Heineken’s 1Q12 consolidated beer volume grew by 4.7% organically and by 6.2% including scope changes to 35.9m hl, significantly better than our 34.56m hl forecast (or +1.8% organically) and the consensus of 34.5m hl (or +1.7% organically).
Regional volume trends were:
Western Europe: consolidated beer volumes declined by -1.3% organ. and -1.9% in total to 9.1m hl which compares to our and CSS forecasts of 9.25m and 9.2m hl, respectively. Volumes grew in the UK, France, Spain and Italy with a decline in Finland, Portugal and Ireland.
Central and Eastern Europe: volumes grew by 7.9% (both organically and in total) to 9.0m hl (KBCS 8.57m, CSS 8.5m hl). Volumes were still down significantly in Greece which is hardly surprising.
Africa and the Middle East: volumes grew by 9.7% organically and by 21.2% in total to 5.7m hl (KBCS 5.03m, CSS 5.1m hl). Volumes in South Africa (equity consolidation) were lower, given tough comps, which is a slight negative surprise.
The Americas: volumes grew by 5.2% organically and in total to 11.8m hl (KBCS 11.5m, CSS 11.4m hl). Depletions grew by 4.5% in the US (helped by one additional selling day) which is positive. Mexican volumes grew solidly while, slightly surprisingly, volume decreased slightly in Brazil (with strong growth of Heineken brand though).
Asia Pacific: volumes grew by 7.5% organically and in total to 0.3m hl (KBCS & CSS 0.2m hl).
Revenue grew by 6.8% organically and in total to € 3,834m which compares to our € 3,733m forecast and the analyst consensus of € 3,736m. The price and sales mix grew by 3.3% which is an acceleration from last year (+1.5%) and shows in our opinion the implementation of price increases.
EBIT (beia)declined slightly in 1Q on an organic basis, including the impact from a € 23m impairment charge in China. The decline was also due to higher fixed costs in some inflationary countries and investments (for the Global Business Services organization) as well as higher input costs. Management called the slight EBIT(beia) decline in line with budgets and reminded that the first quarter is traditionally a very light quarter (which represented last year for example less than 20% of consolidated beer volume and significantly less even on a profit level).
Net profit (beia) declined slightly while reported net profit was up from € 151m in 1Q11 to € 175m in 1Q12, helped by a € 20m revaluation gain. Heineken mentioned to reaffirm the outlook comments made at the time of the FY11 results release (which are not including quantified profit guidance but include comments about continued top line growth in emerging markets, a 6% increase in input costs, flattish marketing and selling (beia) expenses).
Our View:
The much better than expected organic volume trends (+4.7% vs. +1.8% expected by ourselves and +1.7% by the CSS) and the acceleration of pricing (price and sales mix up +3.3%) are certainly positive news. The slight EBIT (beia) decline is in our opinion not that worrying as it includes a € 23m impairment charge and also some investments in the Global Business Services Organization. We stick to our BUY rating and € 50 TP given the positive top line developments, overall defensiveness of the beer category and Heineken’s discounted valuation vs. brewing, spirit and FMCG peers.