Heineken HEIN.AS has 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.
COVID-19, Inflation And Supply Chain Pressures Impact
The world's second-largest brewer said that the COVID-19 pandemic will still affect 2022 revenue, with a protracted recovery in bar trade in Europe, and said that the impact of inflation and supply chain pressures will be significant.
Price Increases
The maker of brands including Tiger, Sol and Strongbow cider - as well as Heineken, Europe's top-selling lager - said that it will offset input cost increases with higher prices, but this could lead to lower beer consumption.
Chief executive Dolf van den Brink said that 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."
Statements By Bernstein Securities Analyst
Bernstein Securities analyst Trevor Stirling said that 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.
Input Costs
The Dutch brewer said that input costs will 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.
Operating Profit Margin Expectation
It said that it expects its operating profit margin in 2022 to be equal to or modestly above the 15.6% achieved in 2021.
Pretty Confident On Outlook For Rest Of The Year, Less Clear On 2023
Van den Brink said that the company is pretty confident on the outlook for the rest of the year, but is less clear on 2023.
"Increased Uncertainty"
Heineken is still aiming for an operating profit margin of 17% in 2023, but there is "increased uncertainty" given inflation and its impact on consumer spending. Heineken plans to update its 2023 guidance later in the year.
Cost-Saving Programme
Heineken launched a €2 billion cost-saving programme a year ago to boost margins by 2023, with the €1.3 billion achieved to date already swelling profits.
Beer Sales And Net Revenue
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%
Operating Profit
The company's operating profit rose 43.8% higher on a like-for-like basis to €3.41 billion, above a company-compiled consensus for €3.30 billion, but still below the pre-pandemic 2019 level.
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