The month of March drove down Heineken’s Q1 Beer volume. Q2 is expected to be worse and no major improvements are expected in H2. A dark year for the brewers. The strong balance sheet and liquidity protect the business’s continuity but have not spared the interim dividend.
Having faced an unexpected slowdown in profitability due to significant input cost inflation, and finally downgraded its profit guidance in October, Heineken reported a pretty good set of FY19 results. The figures were pushed up by a strong Q4 vs. Q3 figures (especially on volume: +4.1% vs. +2.3%). Concerning the bottom line, we see input costs providing some gentle relief on margins for FY20 compared to FY19. While 2019 was Carlsberg’s year, we should expect that 2020 should be Heineken’s one. Let’s see.
Unimpressive Q3 and FY19 operating profit guidance at the low end of the previously given range (4% expected vs. mid single-digit previously). However, in our view, not so bad, as we expected a worse scenario. New growth target already included in the consensus.
While the top-line remains strong, aluminum prices and bad European weather unexpectedly hit the operating profitability of the group. We will downgrade our expectations for the year.
Despite the later timing of Easter, Heineken reported Q1 volume growth beating analysts’ expectations (+4.3% organically, vs. +3.3% expected).
Our concerns following the H1 profit warning of Heineken have been swept by its highly reassuring FY18 results. The Heineken brands continue their expansion and the premium/craft brands are still growth drivers.
We are confident of the company’s ability to reach its FY19 guidance.
Q3 trading update: Beer volumes grew organically by +4.6% (consensus +4.3%).
Volumes by region: Africa, ME & EE +3.1%, the Americas +8.1%, Asia Pacific +4.8%, Europe +2.2%.
Heineken brand’s volumes grew by an impressive +9.2% in Q3 driven by Brazil, South Africa, Russia, Poland, the UK, Canada and Mexico.
FY guidance is maintained.
The guidance cut comes as the main disappointment. On the top-line side, the H1 results seem to be running well.
Q1 update: Consolidated beer volume was up +4.3% (cons. +4.8%). Heineken brand volume was up a strong +8%.
Organic beer volume performance by division: Africa, the Middle East and Eastern Europe +6.1% (cons. +7.8%), Americas +6.8% (cons. +4.1%), Asia Pacific +11.3%, Europe -1.7% (cons. +1%).
By most important markets, Nigeria saw beer volume decline by a high single-digit. This performance was more than offset by a strong Russia, South Africa, Ethiopia and Ivory Coast all of which posted double-digit growth. Mexico was up by a high single-digit. Brazil was up double-digit. Vietnam performed well with beer volume up double-digit. Europe posted a weak quarter due the colder than normal weather: UK volumes were down by a mid single-digit, the same for Poland and the Netherlands (on the back of reduced promotional activity). The group highlighted the weak US beer market.
The group finished the year with strong Q4 results, driven by Asia, Africa ME& EE and Mexico.
Although the FY18 guidance is somewhat below our estimates, we see the underlying business as solid. We keep our Add recommendation.
Q3 trading update: Beer volumes grew organically by +2.5% (consensus +2.8%).
Volumes by region: Africa, ME & EE +8.8% (cons. +3.5%), the Americas +2.9% (cons. +4.7%), Asia Pacific +12.2% (cons. +9%), Europe -2.8% (cons.-0.5%).
Heineken brand’s volumes grew +3.4% in Q3 driven by Brazil, South Africa, Russia and Mexico.
The FY guidance is maintained.
H1 update: Organic revenue is up +5.7% (cons. 4.2%) with beer volumes up +2.6% (cons. 1.8%, Q2: +4.2%) and revenue per hl up +3.4%. On a reported basis, sales were up +3.8% in H1, whereas the operating margin beia expanded to 17.2% (+34bp) in spite of margin contraction in Africa (-190bp due to the Nigerian naira but up on an organic basis).
OG by region: Africa, ME & EE +11.5% (driven by stronger pricing), the Americas +6.3%, Asia Pacific +4.5%, Europe +3.6%.
The Heineken brand’s volumes were up +3.9%.
The group expects that the Brazilian Kirin assets will be margin dilutive by c.40bp in 2017 (the margin for the whole group is expected therefore to be flat). The transaction is expected to cover its cost of capital in Brazil in approximately 5 years. The Punch Taverns deal is expected to close in August 2017.
Q1 update: consolidated beer volume was up +0.6% (cons. -0.7%). Heineken brand volume was up +2.5%.
OG performance by division: Africa, the Middle East and Eastern Europe -0.4% (cons. -3%), Americas -0.7% (cons. 0%), Asia Pacific +5.4% (cons. +2%), Europe +0.5% (cons. -1%).
By most important markets, the group highlighted the difficult conditions in Nigeria (volume was down mid single-digit) and Brazil (volume down double-digit due to macro-economic weakness). UK volume was down, impacted by the partial delisting from Tesco. On the other hand, Mexico performed strongly (volume was up mid single-digit). Vietnam was up low single-digit (impacted by the timing of the New Year), whereas Cambodia was up double-digit.
The FY guidance remains unchanged. The acquisition of Kirin’s assets is expected to close in H1.
Heineken FY and Q4 update: In Q4, beer volumes increased +2.2% (in line with Q3). Q4 organic volumes by region: Africa, ME& EE +0.6%, Americas +2.8%, Asia Pacific +17.8% (very strong performance), Europe -2.5%.
For the FY, beer volume was up +3% (in line with consensus) whereas revenue grew organically +4.8% (cons. +3.7%). Revenue growth per hl was up +2.2%. The organic operating profit was up +9.9% (Cons. +6.6%).
On a reported basis, net revenue was up +1.4%, whereas operating margin (beia) was up 50bp (better than expected) to 17%.
For the FY17, the group expects volatile market conditions and a negative impact from FX. The operating margin should progress 40bp excluding the recent acquisitions in Brazil and the UK and unforeseen large macro-economic changes.
The proposed dividend is €1.34 (vs. €1.30 last year).
Heineken’s Q3 trading update: beer volumes grew organically by +2% (consensus +1.4%, vs. 1.8% in Q2).
Volumes by region: Africa, ME & EE –3.6% (cons. -3.3%), the Americas +3% (cons. +3.6%), Asia Pacific +15.1% (cons. 12%), Europe +0.6% (cons. 0%).
Heineken brand volumes grew +3.5% in Q3 (improvement vs. Q2) driven by China, South Africa and Brazil.
For the FY, the company expects a currency headwind of c. €215m on the consolidated operating profit (beia) and c. €115m on the net profit. The FY guidance is maintained: further organic revenue growth and a margin expansion of 40bp.
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Much has been written about the effects of the virus on the world and on the stock market. Here is one analyst’s take on some of the likely impacts on the way we should look at companies. This article was originally produced as a blog, “10 Changes Post Virus”, which was published a few weeks ago.
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FY20 started well, with value share gains in GB, Ireland and Brazil. As expected, lockdown has affected out-of-home and on-the-go consumption in particular. Conversely, sales of at-home consumption packs have increased significantly, thus leading to an adverse mix effect. GB and Ireland have been the most affected markets for Britvic, as they have a greater exposure to the out-of-home channel. The company is maintaining its guidance of a likely monthly impact from the COVID-19 pandemic of £12–18m adjusted EBIT, though its scenarios seem very conservative.
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Much of the UK’s privatisation programme took place between the early 1980s and the mid-1990s: subsequent sales have been few. Undoubtedly, privatisation attracted many private investors to the market, many for the first time.
Companies: AVO AGY ARBB ARIX BUR CLIG DNL FLTA GDR NSF PCA PIN PXC PHP RE/ RECI RMDL STX SCE SIXH TRX SHED VTA
Whilst Finsbury is experiencing strong demand from the retail channel, the food service channel (c20% of FY19A revenues) has been significantly impacted by the government's decision to close food outlets in order to control the spread of COVID-19. Finsbury is only in the early stages of assessing the impact of the virus on their business, and as such, is unable to provide earnings guidance. We withdraw our forecasts and place our rating Under Review, until visibility improves.
Companies: Finsbury Food Group
There has been much comment on the fact that equity markets in the US and Europe have been shrinking for some years now, certainly in terms of the number of quoted companies, if not in total market capitalisation (MCap). This paper has been written with the assistance of the Quoted Companies Alliance (QCA) and focuses on the evidence for such in the London market and, in particular, that for smaller and midcap companies. It assesses that evidence and considers explanations. Finally, we ask why it matters, and assuming that it does, what practical steps can be taken to reverse the trend. Successful public markets have been a key part of the United Kingdom’s economic success for generations, even centuries, and we should not allow them to wither on the vine.
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FY20 started well, with value share gains in GB, Ireland and Brazil. As expected, lockdown has affected out-of-home and on-the-go consumption in particular. Conversely, sales of at-home consumption packs have increased significantly, thus leading to an adverse mix effect. GB and Ireland have been the most affected markets for Britvic, as they have a greater exposure to the out-of-home channel. The company is maintaining its guidance of a likely monthly impact from the COVID-19 pandemic of £12–18m adjusted EBIT, although its scenarios seem very conservative.
Most major pharmaceutical companies have reported results for 2016 during the last few weeks, providing the opportunity to update our industry statistics. For an industry that requires a long investment cycle, decisions made many years ago have consequences on current financial performance. Being able to look at performance over 20 years highlights how strategic decisions have panned out.
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This month’s feature article is the first publication of the 2017 global pharmaceutical industry statistics from which the global and US rankings of the top 15 drug companies are derived. Comparisons are made with historical data to show how different company strategies have evolved. In addition, an analysis of the evolution of biopharmaceuical drugs has been made, together with a key sub-set, namely drugs derived from antibody technology, which now represent 12% of the entire market. Two more drugs joined the $100bn club in 2017.
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Britvic (BVIC) has successfully managed two potential threats – the Soft Drinks Levy (SDIL) and the industry CO2 shortage – to confirm modest earnings growth prospects for FY18. The recent heatwave might otherwise have driven outperformance. But with redirected marketing driving double-digit stills growth, the position was held. Looking forward, as BVIC’s business capability programme completes and benefits start to flow, more meaningful earnings growth may narrow the discount to peers.
Premier Foods’ H119 results demonstrate the business has become more resilient under the stewardship of outgoing CEO, Gavin Darby. Revenue growth of 1.0% in Q2 despite the hot summer was encouraging, and the UK relaunch of the Mr Kipling brand has clearly gone well. The news that Ambrosia may be sold suggests yet another step in the business transformation, although the price will determine the level of dilution and any change to net debt/EBITDA.
Companies: Premier Foods
Hotel Chocolat provides double-digit compound earnings growth from disciplined roll-out alongside a highly accretive digital model. The capture of efficiencies from the well-invested vertically integrated supply chain will be a key profit driver.
Companies: Hotel Chocolat Group
Since their privatisation in 1989, the 10 water companies have faced a periodic review every five years; it is undertaken by Ofwat, and prescribes customer prices, along with the investment requirements. As part of the ongoing review, PR19, Ofwat will publish its Final Determination numbers on 11 December 2019; they will apply as from April 2020, although water companies do have the option to seek a reference to the CMA.
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In FY19 Britvic delivered a strong performance showing good momentum in its core business. The GB business had both Britvic and PepsiCo brands showing revenue growth, Brazil continues to grow and problems in France are being addressed with a proposed exit from private-label juice. The Business Capability Programme (BCP) is complete, and cost savings delivered ahead of schedule. The outlook is somewhat cautious as the consumer environment remains tough, and changes in France will take a while to fully implement. Notwithstanding this, management expects to make further progress in FY20.
Venture Life Group announced it has agreed to acquire PharmaSource BV, a company which operates in similar markets to Venture Life and is based in the Netherlands. Venture Life will pay an initial consideration of €5.23m and a deferred contingent consideration of up to €1.27m, funded entirely from the company's cash reserves. We see a number of strong benefits from the acquisition, including wider distribution, potential cross-selling, future manufacturing benefits and operational cost synergies. The company has also announced a trading update, noting its results for FY19 have been affected by previously noted issues with its Chinese distribution partners. We maintain our Buy recommendation.
Companies: Venture Life Group