Earnings Call: Q2 2019

Jul 29, 2019

And welcome to the Heineken Half Year Results twenty nineteen. My name is Molly, and I'll be your coordinator for today's event. For the duration of the call, your lines will be on listen only. However, there will be an opportunity to ask questions later in the call. I will now hand over to Heineken to begin today's conference. Thank you. Good morning, everyone, and thank you for joining us today for our 2019 half year results conference call. I'm joined by Jean Francois and Boxmere, our CEO and Laurence Debreu, our CFO for today's call. Following some prepared remarks and the results, we will be happy to take your questions. With that, I would like to hand over the call to Jean Francois. Thank you, Frederico, and good morning, everyone. As ever, I start on Slide 2. Our top line performance was again strong in the first half of twenty nineteen. Organic net revenue Bayer was up 5.6% and net revenue Bayer per hectoliter grew 3% with an underlying price mix on a constant geographic basis up 3.5%. Consolidated beer volume grew 3.1% and the Heineken brand grew 6.9% with Heineken 0 now available in 51 markets. Operating profit was stable as the impact of strong top line was stable as the impact of strong top line performance was largely offset by input cost inflation, whilst we increased our investment in e commerce and technology upgrades. For the full year, we continue to anticipate our profit our operating profit to grow by mid single digit on an organic basis. Net profit declined 1.2% organically as operating profit was stable and income taxes were higher. Diluted earnings per share was down 0.8%, driven by the net profit and with a small positive benefit from currency translation. Our partnership with CRE, China Resources Enterprise, became effective at the end of April, and we are pleased to have joined forces with CRE to win in China. Our strategic focus continues to be on growth with an ever increasing emphasis on the sustainability of this growth, both social and environmentally. We invest in innovation and operational excellence, so our consumers enjoy our brands and we exceed our customers' expectations, while seeking productivity improvements with seeking productivity improvements and constantly reassessing our spending behavior. And now I'll go over to Slide 3 with the regional overview, and you can see this overview of our performance with organic net revenue growth in all regions and double digit growth in Asia Pacific as well in Africa, Middle East and Eastern Europe. Price mix on a constant geographic basis was up 3.5%, driven by price increases and premiumization across all regions. Starting with Africa, Middle East and Eastern Europe. Consolidated beer volume grew 7.1% organically and pricemix was up 2% on a constant geographic basis. Performance was strong in South Africa, Russia, Ethiopia, the DRC and Egypt with double digit growth in net revenue. In Nigeria, our premium and mainstream portfolios grew double digits. Regional operating profit was up 1.9%. In the Americas, consolidated beer volume was up 2.9% organically with growth in Mexico and Brazil, which more than offset lower volumes in U. S. And Haiti. Price mix on a constant geographic basis was strong at 6.6%, mainly coming from Mexico and Brazil. In Mexico, beer volume grew low single digit and the Heineken brand continued to deliver double digit growth. Amstel Ultra is showing promising results there. Now in Brazil, the Heineken brands, Amstel and Tevasa grew high double digit, whilst the economy portfolio declined high single digit following a price increase. We turn to the United States. Beer volume declined mid single digit and the Heineken brand was flat including some benefits from the introduction of Heineken 0.0. Operating profit for the Americas was down 1.7% organically as growth in Mexico and Brazil was offset by the U. S. Due to its lower volumes and the phasing of marketing spend. In Asia Pacific, consolidated beer volume grew 10.4%, with double digit growth in Vietnam and Cambodia. Pricemix was up 1.9% on a constant geographic basis. In Vietnam, we continue to grow strongly on the back of a growing beer market and the execution of our expansion strategy led by Tiger and Larue. In Cambodia, beer volume grew double digit driven by Tiger and Heineken. The region overall delivered organic operating profit growth of 16.3%. And finally, in Europe, consolidated beer volume declined 1.5% organically due to poor weather and a challenging comparable base in the Q2. Despite challenging pricing conditions in the retail market in Europe, pricemix was up 2.4% on a constant geographic basis, driven by premiumization and our value strategy in the off trade. In the U. K, beer volume increased slightly driven by the premium portfolio led by the Heineken brand, beer Amoretti and our low and no alcohol propositions. In France, beer volume was down low single digits, although our craft and variety portfolio grew double digit, led by Apligum and Lagunitas. In Italy, beer volume was up mid single digit driven by Ichnusa. Spain declined slightly with growth in the entree offset by a partial delisting at a large retailer. In the Netherlands, beer volume slightly declined, whereas our low and no alcohol portfolio grew mid single digit, led by Heineken 0.0. Overall, the regional operating profit declined by 5.7% due to the lower volumes and to increased investments in e commerce and technology upgrades. Turning on Slide 4. The Heineken brand kept its momentum with organic volume growth of 6.9% and growth in all regions. Brands grew double digit in Brazil, Mexico, South Africa, Russia, the U. K, Nigeria, Germany, Romania and Portugal among others. Heineken 0 is now available in 51 markets and continues to gain traction. Turning to slide 5, I would like to reflect on other drivers of our strong top line growth. Our portfolio of international brands grew high single digit driven by the double digit growth of Pallor in Vietnam and Cambodia and Amstel in Brazil, Mexico, South Africa, Russia and the UK. Our craft and variety beers grew low single digit. African grew double digit in France and the Netherlands. And we continue to roll out Lagunitas with encouraging performance. Volume of our low and no alcohol portfolio increased high single digits delivering 6,900,000 hectoliters. 48 of our brands have now a non alcoholic version. Cider volume rose 2.1 percent to 2,600,000 hectoliters. Volume increased double digit outside the U. K. With strong growth in South Africa, Russia, Vietnam and Spain. Cider is now produced locally in 14 markets, including Vietnam and Mexico. The Blade, our countertop draft system has been rolled out into 22 markets with a range of 26 brands. We continue to deploy our e commerce initiatives. And at the end of June, our digital B2B platforms are operational in 12 markets, and we have 2 digital B2C platforms in deployment mode: Beerwolf, which is our online beer store in Europe and Drinkies, which is our home delivery beer service. Moving to Slide 6, we continue our progress towards our brewing better world targets. In March, we launched our 2,030 every drop water strategy. This supports UN Sustainable Goal 6 dedicated to protect water resources. Our focus is on community impact and to develop healthier watersheds. In 2008, we needed 5 liters to make 1 liter of beer. Today, on average, for every liter of beer, we use 3.5 liters, a reduction of 30%. Of our 170 breweries around the world, 26 are in water stressed areas. We are developing a contextual approach with individual targets for each brewery in water stressed areas and prioritizing the most relevant actions for each local watershed. We continue to progress with Drop the Sea, our carbon emission reduction program. Compared to 2,008, our relative CO2 emissions from production are down 47%, ahead of our 2020 goals and 4% lower in absolute terms despite an increase of production volumes of 81%. We now have 12 biomass facilities operational after successfully completing projects at the Itu Brewery in Brazil and the Schlabming Brewery in Austria. The latter is now 100% powered by renewable energy. Heineken continues to invest in local sourcing projects in Africa. Most recently, we introduced new projects in Burundi, the DRC, Rwanda and Sierra Leone. In Ethiopia and South Africa, we are working with suppliers to expand mounting capacity to process local barley. And with that, I would like to hand over to Laurence. Thank you, Jean Francois, and good morning, everyone. So let's turn now to Slide 7 and the financial overview of the first half of twenty nineteen. Looking at the net revenue by year of €11,400,000,000 organic growth was 5.6% with growth across all regions. Revenue per hectoliter grew 3% with an underlying pricemix effect of 3.5% on a constant geographic basis. Operating profit by year was marginally ahead of last year with 0.3% organic growth. The strong top line performance was largely offset by input cost inflation coming in at the higher end of our guidance. Meanwhile, we continue to invest in commerce and technology upgrades. And there were also some phasing in expenses, but I will elaborate on this later. Operating profit margin was down by 47 basis points from the restated base of 2018, essentially driven by the impact of increasing input costs ahead of pricemix growth. Net profit reached €1,100,000,000 down by 1.2% organically. Here, we add some benefit from lower interest rates, but more importantly, a negative impact from higher income taxes as the Netherlands, where we have a large part of our financing for the group, introduced a limitation on tax deductibility for interest charges. The country mix in our profit also played a role as well as some one off tax impacts from the first half last year. Diluted EPS beya at €1.84 ended 0.8% lower than the restated figure of last year. Note that the EPS BEIA includes the diluted effects from the sale of 5,200,000 Heineken shares to CRE as part of our agreements to join forces in China. Free operating cash flow amounted to €578,000,000 so lower than the previous year, but not a concern as we continue to make good progress in our payables. Finally, our net debt to EBITDA ratio increased to 2.9x after the execution of our transactions in China. You're aware of our commitment to stay below 2.5x, and we expect to get back there in less than 2 years. Moving now to Slide 8 and our net revenue BEIA of €11,400,000,000 Consolidation changes had a small negative impact of 0.3 percent or €35,000,000 The net negative effect of our divestment of China and of the first implementation of IFRS 16 was largely offset by the positive effects from other acquisitions. Currencies had a positive translational impact, increasing net revenue by 1% or €104,000,000 This was mainly attributable to gains in the Mexican peso, the Vietnamese dong and the U. S. Dollar, partially offset by losses in the Brazilian reais and the South African rand. On an organic basis, our top line performance delivered an increase of €600,000,000 or plus 5.6 percent. Volume growth was 2.5 percent with consolidated beer volume up 3.1%. Brazil, Vietnam and Cambodia, in particular, were key contributors to that growth. Europe, on the contrary, was negatively impacted by weather. Revenue per hectoliter grew 3%. And so as we said, the underlying pricemix on a constant geographic basis was 3.5%. We started disclosing this metric on a regional basis, so you can better appreciate the underlying trends in our pricing and mix before the dilutive impact of higher growth in developing markets, which tend to have lower revenue per hectoliter. Moving to Slide 9 and the development of operating profit via organic growth. As you can see, consolidation changes had only a very marginal impact of 0.2 percent or €4,000,000 Currencies had a positive translational impact, increasing operating profit by 2.5 percent or €44,000,000 attributable to the same currencies as on the revenues, So gains on Mexican peso, Vietnamese dong, U. S. Dollar, partially offset by losses in the Brazilian reais and the South African rand. Now coming to the modest 0.3 percent organic growth in operating profit which grew on the high end of the mid single digit guidance, up 5.6% per hectoliter on an organic basis and so more than €150,000,000 This was mainly in packaging materials from both rising prices, largely expected, and transactional FX. And of this, the largest impact was in Brazil. As discussed before, Heineken did not curb its investment behind brands and systems upgrade in the face of those short term commodity headwinds. For instance, in H1, we have continued and even accelerated the deployment of our e commerce B2B and B2C platforms. To name 1, Beer Wolf, the online beer store, is now available in 11 markets. And as you are aware, talking about new business models, you need to give most of these initiatives a bit of time, so about 18 months to 2 years, to reach critical mass in any given new market. Moving to systems upgrade. First of all, it is important to say that in a digitally connected world, the ability to have a state of the art process and system backbone brings much more than efficiency and internal control for our back office operations. It ensures that we stay relevant to our customers, for instance, by increasing our level of service and being able to deploy new capabilities at scale. In Asia Pacific and Africa, Middle East and Eastern Europe, we are continuing with the deployment of BASE, our standard ERP solution. BASE is mainly focused on our small- and medium sized operations, so it will not cover more than 20% of our revenues eventually, but it gives those operations much more speed and agility. And we're now live in 11 operations and continuing to deploy at pace. We also started a large scale business transformation program in Europe. It will involve an upgrade of our financial system to the next generation of SAP, the famous SAP S4HANA, and will deliver a new transactional backbone for about 27 markets whose financial transactions are already largely centralized in our European Financial Shared Service Center. Overall, those two investments represent more than €20,000,000 of incremental expenses compared to the first half of twenty eighteen and given their own phasing, should represent less incremental cost in the second half of twenty nineteen. Finally, the phasing of some other incremental expenses also played a role, especially those related to international sponsorship contracts. As we look into the second half, we believe revenue growth will continue to be strong, supported by good volumes as well as continued improvement in pricemix. We also, in fact, expect the impact of input cost will ease in the second half due to a lower transactional currency impact, mainly from Brazil. And therefore, we reiterate our guidance for mid single digit organic growth for operating profit, BEA. Looking now at diluted EPS, BEIA, on Slide 10. €1.84 down 0.8 percent or 0 point 0 2 dollars with a negative impact of 1.6 percent from consolidation changes, 1.2% from organic growth and 0.3% from the dilutive effect of the shares sold to CRE, partially offset by 2.3% benefit from currency translation. Let's now go to cash flow on Slide 11. Free operating cash flow reached €578,000,000 in the first half of 2019, which is EUR 331,000,000 less than in the first half of twenty eighteen. The difference comes entirely from changes in cash flow coming from working capital. If I look at the performance here, receivables and inventories moved pretty much in line with the increase in the top line. Payables continue to improve, but less than in 2018. We've previously explained our aim to bring our payment terms closer to what we consider industry standards. And last year, we made a big step in that direction. As we come closer to our objective, you can expect that the incremental gains from increasing payment terms are diminishing. Note that on a 12 months moving average basis, our payment terms improved by about 15 days versus the previous 12 months. Our collection days were stable as they grew in line with our sales, and our inventory days were even decreasing by one day. CapEx was very much in line with last year. Good to recall that the cash flows from operation also reflects a one off benefit of the implementation of IFRS 16. In Slide 12, we have included some details on the increase of our net debt to EBITDA ratio to 2.9x. As you can see here, our net debt increased to €16,000,000,000 mainly due to 2 effects: first, an amount of €1,200,000,000 from operational leases that have been brought to the balance sheet as a result of implementation of IFRS 16. That is an impact of an additional 0.1x to our ratio and second, the debt raised to finance our acquisition and essentially our transactions in China. We remain committed to return to our long term target of below 2.5x within 2 years and happy to report that in the past few weeks, both Standard and Poor's and Moody's have reconfirmed their BBB plus and Baa1 ratings with stable outlooks for our long term debt. To conclude, let me reiterate our full year outlook for 2019. As you know, our strategic focus is growth oriented. We will continue to strive for superior top line growth through a combination of volume, price and premiumization. We maintain our expectation that input and logistic cost per hectoliter will increase by mid single digits this year, And we'll continue to mitigate this by driving productivity and cost efficiencies in our operations as well as our head office, while investing to grow our brands, accelerate our digital agenda and upgrade our systems. For 2019, excluding any major unforeseen macroeconomic or political developments, we continue to expect operating profit to grow by mid single digit on an organic basis. And finally, we have updated the more technical elements of the guidance for 2019. We now expect an average interest rate there slightly below 2018, while we had said it would be broadly in line. The effective tax rate there will be around 28%, closer to the high end of the previous range, and CapEx in 2019 should be slightly above €2,000,000,000 With that, I'd like to hand back to the operator to open the floor for your questions. Thank The first question comes from the line of Edward Mundy calling from Jefferies. Please go ahead. Good morning, Jean Francois. Good morning, Laurence. Three questions, please. The first is on EBITDA improvement in the second half, which is implied in terms of your guidance. Which regions do you expect to see the acceleration? And perhaps you could provide a bit more color around that? The second is around the IT systems upgrades. I was wondering whether you could perhaps provide a bit more color on what type of return you expect to see on those from a financial perspective and when? And then the third is on Asia Pac, where your price mix on an underlying basis was up 1.9%. So it's quite a good turnaround relative to the last couple of years. I was wondering if you could provide a bit more color on where you're starting to see some improvement in your revenue per hectoliter in Asia Pac. Okay. Maybe I start with the EBITDA sources of growth. And if you look at the main impact of the transactional cost in the first half the transactional ForEx impact of on input cost in the first half, I singled out Brazil because it represents a significant part. So this, we actually expect to ease in the second half. Moreover, in terms of input cost, we also expect a lesser unfavorable impact in the second half in general. But really, talking about Brazil and the transactional currency impact is where you will to see quite a bit of transformation. Then of course, in Europe, I mean, the end of the first half, the month of June, was really marked by very bad weather. So there is some room here, which will be partly compensated by this IT Systems upgrade because this is basically where we've stepped up in the first half and will continue in the second half. If I move above the region, what you really, really see is that beyond the functional gross profit, which is where we had the most impact in the first half, In terms of cost behind our product, our brands and cost behind our system, I will insist on the cost behind the system because we really started to accelerate in Europe, in particular, in the second half of the year last year. So the basis for comparison will be quite different, which leads me to your question on IT systems upgrade. And I would hear answer separately whether you talk about business model who take a bit of time to ramp up and then have to have their own profitability. We're talking about B2C, for instance, where when you introduce a new B2C like the Beer Wolf online or Drinkies in a new country, you need to give it a bit of time to reach critical mass and then you get some return from it. And when you actually are upgrading your backbone systems where you have gains in efficiencies, but you reinvest quite a bit of these gains behind the digital development. So it is also a matter of upgrading your systems in order to deploy more advanced capabilities and then modernize the way you're doing business. And that is a permanent focus. When you actually start a new program, you have a moment of ramp up and you compare it to a period where you hadn't started, and that plays a role, but that is mainly what I would single out. And then for APAC, I don't know if the question was where have we seen improvements in the operating profit. We don't comment that much on countries because we have a lot of them. But as we report a bit, I think it's essentially in we have improved the performance in Cambodia noticeably. That's one on a difficult year the year before. So that is a positive one. And on Vietnam? On Vietnam, on the if you just look at the revenue per hectoliter, it was down in the first half of 2018 actually, yes? If you remember, there was an excess tax that we didn't pass on. And then so and it's up in the H1 2018 2019, sorry. So you also see that in the pricemix of the region, and it is it plays favorably on the pricemix of the region. And the Tiger, of course, is continuing to grow super strong, but the difference in revenue per hectoliter does play a role. So Vietnam and Cambodia are the main contributors to improvement and a flurry of other smaller ones and always something which is going wrong, but overall very strong in the APAC. Great. Thank you. The next question comes from the line of Simon Hales calling from Citi. Please go ahead. Thank you. Good morning, Jean Francois. Good morning, Laurence. 3 for me as well, please. Firstly, Laurence, perhaps I can just go back to the ongoing investment we've been seeing in new systems over the last sort of couple of years and a clear step of both internally and externally on those. How should we think about this ongoing over the next 2 to 3 years? I appreciate you're going to continue to invest in new areas to support the business. But should we expect ongoing step ups in the overall level of investments in IT? Secondly, and related to that, for fiscal 2019, do you expect to see actual margin expansion overall for the business? Or is really the mid single digit organic EBIT growth going to be driven by just top line growth only? And then finally, I know that the CRE joint venture is not really contributing in the first half of this year. But I wonder if you could talk about perhaps what's been going on in the joint venture since you completed that at the end of April. What have been the processes that are being put in place? What's been happening in the market that we're not seeing in the numbers yet, but we should look forward to seeing in the second half of the year? So I start with the ongoing investments, and this is, I mean, moving digital in a number of business model and the way we engage with consumer and customers is part of the way of doing business. So in some cases, for instance, we do more digital engagement in terms of commerce and in terms of how we engage with our consumers. And you haven't seen necessarily that in the number because that gets financed as well by saving or not even saving, but by doing less of some other things. So part of that is a transition in the way we're doing business. Again, when we have new business models, beer wool, drinkies, and sometimes some of those will not yield enough return and will decide maybe to actually drop them after a while. You have to give them a bit of time, and then you have to judge them for what they bring to the group, both in terms financially and also in terms of our presence with our consumers and customers. I move now to the ERP. And yes, we've started I move now to the ERP. And yes, we started with this base program, which is concentrates on Asia and AAMEE region a few years back. I mean, then this program will definitely will finish in 20 end of 2020. At the same time, we're ramping up our program in Europe, and there will be a continuation to that. I mean, the final decommissioning of the current SAP system is in 2025 officially, probably will be 2028, you want to get prepared. So there will be spending on that. Now if at some point there is a step up, we will actually signal that. At this stage, we are telling you what we are planning for this year, and then we will become, of course, as we get closer to the decommissioning of the current version of SAP, we'll probably get more also precise on the plan and the rhythm at which we'll replace, but it's still a few years down the line. On the margin, that's, I would say, an easy question because we don't guide on the margin. We guide on the increase of operating profit growth. It enables us, while keeping really our focus on working on our margin, to really drive what is important for us, which is growth and continue to invest in a year like this year where we knew the FGP or the assumption the gross profit, sorry, was going to be a bit more difficult because of input costs. And by the way, we do see that easing a bit when we look at 2020 and the kind of hedges we're able to secure today for 2020. Well, in a year like this one, you want to continue to invest in the future growth of your brands, in the future growth of your systems and your business in general. So this is why I will really stick to this guidance on the operating profit growth. Yes. For CRE, the deal has been completed, which means that we kind of integrated our 3 breweries into CRB now and our commercial and marketing operation has also been integrated in CRB. And the Heineken marketing and sales organization will serve as an embryo and a blueprint for a premium portfolio marketing and sales organization of CRB that has been completed and manned. So that is now up and running. Now CRB is reporting its results separately or as a listed company. It's early days to now going to tell you the progress we make on the long term plan. But just to repeat, the business rationale was to say, CRB as the market leader in China gives us access to the market which we didn't have in the old configuration. And this in principle should lead to a growth and a more rapid growth rate of the Heineken brand in China based on the sales organization and distribution organization of CRB. So this is the plan we are going to work. Eventually, we're going to offer more brands out of our portfolio still in the premium segment to CRB in the future. But that is the plan we currently work on. And as a shareholder of CRB, we hope to reap the benefits because the margins that you have on the Heineken proposition, you have to think that the gross margin of a Heineken proposition is higher than the selling price of the regular snow, if you will. So it is also a benefit for CRB to push the Heineken brand. So all that will be reported in a later stage. We made a good start, so we are very confident. It's now early days to report on progress made, and we will report based on the results of CRB, which is a listed company. So we will use that set of results to report to you how we are faring in China with a delay of we will take the line of net our share of net profit with a delay of 2 months in our account. But the next communication on results of CRB will be on the I think it's the 15th August about the quarter. And then so you will hear more about that by that moment. Great. Many thanks. The next question comes from the line of Tristan Van Stryne calling from Redburn Partners. Please go ahead. Hi, good morning. Just three for me, please. Just first of all, obviously, your profitability is going to be weighted towards H2 this year. Just going back when you looked at your budget for this year, is that what you expected over the some investments that you didn't see when you budgeted this year that you actually accelerated? And why did you accelerate it more than anything else around it? The second question is now that Hoekstra and the Dutch government has limited your ability to deduct interest, how difficult is it to move some of your debt and change your finances out of the Netherlands? And is that an opportunity? And then the third question, Nigeria is looking better, better also from a portfolio perspective. How sustainable is this? How should we look at this over the next year? And to what extent can we start seeing that in terms of profitability as well? Because that doesn't seem to be happening at the moment. Thank you. So without giving you kind of the detail of first half, second half, we don't guide on the input costs, you pretty much predicted from cost of flow and pack point of view in local currencies. And then what you don't necessarily predict, you see it evolve over the half year, is how the transactional currency impact will be playing. Of course, what's happening with the weather in heavy months is like June, July August count very much. So you might have one picture at the end of May and quite a different picture at the end of June. I mean, this is also why, I mean, we actually update you on whether we confident about our guidance when we get to midyear, but we don't break down in 2 parts because it is and we had a wonderful June, then immediately comes the question, what do you do with the second half and then do you up the guidance or not. We look at the global year. We take risk and opportunity. Obviously, we have our judgment and we don't have any weather forecast. And then we see how it plays. And then the phasing we know will play for us in the second half in the number of expenses, the sponsorship as well and things like that. And that gives you some comfort as well to reiterate the guidance. But the phasing we know and the phasing of the hit we take on the gross margin that we know because we know where the good prices are. So that is not that's not the issue. The surprise is perhaps a bad month of June, particularly in Europe. That can happen, but we don't read the trend into that. And you don't know the ForEx when you start the year, you don't know the ForEx for the quarter. And you don't know the ForEx, So you have a number of things that you don't know. But what you know is the phasing of your fixed cost and what you do know is the phasing of your cost of goods sold and how they go up and how your pricing goes up and how it has to roll over in the second half of the year. There we have a pretty good view on how that may evolve. The only thing that you don't know when you start the year, which is difficult to plan it from time to time or things that you don't have in your control. In exotic countries, it can happen from time in a while or like we had in Europe where you have, let's say, bad weather conditions in a few markets and tougher comparables. That is what it is. But it's so if I can just follow-up on that, but in terms of your technological investments in terms of S4HANA, e commerce, everything, that was made pretty much according to plan. You didn't feel need to accelerate that into H1? No, that's pretty much according to plan. That is according to plan. That is according to plan. That is something. And we don't want to kind of phase projects have their natural rollout and the expenses which go with that they flow as the project is built up. So we're not going to play with that. And so that is all built up very operationally, and we follow that. That's I think what Laurence wanted to say. Maybe to give you one more element of projects. When you start a project of that nature, in the beginning, you expense more than you capitalize because basically you were getting ready, you're getting the teams up and running, and you're not necessarily building and like programming the assets yet. And then you move into phases where you capitalize a bit more. So that also plays with the phasing. But that we know. I mean, it's part of actually working on that kind of project. So that also has an impact on the first half, but that we knew. I move to your question on the debt and the limitation on the deductibility of interest. And yes, there are things you can do. There are also things you can do. You can try to move from debt down closer to operations. You can also, when you look at new adventurous tax schemes. We've never been very adventurous at Heineken. And the way I mean, what you see happening in the Netherlands with the interest with the deduction limitation for the interest, you see happening everywhere in the world. So the scope in which you can move, staying true to what we have been, which is a rather conservative company in terms of tax structures, and also stay being in light of what the environment is today, is quite limited. So you have to work with that. At the margin, you can make things a bit more favorable, but you have to I mean, you have to understand it's more limited than it used to be, yes? Yes. And then I finish your series of questions with Nigeria. Yes, we're improving on top line for sure, not yet on the bottom line. By the way, Nigeria is stockist, so you will be able to control that. It is still operationally a challenge, and it has essentially to do with the fact that we are not kind of able to increase the pricing of the value brand as quickly as we'd like to do to restore margins. We have, as you know, a quite big competitive pressure, but we have in Nigeria the competitive pressure from the bottom of the market, where most of the time we put competitive pressure on our competitor, the other way around on the higher end of the market like we do that in South Africa and Brazil, for instance. Here, it is the other way around. So we're attacked on the bottom. And it is a view of saying, till where can you let yourself go in terms of market share. And meanwhile, we are deploying efforts to grow the premium end of our portfolio, which automatically comes with much higher margins. And this is where we are successful in. And I said that the Heineken was growing the high double digit, just as an example. But the premium end of the portfolio is really growing well ahead of the total, but it takes some time to restore, if you will, the margins. And so without kind of letting the value end of your portfolio, which is still substantial and carries a lot of the, let's say, the fixed cost the bulk of the fixed cost of our corporation there, competitively, we have to react. That's the reality we are in. So but I'm confident that if we continue doing what we are doing, we will improve on the situation. So top line, good. Bottom line in Nigeria, still work to do. In a lot of other countries in Africa, though, we have progress. We have progress in South Ethiopia. We even have progress in the DRC, which has been very, very difficult for us for many, many years. We're struggling in Cote d'Ivoire. That is a country where we also struggle quite a bit. But for the rest, our African portfolio is rather doing well. Great. Thank you. The next question comes from the line of Fernando Ferreira calling from Bank of America Merrill Lynch. Please go ahead. Thanks. Good morning, Jean Francois and Laurence. I have two questions, please. First one, if you can talk about Heineken 0, how much is it helping you, the Heineken brand to achieve this 7% volume growth? And also when we look at the markets where 0 has been there for over 1 year, like in Europe, could you comment on the difference in terms of penetration and availability on shelves relative to the main brand? Then a second question, just a follow-up on the Brazil margins and the expectation that they will improve in H2. When we look at the effects from last year and also the commodity inflation, it seems that Q3 will actually get worse still. So and we're also seeing beer pricing softening, right, in the country. So I'm just curious what's giving you the confidence that margins will be better in the second half of the year? Is it based on your hedging that you have in place that you have the visibility that costs and the store margins will improve? Thank you. Heineken 0. Yes, we have it in 51 countries now. It's going well, and it is growing quite a bit. We don't say how much we sell, but it is not short of doubling this year. So it is plus a healthy plus 80 percent towards last year. Now part of it is, of course, the fact that we penetrate new countries. But part of all in all countries where we operate, we also have organic growth upon our proposition. So it is going well for us. It is well established now in Europe. It's Heineken 0.0, but also other brands with 0 proposition, we tend to push more and more of a category rather than just one brand because we see that by pushing a category, you have better results than pushing only one brand, but Heineken has certainly been the lead. And so also internally in our organization, We have used the Heineken because it's our flagship brand as the first entrance into the 0 alcohol segment. And then we have been enriching it with local brands country by country. So in Europe, it's a very strong story of growth. We have been introducing it in the U. S. Beginning of this year. It is doing well, but it is way too early to say whether that's where that will land because, of course, and you alluded to that, it is about the shelf space and the rotation, and this is something that you have to constantly monitor and fine tune to make it work. And finally, I would say there is for Heineken, there is little cannibalization, of course. There is little cannibalization of the 0 alcohol beer on the alcohol beer, I have to say. It's difficult to measure, but it is not what we can measure. It is quite accretive to us. And also in all cases, it's always margin accretive, which is good news. That's about the 0.0. And about Brazil, without going into the detail of our hedging, well, the hedges that we have on the Brazilian reais into the second half are better. It's not 100% of the exposure, but they are better in terms of rates than the one we had for the first half, so that's one element. And then you made a comment on pricing. And actually, in our case, we took pricing actually on part of the portfolio, which is lower part of the portfolio, which actually drove a decrease in volume in that part and then and will continue to drive that and probably also some impact on mix. So that could be element that plays positively in the reasoning, yes? Very clear. Thank you. The next question comes from the line of Richard Whittington calling from Kepler Cheuvreux. Please go ahead. Yes, thanks for the question. I want to ask 2 questions, please. Yes, coming back to the investments in innovation, you actually now mentioned the investments in e commerce and technology upgrades, specifically in your outlook statement. They were not there at the start of the year when you released the full year results. So are you accelerating these investments faster than you thought at the start of the year? Or are they more costly? Perhaps some more background on that. And then the second question on the U. S. Can you say how the legacy Heineken brand has performed in the first half of the year, so without the impact from Heineken 0.0? And in the U. S, are the turnaround initiatives already resulting in better brand health scores for the 3 main brands, Heineken, Dozecky, Zendikat? Okay. So on your first question, so we wanted also to reassure that this was fully taken on board in the guidance that we provide for the full year. So that's the intent behind adding these sentences. And then in regarding the U. S, well, we did say the brand is actually flattish, including the first impact of the launch. It's too early to call on the launch on the quality of the launch itself. But let's say, I mean, the rest of the Heineken brand, it is still decreasing. And while I would see some anecdotal encouraging sign, it is too early. I mean, this team has been in place for less than a year. They've taken strong initiative to make the portfolio and actually, the innovation and the whole commercial policy more relevant on a local regional basis, we need to give them a bit more time. So again, I would say encouraging signs, but the first half of the year, we still have a decrease on the Heineken and Mozart brand, of course. All right. Then anything on the brand health metrics, Laurent? I would say we don't see it significantly move at this stage. So we'll call for it when we have something that looks like a trend. All right. Thank you. The next question comes from the line of Toby MacLeod calling from Societe Generale. Please go ahead. Hi, there. Good morning. Still, I guess, an observation and then a question. On the observation, I see your point that you don't guide on the phasing of full year guidance between the 2 halves. But with the shares down sort of 5% or so, I'm not sure it's terribly helpful given that it seems to be on phasing of costs that you had expected and this is a bit of a surprise on our side. Bill, on the question, I wonder if you could just comment on the apparent slowdown in the craft and variety momentum that slowed to low single digits. I presume there's a geographical exposure element to this, but perhaps can you just expand on how the momentum is going in that strategy? And also just how big is this as a part of the overall portfolio, either at the group level or just within Europe? That would be great. Thanks. So we take, of course, the observation also in the context where we guide on a yearly basis and on the context of, again, the month of June was really not a good month. And we're still, despite this month of June not being a good month, reiterating our full year guidance. But obviously, I mean, we take the observation fully. If we move to the craft and variety, and I will maybe leave it to Jean Francois to give me your color, but you have to see also that the whole I mean, what we saw in Europe in terms of volume also concerned craft and variety to some extent. What we see in craft and variety is that while the local craft again, the local craft and the local craft extensions, which is a bit affordable craft, works for now really well. And as for the U. S, well, in the U. S, we see Lagunitas still working well relatively to other brands, but there has been kind of also rebasing of this craft environment. Maybe super small craft are continuing to perform in a certain way. Large craft has suffered a bit more. So it's a bit of a mixed picture that brings us to this low single digit with also success stories that continue to work very well in individual country. And again, we do not have a business unit that would be called Craft and Variety. It has to serve the local portfolios, and this is where we see it coming from. You have craft brands that travel. You have really local very local craft, and you have all this crafty extension of brands, which actually start from a mainstream brand and take it a bit more premium. And that really plays in the success country by country. Yes. And I add to Laurence. Very good explanation is that it is still a rather small part of our business, which means it is also very local. And in one geographic, we can have a very big success and in some, it absolutely doesn't work. So you have very contrasted results. Overall, it is that mid single digit growth we have, But it's a very contrasted picture between geographies, brands and propositions. But we continue to work, as Laurent said, on 3, if you will, pillars, which is the line extensions of existing most of the time, those are Lager brands that we extend into crafty line extensions. Then you have the international craft like Lagunitas or Afligen, a few brands that travel the world or in Europe over the border. And then you have the local craft, the really very, very local ones. And I have to say, in the first half, the very local ones were the winning formula. If you look 2 years ago, it was rather the line extensions who were the winners. So we keep on working around these three lines of business in craft and variety because it might change who the winner is. Overall, we are winning, but there is still a lot of trial and error in that area, I have to say. But the good news about craft and variety is that, in principle, all the propositions you bring to the market always have better margins than our bread and better lager business. And so that's why we continue to kind of look after them and nurture them and eventually believe that in a number of markets you will have growth that could be superior to the average growth of the portfolio, even if it does not seem to work just as we speak now. Go ahead. The next question comes from the line of Sanjit Agla calling from Credit Suisse. Please go ahead. Hi, Jean Francois Laurence. A couple of questions for me as well, please. Firstly, on Brazil, where are you on capacity now? And you called out pricing on the value brands. Are you also taking pricing on premium and mainstream? And secondly, just on Mexico, some of your consumer Staples PE Group have called out a slowing consumer environment. What are you seeing with regards to that? And final question just on Europe. I appreciate the weather dynamics. I just wanted to get your thoughts on whether there's any changes in the competitive landscape in the region as well. Perhaps start with the competitive pressure because it's a good question. And of course, there is more competitive pressure also in Europe. I mean that is also public data. You see a little bit more promotional activities in a number of countries served by one of our formidable competitors. So that is absolutely a reality. And that is which when you say promotional pressure in Europe, it's also net pricing. So one has to realize that there is a pressure over there. And so weather is not the entire explanation. If you look at the Europe thing, there is the world soccer that you had last year and you don't have this year. You have a little bit of weather in some countries, sunny countries like Spain when it rains well, you'll have a lot less volume. You have a little bit competitive pressure and then you'll have a sales day less, which of course is for everybody, but also for us which plays. That is for the Europe thing for the capacity in So we have communicated in capacity. That we are investing in Brazil and we increase the capacity. I mean, as the Heineken brand, for instance, accelerates and accelerates further, we adjust the capacity in order to be able to serve the market where we actually distribute much more widely than we used to before in terms of geographies because we produce closer to the point of sale. So that was one of the big ideas behind this investment. This acquisition that we did is to be able to produce and to sell closer to the point of consumption. That's happening, and that's happening even faster than what we had said. In terms of pricing in Brazil, no, we haven't taken pricing yet on the premium. I mean, we here, we probably will take pricing at some point, but it happens yearly, and that hasn't been taken place yet. And portfolio and in so far Heineken, because Heineken has a special portfolio and in so far Heineken because Heineken has a special production process. Brewing and fermentation process is different than other lager beers. We use 2 tanks, 1 horizontal, 1 vertical, And we use a process time of 28 days. So it and it's 100% malt beer. So and we don't compromise on that recipe in all 65 breweries in the world where we produce Heineken. So we invest in the proper equipment to make Heineken the proper way. And in Brazil, seeing the growth rate of the brand, we have to invest quite a bit also behind the production capacity for the Heineken brand specifically, and that's what we are doing. Thanks. And just on the consumer environment in Mexico, what are you seeing there? I'm sorry, I did not understand that. Can you repeat the question? Yes. I think some of your consumer staple peer groups have called out a weakening of the consumer environment in Mexico. And I just wanted to get your view on that whether you share in that view. A bit more subdued than it used to be for sure. We are a discretionary beer is a discretionary item in the budget of someone. And so we follow a lot consumer confidence and purchasing power evolution, that's for the premium end of the portfolio, and general economic conditions. So Mexico is I'm not saying it's a watch out, but it's certainly a little bit slower than it used to be for sure. That is what we see, but that's for everybody like that. Nothing alarming, but a lot slower than it used to be. I think the situation in the U. S. Is much more concerning, if you ask me. There I find the market evolution for a long term for beer as a category more concerning. Mexico has been much more generous to the operators than the U. S. Has been. But again We still wait to go in premium in Mexico. Yes. And the premium end of the market in Mexico is still if you compare it with Brazil and you're absolutely right, Laurence, it's much, much smaller. So if you look at the Heineken brand, the potential for the development and Heineken is growing fairly well in Mexico, but still not representing a part of the market as big as that we have built in Brazil. It's trailing Brazil, but with a number of years delay. But that is for us still a potential that we'll try to hammer out the Mexican market in the years to come. Got it. Many thanks. Yes. With that, I think that we have exhausted our time and the questions, and I'd like to thank the operator for organizing this meeting and all of you to join this morning. And if you have any other queries, please contact our Investor Relations team, which will assist you as ever. So thank you very much for your attention, and have a great day. Thank you. Bye bye now. Bye bye.