Earnings Transcript for HEINY - Q4 Fiscal Year 2021

Company: Dolf van den Brink – Chief Executive Officer Harold van den Broek – Chief Financial Officer Federico Martinez – Investor Relations

Operator: HNV 2021 Full Year's Results Call. My name is Charlie and I'll be coordinating the call today. [Operator Instructions] Please limit your questions to two to allow time for every participant to ask their questions. I will now hand over to the Heineken management team to begin. Please go ahead.

Federico Martinez: Good afternoon, everyone. Thank you for joining us for today's live webcast of our 2021 Full-Year Results. Your host will be Dolf van den Brink, our CEO; and Harold van den Broek, our CFO. Following the presentation, we will be happy to take your questions. The presentation includes forward-looking statements and expectations based on management's current views and involve known and unknown risks and uncertainties, and it is possible that the actual results may differ materially. I will now turn the call over to Dolf.

Dolf Van Den Brink: Thank you, Federico, and welcome, everyone. I hope you and your families are all well and safe. We're happy to be here to share our 2021 results. Now we hope that 2021 would be somewhat calmer year, but it turned out to be quite challenging. Our mantra of navigate the crisis while building the future, continued to guide our actions. We move with agility to adapt to the fast-changing environment, yet took time to build to future deploying Evergreen. I'm proud of how our colleagues, customers, and suppliers continued to show agility, resilience supporting one another and delivering strong results. The speed of recovery remains uncertain, and we face a big inflationary challenges yet we are encouraged by the strong performance of our business and our Evergreen is taking shape. This gives me confidence we are on course to deliver superior and balanced growth to drive sustainable long-term value creation as is our goal with Evergreen. Today, we would like to share our 2021 results and the progress on Evergreen. We will cover a select number of topics. I look forward to find time to share a more comprehensive overview later in the year. Details will follow on that later. So let's see some highlights. We're pleased to report strong results. A big step towards recovering to pre -pandemic levels and in parts going beyond. Net revenue, beia grew 12.2% organically benefiting from strong volume growth and revenue per hectoliter growth. Revenue per hectoliter beia grew organically by 8.3% with more assertive pricing in the second-half. Beia volume grew 4.6% organically in the Heineken brands, 17.4% with more than 60 markets growing double digits. Our operating profit beia grew 43.8% and the margin was 15.6%, improving 331 basis points due to top-line growth leverage, continuous cost mitigation actions, and big strikes is structurally rightsizing our cost base. Net profits and EPS grew even faster from the low base of last year, higher profits from our JV partners and lower financing cost. Let's look now into the regions, starting with AMEE, the Africa Middle East and Europe region, net revenue grew organically by 25.9% and operating profit by 89%, with strong growth in the majority of our operations, especially in South Africa and Nigeria. Beer fully improved 10.4% organically, and is now ahead of 2019, led by Nigeria, South African and the DRC. Price mix was up strongly 12.5% on a constant geographic basis, mainly driven by decisive pricing in Nigeria and Ethiopia and premiumization especially in Russia and Nigeria and Egypt. Nigeria continues to grow fast. Volume was up in the low teens ahead of 2019. Our premium portfolio grew by more than 30%, led by Flanker, Heineken, and successful launch of Desperados. We're expanding our Amab brewery in Nigeria to look for the growth. In South Africa, volume grew by more than 40% ahead of the market, the strong growth came from all brands, particularly our Heineken on-store wind, and Strongbow. In November, we announced the intention to acquire DISTELL and then maybe your Breweries to great regional beverage Champion. I'm very happy to inform that yesterday, we secured the major step, the approval of shareholders. Full completion is still pending order conditions, including regulatory approvals across various jurisdictions. Moving on to the Americas region, net revenue and operating profit grew organically by 17.9% and 90.5% respectively, mainly driven by Mexico and Brazil. Organic beer volume grew by 8.2%, finishing in line with 2019. Price mix on a constant geographic basis grew by 10.3% with Brazil growing in the 30's. In Mexico, beer volume grew in the high teens, ahead of the market and in line with 2019. The premium full-year portfolio grew more than 30% led by Amstel Ultra, Bohemia, and Heineken. Amstel Ultra has been a great success. More than a million hectoliters now and we're rolling it out to other markets. Heineken 0.0 continued its strong momentum and strengthened its position as the number one normal cold beer. Our six stores accelerated their expansion, reaching close to 15,000 stores. In Brazil, we gained value share in a year with revenue per hectoliter growing into 30s, as we mentioned, driven by strong pricing and mix effect as we continue to rebalance the portfolio. Premium beer fully improved close to 30%, led by Heineken and ice inbound. The Heineken brand is now two times its pre -pandemic buoy. Our mainstream portfolio grew in the mid-twenties, led by Amstel, Devassa and the launches of Tiger and Amstel Ultra. Our economy portfolio declined close to 30% and the non-beer volume declined by around half. Heineken U.S.A. grew by a low single-digit ahead of the market, led by continued momentum on Heineken, Dos Equis and our innovations like Ranch Water and Lime & Salt. We observed strong growth across the majority of our markets in the region, especially Panama, Peru, and Ecuador. Our joint venture partners grew strongly in Chile, Argentina, Colombia, and Costa Rica. Next up, Asia Pacific. After a strong start, the region was severely impacted by the pandemic in the second half. Beer volume declined 11.7% organically. Net revenue was down 6.1% with price mix up 2.1% on a constant geographic basis. Operating profit declined 13.5% organically driven by [Indiscernible] Cambodia, partly offset by growth from Indonesia, Malaysia, and a restructuring of our business in the Philippines. Our growth momentum in Vietnam was disrupted by the lockdowns. These were more severe in our strongholds, particularly Ho Chi Minh City. We restored our national leadership position towards the end of the year as restrictions were lifted. Despite these challenges, Bia Viet grew in the high twenties as we continue to grow outside our strongholds. Heineken grew slightly led by the success of Heineken Silver. In India, UBL grew in the thirties and outperformed the markets. The integration is progressing well. And China continued with its strong momentum, the Heineken brands is today close to two times its size before the pandemic, and China is now the fourth largest market for the brand globally. Across the rest of the region the picture was mixed volume declined in Cambodia, New Zealand, due to lockdowns. We saw double-digit growth in markets showing a partial recovering like Indonesia, Singapore, Myanmar and Laos. Moving to Europe, net revenue grew by 8.6% with price mix up 4.3% on a constant geographic basis, due to positive channel mix effect premiumization and pricing. Operating profit more than doubled. Beer volume grew by 15% in the fourth quarter to finish the year up 3.8%. On-trade volume grew in the high teens, mainly from Q4, when restrictions were less widespread and severe than last year. However, we're still 30% below 2019. Over the last six months, we observed a steady 80% to 85% of outlets reopened versus 2019. So still some way to go to fully recover. On the other hand, the off-trade was broadly stable versus last year and ahead of 2019 by nearly 10% driven by premium. We held or gained share in two-thirds of our markets. The premium portfolio grew into low-teens from brought -- from a broad range of brands including Heineken Desperados, Moretti, [Indiscernible] and El Aguila in Spain. Our focus on fewer bigger bets on local premium brands meeting the needs of younger consumers has had great results. With these brands growing into 30s, so now close to 8% of the volume in Europe. Now, onto our refresh brew, a better world strategy, which has three parts if you may recall. Our path to net zero environmental impact, our path to an inclusive, fair, and equitable world, and our path to moderation and no harmful use. We share our goal to reach net zero carbon emissions in full value chain by 2040. Ten years ahead of the beverage agreements and publish our climate action plan on how we aim to reach this goal. The science-based target initiative, SBTI approved our targets to reach net-zero emissions in production by 2030 and to reduce total value change emissions by 30% by 2030, in line with the 1.5% at degree pathway. We're making good progress, but our journey is going to be challenging and will require coordinated action with many suppliers as stakeholders around the world. In 2021, we raised the bar further on governance and transparent reporting. We began the year as a founding signatory to the WES stakeholder capitalism metrics. And towards the end, committed to the recommendations of the task force on climate-related financial disclosures. We started two sustainability responsibility committees, one at supervisory board level and one at executive management level. This will ensure that all levels of leadership are actively involved in the delivery of our commitments. We also assess how best to align our renumeration policy with the creation of sustainable long-term value. You will see our proposal in the coming weeks as we bring it for approval to the 2022 ATM this April. Moving on to our Evergreen balanced growth algorithm, we introduced it to you last year. Today, it's not our intention to give an update on all dimensions of execution of our strategy, but we thought important to share a few examples of how we are on track to deliver superior growth, sharper and more intentional investments behind growth, and our work productivity program. I will touch upon the examples of premiumization and our eB2B. Later, Harold will share our productivity program and how we're embedding a cost-conscious mindset. In the next slide, we have the pillars of our growth strategy. These pillars focus on the renewal of our portfolio, shaping our route to consumer digitally, and strengthening our footprint. I've touched earlier on the changes to our footprint, with the incorporation of India and our intentions in Southern Africa, so I will now focus on our portfolio in particular, how we're driving premiumization at scale led by Heineken. Premiumization is a key driver for our superior growth and it has been. Premium is expected to grow two and -- two times faster than overall beer, and even faster than total alcohol. 40% of our beer revenue is coming from premium, the highest versus our beers. So we are best positioned to capture this opportunity. Our intent is to further amplify this advantage under the leadership of the Heineken brands, making it the number one brand of choice for the younger generation. The brand has full momentum, growing 17% ahead of 2019, growing in a very broad base of markets, close to 40% are showing double-digit growth, first since pre -pandemic level. And as I said earlier, 60 markets, double-digit up versus last year. 0.0 and Silver are further supporting the growth. Heineken 0.0 grew in the 30s this year and is now present in more than [Indiscernible] markets. Heineken Silver has been a great success in Vietnam and China, more than doubling its volume this year. We're also scaling and replicating the success of our premium international brands. Desperados, Tiger Crystal, Amstel Ultra, and Birra Moretti are significantly ahead of 2019, and our local premium champions are growing fast. Like these, our focus brands in Europe showing 61% growth versus 2019, but that's just looking backwards. So I want to share some examples of the [Indiscernible] that will boost the growth further in premium. Building on its success in China, and Vietnam, we will roll out Heineken Silver to 27 markets in 2022 across all regions. Building on its success in Mexico, we began the rollout of Amstel Ultra, for example with the launch in Brazil. We will have Amstel Ultra in 18 markets in 2022. We have been rolling out Tiger Crystal in the APAC region and have plans to make it big in all the regions. In Europe, we will continue to focus on our brand's targeting younger generations, reaching more than 10% of the portfolio in this year. We started to roll out of Edelweiss and have plans to make it big and large in APAC. We're also testing and scaling premium non-alcoholic alternatives like Desperados Virgin 0.0, and premium ciders, which Strongbow Ultra going to the UK soon. So moving on now, I would like to share our progress on shaping and strengthening our route to consumer to be fit for the future, our fourth pillar. We have done a steep acceleration of the roll out of our proprietary eB2B platforms globally. We now operate them in 30 markets, which represents 75% of our net revenue. With these platforms, we built on our strong relationships with our customers in the fragmented rate, so they can grow their business with more and better surfaces and data insights, but we can increase sales and productivity. We captured €2.8 billion in digital sales value, a growth of almost 30% versus last year, driven by strong growth in Mexico, Brazil, Vietnam, Nigeria, the UK, and many other markets. And we are on track to €10 billion of revenue -- digitally-enabled revenue by 2025. The chart to the right gives you a sense of the speed of the acceleration throughout the year, starting at just 15% of finishing at 47% of our businesses online as a percentage of the total in scope, the fragmented rate in these markets. We are now connected to 370,000 active customers, more than three times the level of last year. In the next slide, and my last, I would like to share a little bit more color on the road of our proprietary eB2B platforms. To further accelerate our strategy, performance, and capabilities in this area, we created the dedicated e-business development unit to combine the power of our business and IT teams and better leverage our scale. Under this area, we brought together close to 750 people in our organization working to develop these platforms with further support from external developers. Our teams are continuously developing digital solutions under customer - centric mindset and in close collaboration with our [Indiscernible]. Let me illustrate with some examples how this creates value for our customers and our business, where we have measured them in their pilot phase. For example in Mexico, using image recognition technology and rewarding our customers for properly stocking our fridges, we were able to improve compliance by 34% and sales by 5%. Two other examples. Our loyalty programs solution in Nigeria, rewards customers with loyalty points for purchases in the platform and record the volume uplift to 7%. And our digital on-boarding solution in the UK provides a rich personalized experience for new customers. And we increased the size of the first order by 14% versus clients on-boarded offline. Our central unit will be focused on further improving these solutions while developing new ones, strengthening further our relationship with our customers. And with that, I would like to hand over to Harold.

Harold Van Den Broek: Thank you, Dolf, and good day to you all. I'll first take you through the main items of our financial results and then give some color to the third example that Dolf referred to earlier, the progress of our productivity program before closing with the outlook for 2022. Starting with our top-line performance on Slide 20, we delivered organic growth of €2.4 billion or 12.2% from partial volume recovery and assertive pricing reaching €21.9 billion net revenue beia. Total consolidated volume on an organic basis grew 3.6% for the full year with the last quarter recording a total volume growth of 5.2%, as Europe observed fewer restrictions relative to last year. The growth was led by Mexico, South Africa, Nigeria, Italy, Spain, and the UK, and was partially offset by the decline in Asia-Pacific, deeply impacted by the pandemic in the second half of the year. Net revenue per hectoliter was up 8.3%, and the underlying price mix on a constant geographic basis was up 7.1%. These accelerated in the second half as we took pricing to tackle inflation and adverse currency impacts, and so a positive mix from premiumization and improved channel mix. In the second half, Americas and Africa, Middle East, Eastern Europe, recorded double-digit price mix growth on a constant geographic basis, led by Brazil, Mexico, and Nigeria, and Europe recorded high-single-digit price mix growth benefited from the improved channel mix I just mentioned. The currency translation effect was €515 million for the full year, decreasing our net revenue by 2.6%, with main impacts from the Brazilian Real and the Nigerian Naira. The currency translation effect fully related to the first-half of the year, with the second part of the year being slightly positive. Using current spot rates, revenues would benefit positively in 2022 by around €465 million. The consolidation of UBL since August this year contributed €280 million or 1.4% to revenue. Moving on to Slide 21, operating profit in '21 reached €3.4 billion. A strong results and an important step towards recovering our profitability. First, the organic growth, the 2.4 billion of organic net revenue growth on the previous slide, translated to more than 1 billion operating profit organic growth for the full year, a conversion rate of 44%. Overall, revenue was the main driver of growth, further helped by structural growth savings, and continued cost mitigations. The operating profit growth was very broad-based, with many of our operations contributing, most notably, the UK, Mexico, France, Spain, South Africa, Brazil, and Italy. In the region Asia Pacific, operating profit declined with Vietnam and Cambodia, most affected, driven by COVID. As anticipated, our operating margin in the second half year was just below the comparative period last year due to phasing of investments in expenses and the negative regional mix from revenue decline in Asia Pacific region that has higher than group average margins. Let me get into a bit more detail on some of the key cost drivers. Our input cost barrier for the full year grew by mid-single digit on a per hectoliter basis, accelerating in the second half to a high single-digit increase. A main factor was transactional currency effects, mainly the Brazilian rial next to higher prices for role and packaging materials and energy and freight. Product mix also had some negative effect in input cost in the second half. These negative effects were partially offset by the benefit of structural growth savings. And as flagged before, we expect input cost pressures to further intensify next year. Marketing and sales expenses beia had a small net increase of 2.6% or €53 million. Within that, consumer-facing expenses, particularly media, were up more than 20%, more than offset by lower non-consumer-facing expenses. A good example of productivity, a point that I will come back to later. Total marketing and sales expenses beia, we're further more held back due to continued cost mitigations, where operations were impacted by the pandemic. Personnel expenses increased by 5.5% or driven by labor cost inflation and the reinstatement of variable pay, partially offset by savings from our organizational redesign. Currency translation negatively impacted operating profit by €98 million, again, a lower impact than at the half year. The Brazilian Real, again, had the largest effect with the Surinamese Dollar, the Vietnamese Dong, and the Ethiopian Birr also playing part. The consolidation of UBL contributed €31 million to operating profit. Now, I would like to cover other key financial metrics on Slide 22. First, our share of profits from associates and joint ventures grew 70%, now ahead of 2019. Our partners had a strong performance this year, especially CCU in Chile and CRB in China. Both pulp contributors to the Heineken brand growth this year, next to Brazil and South Africa. Net interest expenses were 12.5% lower due to a lower average effective interest rate in 2021 at 2.7%, an improvement of 30 basis points versus last year and lower net debt. Net profit beia grew by 80.2% versus last year, a high relative increase against the low base in 2020. The effective tax rate beia was lower than last year, mainly due to the substantial increase in profits as last year, the tax rate was high due to losses for which no deferred tax asset could be recognized and higher non-deductible interest. In 2022, we expect the effective tax rate, again by a level to return to the level of 2019. All-in-all, this resulted in 77% earnings-per-share growth to €3.54, a substantial step-up towards recovery, yet still 19% below 2019. Finally, our net debt to EBITDA ratio improved to 2.6 times close to our long-term target of below 2.5 times. Let us now turn to free operating cash flow on Slide 23. Cash flow for the full year was €2.5 billion, an increase of €1 billion versus last year. Cash flow from operations before working capital changes improved by €978 million, including €186 million utilization of provisions related to our organizational redesign. The working capital movement was €84 million lower than last year, with improvements in payables offset by higher receivables and inventories. Included here, is the negative effect from the delayed payments of value-added taxes granted by governments which were paid in '21. The total difference in cash amounts to about a €154 million. You will have observed that the cash flow generated is well ahead of 2019. There are many dynamics at play, yet a major factor is the lower capital expenditure in the year as we faced delays in the execution of projects, mainly COVID -related. Overall Capex in the year, therefore, getting close to 7.5% of revenue, which is well below our indicated 9% longer-term investment level. We therefore expect a significant step-up in '22. The main investments this year were for capacity expansions of our breweries in Ponta Grossa, Brazil, Vung Tau in Vietnam, Ama in Nigeria, and Assemini in Italy. Note, that also the acquisition of Strongbow in Australia is recorded as Capex. Interest dividends and tax contributed in aggregate €150 million mainly from dividends received from CCU in Chile and CRB in China. Moving on to the next slide, number 24, let me pick up the last example of our growth algorithm we wanted to share. Dolf touched upon the progress on premiumization and eB2B, and I will give an update on our productivity program, a key pillar of our EverGreen strategy. I would like to start with a reminder of why we felt an ambitious cost program was needed. You see that reflected on the left side of the slide. There were three compelling regions

Dolf Van Den Brink: Yes. Given the time, I will be short. I think on the slide, you see a summary of our long-term objectives as we shared them last year with the kickoff. For EverGreen, I won't speak to them in detail. I think in short, it's fair to say the following, that although the speed of the recovering remains uncertain, and we still face significant inflationary challenges, we are encouraged by the strong performance of our business and our EverGreen is taking shape. We're confident we are on course to drive sustainable long-term value-creation, as is our goal. And with that, I would like to hand the call over for the Q&A.

Operator: Of course, [Operator Instructions]. Please limit your questions to two to allow time for every participant to ask their questions. [Operator Instructions] And when preparing to ask your question, please ensure your phone is unmuted locally. [Operator Instructions] Our first question comes from Trevor Stirling of Alliance Bernstein. Trevor, your line is now open.

Trevor Stirling : Good morning, Dolf and Harold. I have two questions following. The first one concerning margins, I understand there's a lot of uncertainties, both for 2022 and indeed 2023, but just trying to look -- workout the key moving parts there which could move things one way or another. So I suppose given the extent to which the on-trade recovers once the COVID restrictions are lifted, that's pretty critical. I guess also the impact -- the net impact of the pricing and just the stickiness of the pricing, the elasticity, the volume elasticity, and then the net benefit from the EverGreen savings after the re-investments in A&P in digital capabilities. Are those four the really key ones or is it something else we should be thinking about as well? And then the second question is, more getting into the -- a little bit the weeds around the B2B systems, what benefits are you seeing from those Dolf and Harold? Is it increased sales per outlet, is it reduced selling expenses, improved promotional effectiveness, maybe a little bit of color on the benefits of the B2B that's bringing to you?

Dolf Van Den Brink : Fantastic. Thanks, Trevor. And maybe Harold can take the first part and I will take the second part of your question.

Harold Van Den Broek : Yeah, so for the sake of time, let me dive straight in. I think you've got the main components there, Trevor, in terms of what are the moving parts of the margin. I think it is good to add perhaps one more, and that is our deliberate intent to continue to invest in our business. That is a very important part and that's why we tried to articulate the savings, but also what we're doing with these savings, namely to continue our brand support in order to drive the top line, but also build our digital and sustainability strategies. I think it is good to separate '22 from '23. What we know currently is the hedge positions in our outlook, including in terms of foreign exchange for 2022. This is why we're pretty clear on the guidance that we've given. And therefore, the stable to somewhat progressing margin outlook for 2022 is very much linked to, let's call it the pricing that we can have, that we know the input cost inflation pretty certain. But therefore, the variability is much more about the COVID recovery and the price elasticity, as you just said. For 2023, it is too early because we're -- it's too far out to talk for certainty about what will happen with the recovery or input cost inflation. So that is, I think, the color that I can give you there.

Dolf Van Den Brink : Very good, and then let me speak to the eB2B and the benefits on which you had a question. I think they are mainly two. The benefits for the customers, and its benefits for Heineken. For the customers, and it's one of the key metrics we are following, is your customer satisfaction or your net promoter score for the digital touch points in comparison to the traditional touch points, like a pre -sales order taking or the cool center. And what we're seeing is that, with the learning curve that is enabled by digitizing the relationship, we can actually drive NPS scores ahead of the analog touch points very quickly. And we believe that ultimately that will make the relationship more sticky, more loyal, with lower risk of disruption, which of course is something on our minds and everybody's mind, because we have been benefiting from these organically grown route to consumers over the decades, you want to make sure that you can't disrupted by pure technology players for example. So that's one side and some of the examples I gave speak to that. And then there's also benefits for Heineken, apart from not losing your customers in the future. But there's also the possibility of productivity gains. Right now, significant portion of our sales force is basically busy with transactional work, taking orders. By digitizing that, you free your people up for more value-enhancing activities. So those are kind of the two sides to the metal there. Thank you, Trevor. Who's next?

Operator: Perfect. Thank you. Our next question comes from Simon Hales of Citi. Simon, your line is now open.

Simon Hales : Thank you. Hi, Dolf. Hi, Harold. Hi, Federico. A couple from me as well, please. Can I just sort of -- you mentioned a couple of times in the presentation, in the statements around the potential for softer volumes, as you move into next year given the elasticity pressures that we could see following the pricing you're taking. Are there any particular geographies or parts of the portfolio you think is particularly vulnerable? Some of that potential volume softness? That was my first question. And then, just around the gross and synergy of efficiency savings from here in the reinvestment levels going back in that you highlighted, Harold, it sounds like off the remaining €700 million of efficiencies that you're hoping to drive out to the EverGreen program and a big chunk of that is going to come in 2022. How do we think about the scale of the uplifting investments into the business, will that more than offset those potential gross savings dropping through or is there a bit of flexibility there as we think about the outlook through H1, H2?

Dolf Van Den Brink : Very good. Maybe I take the first parts and Harold the second part. So on the softer volumes, I think it's anybody's guess. So far -- and because the pricing of '22 won't be new and we're already ahead to 11% revenue per hectoliter increase in the second half, we have 8.3% last year. And actually our volumes were quite resilient. There was part bounce-back of COVID that's underlying very good performance, particularly on our premium brands. Premium full-year growing at 10%, double the rate of the total beer portfolio, brand Heineken up 17%. So, so far, even while we were taking a lot of pricing already in the second half, the volumes have been resilient. The big question is a question of duration. As we continue to take these quite assertive price increases as we're seeing in the context of very high generic consumer inflation, energy bills, the big question is indeed whether disposable incomes will be hit to the point that it will dampen overall consumer spend and beer spend as well. We don't know your traditional price sensitivity studies, they count mobile for the extreme circumstances that we are weathering right now, there's simply too few data points. And that's why we are deliberately a bit cautious as we're lacking visibility on some of these dimensions. On the regions, I think historically regions that have structurally higher inflation like emerging markets, you are very used to taking pricing like we have shown in key markets in EMEA and South America, probably a little bit less risk, but let's see. We're deliberately cautious as there is a multitude of factors coming together.

Harold Van Den Broek : So on the gross savings versus reinvestments. Indeed, the big chunk is still to come. But as I hopefully was able to demonstrate, we've got increasingly good visibility about how to deliver the path to the €2 billion. And that increased visibility, is also an asset for us. Because, basically, what we're trying to do is be very disciplined in how we drive the business going forward, but also very balanced in terms of where we take, let's call it the cost out, and where we're going to reinvest for the greater success of this business. And this I think is the key point because in the end, we really want to be known and continue to be known as a growth company. In the end, the cost discipline that we want to bring to the business is to actually start investing in the long-term business health and we see fantastic examples of that. For example, to faster ongoing growth in Heineken, which is growing double-digit in 60 markets. How to make sure that their brands have got the brand power, as we call it, to take superior pricing in the light of increasing inflation, but also on how to drive the right portfolio mix towards premiumization. How to connect ourselves digitally with more and more consumers beyond the 370,000, which is not only good for us, but also good for the customer because they get better recommendations and better connectivity. And let's not forget, also the sustainability and responsibility, which is another part of our Green Diamond, is very important for the long-term health of this business. So what we're trying to do is find the money in the pipeline, but also be very disciplined in how we invest it, and made sure that we balance short-term financial delivery with the long-term business building.

Dolf Van Den Brink : Maybe one add on to about how it says, and it was actually in what you shared during the presentation, that it's not that we are about to start, this will continue. And, yes, our overall marketing and sales expenses, we have identified some local productivity opportunities and therefore the all fold numbers down with there's mitigation. But actually our absolute media investments behind our brands are up versus 2019, which is of course a key number. So that there's maybe no visible from the kind of accounting that you see on the aggregated line.

Simon Hales : Indeed.

Dolf Van Den Brink : Thank you, Simon. Who's next?

Operator: Thank you. Our next question comes from Olivia Nikolai of Goldman Sachs. Olivia, your line is now open.

Olivia Nikolai : Hi, good afternoon, Dolf, Harold and Federico. I've just got two questions, please. First of all, Dolf, you used to run the U.S. business at a very different time. When you look at your operations today in the U.S., do you think the imports model for your European portfolio still makes sense concerning the ESG focus, which was probably not as big at the time while you were running the business and also the ocean freight price or costs increase that we've seen recently. Essentially, do you believe the strength of the Heineken brands in the U.S. rely on the fact that it's imported or whether it's just a good beer with strong advertising? That's the first question. And then secondly, just on Capex, you increased the Capex guidance for 2022 compared to last year. I was just keen to understand if that should be the new normal for Heineken as you multiply those greenfield project in many countries in LATAM or in Africa. And you also expand capacity substantially in Brazil and proxy in South Africa as well. Thank you very much.

Dolf Van Den Brink : Thank you, Olivia. On the U.S. and the import model or not, and this is indeed something that we and I have given considerable thought in the past. From an ocean freight point of view, as you can imagine, the current situation is quite painful. And your ability to pass on that kind of ocean freights in the U.S. market dynamics is low. So this is having an impact on that particular market, that's fair to say. From an ESG point of view, it is a nuanced story. One mile transported on an ocean freight has 1/10th the carbon footprint of one mile in a truck. The vast majority of our volume is actually sold in coastal areas from Boston to New York, to Miami, to Houston to Los Angeles, to Seattle. So if we were to replace ocean transportation by domestic production, you would basically need to build a brewery on the East Coast to West Coast to North, and the South to cover that. That and then still you would incur massive inland transportation. So it is not as intuitive and as clear as it looks. On top of that, you would have massive capital expenditure sitting idle on the European side and you would have to invest a lot of capital in the U.S. So not that obvious neither or from a financial point of view nor from a ESG point view, but it's certainly something that we keep validating from a strategic and financial point of view and ESG point of view. Harold, on Capex.

Harold Van Den Broek : On Capex. Let me just be precise, first before elaborating a bit. So you saw that in 2021, our capital expenditure was about 7.5%, and our normal guidance that we have given repeatedly and want to stick to over a longer period of time is actually 9%. So indeed the step-up is there, but it is going to normalize around 9%. This is -- I also want to say that we're don't -- we're not doing this blindly. What we increasingly are keeping an eye on also is the return on our net assets or return on capital employed or whatever dimension that we're using in our language, we call it return on net assets because it is important that the investments that we put in place are actually driving a return and that that return is greater, not only than the weighted average cost of capital, but they have to really -- is improving our return on capital employed. So that's the length that we're looking at. Now a factor is, that in some of our key growth markets, like Brazil, we do still have capacity constraints and we really believe that in the long term success that we want to build, where scale is also an important factor to profitability, we will continue to build that investment in.

Olivia Nikolai : Thank you very much.

Dolf Van Den Brink : Thank you. Who is next?

Operator: Thank you. Our next question comes from Celine Panduit of JP Morgan. Celine, your line is now open.

Celine Pannuti : Good afternoon, everyone. Thank you for taking my question. First, I would like to understand in your price mix that you quoted for the second half, what is the pricing component? And I think you mentioned that pricing in the end has been rather easier to be assertive there. Can you talk about your feasibility on pricing in developed market and more so in Western Europe, please? My second question, and I hear that it's difficult to reconfigure or to find historical data on elasticity, but is it possible to understand whether we've seen that for instance, in some categories, in other staple categories where we could have a negative volume? Is that something that you think could be the case in some markets? And how do we think about premiumization? We achieved a particular trend but do you expect this could be slowing down, too, in the back of high inflation? Thank you.

Dolf Van Den Brink : Thank you, Celine. Let me give this a start, and then have Harold complement it from his perspective. I like to pick up where you ended on premium. And the interesting thing is that rather than seeing premium slow, we see premium actually accelerate. And also in high inflation markets like across the Africa region and Southern America markets. The portfolio rebalancing in Americas of -- in Brazil is much publicized, [Indiscernible], we see very similar trends across Africa, we see it in Europe now with the big focus on premium, so we are very committed, but also very confident on the premium volumes. We also do believe and Harold shortly commented on it, that your pricing power is not just some objective anonymous elasticity thing, it is also fairly much driven by your brand power, your health. And that's why we really are very focused on investing in our high-priority brands to make sure they have the brand health to make sure they have the pricing power in this environment. And therefore mix, going through the first part of your question, is actually a big part of our price mix effect. It wasn't the second half of last year where we already had double-digit price mix effects, but we do expect that to continue and to some extent, even further pick on. Let me hand over to Harold.

Harold Van Den Broek : Yes. So two things. 1. Let me give you a little bit of help, but not fully what you're asking for, Celine. And that is the price mix, the composition is somewhat SKU to price, and so me are or less to mix. But that's about what I can give you because otherwise we're going to disclose too much detail, I think on an ongoing basis. 2. This price elasticity point. And I just want to make the obvious comment that inflation is happening around us in the world, not just in the beer industry. And therefore, one of the reasons why we're calling out this perhaps softer beer consumption is not only because of our own price elasticities, but because people also have to pay their energy bills and maybe send their kids to school and therefore, the whole macro environment at the moment, may lead to changes in consumption that go a little bit deeper than the narrow impact that we believe is currently actually upholding quite nicely because we do see continued volume growth and we do see continued growth of premium. So at this moment in time, we believe that we are on the right track, we just want to be cautious for the prolonged impact of higher inflation.

Dolf Van Den Brink : Thank you, Celine.

Celine Pannuti : Thank you.

Operator: Thank you for your question, Celine. Our next question comes from Andrea Pistacchi of Bank of America. Andrea, your line is now open.

Andrea Pistacchi : Thank you. I just want to follow up on two lines of question on pricing and then on the actually the 17% margin target please. So a couple of things on pricing. You said you intend to recover the absolute input cost headwind through price this year. Does this include mix, or is that just recovering it simply for price increases? And then on price still, given the magnitude of pricing you're taking and you've been talking about, looking out the double-digit price mix that you delivered in the second half of 2021, how are you thinking about price mix in 2022, could it be comparable to the level we saw in '20 and '21? And the second question, please, is on -- yes, on the 17% target. You've explained the factors that could affect this 17% margin and I appreciate the environment is still very uncertain, input cost, elasticities, etc. But if you take where we stand today, i.e., with the current spot commodity prices, and for now, limited impact on demand from price increases, would you be in the position to achieve, do you think this 17% target if things stay as is?

Dolf Van Den Brink : Very good. Thanks, Andrea. Maybe I'll start with the second part of the question and then Harold can complement and maybe cope for the first part. On the 17% and maybe important to zoom out that the goal of EverGreen is to deliver superior balanced growth over time so we deliver sustainable long-term value. And a critical milestone from the vantage points of early last year in the middle of the COVID crisis was to first start by recovering profitability. And that's why we introduced at that time, that in between step of 17%. Now, of course, when we did that, we didn't have the knowledge we have today about this wave of inflation hitting us. So we are now observing this 17% target in a very changed environment. Nevertheless, we are reiterating that we continue to target the 17%. So with what we know now, we're still targeting it. We are confident on the things we control, which is add the recovery of volumes as lock-downs are lifted, pricing which we feel pretty confident about, the gross savings program we feel confident about, but there is particular two, three dimensions where we have less [Indiscernible], which is indeed to input cost, particularly going into 2023 as well as the effects over long-term inflation on elasticity and therefore volumes. We have limited feasibility and that's why we chose to be cautious and say, okay, when we know more in the course of the year, we'll provide an update. Because what's really important to us is we don't want to end up in a situation where we need to do things that would jeopardize our long-term, our ability to invest in the future, just to hit the short-term number. That we don't want. Ultimately, we're a long-term value creation-oriented company. On that note, let me hand over to Harold.

Harold Van Den Broek : And maybe so that you hear it from both of us because it is an important question. I just want to echo exactly what Dolf has said. And so to your question, if we are where we stand today -- look, there is a reason why we're basically saying both that we continue to target towards the 17%. So that is basically the key message that we also want to give. But then in the revised context, that Dolf has just outlined. I hope that I adjust this to the second one and it is also obvious to you all I think on the call, that when Dolf was talking a year-ago about 17% as the benchmark for recovery of the 2019, that since then there is the conversation going on between, okay, this was a relative metric as in 17%, but the absolute is another matter. And I think what we're trying to do is really to find the right balance full stop. That's one. Second, we are here to deliver sustainable value ongoing. And that means that 17% is not just a metric for ourselves, but that we're actually talking about how to deliver sustained, superior growth and operating leverage beyond. So that's on the second point, let me not take longer. I just think it's important that you hear it for both of us. On the first, pricing is a key point and also there, what we're really trying to do here is to offset the input cost inflation Euro-for-Euro, or an absolute, as we say it, and that is indeed a combination of price mix. Now, you're managing a portfolio and you're also trying to drive the right portfolio for the right market. So indeed, the 11% revenue per hectoliter that you saw is a combination of price mix and that's how we will also look at getting to the right revenue per hectoliter in 2022. I'm not going to give you more guidance than that, but that is really how we think about this. Last, we have been consistent, I think, for the past 6, 7 months where we talk about assertive pricing in order to make sure that not only do we create the brand power and the ammunition for the brand power, and because we do want to continue the investment in our business and that's the reason why we want to call out the right balance between gross savings, pricing, but also to continue to invest in the long-term health of our business.

Dolf Van Den Brink : I don't think in our careers of 20 -- 30 years, we have ever spoken so much about inflation and pricing. It's a reflection of the times we are living, I guess. It's very good thing, thanks. And we're at the top of the hour. I think there are two questions out there that we would like to capture. So I hope you can bear with us. So who's up next?

Operator: Of course. Thank you. Our next question is from Sanjeet Aujla of the Credit Suisse. Sanjeet, your line is now open.

Sanjeet Aujla : Hey, Dolf, Harold, two for me, please. Firstly, on the €2 billion cost-saving number, clearly tremendous progress in year one, you've probably delivered ahead of what you were perhaps expecting this time last year. But can you just talk about confidence on potentially more savings coming through, particularly as year-over-year into the project and just maybe talk about potential upside there? And secondly, just going back to the comments on assertive pricing, can you just reflect a little bit upon the competitive landscape at the moment across the markets where you've taken pricing and your confidence on pricing rationality across the industry holding up? Thanks.

Dolf Van Den Brink : Thanks, Sanjeet. I will be short on the second part there. It's dangerous to talk about competitive pricing. It can be seen as signaling, what have you. I think we are quite clear where we need to go. I also think it's clear to say that almost everybody is facing these input costs inflations, in more or less, the same way, at least on a market-by-market basis. So, we're not that worried about the market share implications of pricing. We're more worried about the beer market implications of pricing overtime as we discussed before. And maybe Harold, if you can comment on the €2 billion savings.

Harold Van Den Broek : Yeah. Sanjeet, I do understand the question. But I'm also going to make this brief. At this moment in time, we're not going to signal that there is upside in the €2 billion. I said before and I will say again that yes, it's a good start. There is still €700 million to go. That's not a small number. And we really want to -- as I indicated before in this call, we really want to make sure that we have got a full pipeline, but that we can actually switch on and switch off the right, let's call it cost savings metrics in the total field of what we're trying to do with EverGreen. That is not to say that we're not slowing down, but it may be that some savings are going to be accelerated reinvestments and therefore, I don't want to give you any hope at this moment and time to assume that the €2 billion will become, I don't know, €6 billion. So that is not going to happen in a hurry.

Dolf Van Den Brink : Maybe quickly complementing that, also to give credit where credit is due, I think, what the organization is doing, and Harold is playing an instrumental hand in it, is to really drive that cost-conscious mindset. In the beginning, you have partly low-hanging fruits. You have these big restructuring program's help. We are almost 7,000 FTEs left of business, partly offset by addition of UBL and what have you. That's a major intervention. We -- god knows we're not going to repeat that. That's a one-time intervention you make. Some of the outer-year savings are more complex because they're more systemic and have a slightly longer lead time. So you can't compare the type of savings of year 1 with the type of savings of year 3. What's important that it's not just a one-time effort and then we revert back to the old culture. We are both very determined, and with us the executive leadership team, to make this simply part of how we do our business to continuously free up productivity gains to be reinvested. Thank you, Sanjeet. I think we go to the last question. Let's see if it can be a nice marketing question, brand Heineken or something. Let's see what's happening. Who's having the last words?

Operator: Our final questions come from Edward Mundy of Jefferies. Edward, your line is now open.

Edward Mundy : Thanks for taking the question, Dolf, Howard and Federico, the first question is really around your guidance. Last year, page seven of your outlook statement, you guided for EBITDA to be below the level of 2019 levels. And I appreciate that there's a huge amount of moving parts for 2022. But is it a fair assumption that the exclusion of that statement in guided EBITDA will not be below 2019 levels in 2022? That's the first one and the second one, let's hit marketing, Harold, what is the sort of the thing that you're most excited about from EverGreen so far? And what gives you confidence that you're willing to put more Euros behind this, from a marketing and sales perspective?

Dolf Van Den Brink : Fantastic. Thanks. And grateful for your second question. Let me first give the word to Harold on the guidance and I will take the marketing one.

Harold Van Den Broek : We end on a high, I get it completely, so thanks, Ed, good to speak to you again. I think the answer to your question is indeed that we are looking at multiple ways of how do we get to faster recovery beyond 2019 in a much more balanced way than just looking at operating margin. And I think what you will have heard us say, is that assertive pricing and a progressive recovery is something that we are finding extremely important and if you then multiply that with the flat-to-modest increase in operating margin, I think you can do the math. But it's indeed not lost on us that we have another metric beside margin, which is called [Indiscernible] (ph) in absolute.

Dolf Van Den Brink : Very good. And then -- as indeed, grateful for the -- for your marketing question. What are we excited about? Let me address the question in this way. A lot of people ask, what is EverGreen? Is it the cost program? Is it the digitalization program? Is it the sustainability program? Is it the cultural change program? And we would say it's all of the above, but all of those are means to an end. And the ultimate dream we have is to really be part of those that shape the future of beer and beyond, to really continuously reinvent, re-imagined stretch our brands and product portfolio. What we are excited about is the continued momentum of brand Heineken up 17% double-digit in 60 countries. But then overall Premium growing 10%, brand Amstel, growing 20%, Tiger Crystal, Amstel Ultra, so it's not a one-trick pony, and you know, just the Heineken brand. What we're seeing is momentum across a wider range of brands. We're leading at 0.0 and we believe there's still so much to do. We are leading at Cider and there's still so much to do. We are low on maturity in, let's say, the flavored malt, beverages, seltzers, something we're looking at, and there's a lot of interesting experiments out there in our operating companies. So we ultimately, we desire and aim to be a superior growth company, and therefore in the end of today it goes back to our amazing products and brands. And with all the twist and turns of COVID and inflation, underneath, we are confident in the power of our portfolio and how we continue to shape it. Thank you all. I think we went a bit over, apologies for that. Thanks for hanging in there for those of you still listening. Much appreciated, and I hope to speak to you soon. Take care.

Harold Van Den Broek : Thank you.

Dolf Van Den Brink : Bye. Bye.

Harold Van Den Broek : Bye.

Operator: Ladies and gentlemen, this concludes today's call. You may now disconnect your lines and have a lovely day.