Heineken: A Reopened Europe Gives Beer Volumes a Kick in the Right Direction

Written by: Matt Britzman, Equity Analyst | Hargreaves Lansdown

Heineken reported Q1 underlying net profit of €417m, compared to €168m in 2021. That was driven by a 24.9% increase in underlying net revenue, as bar and restaurant sales returned in Europe and higher pricing benefited all regions.

Beer volumes grew 5.2% to 56.4 million hectolitres (mhl). Growth was seen across all regions, especially Europe, where the group lapped a weak comparable period last year due to restrictions.

Despite warning on “significant additional inflationary headwinds”, outlook for 2022 remains unchanged and the group expects to deliver modest improvements in underlying operating profit margin.

On the 28 March 2022, the group announced plans to cease operations in Russia and transfer ownership of its business. There’s expected to be a non-cash exceptional charge of around €400m as a result.

The shares were up 3.5% in early trading.

The main takeaway today, and the reason markets have reacted positively, is the resurgence of beer drinking in Europe following restrictions seen last year. A 46.1% increase in European beer volume was welcome news and bodes well for the rollout of new products in the region like Heineken Silver which are key growth drivers as part of the group’s new strategy.

More broadly, the shift in consumer behaviour to favour more premium beers is a trend Heineken’s well placed to manage with a strong list of premium brands from Moretti to Desperados, not to forget the obvious name. And it’s a good job too because cost inflation lingers and raising the price on premium products won’t be met with as much consumer kickback as it would on a value offering. The other benefit is purely from a margin standpoint, premium brands are more profitable and we’re seeing the benefit in the premiumisation shift already with revenue per hectolitre up 18.3%.

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