Heineken N.V. announces its 2020 full-year results
Highlights:
- Net revenue (beia) organic growth -11.9%; per hectolitre -2.4%
- Consolidated beer volume -8.1% organically
- Heineken® volume resilient -0.4%
- Operating profit (beia) organic growth -35.6%, margin 12.3% (-455 bps)
- Net profit (beia) €1,154 million, -49.4% organically
- Diluted EPS (beia) €2.00 (2019: €4.38)
EverGreen strategic review update:
- Deliver superior and profitable growth in a fast-changing world
- Placing consumers and customers at the core, enhance our portfolio and strengthen our digital route to consumer
- Raise the bar on sustainability and on our people agenda
- Step up in productivity starting with €2 billion gross savings through 2023to fund our journey
- Restore operating profit margin (beia) to around 17% by 2023 and gear for operating leverage beyond
TOP-LINE PERFORMANCE
COVID-19 continues to have a material impact on our top-line performance, affecting all geographies and markets as governments across the world taking measures to mitigate the contagion including restricted population movement, social distancing, outlet closures and temporary lockdowns of production facilities.
Net revenue (beia) declined 11.9% organically, with a 9.8% decrease in total consolidated volume and a 2.4% decrease in net revenue (beia) per hectolitre due to country mix effects and non-volume related revenue decline.
The underlying price mix on a constant geographic basis was broadly flat for the full year. Currency translation negatively impacted net revenue (beia) by €1,259 million or 5.3%, mainly driven by the Brazilian Real, the Mexican Peso, the Nigerian Naira, the Russian Rouble and the South African Rand.
The second half of the year benefited from a good summer with some easing of operating constraints including in the European on-trade.
Net revenue (beia) decreased by 7.8%. Total consolidated volume declined 6.4% and net revenue (beia) per hectolitre was down 1.5% (2H19: 3.6% up). Underlying price mix was up 1.0% (2H19: 3.2%) driven by Brazil, Mexico, Ethiopia and Nigeria more than offsetting the negative channel mix in Europe.
Consolidated beer volume decreased 8.1% organically for the full year. Our premium beer volume outperformed the broader portfolio in the majority of our markets with a mid-single-digit decline overall. The fourth quarter reflects the impact of renewed restrictions in all regions, especially in Europe with the closing of the on-trade.
Heineken® volume declined marginally by 0.4%, significantly outperforming the total market and our overall beer portfolio. The brand grew double-digits in 25 markets including Brazil, China, the UK, Poland, Singapore, Nigeria, Germany, Chile, Ivory Coast, Laos, and South Korea.
Heineken® 0.0 grew strong double-digits with growth in all regions and outstanding performance in Brazil, Mexico, and the USA. Heineken® 0.0 is now rolled-out in 84 markets.
The international brand portfolio had a mixed performance across brands and markets. Desperados grew double-digits driven by France, Poland, the Netherlands and Ivory Coast. Birra Moretti grew slightly as strong growth in the UK and Romania more than offset the decrease in Italy.
Tiger volume was soft in Vietnam, outperforming the total market, and the brand grew strongly in Nigeria and South Korea. Amstel declined driven by Europe and South Africa despite double-digit growth in Brazil and Mexico. Sol declined driven by Mexico but grew double-digits in the UK, Chile and Argentina. Edelweiss declined in Europe but showed strong growth in South Korea.
Cider volume declined in the high-teens to 4.6 million hectolitres (2019: 5.6 million), due to pub closures in the UK and alcohol sales restrictions in South Africa. Strongbow grew double-digits in Mexico and Russia.
Low & No-Alcohol (LONO) volume decreased slightly, delivering 14.0 million hectolitres (2019: 14.1 million) and outperforming the overall portfolio in most of our markets. The no-alcohol portfolio grew mid-single-digit, driven by Heineken® 0.0 globally and Maltina in Nigeria.
We entered the Hard Seltzer category with Pure Piraña in Mexico and New Zealand in September and more launches will come in 2021. In Mexico, Pure Piraña is the first nationwide seltzer brand available across all channels, complemented by Amstel Ultra Seltzer, launched in January 2021. In the USA, together with Arizona we announced the launch of AriZona SunRise Hard Seltzer in 2021.
Our e-commerce platforms showed strong growth as digitalisation trends accelerated, consumers changed shopping patterns and customers adapted to new realities.
- Beerwulf, our direct-to-consumer platform in Europe, nearly doubled its revenues. All markets grew strongly, most notably the UK where revenues tripled. Online sales of our home-draught systems the Sub and Blade grew in the mid-double-digits.
- All together our direct-to-consumer platforms Beerwulf, Six2Go and Drinkies tripled the number of orders from consumers in the year.
- We continued to deploy our business-to-business digital platforms at speed. We are operational in 25 markets covering more than €1 billion of our net revenue as we connect more than 100,000 customers in traditional channels.
- Our platforms also include digital connections to cashier systems and on-trade equipment, including fridges and draught beer columns. By the end of 2020, we connected to more than 130,000 customers globally.
OPERATING PROFIT PERFORMANCE
Operating profit was materially impacted by the negative consequences of COVID-19, partially offset by significant mitigation actions.
Operating profit (beia) declined 35.6% organically, with all regions in decline. Operating profit declined 78.6%. More than 90% of the organic operating profit (beia) decline was driven by Europe, Mexico, South Africa and Indonesia. Currency translation negatively impacted operating profit (beia) by €129 million or 3.2%, mainly driven by the Brazilian Real and the Mexican Peso.
The operating profit decline in Europe was amplified by an over 40% volume decline in the on-trade. HEINEKEN has a strong position in the on-trade channel across Europe, including wholesale in several markets and pubs in the UK.
In Mexico, beer volume declined in the mid-teens. Operations were suspended throughout most of the second quarter and faced operating restrictions throughout the year.
In South Africa, total volume declined in the thirties as our strong momentum was disrupted by a COVID-related suspension of all alcohol companies in the second quarter, a ban on the sale of alcohol during July and August, and impacts to various supply chain expansion projects that constrained our capacity in the second part of the year.
In Indonesia, total volume declined in the forties given the impact of lockdowns throughout most of the year and the absence of international tourism in the key Bali region.
Input costs per hectolitre increased by around 10% essentially driven by the negative impact of channel and product mix and to a lesser extent by transactional currency effects. Commodity prices had a slight positive impact.
Other incremental expenses included higher depreciation from previous year investments, provisions for credit losses, safety & protection equipment, donations and other forms of support to our customers and communities.
We implemented cost mitigating actions throughout the year, reducing all discretionary expenses, pausing projects, and cancelling senior managers’ bonuses. These actions resulted in a net organic reduction of circa €800 million of other expenses (beia). This excludes the effects on input costs, goods for resale, transport and depreciation. Most of these cost mitigation actions are by nature non-repeating benefits.
TOTAL DIVIDEND FOR 2020
The Heineken N.V. dividend policy is to pay a ratio of 30% to 40% of full-year net profit (beia). For 2020, a total cash dividend of €0.70 per share, representing a decrease of 58.3% (2019: €1.68), and a payout ratio of 34.9%, in the middle of the range of our policy, will be proposed to the Annual General Meeting on 22 April 2021 (“2021 AGM”).
If approved, the full dividend will be paid on 6 May 2021, as no interim dividend was paid during 2020. The payment will be subject to a 15% Dutch withholding tax. Due to the reported net loss in 2020, the proposed dividend will be paid out of the equity reserves. The ex-dividend date for Heineken N.V. shares will be 26 April 2021.
2021 OUTLOOK STATEMENTS
Overall the COVID-19 pandemic and governments’ measures continue to have a material impact on our markets and business. 2021 started with many restrictions across our markets, including on-trade closures and restrictions to travel.
In Europe in particular, we estimate that at the end of January 2021, less than 30% of on-trade outlets were operating. Product and channel mix is expected to continue to adversely impact results, especially in Europe.
According to the World Health Organisation, the effect of vaccines on the pandemic will depend on several factors including their effectiveness, speed of their approval, manufacturing and delivery and the number of people getting vaccinated. As such, we expect the pandemic to continue to impact our business in the first half of 2021 and market conditions to gradually improve in the second part of the year.
Input costs per hectolitre are expected to be volatile due to channel and product mix effects. Based on our hedged positions for 2021, we expect a significantly higher negative transactional currency impact on input costs.
