Heineken N.V. reports 2014 third quarter results

Heineken N.V. (EURONEXT: HEIA; OTCQX: HEINY) today announced its trading update for the third quarter of 2014.

HIGHLIGHTS

• Group revenue +0.7% organically, with group revenue per hectolitre up 0.9%
• Group beer volume +0.1% organically, with positive growth momentum in Asia Pacific, Africa Middle East and the Americas region, offset by lower volumes in Europe
• Heineken® premium brand +3%, with growth across all regions
• Full year outlook unchanged; expect operating profit (beia) margin expansion in 2014 to be ahead of medium term target level of around 40 basis points per annum. 

CEO STATEMENT

Jean-François van Boxmeer, Chairman of the Executive Board & CEO, commented:
“Amidst a volatile global environment and poor weather during the high selling season in Europe, we maintained top-line growth. This was led by broad-based growth across our developing markets. Our performance in the first nine months of the year underlines the benefit of sustained investments in long-term brand building, innovation and strengthened sales execution. This gives us confidence in reaffirming our full year outlook for operating profit (beia) margin expansion in 2014 to be ahead of our medium-term guidance.”

OPERATIONAL OVERVIEW

1. Refer to the Definitions section for an explanation of non-IFRS measures and other terms used throughout this report
2. Net of head office & eliminations

Group revenue increased 0.7%, organically, reflecting a total group volume decline of 0.2% and higher group revenue per hectolitre of 0.9%. Consolidated revenue decreased 1.5% to €5,101 million. This includes a negative net consolidation impact of 1.3% (-€67 million) mainly from the divestment of the Hartwall business in Finland in August 2013 and an unfavourable foreign currency translational effect of 0.5% (-€24 million). Organically, consolidated revenue grew 0.2%.

Group beer volume grew by 0.1% organically, led by sustained growth of the Asia Pacific, Africa Middle East and the Americas regions. Volume performance in Europe (compared to the first half of 2014) was slightly below expectations owing to unseasonably wet weather conditions.

Heineken® volume in the international premium segment grew by 3%. Heineken® brand growth was particularly strong in markets including China, Brazil, Mexico, Taiwan, Russia, Canada and the UK. This growth was supported by continued activation of the ‘Open Your World’ marketing campaign.

Reported net profit in the quarter was €460 million compared with €483 million in the third quarter of 2013. Net profit (beia) was lower compared to last year.

OUTLOOK STATEMENT

(Based on consolidated reporting)

HEINEKEN reaffirms all elements of its full year outlook for 2014 as stated in its half year 2014 earnings release dated 20 August 2014.

REGIONAL REVIEW

Africa Middle East
Consolidated revenue grew 4.1% organically with solid total volume growth of 8.1% partly offset by lower revenue per hectolitre of 4.0%, primarily reflecting the impact of negative country and product mix. Over half of the decline in revenue per hectolitre is due to the faster growth of HEINEKEN branded volume licensed to third parties. Group beer volume increased 6.3% organically, led by continued strong growth in Ethiopia, Burundi, Algeria, Cameroon and Tunisia. The beer market in Nigeria was impacted by a prolonged wet season leading to reduced consumer spending and a stable volume development. Ethiopia saw strong double-digit volume growth in the quarter as we benefited from the recent addition of a new brewery which has been operational since July. Volume in the quarter was also higher in Rwanda, Egypt and the Democratic Republic of Congo. A continued challenging economic environment in South Africa led to marginal volume decline.

Americas
Consolidated revenue grew 4.1% organically, driven by 2.9% total volume growth, and higher revenue per hectolitre of 1.2% from continued effective revenue management. Group beer volume grew by 2.9% organically in the quarter, led by ongoing growth in Mexico and higher volumes in the Caribbean. In Mexico, strong activation of marketing programmes and outlet execution drove continued portfolio growth, led by the Tecate Light and Dos Equis brands. Brazil volumes were lower due to lower consumer spending following the World Cup football event and a softening economic environment. The Heineken® brand continued to grow in the double-digits in Brazil. In the U.S, sales to retailers were positive, outperforming a declining market. This reflects continued solid growth of the Mexican beer portfolio in the U.S, with performance of the Heineken® lager also outperforming the market.

Asia Pacific
Consolidated revenue grew 11.9% organically, with total volume growth of 9.6% and revenue per hectolitre growth of 2.3%. Group beer volume was up 9.7% organically, with this improved growth momentum reflecting strong performances in India, Vietnam, China, Indonesia, New Zealand, Cambodia and the export markets of Taiwan and South Korea. Volume in Vietnam increased in the high-single digits reflecting improved consumer sentiment and the benefit of our brand portfolio strategy, resulting in further market share gains. Volume of the Tiger brand grew in the double-digits in the region led by strong growth in Vietnam and Malaysia.

Central & Eastern Europe
Consolidated revenue declined by 6.4% organically, with a total volume decline of 7.0% partly offset by higher revenue per hectolitre of 0.6%. Group beer volume declined by 6.3% organically, reflecting continued challenging trading conditions in Russia, Poland and Romania and the effect of unfavourable weather. The beer market in Russia continued to be adversely impacted by legislation and a softening economic environment. This led to a low-single digit volume decline, with lower volume of mainstream brands only partly offset by solid growth of the premium brand portfolio. Volume in Poland continued to be negatively impacted by sustained competitive pricing pressure. In Austria, volume was lower following unseasonably wet and cold weather. Volume in the quarter grew in Serbia and Germany and was marginally higher in Greece. We continue to execute against our value growth strategy in the region with a focus on pricing initiatives, investment in premium brands and innovation and ongoing cost efficiencies.

Western Europe
Consolidated revenue declined by 2.4% organically, reflecting lower total volume of 3.8%, partly offset by revenue per hectolitre growth of 1.4%. The ongoing success of innovation contributed to improved sales mix and higher revenue per hectolitre growth versus the first half of the year. Group beer volume was 3.1% lower organically, following exceptionally high levels of rainfall across the region in July and August as well as a higher comparative volume base from the prior year quarter. Volume in the UK, France and Italy all declined in the mid-single digits and was marginally lower in The Netherlands. Volume in Spain grew in the low-single digits underpinned by higher consumer confidence and improved trends in both on- and off-premise channels. The benefit of higher commercial investments focused on brand equity building, premium-led innovation and improved promotional effectiveness again led to broad-based share gains across the region.

BUSINESS DEVELOPMENT UPDATE

Below is an update of business development activity since the release of HEINEKEN’s half year 2014 results on 20 August 2014:

• The disposal of the Mexican packaging business, EMPAQUE was announced on 1 September and is expected to close by the end of the year subject to customary closing conditions and required regulatory approvals.
• The acquisition of the indirect shareholding of Coca-Cola HBC in Zagorka AD, the Bulgarian brewer, will increase HEINEKEN’s ownership to a controlling stake of 98.86%.  Regulatory approval has been obtained and the transaction is expected to complete by the end of October 2014.
• The divestiture of an 80% shareholding in our subsidiary Brasserie Lorraine on Martinique to Antilles Glaces was completed in September 2014. HEINEKEN retains a 20% shareholding in the business.
• On 10 October, Nigerian Breweries Plc notified The Nigerian Stock Exchange that management of Nigerian Breweries Plc and Consolidated Breweries Plc have received approval of the Scheme of Merger document from the Securities & Exchange Commission for the proposed combination of the two businesses. The next step involves shareholders of both Nigerian Breweries Plc and Consolidated Breweries Plc voting at separate court-ordered EGMs (announcements to follow when dates are confirmed). The proposed merger is expected to be finalised by the end of 2014.

DEFINITIONS

Organic growth excludes the effect of foreign currency translational effects, consolidation changes, accounting policy changes, exceptional items and amortisation of acquisition-related intangibles. Beia refers to financials before exceptional items and amortisation of acquisition-related intangibles. Group figures include HEINEKEN’s attributable share of joint ventures and associates. Group revenue in 2013 has been restated from the earnings release dated 23 October 2013 (with no impact on group operating profit (beia)). The license fee for the Heineken® brand has been increased since 1 January 2014. To facilitate a meaningful financial and margin comparison compared to last year, the regional impact is reported as a consolidation change in 2014.