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Heineken N : 2021 AGM Q&A

04/23/2021 | 07:16am EDT




Publication: 22 April 2021

Time: 12:00 uur


This document captures the questions received from shareholders and the answers prepared by Heineken N.V. The questions relate to the agenda items of the Annual General Meeting of Shareholders. The Company will aim to discuss as many of these questions during the meeting. The following shareholders submitted questions:

  • Mrs. M. Kruitbos on behalf of MN, asset manager of amongst others PMT, PME and Pensioenfonds Koopvaardij. These questions are also asked on behalf of NN Investment Partners and Robeco
  • Mr. E. van den Hudding on behalf of Vereniging van Effectenbezitters (VEB submitted two statements which are included as well)
  • Mrs. A. Laskewitz on behalf of VBDO
  • Mr. P. Spanjer
  • Mr M. Monkau


Agenda item 1a

Report of the Executive Board for the financial year 2020

....................... 3

Agenda item 1b Advisory vote on the 2020 remuneration report ..................................


Agenda item 4a

Re-appointment of Mr. M. Das as member (and delegated member) of the

Supervisory Board...................................................................................................


Page 2 of 12

HEINEKEN answers in green

Agenda item 1a Report of the Executive Board for the financial year 2020

Questions received from Mrs. M. Kruitbos on behalf of MN, asset manager of amongst others PMT, PME and Pensioenfonds Koopvaardij. These questions are also asked on behalf of NN Investment Partners and Robeco

1. In het jaarverslag wordt zichtbaar dat 2020 voor Heineken een zwaar jaar is geweest. Het voelt zich daarom genoodzaakt om 2 miljard euro te bezuinigen. Als onderdeel hiervan wordt momenteel een forse reorganisatie uitgevoerd waarbij 8000 banen zullen verdwijnen. Een groot deel van de bezuinigingen zal worden geherinvesteerd in het herstellen van het marketing- en verkoopniveau op (minimaal) het niveau van 2019. Vorig jaar gaf Heineken aan dat het zich in het licht van de pandemie tot het uiterste zou inzetten gedwongen ontslagen te voorkomen. In hoeverre acht u de uiteindelijke beslissing voor een grootschalige ontslagronde proportioneel, kijkend naar de aangekondigde investeringen? (submitted in Dutch)

Answer: On 8 April 2020, at the start of the pandemic and while there was much uncertainty, HEINEKEN wanted to provide security to its employees and committed to no structural layoffs during 2020 as a result of COVID-19. As the crisis unravelled, HEINEKEN has been affected severely and disproportionately relative to its peers in the beverage sector, given its geography and channel mix. As such the reorganisation has been inevitable but it is very difficult to let our colleagues go. The largest part of the gross savings of €2 billion will help offsetting significant cost pressures coming from inflation, rising commodity prices and significant transactional currency effects.

2. Tijdens onze jaarlijkse dialoog in aanloop naar deze AVA, spraken wij over de Say on Climate-campagne - een initiatief waarbij beleggers bedrijven vragen hun klimaatplannen ter goedkeuring voor te leggen aan aandeelhouders op de AVA. Wij zien dergelijke plannen met enthousiasme tegemoet, omdat we geloven dat een Say on climate bedrijven stimuleert het duurzaamheidsbeleid concreet te maken en transparant te rapporteren over de voortgang. Hoe staat u tegenover de mogelijkheid om de klimaatplannen van Heineken, conform het Say on Climate-initiatief periodiek voor te leggen aan de AVA? Heeft u plannen de klimaatstrategie voor te leggen op de AVA van 2022? (submitted in Dutch)

Answer: We are looking at all aspects and following these developments during the 2021 AGM season with much interest as these will inform our position towards say on climate for the future

Page 3 of 12

Questions received from Vereniging van Effectenbezitters

3. In the five years before the corona pandemic, net revenue grew organically by an average of 5 percent per year. In its new strategy Heineken aims for 'superior' top-line growth. What does Heineken envision as a sustainable organic growth rate in the medium term?

Answer: We have qualified our top-line growth of 5%, during 2015-2019, as superior, as this places us in the top quartile amongst FMCGs. The growth of our business is heavily dependent on the performance of the overall economy. So while we do not provide an absolute figure of what that growth could be, we do have a relative sense of what we are aiming for. We are naturally a GDP+ or a GDP++ growth company and in that context we aim to deliver a superior top-line growth relative to the FMCG space.

  1. Heineken has seen the costs for non-returnable packaging rise sharply in absolute and relative terms to net revenue in previous years. How does Heineken address the margin dilutive effect of this cost item?
  2. Heineken refers to the premiumisation trend as part of the explanation for the higher costs of non-returnable packaging. Heineken's gross margin has not expanded, appearing the company is unable to pass on these higher input costs to customers through higher prices? Are prices of premium beers high enough to offset the higher cost of non- returnable packaging?

Answer to 3 & 4 combined: The increases we observe on the costs of non-returnable packaging are indeed associated with a shift in our mix from returnable packaging to non- returnable. They also very much relate to increases in commodity prices, transactional currency costs and in general our premiumisation strategy which uses more expensive packaging materials per litre. The main levers to offset these cost pressures are precisely pricing and premiumisation. Premium propositions sell at a higher price and better margins (even though of course you have to give it a bit of time for margins to increase when you launch new products). Over the past few years there have also been other effects, for instance the acquisition in Brazil which impacted margins in 2017 and 2018 as well as the exceptional transactional foreign exchange impact in 2020 and 2021.

6. Every year substantial investments are required to maintain and further grow Heineken's brand portfolio. However, marketing and sales as a percentage of revenue decreased from 13.4 percent in 2015 to 10.4 percent in 2020. Is Heineken spending enough to grow sustainably in the future, and what specific actions is the company taking?

Answer: If you look further back in time, we increased that percentage by 120 bps between 2010 and 2016, and then decreased it back by pretty much the same percentage between 2016 and 2019 (excluding the effect of IFRS 15). Of course 2020 is an atypical year, with lockdowns in many markets and significant cost mitigation efforts. First of all, if you look at our top-line growth it is a good proof that we have supported our brands adequately in the past. Now moving forward, we do not want to see that kind of

Page 4 of 12

decreasing trend in investments. Steady investment behind our brands provide for good brand health, resulting in pricing power also in markets where we are not the market leader (see for example the two price increases in Brazil in 2020).

7. In the past year, Heineken achieved an operating profit margin (beia) of 12.3 percent. Heineken stated that it was aiming for a margin of 17 percent by 2023. Looking at the realized operating margin during the five years pre COVID-19, is this objective ambitious enough?

Answer: The margin in 2020 was disproportionally impacted by the proportion of our business coming from countries heavily impacted by the Covid-19 crisis (for instance Mexico and South Africa where business as closed for weeks and months) as well as our strength in the on-trade in Europe. Moving forward, it is indeed important to restore the margin to the level of before the Covid-19 crisis, so at around 17 percent which we aim to do by 2023. In terms of timing a lot will depend on the pace and shape of the top-line recovery. We are doing this in a context of continued volatility due to Covid-19 with economies that are still deteriorating as a fallout from the pandemic. This is impacting consumer income and thus, the related uncertainty on top-line recovery.

At the same time, there is a significant increase in transactional foreign exchange and inflation at least for 2021. Therefore, we are very focussed on what we can control: building our continuous productivity improvement capability starting with the €2bn gross savings ambition and at the same time stepping up our investment behind our digital transformation, our sustainability ambition and of course our brands. Based on all of this we have formulated our overall ambition to recover to 17% margin and from there gear for operating leverage.

8. To what extent does a lack of scale of Heineken in countries in Africa and Latin America play a role in the operating profit margin lagging competitor AB InBev?

Answer: Of course, scale plays a role in general and it is true to say that strong market share in a few very large markets can drive a structural margin difference. It has always been our strategy to win with strong brand equity and recognition of our strong partnerships with our customers.

9. Within the regions the margin in Asia Pacific (in particular Indonesia and Vietnam, together over half of Asia Pacific sales) is far above the Heineken group. Is this high operating profit margin sustainable in the medium term?

Answer: Our margins in Vietnam are not only driven by market share but also by our strong position in the premium segment and the high efficiency of our operations. Much of Vietnam's success as a major margin and growth contributor to the group was due to investments made 5-10 years ago (and patience). This is the benefit of being a family controlled business as it allows to invest today with longer term growth ambitions in mind. We also continue to invest for the future and are now building our mainstream portfolio with Larue and Bia Viet, growing into secondary cities and rural areas. The

Page 5 of 12

This is an excerpt of the original content. To continue reading it, access the original document here.


Heineken NV published this content on 22 April 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 23 April 2021 11:15:01 UTC.

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