Earnings Call: Q4 2015

Feb 10, 2016

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. 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 Francois Van Boixmere, CEO and Chairman of the Executive Board and Laurence de Broch, CFO and Member of the Executive Board. Following some prepared remarks, we'll open the call for your questions. And with that, I'd like to hand the call over to Jean Francois. Thank you, Sonia, and good morning, everyone. Let me start on Slide 3 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 €1,900,000,000 Operating profit 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 Empake. It's a coincidence, it's 2 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, Bea 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 percent 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 Golvac, Life and 3:3:3 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 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 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 digit, 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 Dozeqis 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 Tat 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 point 1%, adversely impacted by negative country mix. And 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 UK, volume declined in the low single digit, as continued promotional pressure and challenging market conditions impacted performance. In France, Spain and the Netherlands, volume was up in the low single digit and in Poland, the benefit of relisting in a modern trade customer resulted in volume up high single digit. Operating profit was an impressive 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 UK, 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, Afligand and Desperados brands delivered double digit growth volume in the full year. Our regional power brands such as Tiger, Proseccis and Tecate all continued to deliver strong volumes too. And 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. Sire 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 UK, we saw positive performance. And for the first time, volume outside the UK crossed the 1,000,000 hectoliter threshold. In Europe, strong performance was seen in Romania, Slovakia, and the Czech Republic, and the U. S. And Mexico were the main drivers of growth in the Americas for SIDAR. Turning to Slide 6, innovation remains a source of competitive advantage and 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's strategy, but it is also really in our employees' way of thinking. This contributed €1,900,000,000 of revenues. Our innovations focuses on 4 themes, which I'm sure you're familiar with following Jan Dirk Van Carnaebeg'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 cyber category with the successful launch of Strongbow Cloudy Apple in the UK and further bloomers flavors including Zesty Blood Orange. Old Mood, our New Zealand cider continued to perform very well also. 1 of our stars 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. Success has ensured that we are market share leaders in this growing category. Our 0, 0 variants, so 0, 0 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 SUP, our at home draft beer system, available now in 5 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 7 shows a breakdown of the delivery of margin expansion in 2015. As you can see, the impact of Empaca disposal was diluted from margins by 20 3 basis points, given the underlying margin expansion was 46% 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 Francois, and good morning, everyone. So let's go now to Slide 9. As Jean Francois said earlier in the call, we delivered strong bottom and 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 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 margin by 23 basis points, even after the dilution impact from MPAK. 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 2,048,000,000, 16% higher on an organic basis. The difference between the difference of €156,000,000 between net profit BEA and net profit corresponds primarily to the amortization of acquisition related intangibles. Exceptional are pretty neutral this year with the gain of Envakka disposal largely offset by a combination of asset impairment and restructuring expenses. And finally, diluted EPS of €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 20 15, our net debt to EBITDA ratio was 2.4 times, so below last year and in line with our guidance and commitments to the credit agencies to stay or to quickly come back to at 2.5 times or below. Moving now to Slide 10, you can see here the buildup of the year on year growth in revenue. Consolidation added 0 0.5 percent or €85,000,000,000 in 2015 with incremental revenue from Slovenia, Malaysia, Jamaica and South Africa, more than offsetting the negative impacts coming from the MPAK disposal actually. Currency also had a positive impact of 2.5% or 4 €89,000,000 This was mainly driven by the appreciation of the U. S. Dollar, the UK pound and the Vietnamese zone. 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 rehash and the Nigerian nail. Turning now to Slide 11. Operating profit was up 6.9 percent organically to EUR 3,381,000,000 Consolidation impacted operating profit negatively by 2.1 percent or €69,000,000 Clearly, the disposal of the MPAK 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 percent or €104,000,000 largely due to the Vietnamese dong and UK pound. And let me provide you now with some further insight into some costs across the business. Total expenses 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. So coming back to our mid term 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 a main driver of the organic operating profit positively contributing and 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 €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 €0.50 came from organic growth. And this included €0.02 benefit from the share buyback, which we did during the year using part of the process from the impacted sales. Let's now have a look at the free operating cash flow. As shown on the Slide 13, it remains robust with the generation of €1692,000,000 in the period. The increase was due compared to last 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 developing markets. The change in working capital, so 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 coupled with but it's also coupled with extended business payment terms. And this is driven by the implementation of supplier finance both at global procurement and level and in some local markets whereas we extend the payment terms and our suppliers benefit from our credit rating with the bank. So it's a win win. And payables also increased as a consequence of CapEx investment that will materialize in the 1st part of 20 60. And then coming now to CapEx, we continue with our strategy to invest ahead of the curve, focusing on our high growth emerging market. For the full year, this is resulting in a CapEx to revenue ratio of 8%, higher than last year. And we expect CapEx in 20 16 to be slightly above EUR 2,000,000,000 so 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 20 15 included extension in Brazil, China, Cambodia and Ethiopia. We opened a new brewery in Myanmar in July, and we'll open one in Shanghai during the first half of twenty sixteen. And also, 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, and 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 €104,000,000 at operating profit level and €70,000,000 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, UK pound and U. S. Dollar. Now for 2016, assuming spot rate at 4th February, we expect an adverse foreign currency translational effect of approximately €60,000,000 at operating profit and €35,000,000 at net profit. And 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, so not so much leverage here next year. And as for the effective tax rate, BEA, it should be broadly in line with 20.50. Finally, we expect tax rate as we are stepping up our investment for future growth, the new breweries in Mexico and Brazil to name again just a few. Also in 2015, we clearly did a number of small and medium bolt on acquisition and we wanted to provide you a bit of help with modeling this moving forward. So 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 Lascaux 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 €840,000,000 that's for revenue and €110,000,000 for operating profit. 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. And with that, I would like to hand back to Jean Francois to conclude before we open the call for Q and A. Yes. Thank you, Laurence. And to conclude, in summary, our 2015 results reflected strong performance, showing successful delivery in 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 term guidance of around 40 basis points. And with that, I would like to thank you for your attention of our small introduction and open the floor to your questions. Operator, over to you. Thank you. Thank you, take our first question, it comes from Edward Mundy of Nomura. Good morning, Jean Francois and Laurence. Three questions, please. The first is on margins. And 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 4th quarter seems to have deteriorated a little bit versus the 9 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? And the third question is a pretty broad question. Jean Francois, 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 it. So 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. And 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. So while some other emerging markets had actually headwind on transactional on currency, Vietnam had a little bit of favorable win on that. So that's the combination of the 2. But I mean, really the strong growth of Vietnam is what drives the margin in Asia Pacific. So that's the Vietnamese subsidiaries margin and also 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. Yes. And then you're also in the sweet spot of capacity utilization. And never forget our industry is very much it has high fixed production cost and the half of 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. But 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. 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 half 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, and it will continue going into the next year. So those are the headwinds. So 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 now. Medium term Nigeria and longer term, when things go better, consumers naturally tend to go back also to more premium brands like Heineken. So, I remain confident for medium and long term for Nigeria. But going into 2016, with the low energy prices, the low oil prices we have, it's a tough job. Now, 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 20 16, we suppose. But on the other hand, we saw Ethiopia growing still in the strong double digits this year. So, Ethiopia is a very good and promising geography. So, it's a mixed bag of things. Russia, which is now included in that region, is 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 restructurings, we could improve our results. So, going into the year 2016, it's not going to be easier of doing business in Russia. So, clearly, the region, Africa, Middle East and Eastern Europe is going to stay the region, which have the most concentrates the most of the headwinds, still with a lot of pockets of opportunity. And our investment in Cote D'ivoire, which will have to come up to stream in the course of 20 16 is a sign of faith that overall for medium and long term, we remain very optimistic and just realistically optimistic about the potential of the region for our business. And then the first question was about the our portfolio hedge. Well, 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. So, long term, we continue to follow where there are demographics playing in our favor and where there is economic development and 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, Nigeria today, you have some countries, which definitely are going into a stop. We believe medium and long term that those countries remain a goal. And therefore, we invested in these countries. Now, 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. So, this is where plays in the natural hedge and investing into innovations in Europe provides for some growth. But the hedge is in the fact that we are not over dependent on a limited number of countries, which when they are in recession would throw all our business in this balance. That is what I mean by that natural hedge. Great. And if I could just follow-up, I mean, in terms of 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 business. But as ever, it's like it requires some time to digest these kind of price increases, which are pushed by the government upon us. But we remain for the 2016 year quite 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. Good morning, everybody. Jean Francois, could we just go back talking a bit more about Nigeria and the performance there? I wonder if you could talk perhaps about 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? And secondly, on Nigeria, can you just sort of 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 sort of 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. And then secondly, just going back to the comments that Laurence made on the scope benefits for 2016. So you talked about €110,000,000 of EBIT on a pro form a basis. How much of that was actually already in the base reported number for 2015? So I. E. What's the incremental really? Let me first take your question about ACE roots in that ready to drink category, where D'Azur is clearly the market leader. It's a kind of competitive response to that. I look up the volumes, it's 130, and it's a few percentage of the total volume. So, ACE roots is okay, but it's very small. So and we have seen that category declining anyhow in Nigeria. So, it's not something also it's a tactical response. It's not a very strategic line for us. So, that is so expectations are also not high. We are very much more into our beer portfolio and our non alcoholic portfolio with the Maltea. That is where we concentrate much more on in Nigeria. So, I wouldn't put too much emphasis on the ACE Route 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 apparel rate of import. We have to or sorry, foreign exchange currency. Our imports go over the official rate, as you can imagine. So, accessibility to foreign currency might be an issue. So far, we do not have functioning problems for our operations. 1 has to realize that we also use part of our raw materials are locally produced also. So, we have to be savvy. And we have known from the past, and I refer now to the early 80s, where even imports were totally banned and we continued to produce beer. This is how Nigerian Brewery has taken share originally and taken market leadership back 35 years ago when there was an import ban. I'm not calling that this to happen, but we have some opportunities to withstand the crisis. But sure, having hard currency is not going to get easier, let me put it that way. And then for the last question, I turn to Laurence. Yes. And to answer your question, Simon, on in 20 15, in the reported accounts, you have on revenue €175,000,000 and you have an operating profit about €15,000,000 Perfect. And it's anyway out of the organic growth. So, but that's really on the reported revenue numbers. Absolutely. And just going back Jean Francois, 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. But I cannot make you the prediction where it will land, but I think the situation where it is now isn't sustainable. Brilliant. Thank you so much. Thank you. We can now take our next question. It comes from James Edwards Jones of RBC. Please go ahead, sir. Yeah. Good 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? So it is actually your guidance on operating margin increase as you know, So that's before JV and Associates. We have indicated that when we announced it that it was mid term guidance. So I would think mid term probably goes into 2016 and 2017 as well and then too early to talk beyond that. But 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. Good morning Jean Francois and Laurence. One question from my side. You've maintained the guidance of 40 bps for 20 16 and you've already referenced the strong transactional FX headwinds you're going to be facing on raw materials. And 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 2 things. On the one hand, we have to continue to work on our productivity. That's a never ending story, obviously. And so, 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 small premium. Now, that is where the two sources of margin improvement structurally come from. And then 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. And for difficult let me put it in 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. But again, 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 Francois. You're welcome, Trond. Thank you, sir. We can now move on to our next question that comes from Karel Zoete of Rabobank. Your line is open. Please go ahead. 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? Because we had 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? And then 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're just experiencing a momentary problem on today's conference. Please stand by. Thank you. Okay. Please go ahead. Yes. So sorry, the line got cut. We were answering a question on pricing. Pricing overall, so as you see, the revenue per hectoliter is up 1.3% in 20 15, and it's actually a mixed bag. And we do take pricing whenever it is possible and it doesn't hurt the brand. But we do know that it's been more difficult apart from some countries, it's been more difficult in 2015. Now talking more specifically about Nigeria, what you've seen is the whole market move as people were more going in towards mainstream and value and mainstream brands. And so the average pricing for the market is probably is definitely down. And even like premium moved a bit down to actually cater for affordability in hard time. And 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, pretty obvious one Mexico when you see the result of this year and the way the market is behaving and the consumer confidence. And actually, the fact that the country is less dependent on oil exports than other emerging countries, there are all reasons to be optimistic and to continue investing in this country. But we're also talking about Brazil, where we have an incredible momentum of the Heineken brand. And 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 the capacity in the coming year. So 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 Sanjit Ayoola of Credit Suisse. Please go ahead. Hi. Thanks for the question. Can you just give us a sense of where you expect marketing's 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? And then 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 bottoms anymore on the telephone because I switch you off. It seems I'm very sorry about having done that. Yes, for the marketing support investments, it is a bit it varies in a corridor for us. The levels we had in 2015 are indeed in 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. So, it's a virtuous circle. Considering that we're going to go up there, might go too far. So, that is what I think I'm very satisfied with the current levels of spending if going forward, if I can give that as a kind of a guidance. But it is true that we stepped up over the last 3 years. And we stepped up predominantly for having a better top line as a result of it. And so far, it works in a virtuous circle where we also can improve the margins. And on your question on the outlook, so we are confident to grow top and bottom line as you read. We're not giving granularity on different on the level of this growth. We are fully committed to delivering on the guidance on the margin. And you can see from our markets where we actually are expecting the highest growth for next year and where we have more challenges. But we're definitely committed to both top line, bottom line growth and to also increase the margin. Thanks. And 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. Yes. On dollar, we hedge. On the other one, it is a matter of where those currency will be and they are definitely very volatile. We are mitigating this effect by hedging whenever we can, but some of this currency the in a number of emerging markets. But 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 Ryck of S&S Securities. I have three questions, if I may. First about again, about that CapEx level. You mentioned the 2016 that's clear above €2,000,000,000 But this project probably continued to 2017. And can you be more specific on that level already? Will that be, again, substantially above the depreciation level? 2nd question is about Lagunitas. Can you be more specific about the plans for that one? Will it become part of your top 6 portfolio in premium brands? And third is about your savings and eventual plans about shared service centers in other regions than Europe? [SPEAKER JEAN FRANCOIS VAN BOXMEER:] We don't give guidance beyond the year after. But 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, is to chicken and the egg. We are embarked under a program where we invest in growth, and it's a growth essentially in new geographies, Laurence was pointing out, or in new work 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. So, that is for sure. But 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. And so we shouldn't be casual about investments. You can be casual about investments and replacements, investments for a year or 2. But if you would do that for 3, 4 years, you would run into terrible problems. So 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. So, 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. And 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. And we will most probably this year take it into other geographies. But I won't go specific in the details. But of course, we didn't put the investment we put in it not to try to also exploit it outside the United States. And to answer your third question on shared services, well, in 2015, we actually opened shared service centers in China, in Singapore and in Mexico. So we are starting in those regions. And 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. And 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. So 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 Francois, Laurence and Sonia. Just two quick questions, please. First of all, could you give us an update on your market share evolution in Mexico in 2015? And if you give us a bit more color as well by region between North and between Mexico City? 2nd question is about Africa, particularly in Nigeria as well. Could you just give us an idea of the percentage of your COGS, which are actually in hard currency? And how much of the decline in margin in Africa was actually linked to the negative transactional FX? Thanks a lot. On question 1, Mexico, we lost a bit of share in North Mexico, but that's slight, I would say. So we hold up quite well. We lost slightly to slightly in North Mexico, but it's nothing where we get really panic from. And then on the transactional effect on the margins, we don't go there. We don't go there giving that granularity of guidance. Okay. It is true that but let's be clear, in Nigeria, we lost operating margins. I mean, the mix, we lost more on the margin due to the mix than due to the absolute volume. So 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. But 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. So the mix works well. And then to offset that, we work, of course, on the synergies on the merge between consolidated and Nigerian breweries on the one hand, and we will have to continue to work on productivity also in Nigeria to compensate. But those are heavy shocks. We have to say that it's heavy shock. It's heavy duty. And just a quick follow-up. Do you assume therefore further margin decline in Africa in your full year group EBIT guidance of 40 bps? 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 Bakula 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 has had relatively poor capacity utilization. Have you closed that gap enough that you have real confidence that you won't run into those kind of issues again if Brazil were to turn negative in the near future? And the second is on the Indonesia minimart issue. Is there any change in that situation? When do we start annualizing that? And is there any opportunity to get some sort of a bounce back like we had in Poland recently, the post delisting? I'll start with the second one, Indonesia. No. Of course, we are continuing to fight behind the scenes to try to get that measure reversed, but I can't make any forward looking statement into that. It's our interest to fight it, but we I'm not sure that we can restore it. So that remains a difficult outcome. The introduction was April 2016. So the real comps will work as from May. So 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. So, we have capacity available. That is not the issue. It's not backed on any sort of additional investments. They have been made. They are there. But 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. So 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. And we have been restructuring. So, it's a mixed bag of opening new capacity and closing old capacity. Brazil is a big country, and we were not the original footprint was not necessarily geared to where we were strong. So, we have been restructuring and investing. And overall, including the planned Goya's Brewery, it gives us a better footprint than 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. But we remain, again, medium term optimistic and just confident in making these investments in Brazil. So, 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. We're growing double digit with Heineken. So we do both. Great. Thank you. And then one has to realize and that's the specificity of the doing business in Brazil. When you open a new brewery like we do in Goya's, 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? So one has also to realize that we can invest in Brazil at very attractive conditions. And that makes the restructuring of 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. Three questions, if I may. Just to come back on Nigeria. I mean, you had a similar risk of devaluation back with Buhari the first time around, as well as in '85 as well as in 'ninety eight and 2,008. Yet Nigerian Brewery seemed to actually grow during that period and next year double down. So 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 growing? 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. And then 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 be 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 is the question. And you do that in light of the proportion of imported inflation that it gives you. That is what you have to take the decision. And that decision is based on the volume fixed cost base equation also. So it's not, oh, the NIIRA is devaluating by 20%, so that is and you make your just your arithmetic and you say, well, I have to increase my price by so much. But if you increase your price by so much, what does it do to the volume? And if your volume goes back to down, you risk not covering your fixed cost and going into a spiral. So, that is exactly the kind of decisions that you have to make when you land. And 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 closed Zaire, we had 11,000 percent inflation a year. So, I learned a big deal about how you manage that. I think for Nigeria, it's most probably it's more difficult because those are not massive devaluations, but significant devaluation. And that is much more complicated to handle than massive devaluations, because then you just have to follow the door, otherwise you're dead. So, 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 and they can handle that properly. But again, it is very difficult to predict what the effect will be at the end of the day. Then Tiger. Tiger is indeed higher Vietnam, the Tiger volume than the Heineken volume. But 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. And that is exactly what we have been doing in Vietnam. So, the price delineation between Tiger and Vietnam has worked 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. And today, the Tiger brand is growing at much higher rates than Heineken is, but that's also by design. Now, 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. But again, they compete, but they don't compete. So again, Tiger is a mainstream plus and Heineken is the premium. So that is important. And then 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. And it's we believe whilst that does not being a shortcoming to the capabilities of the managers of the Agile or the ones of Heineken, continuity is what I think is the most important and not changing the approach every 4 years as we were doing before. We see a number of opportunities to improve the business in Malaysia. We factored that in, that in. But we think that essentially the stability of the ownership will provide for some uplift in the operation in Malaysia. Thank you, Stefan. 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. Can you 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'd seem to remember a figure of around 30% of your COGS has been banded around before. I don't know if that's right. Perhaps you could help us with that. And then 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 €175,000,000 of revenues were booked in 2015 €50,000,000 of operating profit. That's a margin of 29%. On the full year impact €840,000,000 of sales and €110,000,000 of EBIT, that's a 13% margin. Is that different 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, but I meant 1.5.15 percent in operating profit, I'm sorry. Okay. That changes the sum somewhat. Yes. And 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, then I conclude in thanking you all for your attention and your questions today. And I wish you a very good day, 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.