We decided to lower our forecasts for Heineken as we expect that tough economic conditions make our previous assumptions no longer realistic. All in all, we lower our FY13 forecasts as follows: consolidated beer volumes and revenue forecasts were lowered by 1% to respectively 182.5m hl and € 19.86bn. Our FY13e EBIT (beia) forecast was lowered by 3% to € 3,180m while our net profit (beia) forecast was lowered by 5% to € 1,652m.
All in all, we believe there have been no major changes in volume trends in 2Q from the trends seen in 1Q, with perhaps some slightly positive impact from price increases in Mexico and Eastern Europe benefiting 2Q revenue per hl. All in all, we expect 2Q to have delivered following trends per zone :
Western Europe (recall consolidated beer volume -8.8% organically in 1Q13). We expect that consumption trends have not really changed in 2Q, meaning continued pressure on volumes. Price increases were already implemented at the start of the year and will, together with the positive impact from TCM2 savings, unlikely suffice to absorb the impact from negative operating leverage on profit margins.
Central & Eastern Europe (recall consolidated beer volume -3.7% in 1Q13). A continued weak Russian beer market and some negative effect from floodings in countries like Germany and the Czech Republic means that the 1Q volume decline is likely to have been repeated in 2Q13.
Americas (recall consolidated beer volume -2.4% organically in 1Q13). We believe there has been no major change in market trends in Mexico (Heineken volume slightly up in 1Q13) and Brazil (Heineken volume down mid single digit in 1Q13). We understood from a company contact that price increases implemented in April (+4-4.5%) have been successfully installed in the market and as they followed Grupo Modelo’s price increase of March, they have not altered market shares. As also evidenced by industry data, we believe Heineken will see an improvement in volumes in the US in 2Q13 (1Q impacted by tough weather comparable and destocking of the previously introduced Heineken brand Star bottle).
Africa & Middle East (recall consolidated beer volume -4.6% in 1Q13). 1Q13 performance was impacted by tough comps and high inflation in Nigeria. We believe the market has slightly improved towards the end of the second quarter with Heineken maintaining share – but overall we still expect a volume decline in 2Q13 as well.
Asia Pacific (recall consolidated beer volume -1.4% in 1Q13). We believe the integration of Asia Pacific Breweries is far advanced, which is no surprise given the previous joint ownership already by Heineken. We recall that the integration should deliver about € 25m savings.
Heineken released 1H results on 21 August. We will issue a more detailed preview flash in a couple of weeks, but for sure we believe trading conditions have been very difficult in 2Q as well. Despite the tough momentum, we decide to reiterate our Accumulate rating on the back of the valuation, which we still consider too discounted vs brewing and FMCG peers.