FILE PHOTO: Heineken logo is seen at the company’s building in Sao Paulo, Brazil April 30, 2019. Picture taken April 30, 2019. REUTERS/Amanda Perobelli
February 16, 2022
By Philip Blenkinsop
BRUSSELS (Reuters) -Heineken cast doubt on its mid-term profit margin target due to the uncertain impact of spiralling inflation on beer consumption, after reporting stronger than expected earnings in 2021 from higher prices and cost savings.
The world’s second-largest brewer said on Wednesday the COVID-19 pandemic would still affect 2022 revenue, with a protracted recovery in bar trade in Europe, and said the impact of inflation and supply chain pressures would be significant.
The maker of brands including Tiger, Sol and Strongbow cider – as well as Heineken, Europe’s top-selling lager – said it would offset input cost increases with higher prices, but this could lead to lower beer consumption.
Chief Executive Dolf van den Brink said emerging markets had typically proven more resilient in absorbing price hikes.
“These kind of price increases and inflation, I think we have not seen in a generation,” he told Reuters. “The big unknown is how this will affect the more developed markets that have not seen this kind of pricing before.”
Heineken shares, which had dropped early this week to their lowest so far this year, were trading 1.7% higher by 1030 GMT.
Bernstein Securities analyst Trevor Stirling said the results indicated a faster recovery than expected, with margins already higher than pre-COVID levels in Africa and the Americas, with scope for improvement in Europe and Asia coming out of lockdowns. Yet the outlook, he said, erred on the side of caution.
The Dutch brewer said input costs would rise by a mid-teens percentage rate, with barley double its price of a year ago and aluminium up by some 50%. Energy and freight costs have also risen sharply.
It said it expected its operating profit margin in 2022 to be equal to or modestly above the 15.6% achieved in 2021.
Van den Brink said the company was pretty confident on the outlook for the rest of the year, but was less clear on 2023.
Heineken was still aiming for an operating profit margin of 17% in 2023, but there was “increased uncertainty” given inflation and its impact on consumer spending. Heineken plans to update its 2023 guidance later in the year.
Heineken launched a 2 billion euro cost-saving programme a year ago to boost margins by 2023, with the 1.3 billion euros achieved to date already swelling profits.
It sold 4.6% more beer in 2021 than in 2020, with increases in all regions except Asia, and price increases and a shift to more expensive beers driving net revenue up 12.2%
The company’s operating profit rose 43.8% higher on a like-for-like basis to 3.41 billion euros, above a company-compiled consensus for 3.30 billion, but still below the pre-pandemic 2019 level.
($1 = 0.8804 euros)
(Reporting by Philip Blenkinsop; Editing by Muralikumar Anantharaman and David Holmes)
Source: One America News Network
