As Heineken’s beer volume declined organically by 1.9% in the third quarter, Heineken’s new Chairman of the Executice Board and CEO Dolf van den Brink, who took over in June, is “exploring how to accelerate and expand [the] sources of growth while simplifying and right-sizing [the] cost base.” As part of this ambition, Heineken will “streamline [its] head office and regional offices with an expected reduction of around 20% in related personnel costs”. Implementation will begin in the first quarter of 2021.
Heineken employs more than 85,000 people globally. The brewing group has its head office in Amsterdam and local offices around the world, where it employs around 1,700 office staff.
The impact and timelines of restructuring in Heineken’s local operations will vary depending on the specific circumstances of each operating company. The company announced that this process will be in close collaboration with Heineken’s employee representatives (group works council and labour unions).
On Wednesday, Heineken released its results for third quarter which was still widely affected by the COVID-19 crisis in all geographies. The on-trade remained affected by restrictions to operate and some important markets like South Africa and parts of Mexico faced bans on the sale of alcoholic beverages.
While Heineken’s total beer volume declined, volume sales of the Heineken brand continued to outperform the overall category and grew by 7.1% in the quarter and 1.0% for the first nine months of the year. Volume grew double-digits in more than 25 markets including Brazil, China, the USA, Nigeria, Singapore, Poland and the UK.
Heineken® 0.0 grew double-digits with a particularly strong performance in Brazil, Mexico and the USA. This year Heineken® 0.0 was introduced to 11 new markets, including Vietnam, and is currently being sold in 69 markets.
Beer volume in the region Africa, Middle East & Eastern Europe declined organically by 2.5% in the quarter, a sequential improvement across all key markets versus the previous quarter. The premium portfolio declined by a high-single-digit as the decline in South Africa off-set growth across most markets.
- In Nigeria, beer volume grew in the high-teens, ahead of the market. The non-alcoholic portfolio grew in the mid-twenties and the premium portfolio grew by more than half.
- In Russia, beer volume increased by a low-single-digit and cider volume by double-digits. The low- and non-alcoholic portfolio grew by a mid-single-digit.
- In South Africa, total consolidated volume declined in the forties due to a nearly five-week ban on selling alcoholic beverages. Heineken® 0.0 continued to grow strongly.
- In Ethiopia, beer volume declined in the high-teens, following the steep price increase in mid-February after the tripling of excise duty. Premium volumes continued to grow double-digits driven by Bedele Special.
- In Egypt, beer volume declined in the mid-teens, driven by lower tourism.
Beer volume in The Americas increased organically by 2.5% in the quarter due to the premium portfolio's strong performance, partially off-set by the impact of government measures in some regions and cities.
- In Mexico, beer volume declined by a mid-single-digit due to the dry laws, particularly in the Southeast, and stock-outs caused by restrictions on brewing operations at the start of the quarter. The premium and low- and non-alcoholic portfolios increased by double-digits, led by Amstel Ultra and Heineken® 0.0 respectively.
- In Brazil, beer volume grew in the low-teens. The premium and mainstream portfolios grew by double-digits, with Heineken® growing by more than half and the continued momentum of Devassa and Amstel. The economy portfolio grew slightly. Non-beer volume declined in the low-twenties.
- In the USA, beer volume increased in the low-teens as distributors replenished inventories and the on-trade showed some signs of recovery. Sales-to-retailers of Heineken® were back to growth driven by both Heineken® Original and Heineken® 0.0. Lagunitas declined in the low-teens due to its high exposure to the on-trade.
Beer volume in the Asia Pacific region declined organically by 12.3% due to lower volume in Vietnam and the continued declines in other key markets affected by recurring lockdowns, the lack of international tourism and increasingly negative consumer sentiment. The premium portfolio declined in line with the overall portfolio in most markets.
- In Vietnam, Heineken continued to outpace the market while beer volume declined by a high-single-digit following the second wave of COVID-19 restrictions and the price increase at the end of June. The company has reached the position of market leader this year, driven by the success of the expansion strategy and the solid momentum of innovations including Heineken® Silver, Heineken® 0.0 and local beer brand Bia Viet.
- In Cambodia, beer volume declined in the high-thirties following a steep increase of promotional activity in the market and by economic conditions affected by the rise in unemployment from the tourism, garment export and construction industries.
- In Malaysia, beer volume declined in the mid-teens, an improvement versus the previous quarter as the on-trade gradually recovered. Since mid-October the government has imposed new movement restrictions and closed part of the on-trade again.
- In Indonesia, beer volume declined in the mid-double-digits as a second lockdown was imposed impacting the on-trade and consumption from international tourism remained absent. Beer volume in Bali declined by close to 80%.
- In South Korea, beer volume increased in the mid-thirties driven by improved penetration and distribution of new brands and line extensions.
- In China, Heineken is into the second year of its strategic partnership with China Resources Beer (CRB). Heineken® grew by strong double-digits as it continues to be rolled-out throughout CRB’s strong route-to-market, entering new channels and the successful introduction of Heineken® Silver.
Beer volume in Europe declined organically by 2.4%, driven by a decline of around 20% in the on-trade. The off-trade grew by a high-single-digit, ahead of the market across most countries. Third-party volume declined by 16.1% as wholesale operations continued to be impacted by outlet closures. The premium portfolio continued to outperform in the off-trade. Non-alcoholic propositions grew low-single-digit driven by Heineken® 0.0.
- In the UK, total consolidated volume was down by a low-single-digit. Beer volume returned to low-single-digit growth with double-digit growth in Heineken®, Birra Moretti and Sol. Beer volume declined in the high-twenties in the on-trade overall with a similar performance in our Pub estate. Beer volume grew in the high-twenties in the off-trade, ahead of the market.
- In France, beer volume was flat during the quarter as the mid-teens decline in the on-trade was off-set by mid-single-digit growth in the off-trade. The premium portfolio grew in the low-teens driven by Desperados and Affligem.
- In Spain, beer volume declined in the low-teens driven by a decline in the on-trade in the mid-twenties, partially off-set by high-single-digit growth in the off-trade. Low tourism and regional lockdowns impacted the summer months.
- In Italy, beer volume increased by a mid-single-digit, outperforming the market, with high-single-digit growth in the off-trade partially compensated for by a low-single-digit decline in the on-trade. The premium portfolio grew around 10% with a continued strong performance from Ichnusa and Messina.
- In Poland, beer volume grew by a mid-single-digit, ahead of the market, supported by the strong growth of Heineken® and Desperados.
- In the Netherlands, beer volume was down by a mid-single-digit driven by a decline in the high-twenties in the on-trade. The off-trade grew by a high-single-digit driven by Heineken® and Affligem, outperforming the market.
The reported net profit for the first nine months was €396 million (2019: €1,667 million). Continued cost mitigation actions partially mitigated the impact from lower volume, adverse product and channel mix and incremental expenses driven by the crisis, including credit losses and impairments on tangible and intangible assets.
Concerning the business outlook, the COVID-19 pandemic will continue to have a significant impact on Heineken’s markets and wider business in 2020. In April, the company withdrew all guidance for 2020, given the lack of visibility on the duration of the pandemic's impact. Consequently, Heineken is only able to share directional information for the remainder of the year.
Although Heineken has observed a recovery over the summer, continued volatility is expected for the fourth quarter, as many markets experience additional waves and the corresponding restrictions, including on-trade closures and crisis-related economic consequences. Currently, new restrictions have been imposed by governments across many countries in Europe, including a full closure of the on-trade. In Asia Pacific, new restrictions are also in place in Malaysia, Myanmar and Sri Lanka.
Product and channel mix is expected to continue to adversely impact results, especially in Europe, as the on-trade remains more affected than the off-trade. Input costs per hectoliter are expected to be significantly higher than last year.
Mitigation actions will continue for the remainder of 2020. Heineken is reducing all discretionary expenses while providing sufficient support behind its brands and route to markets. In the second half of last year costs were skewed towards the third quarter, so the benefits of the mitigation actions will be lower in the fourth quarter.
Most of the company’s non-committed supply chain CAPEX remains suspended, while commercial CAPEX has resumed where it is required to support the current and future top-line growth.The relative effect of permanent items in the income tax line will be less adverse in the second half than in the first half due to a higher profit before tax base.
Given the uncertainty in profit estimations for this year it is not possible to provide a reliable estimate of the translational currency impact. This year many currencies have depreciated versus the Euro, most notably the Mexican Peso and the Brazilian Real.