Heineken questions 2023 margin target as inflation climbs

The Heineken logo is seen at the company building in Sao Paulo, Brazil April 30, 2019. Picture taken April 30, 2019. REUTERS/Amanda Perobelli

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  • 2021 operating profit 3.41 billion euros vs consensus 3.30 billion euros
  • Intends to pass on higher costs, but could affect consumption
  • Uncertainty on the 2023 operating margin target of 17%
  • Shares rise 1.7% in morning trade

BRUSSELS, Feb 16 (Reuters) – Heineken (HEIN.AS) is casting doubt on its medium-term profit margin target due to the uncertain impact spiraling inflation will have on beer consumption, after announcing profits higher than expected in 2021 thanks to higher prices and cost savings.

The world’s second-largest brewer said on Wednesday that the COVID-19 pandemic would still affect revenue in 2022, with a prolonged recovery in the bar trade in Europe, and said the impact of inflation and pressures on the chain supply would be important.

The maker of brands such as Tiger, Sol and Strongbow cider – as well as Heineken, Europe’s top-selling lager – said it would offset increases in input costs with higher prices, but that could lead to a decrease in beer consumption.

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Chief executive Dolf van den Brink said emerging markets have generally proven more resilient in absorbing price increases.

“These kind of price hikes and inflation, I don’t think we’ve seen in a generation,” he told Reuters. “The big unknown is how this will affect more developed markets that have never seen this type of price before.”

Heineken shares, which had fallen earlier in the week to their lowest level this year, were trading up 1.7% at 10:30 GMT.

Bernstein Securities analyst Trevor Stirling said the results pointed to a faster-than-expected recovery, with margins already above pre-COVID levels in Africa and the Americas, with room for improvement in Europe and the United States. Asia following lockdowns. Yet the outlook, he said, errs on the side of caution.

The Dutch brewer said input costs would rise by an average percentage rate, with barley doubling its price from a year ago and aluminum up around 50%. Energy and freight costs also rose sharply.

It said it expected its operating profit margin in 2022 to be equal to or slightly higher than the 15.6% achieved in 2021.

Van den Brink said the company was quite confident about the outlook for the rest of the year, but was less clear about 2023.

Heineken was still targeting an operating margin of 17% in 2023, but there was “increased uncertainty” given inflation and its impact on consumer spending. Heineken plans to update its guidance for 2023 later this year.

Heineken launched a 2 billion euro cost savings program a year ago to boost margins by 2023, with the 1.3 billion euros made to date already boosting profits.

It sold 4.6% more beer in 2021 than in 2020, with increases in all regions except Asia, price increases and a shift to more expensive beers, driving a 12.2% increase % of net income.

The company’s operating profit rose 43.8% on a comparable basis to 3.41 billion euros, above a consensus compiled by the company for 3.30 billion, but still in below the pre-pandemic level of 2019.

($1 = 0.8804 euros)

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Reporting by Philip Blenkinsop; Editing by Muralikumar Anantharaman and David Holmes

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