1H13 results were below our and consensus forecasts on a volume level while operating profit (beia) was slightly above our and consensus level, although this was solely thanks to the inclusion of a € 17m book gain on the sale of an Austrian fruit juice company and a € 16m gain on the sale of land in the UK. Overall, consol. beer volumes grew from 82.6m hl in 1H12 to 85.9m (-4% organically) (KBCS 87.3m, CSS 89.7m). Organic consolidated beer volume declined by -4% organ. in 2Q13 vs. -4.7% y/y in 1Q13. 1H13 consolidated revenue grew by 7% (-3% organically) to € 9,354m (KBCS € 9,457m, CSS € 9,460m). Revenue per hl grew by 2% (group level). Consol. operating profit (beia) grew by 15% (-2% organic.) to € 1,327m (KBCS € 1,313m, CSS € 1,301m). Net profit (beia) declined by 1% to € 679m (KBCS € 727m, CSS € 698m). 1H13 Consolidated beer volumes declined by 8% organ. to 20.0m hl (KBCS 19.9m, CSS 20.3m) in Western Europe, by -6% organ. to 21.9m hl in CEE (KBCS 22.5m, CSS 23.0m), by -1% organ. to 11.4m hl (KBCS 11.3m, CSS 11.7m) in Africa and by 2% organ. (24.6m) in the Americas (KBCS 25.5m, CSS 25.6m). In Asia, volumes grew by 1% organ. to 8.0m (KBCS 8.2m, CSS 9.2m).
Operating profit (beia) performance benefited from TCM2 savings of € 139m in 1H13 whereas € 22m upfront investment costs in the Global Business Services Organization roll-out were expensed (and an additional € 9m capitalized). In Western Europe, operating profit (beia) declined by 9% organ. to € 362m (KBCS € 352m, CSS 361m). In CEE, operating profit (beia) increased by 13% organ. to € 124m (KBCS € 96m, CSS € 117m). In Africa and the Middle East, operating profit (beia) declined by 1% organ. to € 305m (KBCS € 294m, CSS € 312m). In the Americas, operating profit (beia) grew by 3% organ. to € 319m (KBCS € 315m, CSS € 314m). In Asia Pacific, operating profit (beia) grew from € 31m to € 251m on APB (KBCS € 261m, CSS € 215m).
Cost savings update: Heineken has generated € 139m of pre-tax TCM2 savings in 1H13 and € 335m so far. The company commented to have identified € 100m additional savings and hence it now expects € 625m savings on the 3-year TCM2 programme which is scheduled to end in 2014.
Outlook: Heineken guides for net profit (beia) to be broadly in line with last year on an organic basis (CSS is aiming at a 2.7% organic increase to € 1,713m – vs.€ 1,661m in FY12 / KBCS estimate € 1,652m). Previously the company’s CEO commented of improved profitability in 2013. Heineken commented to have benefited from better weather conditions in July in Western Europe and also anticipates improved volumes in some developing markets. However, the company does not expect a material change to the underlying trading conditions in the majority of its markets. Most of the other outlook statements issued previously were reiterated. Heineken still guides for flat marketing spend (around 12.2% of revenue), only a slight increase in input cost prices (excluding FX), a 27-29% tax rate in 2013 (2012: 26.5%), a 4.5% average interest rate and a marginally EPS accretion from APB.
Conclusion: 1H13 was a mixed bag: weaker than expected volumes with operating profit (beia) slightly better than expected, although solely thanks to some book gains. The FY13 net profit (beia) guidance of a flat organic result is slightly below current consensus forecasts (+2.7%e). Positive is the € 100m increase intargeted costs savings. All in all, the pluses and the minuses balance each other, we believe. Accumulate and € 60TP maintained.