1H12 results were below our and consensus forecasts. Consolidated beer volumes grew by +3.5% (+2.8% organically) in 1H12 to 82.6m hl (KBCS 83.3m, css 83.2m), which means organic volume growth slowed down from 4.7% in 1Q12 to an estimated 1.4% in 2Q12. 1H12 revenue grew by +5% (+4.5% organically) to € 8,778m (KBCS € 8,981m, css € 8,832m), with revenue per hl growth of 2.9%. EBIT (beia) grew by 0.5% (-5.5% organic.) to € 1,265m (KBCS € 1,333m, css € 1,299m). Net profit (beia) grew by 1.6% (-4.0% organic.) to € 705m (KBCS € 767m, css € 737m). Net profit grew by 29.4% to € 783m (KBCS € 691m, css € 714m), helped by a € 131m capital gain.
1H12 Consolidated beer volumes declined by 2.9% organically to 21.6m hl (KBCS and css 21.9m) in Western Europe, with declines in most countries. Volumes grew by 6.4% organically to 23.2m hl in CEE (KBCS and css 22.9m), helped by double digit growth in Russia which more than offset a double digit decline in Greece. Volumes grew by 5.1% organically to 11.6m hl (KBCS 12.4m, css 11.8m) in Africa and by +3.8% organically to 25.5m in the Americas (KBCS 25.3m, css 25.9m), with mid single digit growth in Mexico, flat volumes in Brazil and +2.4% depletions in the US. In Asia, volumes grew by 5.6% organically to 0.6m (KBCS and css 0.7m).
EBIT (beia) performance benefited fromTCM2 savings of € 85m in 1H12 whereas € 29m upfront investment costs in the Global Business Services Organization roll-out were expensed. The EBIT (beia) breakdown shows a slight positive surprise in the Americas (on solid pricing) and lower than expected results in Europe. In Western Europe, EBIT (beia) declined by 14% organ. to € 427m (KBCS € 457m, css € 446m), due to negative operating leverage and higher input costs. In CEE, EBIT (beia) declined by 26% organ. to € 114m (KBCS € 152m, css € 149m), on higher input, marketing and logistics expenses and a negative country mix (attributable to Greece). In Africa and the Middle East, EBIT (beia) grew by 10% organ. to € 331m (KBCS € 329m, css € 330m). In the Americas, EBIT (beia) grew by 6.5% organ. to € 333m (KBCS € 316m, css € 320m), with all of the planned € 150m FEMSA integration synergies now captured (now surprise). In Asia Pacific, EBIT (beia) grew by 7.1% organ. to € 88m (KBCS € 86m, css € 79m).
Outlook : Heineken previously didnot provide a clear profit guidance but now guides for a full year net profit (beia) in line with last year, on an organic basis, which means growth in the second half (1H :-4%). Scope and FX are expected to contribute about € 50m to the net profit (beia)line, which means that the current analyst consensus (€ 1,633m vs € 1,584m in 2011) is in line with the new guidance. Admittedly, our more aggressive stance (€ 1,700m) seems too ambitious and we will lower our forecast. Besides the net profit guidance, Heineken now stated to expect 8% input cost per hl inflation in 2012 (previously +6%) and guides for a higher revenue per hl growth in 2H12 (1H: +2.9%). Marketing and selling expenses are guided at around 12.5% (previous comment called for flat ratio – 2011:12.8%). The company is still guiding for a slight increase in the effective tax rate vs 2011 (26.8%) and a slightly higher average coupon of around 5.5% which is no surprise.
Conclusion: Lower than expected 1H12 results but the current FY12 analyst consensus is in line with the new guidance. BUY and € 50 target price maintained on the attractive valuation.