Heineken organised a Brewing Seminar on Delivering Sustainable Top-line growth last Friday. The presentation was given by Alexis Nasard, Chief Commercial Officer and a Member of the Executive Committee.
In our opinion, the presentation did not contain real surprises –key feedback below:
Heineken views its Heineken brand as a key competitive advantage. Heineken is the leading brand in the International Premium Segment, with about 20.5% of global market share, approximately twice the size of its nearest competitor (Budweiser). The growth of the Heineken brand has consistently outperformed the global beer market and the International Premium Segment (2006-2011: Heineken +4.0% CAGR, IPS +3.2% CAGR, Beer Market +2.5% CAGR). We remind that Heineken represents about 12.5% of Heineken’s global volumes. We would not view the Heineken brand as a major competitive advantage but nevertheless the brand for sure is an important asset for the company, with above average margins.
Heineken pricing strategy : typically Heineken priced at 130-180 index vs mainstream. In mature markets typically the pricing point is closer to the low end of that range and in emerging markets they price it towards the higher end of that range in order to make sure the brand gets well established as a premium brand
Innovations represent 4.8% of 1H12 revenue vs 3.0% in 2010 and 4.1% in 2011. Heineken has a target of 6.0% of revenue from innovations by 2020. Innovations include brand line extensions, new cider flavours, the 4 litre PET keg, etc.
Marketing spend as a percentage of revenue evolved from 12.8% of revenue in 2007, to 11.7% in 2008, 11.3% in 2009, 12.4% in 2010 and 12.8% in 2011. We remind that the guidance for 2012 is about 12.5%.
Tiger brand : Heineken is still studying whether or not to roll it out more internationally after the APB acquisition closes (which is expected in the coming weeks). No decision has been taken yet. Heineken believes to have invested appropriately on Tiger marketing in Asia in recent years. For the Heineken brand they might increase marketing spend a bit in the future in Asia.
China: Heineken is focussing on the premium segment and the large cities. They have grown well (Heineken brand grew by 50% in recent quarters in China) although admittedly this is from a relatively low base.
Conclusion:
No real news in my opinion. Most of the figures cited were already known, and the focus on the Heineken brand, innovations etc was also known. The presentation did not change our viewpoint. We still think Heineken is working hard to improve its geo-mix (with recent acquisitions of FEMSA Cerveza and now Asia Pacific Breweries) and to improve its profitability (€ 500m TCM2 program being implemented in 2012-2014 timeframe). Furthermore, the Heineken stock is quite undervalued vs peers (EV/EBITDA13E of 8.3x vs 12.0x for ABI and 12.1x for SABMiller). We reiterate our BUY rating and € 57 target price.