond to win the hearts of consumers. We are also shaping the future with our ambition to become the best digitally connected brewer, raising the bar on sustainability and responsibility and evolving our culture, operating model and capabilities. At the same time, we are stepping up on productivity to fund the investments required for our brands, digitalisation, capabilities and sustainability, and improve profitability and capital efficiency.

SHAPE THE FUTURE OF BEER AND BEYOND

Superior and balanced growth  

Our ambition is to deliver sustained superior growth with a healthy balance between volume and value growth. We aim to achieve this through launching winning beverage propositions in fast-growing consumer segments, building and scaling strong premium brands everywhere and further developing our advantaged geographic and portfolio footprint. This year, we front-loaded significant price increases, often leading the market, to offset unprecedented levels of commodity and energy inflation, which impacted consumer off-take.

Revenue for the first half of 2023 was 17,436 million (2022: 16,401 million). Net revenue (beia) increased 6.6% organically; a combination of a 5.4% decline in total consolidated volume and a 12.7% increase in net revenue (beia) per hectolitre. The underlying price-mix on a constant geographic basis was up 11.8%, principally driven by the strong inflation-led pricing, whilst mix was slightly positive driven by premiumisation. Currency translation negatively impacted net revenue (beia) by €91 million or 0.7%, mainly driven by the Nigerian Naira, the Egyptian Pound, the South African Rand, the Indian Rupee and the UK Pound Sterling, partially offset by a strong Mexican Peso. Consolidation changes had a positive impact to net revenue (beia) of €231 million, mainly driven by Heineken Beverages in Southern Africa and Beavertown in the UK.

Beer volume for the first half of 2023 decreased 5.6% organically versus last year. The cumulative effect of pricing actions taken and a challenging economic backdrop led to a 7.6% organic decline in the second quarter. A disappointing performance in Vietnam and socio-economic volatility in Nigeria affecting consumer off-take accounted for over half of the decline in the first six months. The Americas region was impacted by a soft beer market, notably in the second quarter, combined with the continuing impact from OXXO mixing in Mexico. Volume in Europe performed broadly in line with our expectations for the first six months. We gained or held market share in more than half of our markets.

Beer volume	2Q23				Organic growth		HY23				Organic growth
(in mhl)			2Q22						HY22
Heineken N.V.	65.3		70.4		-7.6%		120.1		126.9		-5.6%
Africa Middle East & Eastern Europe	9.6		9.8		-4.7%		18.6		19.6		-6.5%
Americas	21.8		23.1		-5.7%		42.2		42.8		-1.5%
Asia Pacific	11.0		13.1		-15.5%		21.3		24.6		-13.2%
Europe	22.8		24.4		-6.4%		38.0		39.9		-4.8%

Driving premiumisation at scale, led by Heineken^®

Premium beer volume declined by 6.5%, driven by Vietnam and Russia. Outside these markets, premiumisation trends remain strong as premium volume grew by a low-single-digit, ahead of the total beer portfolio in aggregate and in more than half of our markets. The growth was driven by Heineken^®, further supported by the growth of Desperados, Birra Moretti, Beavertown, Bedele Especial and El Águila among others.

Heineken^® continued to lead our portfolio and grew volume by 1.2% (2.1% excluding Russia) in the second quarter to close the first half with a 1.7% increase (3.7% excluding Russia). Growth was broad-based across 50 markets, most notably in China, Brazil, Mexico, Ethiopia, Panama, Portugal, Croatia and Algeria. Heineken^® Silver is now present in 45 markets and grew volume by more than forty-five percent, led by China, Vietnam and Mexico. We continue to build Heineken^® Silver across European markets and the launch in the USA shows promising early results as we scale distribution and reach more and more consumers.

The Heineken^® brand turns 150 this year, and was recognised once again at the Cannes Lions, the prestigious Festival of Creativity. Heineken^® was awarded 12 Bronze Lions, 7 Silver Lions and 1 outstanding Gold Lion for The Closer campaign. It was voted the #1 most creative brand in the alcoholic drinks category and #3 most creative brand of the year across all categories. Our world-class sponsorships are a unique vehicle to connect and reach consumers, and we were delighted to renew our partnerships with Formula One and Oracle Red Bull Racing.

Heineken® volume		2Q23		Organic growth		HY23		Organic growth
(in mhl)
Total		14.2		1.2%		26.3		1.7%
Africa Middle East & Eastern Europe		1.4		-4.9%		2.7		-15.3%
Americas		5.6		2.8%		11.0		6.4%
Asia Pacific		2.6		23.8%		4.9		20.1%
Europe		4.7		-8.0%		7.8		-6.6%

Pioneer choice in low & no-alcohol

Our Low & No-Alcohol (LONO) portfolio empowers consumers seeking to enjoy a lower or no-alcohol content beverage by ensuring there is always a choice - everywhere and at any occasion. Our LONO portfolio volume was stable for the first half, with double-digit growth in 15 markets including Brazil, Mexico, Spain, Panama and Bulgaria, offset by declines in Nigeria, France, Poland and Germany.

The non-alcoholic beer and cider portfolio grew volume by a mid-single-digit. Heineken^® 0.0 continued to grow, up by a mid-single-digit excluding Russia, and double-digit growth in Brazil and the USA. It was launched in China, completing the Heineken^® line-up. Mexico grew non-alcoholic beer and cider volume close to forty percent, including the launch of Tecate 0.0.

We continue to explore consumer-inspired innovations to enhance our non-alcoholic portfolio. Zagg, our malt-based energy drink introduced last year in Nigeria, is building distribution and gaining share in this fast-growing category. Hoppy Refresher, Lagunitas' hop-infused sparkling water, is off to an encouraging start after its launch last year, adding a refreshing new drink to the beverages category in the USA.

Explore beyond beer

Following the acquisition of Distell in South Africa, HEINEKEN is now the #1 player outside the USA in beyond beer alcohol, the fastest-growing space in alcoholic beverages. Our overall volume of flavoured beer and beyond beer alcoholic propositions grew to 6.8 million hectolitres in the first half.

Desperados, the leading “spirit beer” for high-energy consumption occasions, grew volume by a low-single-digit, with continued momentum in Nigeria partially offset by price-driven temporary declines in core European markets.

Cider volume grew to 2.7 million hectolitres following the integration of Savannah and Hunters in South Africa. Volume declined on an organic basis, driven by the UK, Vietnam and Australia.

We are investing to further unlock new growth opportunities beyond beer for flavoured, moderate propositions to meet different consumer occasions. We are introducing several innovative product concepts locally to test and learn, directly with our consumers. This includes expanding our core brands into new demand spaces as well as experimenting with new brand propositions. For example, we launched Tiger Soju, a soju-infused beer in Vietnam and Singapore, and aim to reach 5 markets across the Asia Pacific region by the end of this year.

Develop and expand our advantaged footprint

We continue to build our geographical and portfolio footprint to enhance our long-term, sustained growth advantage. On an ongoing basis, we review our footprint to ensure it matches our growth ambitions within clear capital allocation criteria, seeking to build on our growth priorities and address value-diluting operations.

On 26 April, HEINEKEN completed the acquisition of Distell Group Holdings Limited (‘Distell’) and Namibia Breweries Limited (‘NBL’), which have been combined with Heineken South Africa into ‘Heineken Beverages’, a HEINEKEN majority-owned business, to capture the significant future growth opportunities in Southern Africa with a significantly strengthened and complementary route-to-consumer.

Recent developments in Russia demonstrate that it is even more challenging for businesses to secure exit approval. In April we announced that an application had been submitted for approval and we continue to work hard to secure a transaction. While we work to exit Russia, the business remains financially ringfenced. We do not accept any financial gain from the ongoing operations, will not profit from the sale of the business and have taken an impairment loss to date of €201 million (€88 million in December 2022 and €113 million in June 2023) bringing the net carrying value to nil as of 30 June 2023. We remain fully committed to leaving Russia, however the timing of our exit is not in our control.

On 3 July, HEINEKEN announced its intention to sell Vrumona, its soft drink producer in the Netherlands, to sharpen the focus on shaping the future of beer and beyond in the country. The transaction is valued at €300 million (12x EBITDA), would be accretive to operating profit margin (beia) and is expected to be completed in the second half of 2023.

Other changes to our business and portfolio footprint include the disposal of a brand license in the UK in June and a soft-drink, juice and water business in Tunisia at the end of last year.

BECOME THE BEST-CONNECTED BREWER

Digitise our route-to-consumer

HEINEKEN aims to become the best-connected and most relevant brewer for our customers. We have been stepping up our investments behind our digital transformation to build a future-ready HEINEKEN, especially strengthening our digital route-to-consumer capability.

We continue to expand our business-to-business digital (eB2B) platforms. By the end of the first half we captured €5.2 billion in gross merchandise value, an increase of 36% versus last year, representing €10.4 billion in gross merchandise value over the last twelve months. We now connect more than 550 thousand active customers in fragmented, traditional channels, an increase of 31% versus the same period last year. We progressed with the migration of our eB2B platforms under a single brand name and identity: eazle, business made easy. Nine of our eB2B operations in Europe were added, to enable better features at scale, improved customer experience and increased efficiency.

Data driven insights & foresights

We are increasingly leveraging the power of data across our business, systematically building use cases to prove the value of the solutions we create before replicating them across our organisation. We are using artificial intelligence (AI) in a wide range of processes ranging from revenue management to predictive maintenance among others.

For example, AIDDA, our AI application to advise sales, is able to generate product recommendations, predict customer churn, identify price discrepancies, and suggest optimal sales-routes among other features. Originally developed in Mexico, we are currently beginning to deploy it in other markets.

Through our Connected Brewery programme we are now connecting and harnessing the data of 3,500 pieces of brewery equipment in 68 breweries. Analysing this data we have been able to improve the mashing process and automatically adjust parameters to reduce extract losses and optimise the machine set speeds on packaging lines to reduce imbalance issues driving productivity through increased output capacity and lower cost to operate.

FUND THE GROWTH, FUEL THE PROFIT

Our growth algorithm seeks to deliver superior, balanced growth enabled by investments in innovation, in the power of our brands, behind our digital transformation, in new capabilities and in making our business more sustainable. To fund these investments and mitigate the inflationary pressures, we are structurally addressing our cost base, driving productivity across all parts of our business as we progress towards a cost-conscious culture.

It is now the fourth year of our productivity programme, and we remain firmly on track to deliver ahead of our €2 billion target. In the first half of 2023, we delivered c.€200 million of gross savings, enabling the increased investment behind marketing and sales. For example, in Nigeria we have continued to right-size our cost base lowering the break-even volume threshold of Nigerian Breweries by 20%, a major step in helping the business mitigate the challenging economic conditions, and providing a significant opportunity in periods of growth.Europe expects to deliver more than €200 million gross savings this year from its large-scale supply chain transformation programme. The benefits come from boosting operational excellence in all areas, taking non-value-added complexity out and transforming our production and logistics footprint in Europe, resulting in the announced closure of seven breweries to date. The savings of this year are skewed to the second half given the phasing of activity.

We continue to embed cost management in every aspect of our organisation, and are further maturing the cost and capital governance in our operations. Combined with a strong commitment and operating rhythm in our operating companies to systematically identify cost and capital initiatives, we are confident to deliver on our €400 million gross savings commitment for the next years to come.

Operating profit (beia) decreased 8.8% organically, driven by the decline in our most profitable Asia Pacific region. The revenue growth and improvements in productivity were more than offset by the significant inflationary pressures in our input and energy costs and the front-loaded incremental investments to grow the power of our brands, digitalisation, capability and sustainability agendas. Despite lower volume, we continued with stepped-up investment in marketing and sales, broadly equivalent to the operating profit (beia) decline. Currency translation and consolidation impacts negatively impacted operating profit by €12 million and €14 million respectively, with offsetting effects between the regions. Operating profit margin (beia) came down to 13.4% driven by the organic performance and the dilutive effect from the consolidation impacts. Operating profit decreased further by 22.2%, mainly due to the impact from impairments recorded as exceptional items, including €113 million of further impairment charges related to Russia.

Net profit (beia) decreased by 11.6% organically. The gains from lower minority interests, income taxes and higher profits from associates were partially offset by higher interest and other net financing expenses. Net profit decreased to €1,156 million driven by higher exceptional items, including the impairments referenced above and €70 million impact related to the one-off impact of the devaluation of the Nigerian Naira.

For more details on the exceptional items on operating profit and net profit, please refer to page 13.

RAISE THE BAR ON SUSTAINABILITY AND RESPONSIBILITY

We are building operational momentum across our Brew a Better World 2030 strategy focused on three areas: raising the bar on environmental sustainability, accelerating social sustainability and championing responsible consumption.

Environmental: Path to zero impact

To reach net zero carbon in production (scope 1 and 2) by 2030, together with Signify, Nobian and Philips, we celebrated the opening of an onshore wind farm in Finland in June. The virtual power purchase agreement will generate renewable electricity to power 27 of our European production sites for the next ten years. We are also making strategic investments in low-carbon technologies. For example, in the first half of this year, we launched Project Circle, which uses technology that extracts high-quality proteins from spent grain and uses the remaining fibres as biofuel in our breweries. We also co-invested in FertigHy, a pioneering low-carbon fertiliser company, which in time will benefit farmers who provide grains we use in our brewing process.

Regarding healthy watersheds, water efficiency was most improved in four countries: Brazil, Italy, Spain and Ethiopia with measures that included optimising cleaning processes and equipment upgrades. For water balancing, 27 of our 32 sites in water-stressed areas are progressing on multi-year projects, including large-scale reforestation efforts in Vietnam and Nigeria.

Social: Path to an inclusive, fair and equitable world

Currently, 28% of our senior managers are women and we aim to increase this figure to at least 30% by 2025 and 40% by 2030 on the path to gender balance. In the Netherlands, HEINEKEN received a LinkedIn Talent Diversity Champion Award for initiating and inspiring meaningful conversations around diversity, inclusion, belonging and equity.

On our path to a fair and safe workplace, 100% of our direct employees now earn a fair wage according to the Fair Wage Network, reaching our 2023 goal. We continue to make progress in providing fair living and working standards for third-party employees.

Responsible: Path to moderate and no harmful use

Our goal is for 100% of our markets to have a partnership in place to reduce the harmful use of alcohol every year. For example, in Italy, in partnership with the Italian Sommelier Association (ASPI), we support a programme that incorporates responsible consumption training into the curriculum of 50 national hotel schools, which trained more than 2,000 students in 2023.

In February, we proudly announced F1 driver Max Verstappen as our new Heineken^® 0.0 ambassador. Max plays a leading role in our ‘When You Drive, Never Drink’ campaign as well as a new initiative called ‘Player 0.0’, a virtual racing experience that incorporates responsible consumption themes in the gaming space.

Governance

We are mobilising in preparation for the European Union’s new Corporate Sustainability Reporting Directive (CSRD), which require a broad suite of new metrics to be tracked and reported as of 2024 for publication in 2025.

Outlook Statements

Our EverGreen strategy is a multi-year and multi-faceted journey to future-proof the company and deliver superior, balanced growth for long-term value creation. We have executed our plans in line with our EverGreen priorities and we are making clear progress in building a premium portfolio, driving consumer-centric innovation, digitisation, sustainability and in improving productivity.

In the second half of 2023, we expect significantly improved operating profit (beia) growth inclusive of:

• Lower pressure from inflation in input costs, transport and energy & water, from mid-teens in the first-half to low-teens in the second-half on a per hectolitre basis
• Pricing starting to moderate with volume trends gradually improving to a low-single-digit decline
• An improved outlook in Vietnam and Nigeria, relative to the significant disruption in the first half
• A similar absolute level of investment in marketing and sales when compared to the first half
• Productivity savings delivering at least €300 million, cumulatively well-ahead of the €2 billion gross savings target.

Overall, our updated expectation for the full year of 2023 is stable to a mid-single-digit operating profit (beia) organic growth. We also anticipate an average interest rate for the year of around 3.2% (2022: 2.8%). Other assumptions on CAPEX and effective tax rate are unchanged.

Looking ahead, the unprecedented commodity and energy cost inflation in recent years will be partially reversed next year, easing the pressure on pricing. Together with the structural changes we are making with EverGreen, we are confident this will set us up for a balanced growth delivery in 2024, while we remain cautious about the macroeconomic and geopolitical environment. Our strong cost and productivity efforts will continue and enable further support behind our growth agenda, fund investments behind EverGreen and contribute to operating profit growth. Therefore, our medium-term guidance of superior, balanced growth with operating leverage over time remains unchanged.

Translational Calculated Currency Impact

Based on the impact to date, and applying spot rates of 27 July 2023 to the 2022 financial results as a baseline for the remainder of the year, the calculated negative currency translational impact would be approximately €780 million in net revenue (beia), €110 million at consolidated operating profit (beia), and €30 million at net profit (beia).

Interim Dividend 2023

HEINEKEN's dividends are paid in the form of an interim dividend and a final dividend. The interim dividend is fixed at 40% of the total dividend of the previous year. As a result, an interim dividend of €0.69 per share (2022: €0.50) will be paid on 10 August 2023. The shares will trade ex-dividend on 2 August 2023.

Enquiries

Media		Investors
Sarah Backhouse / Joris Evers		José Federico Castillo Martinez
Director of Global Communication		Investor Relations Director
Michael Fuchs		Mark Matthews / Chris Steyn
Global Corporate and Financial Communications Manager		Investor Relations Manager / Senior Analyst
E-mail: pressoffice@heineken.com		E-mail: investors@heineken.com
Tel: +31-20-5239355		Tel: +31-20-5239590

Investor Calendar Heineken N.V.

Trading Update for Q3 2023		25 October 2023
Full Year 2023 Results		14 February 2024

Conference Call Details

HEINEKEN will host an analyst and investor conference call in relation to its 2023 Half Year results today at 14:00 CET/ 13:00 GMT. The call will be audio cast live via the company’s website: www.theheinekencompany.com. An audio replay service will also be made available after the conference call at the above web address. Analysts and investors can dial-in using the following telephone numbers:

United Kingdom (Local): 020 3936 2999

Netherlands (Local): 085 888 7233

USA: 1 646 664 1960

For the full list of dial in numbers, please refer to the following link: Global Dial-In Numbers

Participation password for all countries: 394664

Editorial information:
HEINEKEN is the world's most international brewer. It is the leading developer and marketer of premium and non-alcoholic beer and cider brands. Led by the Heineken® brand, the Group has a portfolio of more than 300 international, regional, local and specialty beers and ciders. With HEINEKEN’s over 90,000 employees, we brew the joy of true togetherness to inspire a better world. Our dream is to shape the future of beer and beyond to win the hearts of consumers. We are committed to innovation, long-term brand investment, disciplined sales execution and focused cost management. Through "Brew a Better World", sustainability is embedded in the business. HEINEKEN has a well-balanced geographic footprint with leadership positions in both developed and developing markets. We operate breweries, malteries, cider plants and other production facilities in more than 70 countries. Most recent information is available on our Company's website and follow us on LinkedIn, Twitter and Instagram.

Market Abuse Regulation
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Disclaimer:
This press release contains forward-looking statements based on current expectations and assumptions with regard to the financial position and results of HEINEKEN’s activities, anticipated developments and other factors. All statements other than statements of historical facts are, or may be deemed to be, forward-looking statements. Forward-looking statements also include, but are not limited to, statements and information in HEINEKEN’s non-financial reporting, such as HEINEKEN’s emissions reduction and other climate change related matters (including actions, potential impacts and risks associated therewith). These forward-looking statements are identified by their use of terms and phrases such as “aim”, “ambition”, “anticipate”, “believe”, “could”, “estimate”, “expect”, “goals”, “intend”, “may”, “milestones”, “objectives”, “outlook”, “plan”, “probably”, “project”, “risks”, “schedule”, “seek”, “should”, “target”, “will” and similar terms and phrases. These forward-looking statements, while based on management's current expectations and assumptions, are not guarantees of future performance since they are subject to numerous assumptions, known and unknown risks and uncertainties, which may change over time, that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. Many of these risks and uncertainties relate to factors that are beyond HEINEKEN’s ability to control or estimate precisely, such as but not limited to future market and economic conditions, the behaviour of other market participants, changes in consumer preferences, the ability to successfully integrate acquired businesses and achieve anticipated synergies, costs of raw materials and other goods and services, interest-rate and exchange-rate fluctuations, changes in tax rates, changes in law, environmental and physical risks, change in pension costs, the actions of government regulators and weather conditions. These and other risk factors are detailed in HEINEKEN’s publicly filed annual reports. You are cautioned not to place undue reliance on these forward-looking statements, which speak only of the date of this press release. HEINEKEN assumes no duty to and does not undertake any obligation to update these forward-looking statements contained in this press release. Market share estimates contained in this press release are based on outside sources, such as specialised research institutes, in combination with management estimates.

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