Earnings Call: Q2 2018

Jul 30, 2018

Good morning, everyone, and thank you for joining us today for Heineken's 2018 Half Year Results. For your information, this conference is being recorded. There will be an opportunity for questions at the end of the conference. At this time, I would like to turn the conference over to Heineken Management and Investor Relations. Please go ahead. Good morning, everyone, and thank you for joining us today for our 2018 half year results conference call. I'm joined by Jean Francois Van Boksmir, our CEO and Laurence Debreu, our CFO for today's call. Following some prepared remarks on the results, we will be happy to take your questions. With that, I would like to hand the call over to Jean Francois. So thank you, Frederico. Good morning, everyone. I'll start on Slide 3. The top line came in strong in the first half with organic net revenue up 5.6%, and that was up in all regions. The consolidated beer volume grew 4.5%, and net revenue per hectoliter grew 1.1%. Note that country mix had a negative impact of 1.3% in net revenue per hectoliter growth, driven by Brazil and Asia. The Heineken brand grew strongly with volume up 7.5%. Operating profit margin was lower than last year, mainly due to the consolidation of Brazil Kirin, but also adverse currency effects and higher input costs. Diluted EPS was up 3.8% due to organic growth and consolidation changes, partially offset by adverse currency effects. In the second half, we expect a continuation of our revenue growth and an acceleration of our operating profit growth on an organic basis. We continue to invest behind our brands, innovations, e commerce platforms and commercial strategy. For the full year, given the market acceleration of our business in Brazil with margins still below the group average and the negative impact from currencies, we now expect the operating profit margin to decrease by approximately 20 basis points. Turning now on slide 4, we can see an overview of our performance with all regions delivering organic net revenue growth as Europe was back to growth in the Q2 whilst the other regions maintained their positive momentum. Net revenue per hectoliter was up organically across all regions except Asia Pacific due to country mix. Operating profit grew 1.3% organically, driven by the phasing of some expenses into the first half and also higher input costs. Starting with Africa, Middle East and Eastern Europe where consolidated beer volume grew 5.6% organically and net revenue per hectoliter Bayer was up 5.2%. We saw strong double digit volume growth in South Africa, Russia, Ethiopia and Egypt. This offset a volume decline in Nigeria due to the continued weak economic environment, some destocking at distributor level and competitive pressure. Regional operating profit was up 4.3% organically, mainly driven by South Africa and Ethiopia. In the Americas, consolidated beer volume was up 6.1% organically driven by growth in Brazil and Mexico, which more than offset lower volume in the U. S. And Panama. Revenue per hectoliter was up 1.7% organically with a significant negative country mix coming from Brazil. In Mexico, Tecate and Dos Equis grew high single digit and double digit respectively, benefiting from strong execution and effective campaigns. Heineken's largest greenfield in history, the Meoki Brewery opened in February 2018 and has started to contribute to the efficiency of our local operations. In Brazil, our existing operation grew double digit driven by our premium portfolio led by Heineken. The Brazil carrying portfolio also grew double digit. The trucker strike of May led to some lost sales, which were partially recovered in June. In the U. S, Heineken USA volume declined high single digit with depletions down mid single digit. Overall, the Americas delivered 8.1 percent organic operating profit by growth. Asia Pacific volume grew by 13%, driven by double digit growth in Vietnam, Malaysia and Cambodia, offsetting a decline in Indonesia and Singapore. In Vietnam, the year started strong due to the timing of debt and accelerated in the Q2 driven by Tiger along with LaRue, which continues its expansion into small cities and rural areas. Cambodia was up double digit despite increased market competition through aggressive price promotion. Volume in China was back to growth supported by the expansion into modern trade and e commerce channels. Regional net revenue per hectoliter declined by 4.4% due to the country mix. The region delivered organic profit by air growth of 2.7%. In Europe, consolidated beer volume was slightly down by 0.1%. Net revenue by up per hectoliter was up 1.4% despite continued off trade pricing pressure. In the U. K, volume declined low single digit as the relisting at a large retailer and good early summer weather helped to partially offset the impact of the cold Q1 and CO2 shortages in June. The pubs acquired from Punch are now fully integrated into star pubs and bars and are performing in line with expectations. In France, volume was slightly down and the French National Railways strikes had a negative impact on logistical costs. Spain declined mid single digit due to unseasonably cold and rainy weather impacting the on trade. The Netherlands was marginally down as we continue to focus on value growth whilst the market remains promotion driven in the off trade. In Poland, volume was down slightly with our premium portfolio growing double digits and the low and no alcohol portfolio led by the Cheviot continued to outperform the market. Regional operating profit declined by 6 0.5% due to the higher logistic costs, phasing of expenses into the first half and continued investments in e commerce platforms. Turning to Slide 5 now. Heineken volume was up 7.5% organically with growth accelerating particularly in Army and the Americas. The brand grew double digit in Brazil, South Africa, Russia, Mexico, U. K, Nigeria, Poland and Romania. The brand also saw healthy growth in Italy, Argentina, Chile and Spain. Heineken Lager is the main driver of growth also supported by the rollout of Heineken 0 which is now available in 33 markets with a strong performance. The brand continues to benefit from global sponsorship platforms such as the UEFA Champions League and Formula 1 of course. Turning now to slide 6, I would like to talk through some key developments which also contributed to our line growth. Our overall portfolio of international brands grew high single digit and notably, Afrigum, Tiger, Krusovich and Desperados grew double digit. Our global Cider portfolio grew double digit mainly in South Africa, Vietnam and Poland. In the U. K, cider was up low single digit. Cider is now locally produced in 14 markets. Moderation trends continue and create new drinking occasions for our low and no alcohol brands. Their volume increased low single digit to 6,300,000 hectoliters as the performance of Rather and the rollout of Heineken 0.0 more than offset lower volumes of malt products in Nigeria. Our craft and variety beers continue to perform well with volumes up double digit coming from both our international craft beers Lagunitas, Afligen and Mor Subit as well as our local craft propositions. We began local production trials of Lagunitas in selected markets. Innovation continues to be one of our main growth drivers. The Blade, our countertop premium draught beer system launched last year is now available in 12 markets with increased penetration into small outlets. We continue to invest in our e commerce platforms both B2B and B2C as they gain traction across all markets. Moving now to Slide 7, I would like to share some highlights of our Brewing a Better World agenda. We launched our new global campaign, When You Drive, Never Drink with Formula 1 World Champion Nico Rosberg focusing on the social pressures surrounding drinking and driving. As part of the Drop the Sea ambition to grow our renewable and energy usage to 70% by 2,030, Several projects were started to source wind, solar and biomass energy. Part of the investment required will be borne by our partners as we engage in purchase price agreements. For example, in the Netherlands, we plan to install 21,800 and very precise solar panels over the next 2 years. And with that, I would like to hand over to Laurence now. Thank you, Jean Francois, and good morning, everyone. So we're going to turn to Slide 8 and the financial overview of the first half year. As commented by Jean Francois, the 5.6 percent organic growth in net revenue is a result of positive momentum in volumes, combined with a 1.1% increase in revenue per hectoliter. Underlying pricemix is plus 2.9%, with pricing alone contributing more than 2%. Operating profit was up 1.3% organically. And here, the benefit of the strong top line growth was partially offset by higher input costs and the phasing of some expenses into the first half of the year indeed. Operating profit margin was lower than last year by 100 and 18 basis points. And as you expect, I will come back to that number in detail in a short while. Net profit reached €1,100,000,000 up 8.9 percent organically, so growing much more than our operating profit. And what you see here is a very good performance of our JV partners, CCU and UBL in particular, but also a decrease in other net finance expenses and a lower income tax in this first half. Diluted EPS via of €1.89 was 3.8 percent higher than last year. Free operating cash flow grew to €909,000,000 an increase of 21.8 percent, driven by improvement in working capital, and that's coming mainly from payables. We've told you in the past that our ambition was to come back to industry average as regards payment terms, as we did feel that we were treated a bit less favorably. And that is what we're doing without compromising on our long term relationships with local suppliers or our sustainability agenda. And finally, as you can see at the bottom of this table, our net debt to EBITDA ratio remained stable at 2.5x, in line with our target. Moving now to Slide 9. Net revenue reached €10,800,000,000 on top of the organic growth of 5.6%. Consolidation changes added 5.1 percent or €529,000,000 mainly driven by Brazil Kirin, of course, and to a lesser extent, by Punch in Europe and Lagunitas in the Americas. The negative impact of currency was again significant, reducing revenue by €682,000,000 or 6.6 percent, and that's mainly attributable to the Vietnamese dong and the U. S. Dollar, with actually no positive impact as the euro strengthened pretty much against all currencies. Turning to Slide 10. Operating profit reached €1,750,000,000 with consolidation changes adding €52,000,000 or 2.9 percent, mainly coming again from Brazil Kirin. The currency impact was also negative, reducing operating profit by €127,000,000 or 7.1 percent, with the Mexican peso and the Vietnamese dong having the most impact, followed by the Nigerian naira. If we exclude these consolidation changes and the currency impact, operating profit was up by 1.3% organically, and the benefit of the strong top line growth again was partially offset by the growth of total expenses, which are up 6.5% organically. That reflects higher input cost and the phasing of some expenses into the first half of the year. So looking at input costs first, they saw an organic increase of 7.6% overall, and part of this is due to increase in volume, of course, but there is also a 3% increase on a per hectoliter basis. And that you can trace back to increasing underlying commodity prices, but even more to unfavorable transactional currency impact on the cost of our packaging materials. Marketing and advertising expenses increased organically by 3.4%, resulting in a ratio of 11.6% of revenue, which, combined with the investment in our commerce organization, represents a a steady support behind our brands. Indeed, our other commerce and also our support costs increased more than revenue in the first half as we continued to invest, for instance, in the development of e commerce and also in the back office transformation project. Just to say here that our investment in e commerce started to build up in Europe in the second half of twenty seventeen. So the base of comparison is still unfavorable in the first half, and that's part of the phasing that I was mentioning. And we don't call on one off. There are lots of one in any period, positive weather, negative weather, small things here and there. There have been indeed a few specific events in this first half that are worth mentioning. And the railway strike in France, for instance, increasing the cost of logistics, still in France a provision for VAT adjustment on past years. And obviously, those one offs did impact our margins. Now with Slide 11, we want to provide you a bit more insight on the development of the operating profit there margin in the first half indeed. First to say that given the buildup of margin in 2017, again, the phasing for 2018 was clearly expected to be skewed towards the second half. And the first reason for that, of course, has always been the consolidation of Kirin in Brazil from the end of May last year. So for the 1st 5 months, we are comparing a period with Kirin to a period without Kirin. And that we knew, of course. But what was not expected is that the former business of Kirin with still low margin would grow double digit in that period. And as a consequence, the consolidation impact is higher than expected. So out of the 118 basis point decline, about 43,000,000 comes directly from the consolidation of Kirin. The remaining $76,000,000 decrease has two main explanations: the increase of our input cost per hectoliter by 3% organically and the mix impact induced by the negative translational currency effect affecting some of our high margin opcos. We did mention this year, we see an impact from translational currency comparable to the one of last year, but it distributed quite differently. It is really euro against all currencies, which means it's affecting high margin opcos, first of them Vietnam, for instance. So as mentioned earlier, there were also a few one offs in this first half that didn't help the margin, but we're not calling on that. Now I'd like to turn to Slide 12 and then to extrapolate to the full year and, as promised, give you more explanation on the margin guidance update. And you've heard it, the update is mainly driven by what is long term good news, which is that the integration of operations in Brazil is going extremely well with our combined portfolio growing double digit and gaining market share. But the stronger than expected performance has a double dilutive impact on our margin. In the 1st 5 months, the dilutive impact of the consolidation of Kirin was higher than expected. And for the remainder of the year, the marked acceleration of our combined operation with an operating margin still below group average plays negatively on the mix. Actually, the second dilutive impact is much bigger than the first one. I mean, the 2 combined are attributable to Brazil and are responsible for about half more than half actually of the adjustment of the guidance. But the second one, the acceleration we started to see in June and then that goes into the second hopefully into the second half of the year, May, June and then the second half of the year is where we expect to have more impact. In addition, we are, again, facing a continued negative mix impact coming from currencies. So that's to say, it's also already played in the first half of the year. It's expected to stabilize, but to play still a bit in the second half of the year. And finally, we're committed to continue to invest steadily behind our brands and our transformation programs, such as e commerce venture or back office upgrades. Hence, the decision to update our guidance now, which does no mean by no way mean that we are lifting our internal pressure on costs. So given that the decrease was more than 100 basis points in the 1st 6 months now, I mean, clear, you see that an expected decrease of 20 basis points for the full year means that in the second half of the year, we do expect our revenue growth momentum to continue. And actually, we expect our operating profit growth to accelerate, so better margin. For example, in Europe, we will benefit from a more favorable comparison and base. If you remember, last summer was really Q3 was really bad in Europe with a horrible summer in many geographies. Well, it doesn't start that way and even continue that way this year. And again, the weight of the B2B and B2C e commerce, which a lot of it is being carried on in Europe, then we will enter months where it's more comparable from 1 year to another in terms of our investment. And then in Mexico, I want also to mention something about Mexico, that now that we have the Meraki business brewery up and running, we will derive savings in logistics from the Meraki brewery. And it's set to enable us to produce the Miller brands locally instead of importing them. And that does play a role in Mexico profitability in the second half versus first half. I will now move to Slide 13 briefly and finish with the first half year P and L by going all the way down to diluted EPS via. So it's up 3.8 percent with 0 point 1 6 coming from organic growth and 0 point 0 4 dollars from consolidation. And again here, currency translation had a significant negative impact with EUR0.14 All in all, the first half marked by strong development of the top line, good news from integration in our portfolio in Brazil and an extra weight on our margin development coming largely from country mix and main currency mix. So let me wrap up with a complete full year outlook. Although in the 1st 6 months, we have already had EUR 127,000,000 negative impact from translation of currency at operating profit level. The recent trends of our main currencies against the euro have been somewhat better. So we maintain our assumption that for the full year, the negative effect will be comparable to 2017. Needless to say, we expect economic conditions to remain volatile. Again, revenue growth expected to continue into the second half, with organic operating profit growth accelerating on and off accelerating. And given the market acceleration of Brazil and currency that are playing negatively on the mix, we're updating our operating profit margin guidance for the full year to a decrease of about 20 basis points. And then on the other elements of the guidance, we expect the average interest rate of our debt for the full year to be broadly in line with 2017, and we expect an effective tax rate of about 28%. On tax, good to remember that we had some extraordinary tax benefit in the second half of twenty seventeen that will not be repeated, which does explain the phasing in the year. And finally, our CapEx guidance remains unchanged. And with this, I would like to hand the call back to the operator for us to take your questions. Thank you. We will now take our first question from Trevor Stirling from Bernstein. Two questions on my side. The first one relating to Brazil, That acceleration we've seen is clearly negative for margins, but presumably it's positive for actually operating profit growth at a group level. So maybe by focusing solely on margins, we're losing missing something there. And the second question, in February, when we were talking you're putting guidance to one side, which I know you're very skeptical about, Jean. But you're clear to hear that the underlying trend towards long term margin expansion was still there from country mix, from revenue per hectoliter growth, from a continued pressure on costs. With the acceleration in Brazil, with the growth in Ethiopia, with the increase in La Vue in Vietnam, does that country mix start to become less important going forward? Thank you, Trevor. The responses to your questions are embedded in the questions you ask. Brazil is good news because it's growing ahead of our expectations atmargins which are of course lower than the average of the group. Now in these margins will over time increase as we will continue to reap the benefits of the integration and of our acquisition of Curio Brazil and as the premium end of the markets and our premium brands will continue to grow, which inherently boast a lot of higher margin products in there. But that is a matter of 3 to 5 years before we get there. That is one thing. But it's worthwhile absolutely the effort because down it of course contributes to an improvement of our return on investment. Remember, we acquired Kering Brazil for an affordable price. And secondly, it also improves our operating profits overall. So that is the good news. You are also absolutely right to point out that a number of geographies are growing fast like Ethiopia, and there also Ethiopia has tendentially lower margins. And they're also in the improving phase. So there is a phasing here, whereas in Vietnam, it's a little bit the other way around. We have been reaping all the potential of the big city centers and noticeably Ho Chi Minh City in the south. And as we progress in the countryside, if I may say, or to secondary towns, the proportion of mainstream products like La Rue or Tiger is, of course, increasing. But there again, even if the average margin in Vietnam would be slightly under pressure, the operating profit would be on the increase as well as our market share. So that is what it is. And the third thing about the margin pressure is and I'm speaking about trends now and not so much about occurrences, which I will leave to Laurence to explain perhaps a little bit more what are the one off occurrences in costs that we had in the first half. But what is important to note is also that we not only invest in our brands, our new geographies, etcetera, but we also invest in systems. We are facing a long due overhaul of a number of our management systems at large. We are embarked on large projects in Asia and Africa to rebase the project by the way called base, but to reignite a new generation of ERPs. Those are substantial investments, and we don't want to binge on the rhythm of implementation of these investments. So the same applies also for our e commerce initiatives, which are taking up a lot of financial effort because we believe that, that is part also of a successful continued top line growth. So that is to give a little bit of color to Maybe to come back to the first part of your question on the impact of Brazil, you're absolutely right. Brazil is the growth from Brazil is only organic from the end of May. So once we consolidate Brazil, actually, yes, you're right, the acceleration of Brazil brings more operating profit even if it is at a lower margin. We did not have so much the benefit of that in the first half because most of it was in consolidation differences. Thank you very much, Laurence and Jean Francois. Maybe just one follow-up. Laurence, you highlighted that there will be or should be a significant change in margin trajectory in the second half. Could you just try to put some weight on which are the biggest factors there? So if I take out this kind of like one off or specific events that weighed negatively on the first half and whether it's a trucker strike in Brazil, a bit of CO2 in the U. K, the railway strike in France or the VAT payment, extra payment in France or the middle in Mexico as well. I would say one thing that you'll see is coming from Europe. If you look at Q3 last year in Europe, it was really a bad quarter in terms of volume. Weather was horrendous in most of the countries during the summer, and that's definitely we're going to be lapping more comfortable comps than what we had in the first half. Europe had a very, very good month of June. A good month of May was a very good month of June last year, so that puts the bar pretty high. So that is part of the difference. Thank you very much. Our next question comes from Mitch Collett from Goldman Sachs. Please go ahead. Your line is open. Hello there. 2, please. On a similar vein, I think, Laurence, you said at the full year results that there was no break in trend with margin. So perhaps could you just update us as to whether you still think the underlying margin expansion this year will be close to the 40 basis points you were delivering? And then secondly, just a bit more context on why the marketing to sales ratio was down, in particular, given some of the investments you've highlighted? Okay. So on the first one, yes, we highlighted at the year end results that it was really we'll continue to work on growing our top line, superior top line, while continuing to work on our margins, operating margins. And that's what we're doing, yes? None of our deal of that cost or commerce spend productivity programs, which are actually also yielding benefit in terms of percentage of ATL, BTL, we spend over revenue that's helping its CapEx. That hasn't stopped. Now what we're saying now is that we expect 20 basis point decrease for this year. And the bridge between the plus 25% that we were expecting and the minus €20,000,000 is really, again, half of it comes from this acceleration of Kirin, pretty much. And then the rest is on the impact of currency mainly, which is on it's transactional on the input cost and it's translational on the mix of countries. So that is for this year. What we don't see as broken is also the way we work on our margin to keep them up. Now I'm not going to give you we didn't give a 3 year guidance because we do feel that we are in a moment where we need to make a number of investments where it's very important to have the dynamic top line when you look at the volume dynamism, when you look at the fact that we are able to price not everywhere, and it remains very difficult in a number of geographies, but you get some price, you get some mix. It's even more important because you work on your innovation. That is where you're actually building the future. So we want to continue. And it's always kind of a creative tension and quite an important one between working on our cost and working on our top line. You know our kind of like famous or not golden triangle that our long term value creation is made of a balance between top line growth, return on sales and then return on assets invested. And depending on the moment, we want to be able to push one more than the other depending on the moment of the on the OpCo. So this is really what we're working with. So saying that underlying trend are not broken is one thing, but we explained very, I would say candidly, what's happening this year, which is in a way bad news coming out of good news, which is that the top line is accelerating faster with the margin improving, improving also faster, but not yet at group level. Marketing and as a percentage, well, I gave you part of the answer by saying that we have a number of a number of commerce spend productivity programs, and then we are really trying to get much better at our maximizing the proportion of our working expenses, the ones that are really facing the consumer compared to the more technical production expenses, if you will. We've actually also had a tender and came back to 2 major media agencies in the world instead of having a much more split landscape. So that is part of the reason. And also, ATL well, advertising and marketing is part of it. But what you have to see is the commerce expenses, the feet on the ground you're putting behind your brands. And today, it's more and more a global balance. Actually, if you look at craft, it's even that they don't want to do any advertising, and they go all on the feet on the ground and other types of programs. So that is really and if you look at the sum of what we're investing in advertising and marketing and what we're investing in commerce, there we are actually very close to the rhythm at which our sale revenue increased. Okay. And one unrelated follow-up, if I may. The tax rate, I guess, I would have thought that with country mix being adverse for profitability, perhaps there would be a reduction in tax rate that goes alongside that. Can you perhaps give a bit of color on why your guidance on tax hasn't changed? There is definitely a mix effect, which is favorable. Second half of last year, there were a number of favorable impacts, one offs, some links to innovation box immediately being implemented, and that you don't have this year anymore. When you look at the measures, nondeductibility of interest above a certain level, the number of measures that have been put in place at the level of Europe, what you see is that the ambition to keep the tax rate pretty much stable is already a pretty good ambition. And this is what we're seeing because it's a balance of country with lower tax rate, but also a new I mean, new measure being implemented that cost us a bit of money. Understood. Thank you. Our next question comes from Tristan Van Strien from Redburn Partners. Please go ahead. Your line is open. Good morning, Jean and Laurence. Just a few questions. I first want to ask about Punch. I mean, previously, you've said that the Punch acquisition is accretive. But if I look at your scope and I back out SLEGrow, it appears that the margin actually is much lower than what we expected from the Punch A acquisition. So I'm just wondering whether I'm reading that right and what happened in terms of the investments that you have done into the taverns? Why is that margin much lower? The second question on Nigeria, I was wondering if you are taking or for that matter seeing any pricing being taken in that market to offset your currency devaluation? And then the third question is around your U. S. Market. It looks like your shipments to wholesalers are much higher than your shipments to retailers, which is quite unusual going into the summer. So I was wondering what's driving that and whether you will see that converge by the end of the year? Okay. On the first one, we'll have to look at your calculation because I found the positive accretive impact of Punch in line with expectations. So that is the one. Maybe Sean answered the third one on the U. S. I'm not so sure, but you said that it looks like your Depletions are ahead of the depletion. The depletion of the shipments? No. Your depletions are ahead of shipments at the moment. Yes. The depletions is what we ship to? Wholesalers. Sorry, what we ship to. Your sales to retailers are higher than your sales to wholesalers is where I'm reading it. Yes, yes, that's correct. Yes, yes, no, no, yes. What's driving that gap? To be sure, I don't have a in between you have stocks, Tristan. And frankly, I don't know. So it's difficult to say what are the whether I wouldn't read anything into it. In the U. S, it is there is a stock in between. There is inventory in between. If you look at it month by month, I must say, I got very excited by talking about sales and depletion in my 1st 6 months at Heineken and then I gave up a little bit because it's statistics that you can see on the market, so we always give them, but it goes up and down and the factors that impact stocking a little bit more or a little bit less in the The one is trailing the other tendentially, and I don't read any trend into it having been in the business long time. So I look at the shipments, and they are not great to be frank. So we certainly have an issue in the United States of performance. I will not acknowledge that fact. That's for sure. And your second question Tristan was about ForEx? No, about pricing in Nigeria, whether you are taking any or whether you're seeing any in the market? We are taking pricing in the market. And what's being widely communicated is that one of our competitors is not taking prices and not reflecting excise price increase. In a country like Nigeria, we don't think it's a very sustainable game. So it's a game that makes you win some market share into the short term. And probably when you have extra capacity coming online, you want to be filling this capacity. But yes, we are taking pricing. It's a balance always between affordability and taking pricing to compensate from cost for inflation, but we have been taking pricing, yes. So Lars, can I just come back to the Punch transaction? When we looked at the transaction, Punch A was making margins close to 43%. That was those sort of published numbers. Is that are those the type of margins we can expect as we put it into your numbers? Or are they much lower? Maybe that's a better way of putting the question around. No, are not communicating independently on the margin of Punch or Star Club and Bar. But they are definitely, I mean, accretive to the U. K, definitely and neutral, accretive to beer in the U. K. And positive to the group in general. Our next question comes from Fernando Ferreira from Bank of America Merrill Lynch. Please go ahead. Your line is open. Good morning, Jean Francois and Laurence. Thanks for the questions. Q1s, please. First one, sorry to go back to the margins again, but your guidance is implying a good improvement, right, on the underlying business in H2 even if we adjust for the lower FX impact. So question is, if we see top line growth remaining strong in countries with lower margins like Brazil, do you have any flexibility in other lines of the P and L that gives you confidence that you reached that guidance? And then second question, can you give us an update on the arbitration process in Brazil? And also what actions have you taken that you can make sure that you continue to grow the business this strongly, right, despite operating 2 separate systems? Okay. So on your first question on margin, yes, we do say that we expect continuous increase growth for our top line, but accelerated increase for the bottom line. And then and again, I've stated earlier on in the call, you can link part of that to Europe, where definitely the effect on volume and this deriving from margin as well will be much more favorable in the second half. Do you want to comment on the second question, Jean? Well, to say we won't comment. It's in the hands of an arbitration procedure, and so we're bound to say nothing about it. It's following its normal course. That said, our business continues to work with 2 route to markets in Brazil, and it functions okay. One has to say that the bulk of the cost synergies were in the production and the purchasing. The revenue synergies have more to do with the fact that we can exploit the whole brand portfolio across a network, which spreads all over the country through 11 breweries. It is long term still our intention and also our opinion that having one route to market totally dedicated to beer is necessary for sustaining our top line and innovation rate in Brazil on the long term. But so far so good, but I can't comment specifically on the ongoing arbitration. That's fine. Thank you. Our next question comes from Simon Hales from Citi. Please go ahead. Your line is open. Thank you. Good morning, all. 3, please. Firstly, sorry to sort of come back to the margin, but if I can just clarify to try and get this clear in my mind. Laurence, I think at the full year, obviously, you're guiding towards 25 bps bps of reported margin change. I think when we broke that down, I think it was broadly a minus 10 basis move on FX. It was minus 15 at that stage as your assumption around scope. And therefore, the underlying organic was still expected to be plus 40. It sounds from what you're saying this morning that maybe that FX headwind has moved from minus 10 to minus 30 bps for the year. The scope has moved from minus 15 to minus 35. But still the underlying assumption around a +40 is broadly there or thereabouts. Is that the right way to look at it as opposed to my first question broadly? Secondly, I wonder if you could just talk a little bit about the transactional impact that you're seeing on Packaging and which particular regions that's hitting you most in? And finally, any comments around low or no alcohol, just specifically the launch of Heikkin 0.0? Where are we on the rollout of that? How many markets, etcetera, now, please? So thank you, Simon. So actually, you're right that we see an increased impact from consolidation. And I'm not going to confirm the exact translational because translational plays on the margin, and the main impact will come from will be on Vietnam, basically, will be on the margins on the high margin Vietnamese Dong, not against dollar, but against euro. I'm not going to comment on the 40 basis points because once you take out everything that you don't like, I mean, it's always I can always come back to 40 basis points. What I'm saying is that we had a number of things playing against us for that guidance in the first half that we see continuing in the second half. And again, that's bad news or the consequences of good news. But the calculation that you made actually makes sense, especially if you also take on board a few one offs that hopefully does not recurgeous. But you could have all the one offs in another year. So it's now in the transactional impact, basically, you're talking about all the emerging countries that are importing packaging in hot current. And then you think about the big can market, but also other types of market. But again, here, it's Africa is very impacted, and then Asia Pacific is also very impacted by that. It is concentrated on our packaging. You have to say that this is also it's partly mitigated by the productivity that we've done and by our procurement savings. So the effect that you see here is net of everything we've managed to save in terms of procurement, which has been quite significant and which continues to be quite significant. For the Heineken 0, we don't give these numbers specifically, but we are rolling out the proposition, the product in more and more countries. We are in 33 now. And we see it in those early where we introduced it early on, we see a continued growth and a good trend. And the big contributors are Russia in the first place. It's most probably it is the largest market for Heineken 0, but also followed by the Netherlands, by France, by Spain and increasingly by the U. K. And then we have a number of smaller countries, which each on its own merit do not contribute a lot, but the string of it is doing a good job. So we're really very pleased with the performance of Heineken 0. Brilliant. Thank you so much. Our next question comes from Edward Mundy from Jefferies. Please go ahead. Your line is open. Good morning, Jean Francois. Good morning, Laurence. I have three questions, please. Just a quick point of clarification on your outlook statements for revenue growth expected to continue. Does that imply that you expect the same run rate in H2 versus H1? The second question is regarding your expectations for margin expansion in the second half. Is pricing a major part of seeing the margin step up? Or is it just the other factors you've talked around comps and some of the other factors? And then the third question is the investment in systems. You flagged the e commerce that you're going to be lapping into the second half. Are there any other big IT spend projects that are sort of underway that could last for a couple of years that we may not be aware about? So the first question on the outlook statement, I'm not going to say. We expect definitely to that to be at least comparable. What we wanted to flag is that we expect that for the same growth or maybe slightly better growth, we expect a disproportionate growth in our operating profit. So there is definitely an acceleration here, but we still see the growth in volume sustaining the growth of our second half. The margin expansion, Well, I'm not going to be keeping pricing. I mean, like better volume in Europe really helps more It's a bit of both. I think we have lesser tough comps next half year than we had in the first half year, and I think Laurence explained that, for both seasonality like it is the case in Europe, sorry, but also the kind of enormous amount of one offs we had in the cost on the first half. I know that problems fly in squadrons, but we don't kind of expect and factor in yet another kind of flurry of CO2 shortages and strikes in key OPCOs going forward, and we shouldn't do that. That is and the spend on the projects, this is most of these projects are multiyear projects and you wouldn't like to stop them, obviously. But they have been factored in at a time where we were given a guidance of 40 basis points. I mean, this is not something that we tailor in function of the guidance we give on margin. I think one has to realize that what really changed in the margins is a profound it's a faster shift in our geographical portfolio than we originally anticipated. And it is bad news on the short term for these margins, but it's a fantastic promise also for the future. Now that said, we would then always put these margin deteriorations towards our guidance. Of course, you could correct that if you would like to do it, but then you would forego all what you have to do to continue to have that superior top line like we are displaying today. And for us, if you will, this is the key consideration going forward into the second half of the year is that we maintain our policy of focus on the top line with all the innovations we have, the craft agenda, the cyber agenda, the low and low alcohol agenda, the international brands agenda and the Heineken agenda and the investment in e commerce. We don't want to change that program. And at the same time, we are still executing our cost programs. We are not complacent about cost and organization cannot be complacent about cost management and relentless productivity improvement. So we continue for that. But for this year, the mix has been playing out different Lee as we thought. And in addition, frankly, the strength of the euro has also surprised us. I mean, that is it has been quite something. And that has also an impact on these margins. Hope that helps us to frame the perspective. Yes, that's very helpful. Thank you. We'll now take the next question from Nico Van Stackelberg from Liberum. Please go ahead. Your line is open. Yes. Quick question on Nigeria. I can see that 1H was soft. But I'm just wondering whether or not improvements baked in the guidance for the second half. And I'm also wondering with the oil price given where it is today, if that will trickle down to consumers at some point in the second half, Maybe it's more back end weighted. I'm not sure if you have any view on that. And the second question is on free cash flow. You guys delivered stronger than expected free cash flow. And I was wondering if that €2,100,000,000 mark for the full year implied by consensus, if that's easily beatable or how you're feeling about that guidance frankly or sorry consensus number? Thanks. So on the free cash flow, so we are seeing the improvement in terms of payables, which was also helped in the second half. That actually helped mitigate higher CapEx. You know that last year, we ended up doing less CapEx than what we'd said. It's because the number of large projects, whether extension project in Vietnam, in Ethiopia, for instance, actually were kind of done towards the end of the year, and some of the cash out was more in the beginning of the following year. And we're so that's why we're guiding this year for a CapEx that is slightly above €2,000,000,000 So these are the different elements of the cash flow. I'm not going to comment on whether the consensus is beatable or not. We're definitely working on our cash flow, and we felt that where we had to work quite a bit was on these payment terms where we were more at we were really at 90 days, where actually the average of the industry is more around 120 days without going to the extremes of some of our competitors. And you can see the impact. And actually, it's an impact that we saw in Brazil, particularly because by pooling our volumes, we were able to have discussions with a number of large suppliers on actual volumes that are pretty big and to reopen and renegotiate a number of contracts that were that was favorable on both sides. Now if you look at Nigeria, yes, we do hope that in terms of consumer sentiment, things will get better and people will start trading up due to the price of oil being a bit better. Well, frankly, that's not really felt right now. So we're not factoring a big turnaround between now and the end of the year in our estimate for the second half. That is not what drives it. And we have also to be clear, Nigeria is a competitive pressure point with ABI. We should not hide that. It is difficult. They are gearing up with capacity. They're coming from the market down up, if you will, where we are coming in South Africa from up down, that's a bit the situation we're in. And we have high competitive pressure. And that will still have to settle. And for us, it's a mix as market leader to continue to lead in the general level of pricing in the market. It's a very competitive market and also working on our cost structure. And that in an environment where the purchasing power has not really improved yet, and that brings that people are looking for value proposition. Now the very noticeable thing in Nigeria is that where all these value propositions are battling with each other. On the other hand, you see emerging a growing premium market, which was still Heineken growing quite robustly in Nigeria and that despite the new competition coming from ABI with Webvisor who was recently launched in the market. So it is a market which is changing. We don't know where to it will change, but it is also definitely a market where we are under pressure. We are not hiding from it, and we don't expect that to kind of turn around back to old fortunes just overnight, as you can imagine. Long term, it remains a market, I think, with a lot of potential seeing its population, but it needs also, on the one hand, to have an improvement on the oil prices. That helps a lot in Nigeria because this is an economy which is still heavily dependent on oil and especially the public sector. So we think it remains an attractive option for the future. Obviously, now as we speak, very much under pressure. Thank you. Our next question comes from Jamie Norman from Societe Generale. Please go ahead. Your line is open. Very good morning to you both. Some questions about the market. Firstly, Mexico, your main competitor was very upbeat about their performance and their market position. So just really first to check out how you feel about your position there. And more generally, Mexico is a place to do business now that the elections are out of the way. Second question is on Spain, which for most of the years post crisis was a real stalwart. Clearly and rather freakishly, it's suffered from poor weather, But just to comment on the kind of medium term potential for that market. And very finally, a question on the UK and CO2 shortage and whether having built up stocks you're now able fully to supply the trade? Thank you. On Mexico, yes, we noted also the upbeat reports, but our performance have been rather good in Mexico, though I admit we lost a bit of share. If you look at on the longer term, there were periods where we gained a bit. There were periods where we lost a bit. On average, it remains pretty balanced. There is a kind of a beat in that market. When we gain a bit, then it unleashes a reaction on the other side. And I suppose they would tell you the same. Anyhow, we go not so much after our competitor. We go after consumers in Mexico, and that is where the full focus go on. And I have to say, we had a very good growth still in Mexico over the first half of this year. Your second question was about Spain and the medium term. Spain remains a beer market. It remains the beer category is very well developed in Spain. And but one of the features that you have to observe in Spain, it is a very regional market. That is one that you have to bear in mind. We are a very leading player in the southern part of Spain and the southeastern part of Spain. This is where our strongholds are. These are also the regions in Spain who economically on average are a bit weaker than the north of Spain and Catalonia. And so in terms of relative position, we might feel that a little bit. But it is a business that has been rebounding quite nicely from the crisis back now 10 years ago. And so this year was a little bit more under pressure, I would say, but that has for a lot to do also because of the positions that we have in Southern Spain. And then the And then on the CO2, so back on track, still replenishing the stock, so quite a stretched position given the incredible weather. And yes, we lost a bit of volume, but what I would say is that cost increased a bit because what happened, we didn't lost too much volume because there was a huge solidarity of also shipping from other places and other breweries in Europe. But then your logistics costs are higher to actually deliver the beer. So that is the impact, but we're back on track. Thank you very much. Our final question comes from Fernand de Boer from Petercam. Please go ahead. Your line is open. It's Fernand de Boer from Degroof PDK. Two questions actually. One is on Brazil. The much faster growth than you anticipated. What is driving that growth? Is that actions taken to you? Or is it in fuel market, just the market? And then the second question is on your financial position. If you say the first half cash flow is sustainable with your payables and your net debt to EBITDA moving in the right direction of 2.5% and probably being low at year end. Is that meaning that you have some room for doing share buybacks? Quickly on Brazil, it's across the board and it's markedly in the premium portfolio. It's across the board. I mean, it's in the portfolio of Heineken. It's Heineken Amstel Sol, but it's also the premium portfolio of Kirin, the Vassarbadenbaden, Eisenbahn, all these 6 key brands on a high growth trajectory was a good performance of Kaiser and slight decline perhaps of skincareol, but not in an alarming way. So the mix works quite well. The overall volume is also quite well in Brazil, and it's across the board, which is practically all regions are contributing to the growth in Brazil. So pretty balanced growth profile in Brazil. And as regards our net debt to EBITDA position, yes, we are at about 2.5, which is our long term target. As you know, every year, we do a number of acquisition, acquisition of greenfield, which is another way, I mean, to develop in countries where we're not yet. We've done one share buyback program in the recent past that was Empake. When we sold Empake, we actually say we sell a non core business. We will actually give back the money to the shareholders. And but share buybacks are not something that we are planning to do. Okay. Thank you very much. As there are no further questions from the phone, I will now turn the call back to your host for any additional or closing remarks. Yes. With that, I thank you for your attention. Frederico stands by if you have further questions. And thank you for your time this morning. Thank you. Have a nice day. Bye bye now. That will conclude. Thank you, operator, for having servicing us this morning also. Thank you. With that, I close the call on our side. Thank you for your participation, ladies and gentlemen. You may now