Good morning, everyone, and thank you for joining us today for Heineken's 2015 full year results. For your information, this conference is being recorded. There will be an opportunity for questions at the end of the conference. If you would like to ask a question, please press star one. At this time, I'd like to turn the conference over to Heineken management and investor relations. Please go ahead.
Thank you. Good morning, everyone, and thank you for joining us today for our full year 2015 results conference call. I'm joined by Jean-François van Boxmeer, CEO and Chairman of the Executive Board, and Laurence Debroux, CFO and Member of the Executive Board. Following some prepared remarks, we'll open the call for your questions. With that, I'd like to hand the call over to Jean-François.
Thank you, Sonya, and good morning, everyone. Let me start on slide three by saying that performance in 2015 was in line with our expectations. When we last spoke at the half year results, we highlighted the strong prior year comparatives and challenging conditions in a number of our markets, including Nigeria and Indonesia, which are impacting our business. In 2015, despite this, we still delivered top line and profit growth and delivered results in line with our guidance and expectations, demonstrating the further progress we have made delivering on our strategy. In 2015, revenue grew 3.5% organically with positive organic volume as well as revenue per hectoliter growth. Consolidated beer volume increased by 2.3% organically with growth in the Americas, Asia Pacific and Europe, more than offsetting weaker volume in Africa, Middle East and Eastern Europe.
Heineken brand volumes in the premium segment was up 3.5% for the year, with growth across all regions and double-digit growth in a number of key markets. On top of this, our portfolio strategy is working. Our innovation rate of 9.2% generated impressive revenues of EUR 1.9 billion. Operating profit beia was up a healthy 6.9% organically. In 2015, we delivered 23 basis points operating profit margin expansion. In fact, the underlying expansion was actually 46 basis points before the 23 basis points from the dilution from EMPAQUE. It's a coincidence, it's two times 23. This was in line with our guidance for 2015, namely that we would partially but not fully offset the dilutive impact of this disposal. Diluted EPS beia was up 17%, mainly driven by organic growth and with the positive currency benefit almost entirely offset by the negative impact of consolidation.
It is important to highlight that the 2015 results were in the context of an increasingly volatile global backdrop, particularly in the emerging markets. Turning to slide 4, the results clearly demonstrate that Heineken's unique and diversified footprint is delivering strong, balanced growth. Notably, the developed markets delivered good growth, offsetting some of the developing markets' weakness in Africa, Middle East and Eastern Europe. Consolidated beer volume in Africa, Middle East and Eastern Europe declined by 2% organically. Beer volume in the region remained under pressure as the impact of affordability combined with weaker tourism impacted the business. We saw strength in markets like Ethiopia, but weaker volumes in Russia, Belarus, the DRC, Nigeria and Egypt. Quite a long list. Revenue per hectoliter growth was up 4.3%, benefiting from the success of the premiumization strategy in Russia.
In Nigeria, full year volume was down in the low single digits, although trends improved in the second half of the year with slightly positive volume. The performance of Goldberg, Life and 33 Export, those brands remained very strong, benefiting from the continued outperformance of the value for money segment relative to mainstream and premium beer. Merger synergies were fully delivered along with other cost savings, partially offsetting the negative mix and devaluation impact. Operating profit (beia) was down 11%, negatively impacted by tough macroeconomic conditions in the region. In the Americas, consolidated beer volumes was up 5.1% organically, with positive growth in Mexico, Brazil and the U.S., and volume growth accelerating in the second half of the year. In Mexico, we saw mid-single digit volume growth driven by effective marketing and sales programs and benefiting from strong industry growth.
Higher pricing, continued cost savings and successful revenue management delivered profit growth and further margin expansion in Mexico. In Brazil, our performance was strong with volume up in the high single digits, benefiting from successful premiumization and despite a difficult macroeconomic backdrop and tough comps in the prior year given the football World Cup. Heineken volume was up double digits, delivering market share gains in the premium segment. In the U.S., sales and depletions were up just under 1%, continuing the outperformance against the overall U.S. beer market. Our Mexican brands continue to be the key growth drivers, with both Dos Equis and Tecate volume up mid-single digit. Heineken brand continued to show improvement. All in all, with 15% organic profit growth for the region, it was an excellent year. Asia Pacific continued to show strong momentum with consolidated beer volume up 6.3% organically.
Strong volumes in Vietnam, Cambodia, Myanmar, Korea, and Sri Lanka offset weaker volumes in China and Indonesia. In Vietnam, beer volume grew double digit, driven by strong performance of the Tiger brand. Heineken also had a strong start in 2015, boosted by the Vietnamese Tet New Year, and was up low single digit for the year. Volume in Vietnam benefited from improved consumer confidence, as well as the success of the portfolio strategy and strong commercial execution. Regional revenue per hectoliter was down 2.1%, adversely impacted by negative country mix. Adjusting for this, it would have been up 1%. The region also delivered strong organic profit growth of just under 10%, particularly driven by the strong performance in Vietnam as well as Mongolia, Singapore, Sri Lanka, and Korea.
In Europe, consolidated beer volume was up 1.3% for the year, with growth skewed to the second half on the back of the strong third quarter. As you know, some countries in the region saw better weather during the year, and some were helped by easier comps given flooding in the prior year. Revenue per hectoliter was flat, reflecting deflationary pressure, especially with the off-trade, which we highlighted in our 2015 guidance. In the U.K., volume declined in the low single digits as continued promotional pressure and challenging market conditions impacted performance. In France, Spain, and the Netherlands, volume was up in the low single digits, and in Poland, the benefit of relisting in a modern trade customer resulted in volume up high single digits. Operating profit beia was up an impressive 7.3% organically, driven by disciplined cost management, a continued focus on innovation, and the successful premiumization strategy.
Turning now to slide 5. In 2015, Heineken premium volume was up 3.5% organically. Importantly, growth was seen across all regions, and the brand continued its positive growth trend. Double-digit growth in 2015 was seen in Brazil, the CCU markets, the U.K., South Africa, and Mexico. Strong growth was also seen in Spain, as well as positive volume growth in Vietnam and continued improvement in the U.S. This more than offset weaker volumes in Nigeria, Cameroon, Greece, and Indonesia. The Heineken brand equity was supported by a highly successful campaign around the UEFA Champions League, as well as its partnership with the James Bond franchise and the sponsorship of the 2015 Rugby World Cup. There's an exciting pipeline for the brand in 2016, including the Moderate Drinkers Wanted campaign and the Cities campaign, as well as the key sponsorships. We are confident about the new year.
Of course, although Heineken remains our largest brand, we have a far broader portfolio driving the group results. Our Sol, Affligem, and Desperados brands delivered double-digit growth volume in the full year. Our regional power brands such as Tiger, Dos Equis, and Tecate all continued to deliver strong volumes too. In most markets, our mainstream brands remain key in providing scale to grow the premium platform. I would like to spend a minute talking about cider, an area where you know we are actively building the category. Cider volume was up mid-single digit with double-digit growth in the second half of the year, more than offsetting the decline in the first half. In the U.K., we saw positive performance. For the first time, volume outside the U.K. crossed the 1 million hectoliter threshold.
In Europe, strong performance was seen in Romania, Slovakia, the Czech Republic, and the U.S. and Mexico were the main drivers of growth in the Americas for cider. Turning to slide 6. Innovation remains a source of competitive advantage and a sustainable contributor to our profits. With this context, 2015 was an excellent year for innovations. Our innovation rate increased to 9.2%, our highest ever rate. Not only is this fully embedded within the company strategy, it is also really in our employees' way of thinking. This contributed EUR 1.9 billion of revenues. Our innovations focuses on four themes, which I'm sure you're familiar with following Jan-Derck van Karnebeek's What's Brewing seminar last year. Namely, leading innovation in cider, improving the quality through draft, sizing the low and no alcohol opportunity, and satisfying the need for craft and variety.
We continued to lead innovation in the cider category with the successful launch of Strongbow Cloudy Apple in the U.K., and further Bulmers flavors, including Bulmers Zesty Blood Orange. Old Mout, our New Zealand cider, continued to perform very well also. One of our stars in innovations are Radler, and is now present in 46 markets across all regions. This is directly addressing the emerging theme of moderation and creating new drinking occasions for our brand. Its success has ensured that we are market share leaders in this growing category. Our zero variants, so zero alcohol variants, continue to gain positive momentum and are now available in 17 markets, with more rollouts planned for 2016. Improving the quality of the draft offer, I would like to give you the example of The Sub, our at-home draft beer system, available now in five markets, which continues to show positive trends.
We are also extremely excited about our partnership with Lagunitas. As the flagship Lagunitas IPA brand, one of the fastest growing IPA brands in the U.S., complements our existing brands, satisfying the craft and variety segments. Slide seven shows a breakdown of the delivery of margin expansion in 2015. As you can see, the impact of EMPAQUE disposal was diluted from margins by 23 basis points. Given the underlying margin expansion was 46% or 46 basis points, sorry. This resulted in overall net margin expansion of 23 basis points. 2015 continued the positive margin trend that we have seen since 2011. This margin growth was delivered in a balanced way through effective revenue management, continued focus on innovation, and investment in our brands, combined of course, with cost effectiveness. With that, I would like to hand over to Laurence to take you through the 2015 financials in more detail.
Thank you, Jean-François, and good morning, everyone. Let's go now to slide nine. As Jean-François said earlier in the call, we delivered strong top and bottom line performance in 2015. Volume growth was more pronounced in the second half, given a strong Q3, also helped by better weather, but mainly thanks to the execution on the strategy. Positive volume momentum as well as growth in revenue per hectoliter led to organic growth of 3.5% in revenue. Operating profit BEIA was up 6.9% organically, driven by those higher revenues as well as cost efficiencies and demonstrating operating leverage. As you have seen, we increased our operating profit BEIA margin by 23 basis points, even after the dilution impact from EMPAQUE. Bottom line results benefited also from a lower total interest cost and from slightly lower effective tax rate, which we expect to stabilize in 2016.
As you know, the bulk of the refinancing is now behind us. All in all, net profit reached EUR 2,048 million, 16% higher on an organic basis. The difference of EUR 156 million between net profit BEIA and net profit corresponds primarily to the amortization of acquisition related intangibles. Exceptionals are pretty neutral this year, with the gain of EMPAQUE disposal largely offset by a combination of asset impairment and restructuring expenses. Finally, diluted EPS of EUR 3.57 was 17% higher than last year. Free operating cash flow, strong and up 7.5% on the prior year. At the end of 2015, our net debt to EBITDA ratio was 2.4 times, so below last year and in line with our guidance and commitment to the credit agencies to stay or to quickly come back at 2.5 times or below. Moving now to slide 10.
You can see here the build-up of the year-on-year growth in revenue. Consolidation added 0.5% or EUR 85 million in 2015, with the incremental revenue from Slovenia, Malaysia, Jamaica, and South Africa more than offsetting the negative impacts coming from the EMPAQUE disposal, actually. Currency also had a positive impact of 2.5% or EUR 489 million. This was mainly driven by the appreciation of the U.S. dollar, the U.K. pound, and the Vietnamese dong. Strength in these currencies, along with some other smaller favorable translational currency movements, more than offset the negative impact of the Russian ruble, the Brazilian reais, and the Nigerian naira. Turning now to slide 11. Operating profit (beia) was up 6.9% organically to EUR 3,381 million. Consolidation impacted operating profit negatively by 2.1% or EUR 69 million.
Clearly, the disposal of the EMPAQUE business, including within head office, more than offset the additional profits from the acquisition across the business during the year. Currency was positive, adding 3.3% or EUR 104 million, largely due to the Vietnamese dong and U.K. pound. Let me provide you now with some further insight into some costs across the business. Total expenses, beia increased by 2.9% organically. Input cost prices were slightly down, as guided, but with the combination of mix shifting towards more packaging and the adverse transactional currency impact for emerging market buying in hard currencies Input costs were up 2.7% per hectoliter. As for marketing and selling spend, it increased to 13.4% of revenue from 12.7% last year in a deliberate step to step up in brand investments across our business, and importantly, without jeopardizing our operational margin improvement.
Coming back to our midterm guidance, it really enables us to maneuver as fit to drive the growth and the sustainability of our results. On a regional basis, Americas region was the main driver of the organic operating profit (beia) growth, with Europe and Asia also positively contributing. The growth in these three regions more than offset the weaker performance in Africa, Middle East and Eastern Europe. If you now look at the diluted EPS on slide 12, on a reported basis, it was up 17% for the full year at EUR 3.57. Consolidation and currency more or less compensated each other and the majority of the uplift, as you can see from the chart, so some EUR 0.50 came from organic growth. This included EUR 0.02 benefit from the share buyback, which we did during the year using part of the profits from the EMPAQUE sales.
Let's now have a look at the free operating cash flow. As shown on this slide 13, it remains robust with a generation of EUR 1,692 million in the period. The increase compared to 2014 was due to a positive change in working capital during the period, which more than offset the higher level of capital expenditure as we stepped up investments for future growth in developing markets. The change in working capital. A few more words about that. You can see a positive effect on inventory and on suppliers. On suppliers, a large part of the impact comes from supporting business growth, but it's also coupled with extended business payment terms. This is driven by the implementation of supplier finance, both at global procurement and level and in some local markets.
As we extend the payment terms and our suppliers benefit from our credit rating with the bank, so it's a win-win. Payables also increase as a consequence of CapEx investment that will materialize in the first part of 2016. Coming now to CapEx, we continue with our strategy to invest ahead of the curve, focusing on our high growth emerging markets. For the full year, this resulting in a CapEx to revenue ratio of 8% higher than last year, and we expect CapEx in 2016 to be slightly above EUR 2 billion. A further step up in this. Consistent with what we said before, most of this CapEx is in developing market with around 75% of CapEx allocated to these countries. Projects in 2015 included extension in Brazil, China, Cambodia and Ethiopia.
We opened a new brewery in Myanmar in July, we'll open one in Shanghai during the first half of 2016. As we know, we announced that in the coming years we will be building breweries in Mexico, Brazil, Ivory Coast, East Timor, to name a few. At the same time, we continue to have a sound cash flow generation and a healthy balance sheet. Our net debt to EBITDA ratio decreased from 2.5 times at the end of 2014 to 2.4 times at the end of 2015. Our long term target for net debt to EBITDA remains this ratio below 2.5 times. I would like to now touch on some of the financial guidance for 2016. Turning first to currency.
During 2015, currency rates were very volatile with a favorable full year impact of EUR 104 million at operating profit level and EUR 70 million at net profit level. This was a little better than the guidance which we revised with the Q3 results, mainly due to the U.S. dollar movement. Key currencies that contributed to the total 2015 year movements, full year movements, which I've already touched on, included Vietnamese dong, U.K. pound and U.S. dollar. For 2016, assuming spot rate at 4th of February, we expect an adverse foreign currency translational effect of approximately EUR 60 million at operating profit and EUR 35 million at net profit. As current foreign currency rates remain very, very volatile, of course, we will update you at the time of our year results. In 2016, we also expect an average interest rate of 3.3%.
As you know, we are now done for the short term with refinancing higher coupon debt, not so much leverage here next year. As for the effective tax rate, BI, it should be broadly in line with 2015. We expect as we are stepping up our investment for future growth in the new breweries in Mexico and Brazil, to name again, just a few. In 2015, we clearly did a number of small and medium bolt-on acquisitions, we wanted to provide you with a bit of help with modeling this moving forward. We have quantified the impact of some of the larger transactions for 2015.
Had these been included in our results for a full year, and more specifically, had the Lasko transaction in Slovenia and the transaction with Diageo relating to Jamaica, Malaysia, Singapore and also South Africa been fully consolidated for the year, the estimated impact at revenue and operating profit level would have been EUR 840 million, that's for revenue, and EUR 110 million for operating profit beia. One more thing in terms of housekeeping. In 2016, we will be changing the Q1 and Q3 by focusing them to update the market on volume development and key macroeconomic trends only. On that basis, we're not planning on hosting formal calls, but we will, of course, be available for your questions in meetings or through investor relations. With that, I would like to hand back to Jean-François to conclude before we open the call for Q&A.
Thank you, Laurence. To conclude, in summary, our 2015 results reflected strong performance, showing successful delivery on our strategy. Our continued focus on our strategic priorities, namely focus on innovations, driving excellence in execution, that is sales execution, and on investing in our brands, all delivered results. In addition, the organizational changes that we have made during the year have made us more agile in responding to consumer needs, and at the same time, a little bit more cost effective too. Turning now to our 2016 outlook. We expect further volatility in emerging markets and inflationary pressure. We expect positive top and bottom line growth, however, and margin expansion in line with our medium and term guidance of around 40 basis points. With that, I would like to thank you for your attention of our small introduction and open the floor to your questions.
Operator, all over to you. Thank you.
Thank you, sir. If you would like to ask a question at this time, please press the * key followed by the digit one on your telephone. Please ensure the mute function on your telephone is switched off to allow your signal to reach our equipment. If you find that your question has already been answered, you may remove yourself from the queue by pressing * two. Again, please press * one to ask a question. We'll pause for just a moment to allow everyone to signal. Now take our first question. It comes from Edward Mundy of Nomura.
Good morning, Jean-François and Laurence. Three questions, please. The first is on margins. There's a material step up in the EBIT margin in Asia in the second half, despite weaker pricing and slower volume growth versus the first half. Can you talk about what has driven this? Secondly, on Africa, Middle East, and Eastern Europe, your revenue per hectoliter in the fourth quarter seems it's deteriorated a little bit versus the nine months. Could you talk to what the key drivers are here and whether you'd expect revenue per hectoliter in this division to recover in 2016? The third question's a pretty broad question. Jean-François, I think you mentioned on Bloomberg this morning that your diversified portfolio provides a natural hedge against emerging market volatility.
Could you talk in broad terms as to which of your markets you're seeing an acceleration into 2016 and where are you seeing a deceleration?
You can take.
I'm going to take the first one on margin. On Asia Pacific, we're particularly pleased with the evolution of the margin of Vietnam. This is supported by the strong growth in Vietnam and also by the fact we mentioned several times in our remarks the positive effect of the currency of Vietnam. While some other emerging markets had actually a headwind on transactional on currency, Vietnam had a little bit of favorable wind on that. That's a combination of the two. Really the strong growth of Vietnam is what drives the margin in Asia Pacific.
That's the Vietnamese subsidiary's margin and also a positive geographic mix within the Asia division.
The mix in the Asia division is helped by the fact that actually Vietnam is growing very fast and improving.
Got it. Yeah. Then you're also in the sweet spot of capacity utilization. Never forget our industry, it has high fixed production cost and half the revenue are supply chain bound. So when you are at that sweet spot, when you use at max your capacity, you always have the best margins, and that also fluctuates in itself. That's something we use to manage. Your question was about what's going on in Africa and Middle East. It's a very contrasted picture, so you cannot make it a general response. I start with Nigeria because it's a big chunk of our Africa operations, and it is also a stock-listed company, so you will be able to scrutinize their accounts later in the day. We were definitely under pressure more in the first half than in the second half.
The market is, in volume, quite resilient to the recession which is going on. Recession, which is a consequence of the low oil prices, essentially. This is a shock which is very difficult for Nigeria to absorb. One has to realize that. The volumes in Nigeria are upholding quite well, though, by the sheer fact that we offer also value brands makes that you have a mix shift towards these value brands, which is ongoing. That is not from yesterday. It will continue going into the next year. Those are the headwinds. We focus on productivity. We focus, obviously, on those volumes, but it comes at the price of a deteriorating mix, which you can do nothing about. Medium term in Nigeria and longer term, when things go better, consumers naturally tend to go back also to more premium brands like Heineken.
I remain confident for medium and long term for Nigeria. Going into 2016, with the low energy prices, the low oil prices we have, it's a tough job. This is not all of Africa, and Africa is a mixed bag. We have had Egypt, which is suffering in the second half of the year because tourism falling out, and that will have an effect in 2016, we suppose. On the other hand, we saw Ethiopia growing still in the strong double digits this year. Ethiopia is a very good and promising geography. It's a mixed bag of things. Russia, which is now included in that region, has had also tremendous headwinds. We had our volumes going down something like 8% in Russia, but through savvy pricing, if I can say, and restructuring, we could improve our results.
Going into the year 2016, it's not going to be easier of doing business in Russia. Clearly, the region, Africa, Middle East, and Eastern Europe is going to stay the region which concentrates the most of the headwinds, still with a lot of pockets of opportunity. Our investment in Côte d'Ivoire, which will have to come up to stream in the course of 2016, is a sign of faith that overall for medium and long term, we remain very optimist and just realistically optimistic about the potential of the region for our business. The first question was about our portfolio hedge. It is a natural observation. We have been investing a lot in changing our footprint over the last 15 years.
I always say in the year 2000, we were for 80% of our profits came out of Western Europe and North America, or the U.S., to be precise. 15 years later, 60% of our profits come from so-called emerging markets, which didn't exist in our portfolio, most of them, 15 years ago. Long term, we continue to follow where there are demographics playing in our favor and where there is economic development and a high urbanization. It goes with a stop and go, like we see in China today, like we see in Brazil today, like we see in Nigeria today. You have some countries which definitely are going into a stop. We believe medium and long term that those countries remain a go. Therefore, we invested in these countries. We are market leader in Europe, and Europe benefits, of course, marginally from lower oil prices.
Consumer sentiment is a bit better than it used to be in most of the countries in Europe, more in some than others. Take the example of Spain, that was quite noticeable in 2015. This is where plays in the natural hedge and investing into innovations in Europe provides for some growth. The hedge is in the fact that we are not overdependent on the limited number of countries, which when they are in recession, would throw all our business in disbalance. That is what I mean by that natural hedge.
Great. If I could just follow up, in terms of in 2016, which markets you're particularly excited about? I mean, Mexico, Vietnam, they've been very strong drivers of growth. You're still pretty optimistic about the outlook there?
Yes, we are. In Vietnam, we have to be conscious of the fact that there is an excise duty increase which will come up, which the height is not yet totally known, but that will certainly impact on the short term on business. As ever, it requires some time to digest these kind of price increases, which are pushed by the government upon us. We remain for the 2016 year, quite optimistic about a country like Vietnam, nevertheless. Ethiopia, Mexico, and even Brazil, which has difficult times, but the Heineken brand has momentum. Is an extraordinary momentum, and we continue to invest behind it, and I would dare to say that up to the Olympics, we are still optimistic about our development in Brazil.
Thank you.
We can now take our next question. It comes from Simon Hales of Barclays. Please go ahead, sir.
Thank you, and morning, everybody. Jean-François, could we just go back talking a bit more about Nigeria and the performance there? I wonder if you could talk perhaps about the performance outside of the beer category for things like Ace Roots through the second half of the year and how you see that category developing in 2016. Secondly, on Nigeria, can you just talk about a little bit about how you're operating on the ground? Some of the other consumer companies have talked about increasing difficulties getting hold of hard currency with which to buy imported raw materials. I'm wondering what you're seeing there and how you're thinking in terms of your overall guidance in relation to a possible devaluation that we may see in the Naira going forward. Then secondly, just going back to the comments that Laurence made on scope benefits for 2016.
You talk about EUR 110 million of EBIT on a pro forma basis. How much of that was actually already in the base reported number for 2015? I.e., what's the incremental really?
Let me first take your question about Ace Roots and that ready-to-drink category, where Diageo is clearly the market leader. It's a competitive response to that I look up the volumes. It's 130, and it's a few percent of the total volume. Ace Roots, it's okay, but it's very small. We have seen that category declining anyhow, in Nigeria. It's not something. Also, it's a tactical response. It's not a very strategic line for us. Expectations are also not high. We're very much more into our beer portfolio and our non-alcoholic portfolio with the Maltina. That is where we concentrate much more on in Nigeria. I wouldn't put too much emphasis on the Ace Roots competitive position herein. The operating difficulties we have in the countries are the ones you are underlining.
There is a huge discrepancy now between the official rate and the parallel rate of import. We have to, sorry, foreign exchange currency. Our imports go over the official rate, as you can imagine. Accessibility to foreign currency might be an issue. Far, we do not have functioning problems for our operations. One has to realize that we also use part of our raw materials are locally produced also. We have to be savvy, and we have known from the past, and I refer now to the early 1980s, where even imports were totally banned, and we continued to produce beer. This is how Nigerian Breweries has taken share originally and taken market leadership back 35 years ago, when there was an import ban.
I'm not calling this to happen, but we have some opportunities to withstand a crisis, but sure, having hard currency is not going to get easier. Let me put it that way. For the last question, I turn to Laurence.
Yes. To answer your question, Simon, in 2015, in the reported accounts, you have on revenue EUR 175 million, and you have an operating profit about EUR 15 million.
Yes.
Perfect.
It's anyway out of the organic growth. That's really on the reported revenue numbers.
Absolutely. Just going back, Jean-François, your comments around Nigeria, just so I'm clear, in terms of your expectations overall for Nigeria and for the wider group this year, you're assuming that the official rate of naira against the dollar or the peg rate holds?
I wouldn't make that bet. I wouldn't make that bet. I cannot make you the prediction where it will land. I think the situation where it is now isn't sustainable.
Brilliant. Thank you ever so much.
Thank you. We can now take our next question. It comes from James Edwardes Jones of RBC. Please go ahead, sir.
Morning, team. Very quick one. The 40 basis points per annum of EBIT margin guidance that you gave over the medium term, I think you've indicated that 2016 is the last year that that applies for. Is it too early to be asking what comes next?
It is actually a guidance on operating margin increase, as you know. That's before JV and associates. We have indicated that when we announced it, that it was mid-term guidance. I would think mid-term probably goes into 2016 and 2017 as well, too early to talk beyond that, you can expect that anyway, margin expansion remains a strong focus for us.
Thank you.
Thank you, sir. We can now take our next question. It comes from Trevor Stirling of Bernstein. Your line is open. Please go ahead.
Morning, Jean-François and Laurence. One question from my side. You've maintained the guidance of 40 basis points for 2016, you've already referenced the strong transactional FX headwinds you're going to be facing on raw materials. Maybe just give us some color around what gives you that confidence that you can deliver on the margin expansion this year as well.
Yes, I understand where you're coming from, Trevor. We have to maintain that discipline, and it's a mix of two things. On the one hand, we have to continue to work on our productivity. That's a never-ending story, obviously. Part of margin improvement comes from there. That is something you can really do regardless what your currencies are going up and down, and we will continue to do that. On the other part, we are working on an innovation strategy and a premium strategy. We over-focus on premium and innovation, and innovation within innovation, it's more premium. That is where the two sources of margin improvement structurally come from. Now we have to work our way through all the things that we cannot necessarily predict and which are very volatile in the first way, our currencies.
Let me put it, very volatile currencies and difficult to hedge currencies like the naira, it is indeed difficult to make any predictions. On the other side, we have also hedging instruments for more stable currencies to put a leeway into that. That's how we operate. Productivity on the one hand and on the other hand, concentration on premium end of the portfolio and innovations gets us there.
Thank you very much, Jean-François.
You're welcome, Trevor.
Thank you, sir. We can now move on to our next question, that comes from Karel Zwaan of Rabobank. Your line is open. Please go ahead.
Yeah. Good morning, all. Thanks for taking the questions. I have two questions on pricing. The first one, how should we look at pricing overall in 2016? We have a deflationary market in Europe, but also some import inflation in other markets. A second question on pricing, can you highlight the reduction of the average price point in the Nigerian market over 2016? The second question is on CapEx. Do I get from the remarks that also beyond 2016, you expect CapEx levels to remain rather high for the coming years? Thank you. Hello?
Pardon the interruption, ladies and gentlemen. We are just experiencing a momentary problem on today's conference. Please stand by. Thank you.
Okay.
Please go ahead.
Yes, sir. Sorry, the line got cut. We were answering a question on pricing. Pricing overall, as you see, the revenue per hectoliter is up 1.3% in 2016, and it's actually a mixed bag. We do take pricing whenever it is possible, and it doesn't hurt the brand. We do know that it's been more difficult. Apart from some countries, it's been more difficult in 2015. Talking more specifically about Nigeria, what you've seen is the whole market move as people were more going in towards value and mainstream brands. The average pricing for the market is definitely down, and even premium moved a bit down too, to actually cater for affordability in hard time. You also had a question about CapEx. CapEx definitely slightly higher next year. This is a sign of the confidence that we have in our emerging markets.
The fact that we believe it's now time to invest in a number of them. A pretty obvious one, Mexico, when you see the result of this year and the way the market is behaving and the consumer confidence. Actually, the fact that the country is less dependent on oil exports than other emerging countries, they are all reasons to be optimistic and to continue investing in this country. We're also talking about Brazil, where we have an incredible momentum of the Heineken brand. To move back to the African continent, talking about Ethiopia, where the brewery that we built in 2014 is already full, and we're actually doubling this capacity in the coming year. That's what explains this CapEx investment moving into 2016 and probably 2017 as well.
Thank you.
Thank you. We can now move on to our next question. It comes from Sanjeet Aujla of Credit Suisse. Please go ahead.
Hi, thanks for the question. Can you just give us a sense of where you expect sustainable level of marketing spend going forward? You've had a step up over the last couple of years. Do you think you can maintain those rates, or the ambition is to grow that as a percentage of sales? Just coming back to the outlook comments, just given some of the challenges that you cite, particularly across your emerging markets, do you think you can achieve a similar level of top-line growth as you did in 2015? Or is that perhaps a little too ambitious at this stage? Thanks.
I don't push buttons anymore on the telephone because I switch you off it seems. I'm very sorry about having done that. For the marketing support investments, it varies in a corridor for us. The levels we had in 2015 are indeed solid levels, but they were also rewarding because we had a 3.5% revenue growth, and we could get out margin expansion and the whole lot. It's a virtuous circle. Considering that we gonna go up there might go too far. That is where I think I'm very satisfied with the current levels of spending, going forward, if I can give that as a kind of a guidance.
It is true that we stepped up over the last three years, and we stepped up predominantly for having a better top line as a result of it, so far it works in a virtuous circle where we also can improve the margins.
On your question on the outlook, we are confident to grow top and bottom line as you read. We're not giving granularity on the level of this growth. We are fully committed to delivering on the guidance on the margin. You can see from our markets where we actually are expecting the highest growth for next year and where we have more challenges. We're definitely committed to both top line, bottom line growth and to also increase the margins.
Thanks. Just a quick follow-up on transactional FX. Are you able to just quantify that for 2016? What's the magnitude of the transactional currency impact that you have? I know you've quantified the translational impact, but that would be very helpful as well.
Yeah. On U.S. dollar, we hedge. On the other one, it is a matter of where those currency will be, they are definitely very volatile. We are mitigating this effect by hedging whenever we can, but some of this currency are not possible to hedge. We're also mitigating this by increasing and then continuing pursuing our effort to increase local sourcing in a number of emerging markets. Other than that, no, we're not quantifying it.
Okay, thanks.
Thank you. We can now move on to our next question. It comes from Gerard Rijk of SNS Securities. Thank you. Please go ahead.
Yes. Thank you very much. I have three questions, if I may. Again about that CapEx level. You mentioned the 2016, that's clear above EUR 2 billion. This project probably continue into 2017. Can you be more specific on that level already? Will that be again substantially above the depreciation level? Second question is about Lagunitas. Can you be more specific about the plans for that one? Will it become part of your top six portfolio in premium brands? Third is about your savings and eventual plans about shared service centers in other regions than Europe.
We don't give guidance beyond the year after. We were just indicating we are spending this CapEx. The previous gentleman from Credit Suisse asked how strong we believe in the guidance. We wouldn't invest in these CapEx projects if we were not confident in the guidance we give, obviously. It's the chicken and the egg. We are embarked under a program where we invest in growth, it's a growth essentially in new geographies. Laurence was pointing out, or in newer geographies like Brazil and Mexico, but also Cote d'Ivoire, expansions of Ethiopia, expansions in Vietnam, all are on the program to sustain growth. They are multi-year programs. That is for sure.
It is always a little bit difficult to predict over a year precisely what it will be, because on the one hand, we of course know what the growth investments will be over the next coming few years, but we still have a valve for the replacement investments to play with. We are a heavy industry, we shouldn't be casual about investments. You can be casual about investments and replacements investments for a year or two. If you would do that for three, four years, you would run into terrible problems. Heineken has a tradition of maintaining its standards of quality, food safety, and it goes hand in hand with productivity. There is no productivity improvement without also capital spendings. The whole mix has to be, again, virtual, but that is what we concentrate on what that concerns.
We don't give you a guidance over next year, but I give you some context. Lagunitas, we took a 50% stake. It's basically Lagunitas who runs the show. They have posted a fantastic performance in the U.S. over 2015. We're really very happy. Of course, we'd like to have and carry Lagunitas in some geographies outside of the U.S. as a American IPA. It's leader in its class in the U.S. It's a fantastic product. It has a fantastic story to tell, we will, most probably this year, take it into other geographies. I won't go specific in the details. Of course, we didn't put the investment we put in it not to try to also export it outside the United States.
To answer your third question on shared services. In 2015, we actually opened shared service centers in China, in Singapore, and in Mexico. We are starting in those regions. To give you a bit more information about the Mexican one, for instance, we have started by taking over some of our operation that were totally outsourced within the shared service center. Obviously, given the size of Mexico, we think it makes perfect sense that Mexico, at some point, becomes also a shared service center for some other countries in the region. We are looking into that for the future years.
Okay. Thank you very much.
Thank you. We can now take our next question. It comes from Olivier Nicolai of Morgan Stanley. Please go ahead there, sir.
Hi. Good morning, Jean-François, Laurence, and Sonya. Just two quick questions, please. First of all, could you give us an update on your market share evolution in Mexico in 2015? If you could give us a bit more color as well by region between north and between Mexico City. Second question is about Africa, and particularly Nigeria as well. Could you just give us an idea of the percentage of your COGS which are actually in hard currency? How much of the decline in margin in Africa was actually linked with the negative transactional FX? Thanks a lot.
On question one, Mexico, we lost a bit of share in North Mexico, but that's slight, I would say. We hold up quite well. We lost slightly in North Mexico, but it's nothing where we get really panic from. On the transactional effect on the margins, we don't go there. We don't go giving that granularity of guidance.
Okay. Thank you.
Let's be clear. In Nigeria, we lost operating margins. The mix, we lost more on the margin due to the mix than due to the absolute volume. I want to be crystal clear about that. The volume losses are minute, but the margin loss has to do with the shift from the higher margin or the more mainstream plus to the mainstream minus brands, if you want. Frankly, in a context of recessions, we really do prefer that than to just fall out on volume because we remain a very volume sensitive industry. The mix works well. To offset that, we work, of course, on the synergies on the merge between Consolidated Breweries and Nigerian Breweries on the one hand, and we will have to continue to work on productivity also in Nigeria to compensate. Those are heavy shocks.
We have to say that it's a heavy shock. It's heavy duty.
Just a quick follow-up. Do you assume, therefore, further margin decline in Africa in your full year group EBIT guidance of 40 basis points?
I'm sorry. We don't give forward-looking outlooks on that.
Thank you very much.
Thank you. We can now move on to our next question. It comes from Anthony Akpala of HSBC. Your line is open. Please go ahead.
Good morning, everyone. Just two quick questions from me. The first would be on the new brewery in Brazil. In recent memory, Kaiser's had relatively poor capacity utilization. Have you closed that gap enough that you won't run into those kind of issues again if Brazil were to turn negative in the near future? The second is on the Indonesia mini mart issue. Is there any change in that situation? When do we start annualizing that? Is there any opportunity to get some sort of a bounce back like we had in Poland recently, the post delisting?
I start with the second one, Indonesia. No. Of course, we continue to fight behind the scenes to try to get that measure reversed. I can't make any forward-looking statement into that. It's our interest to fight it, but I'm not sure that we can restore it. That remains a difficult outcome. The introduction was April 2016, so the real comps will work as from May. The second half of this year is going to give us a little bit a better view on what the Indonesian business looks like. On the other hand, we have decided in Indonesia to boost more our non-alcoholic part of the portfolio, and we will invest as a hedge on that one. We have capacity available. That is not issue. It's not backed on any sort of additional investments. They have been made. They are there.
That is something we work. Will it totally replace the lost business of alcoholic business? Probably not on the short term, but it can certainly improve. We're working on that in Indonesia. On Brazil, our capacities, we extend because we have demand. The Heineken brand is essentially geared towards the Heineken brand. We have demand. The brand is on fire. We have been restructuring. It's a mixed bag of opening new capacity and closing old capacity. Brazil is a big country, and the original footprint was not necessarily geared to where we were strong. We have been restructuring and investing, and overall, including the plant, Goiás Brewery, it gives us a better footprint, and we believe that the Heineken brand has still potential for growth.
Obviously, we don't know how long recessionary conditions will prevail in Brazil, but we still see that within a weaker market, the Heineken brand benefits from a strong momentum, and we don't want to lose on that one. Obviously, when you gear up capacity, you can fine tune a little bit the capacities, but not that much. We remain, again, medium term, optimistic and just confident in making these investments in Brazil.
In the medium term, you're not adding a huge amount of hectoliter capacity in the market. You're just reorganizing it more effectively. Is that fair to say?
Part we do that, and part we add also, because we're growing.
Okay.
We're growing double digit with Heineken.
Right.
We do both.
Great. Thank you.
One has to realize, that is the specificity of doing business in Brazil. When you open a new brewery like we do in Goiás, we also benefit from tax incentives. They are integral part of doing business in Brazil. Wouldn't you factor that in, you don't do business in Brazil. One has also to realize that we can invest in Brazil at very attractive conditions. That makes the restructuring of capacity and more geared to where our markets are and where the growth is for us. It makes the whole lot working better for us.
Great. Thank you.
Thank you. We can now move on to our next question. It comes from Tristan van Strien of Deutsche Bank. Please go ahead.
Good morning, Jean-François, Laurence. Three questions, if I may. Just to come back on Nigeria, you had a similar risk of devaluation back with Buhari the first time around, as well as in 1985, as well as in 1998 and 2008. Yet Nigerian Breweries seemed to actually grow during that period and next year double down. If a devaluation happens, what is different this time, if it is, and what you do those last three times to make sure that the business kept going, and can you apply those things today? The second question, just a bit more color on Tiger, which you didn't really expand on. I just want to know, according to my numbers, the Tiger brand is now bigger than Heineken in Vietnam, and checking whether that's correct. The third one on Malaysia.
Now that you've got full control over that business, is there anything you'll be doing different there than under the previous management? There has to been a management change actually on the ground as well. Thank you.
Nigeria devaluation. Yes. I think in every devaluation you have, when it comes to you, it's what your reaction is. You price it in fully or partially. That's the question. You do that in light of the proportion of imported inflation that it gives you. That is what you have to take the decision. That decision is based on a volume, fixed cost-based equation also. It's not, "Oh, the Naira is devaluating by 20%," and you make just your arithmetics and you say, "Well, I have to increase my price by so much." If you increase your price by so much, what does it do to the volume? If your volume goes back too down, you risk not covering your fixed cost and going into a spiral. That is exactly the kind of decisions that you have to make when you land.
Of course, you're not waiting for the devaluation to happen. You prepare yourself with a number of scenarios and what if, and what to do in such a case. Functioning in high devaluation of high inflation environment, we know about. In my earlier years, 20 years ago, when the DRC was called Zaire, we had 11,000% inflation a year. I learned a big deal about how you manage that. I think for Nigeria, it's more difficult because those are not massive devaluations, but significant devaluation. That is much more complicated to handle than massive devaluations, because then you just have to follow the dollar, otherwise you're dead. That's fairly easy. Here, it's a mixed thing, and you still have a lot of local inputs that you have to fine-tune. Management, they can handle that properly.
Again, it is very difficult to predict what the effect will be at the end of the day. Tiger. Tiger is indeed higher in Vietnam, the Tiger volume than the Heineken volume. One has to also say that the positioning of the brand is not the same. When we acquired APB, for us, the Tiger brand is a superb brand, providing you position it not as a premium brand like Heineken is in terms of pricing, but as a mainstream plus brand. That is exactly what we have been doing in Vietnam. The price delineation in Vietnam between Tiger and Heineken has worked in the favor of Tiger, which has been growing much more rapidly than the Heineken brand, and which was also our intended desire.
Today, the Tiger brand is growing at a much higher rates than Heineken is, but that's also by design. You can extrapolate that strategy with Tiger to other markets. It's of course in Vietnam that it shows the strongest, but I think that we have other opportunities in other countries to work with the Tiger brand in a similar setting. We have been learning from that. Again, they compete, but they don't compete. Again, Tiger is a mainstream plus and Heineken is the premium. That is important. Finally, Malaysia. We were interested in consolidating Malaysia. We have been running the business. It was an alternative, kind of alternate managing directors between Diageo and Heineken. We believe that was not being shortcoming to the capabilities of the managers of Diageo or the ones of Heineken.
Continuity is what I think is the most important, and not changing the approach every four years as we were doing before. We see a number of opportunities to improve the business in Malaysia. We factored that in, but we think that essentially the stability of the ownership will provide for some uplift in the operation in Malaysia.
Thank you, Jean-François. Thank you.
I think if we can take one more question, and then
No problem. We can now take our next question. It comes from Andrew Holland of Societe Generale. Thank you, sir. Go ahead.
Yes, thank you. Just a couple to end with. You sort of slightly dodged the question a couple of times on how much of your raw materials in Nigeria are either imported or in hard currency. I seem to remember a figure of around 30% of your COGS as being bandied around before. I don't know if that's right. Perhaps you could help us with that. The other one is just on the figures you've given for the acquired businesses sales and EBIT. If I heard you right, Laurence, you were saying EUR 175 million of revenues were booked in 2015 and EUR 50 of operating profit. That's a margin of 29%. On the full year impact, EUR 840 of sales and EUR 110 of EBIT, that's a 13% margin. Is that difference down to seasonality, or is there any other factor at work there, please?
If I come back to the figure, sorry, it's probably my poor English, I meant one, five, 15 in operating profits. Sorry.
Okay. That changes the sums somewhat.
Yeah. Then on the first one, you were saying in a very British way that we had somewhat dodged, and I will be dodging again, because we will not give this number.
Okay. Thank you.
Thank you. If you do not wish to take any more questions today, I will now hand the call back to the speakers for any additional or concluding remarks. Thank you.
Well, I conclude in thanking you all for your attention and your questions today. I wish you a very good day further. Thank you. For some of them, for you, we will see each other in London tomorrow afternoon. Thank you very much. Have a nice day. Operator, thank you very well.
Bye-bye.
That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.