Heineken N.V. (HEIA) Earnings Call Transcript & Summary

Ladies and gentlemen, hello, and welcome to the Heineken N.V. 2020 Half Year Results. My name is Maxine, and I'll be coordinating the call today. [Operator Instructions] I will now hand you over to your host, Heineken, to begin. Please go ahead when you're ready.

Good morning, everyone. Thank you for joining us for our 2020 half year results conference call. Today's call will be hosted by Dolf van den Brink, our CEO; and Laurence Debroux, our CFO. Following the presentation on our results, we will be happy to take your questions. Some of the information provided during today's call contain statements of future expectations and other forward-looking statements. These expectations are based on management's current views and involves known and unknown risks and uncertainties. It is possible that the actual results may differ materially from those expressed in the forward-looking statements. With that, I would like to hand the call over to Dolf.

Thank you, Federico, and welcome, everyone. Today is my first time speaking to you as the new CEO of Heineken. And on behalf of all of us at Heineken, I truly hope you and your families are all well and safe. Following in the footsteps of Jean-François, I would like to start by paying tribute to him. Jean-François has made countless contributions during his 15 years as our CEO, making Heineken the proud and independent brewer it is today. He's not only an incredible leader, but also a very special person. I want to thank him for his many contributions and personally for his support, especially over the transition. I feel humbled and honored to have assumed this responsibility. It feels like yesterday that I started at Heineken as a commercial management trainee here in the Netherlands. In these 22 years, Heineken took me and my family on an incredible journey all over the world, living and working in all 4 of our regions. I've enjoyed working in all those different places. And these experiences have shaped me into the person and the leader I am today. I'm now very happy to have returned home. My new role started in the midst of a crisis unlike any other we have faced in our lifetimes. Having witnessed this pandemic and its effect from the very start in Asia, it's clear to me how much our lives and livelihoods are being impacted. Our first priority has been and continues to be the health and safety of all our people, our families and our communities. I'm so proud and impressed by how all at Heineken have taken care of each other and of our customers, suppliers and local communities, but we all adapted to new ways of working. We have supported local communities and frontline medical facilities with donations worth EUR 23 million, including water, nonalcoholic beverages and hand sanitizers. Throughout, our Heineken values have been our guiding stars like never before. We know that for Heineken to do well, our communities and the environment around us need to do well, too. And that's why supporting our customers is and will remain one of our key focus areas. In the slide, you see just a small selection of the right range of initiatives to support our customers. We provide advice and tools to safely reopen, helping them set up home delivery and online businesses. And in some cases, providing some financial support, for instance, by waiving rental payments where lease agreements are involved. In more than 20 markets, our Back the Bars initiative have helped more than 50,000 outlets with 300,000 vouchers, raising over EUR 10 million. This can be redeemed when the bars open again, and the owners receive the monetary value immediately to enable them to continue paying their fixed costs. We are proud to have been able to provide this support. However, it is essential that we don't get lost in just managing the crisis and make sure we also build the future and sustain our growth in a fast-changing world going forward. We are not underestimating the pandemic's impact and are mindful of the material effect it's having on our business. No one knows how long this pandemic will last nor how large the impact will be. But we are Heineken. And in our 155-year history, we've weathered countless storms. And in moments of profound change in the world, we often have had the courage to act as pioneers. I believe, as such, our best times are still ahead of us. With our entrepreneurial spirit, once again, we can and will be pioneers, continuing our long success story. So today, we would like to do 2 things. We would like to cover our half year results and explain how we are navigating the crisis. Throughout the presentation, Laurence and I will be reflecting on our 3 key focus areas, as highlighted on this slide, focus on people and safety, focus on consumers and customers and focus on costs. I will come back later to explain what we are doing to build the future. Now let's first cover our results for the first 6 months of the year. Our markets and businesses were materially impacted by the COVID pandemic. Our top line performance suffered as multiple countries took far-reaching measures to mitigate the spread of the virus. Beer volume declined organically 11.5%. The low point was definitely in April. Since then, we have seen week-by-week improvements across the majority of our markets, although a slow recovery. June was a strong month, but not a reference to use for the coming months as it was flattered by customers rebuilding inventories after the lockdowns. Situation is still very volatile. And in recent weeks, we have seen renewed bans on the sale of alcohol in South Africa and in some states in Mexico and a resurgence of the pandemic in several countries. However, in this very volatile world, the Heineken brand again demonstrated its strength and declined by only 2.5%. I will come back to talk more about this good performance. Net revenue per hectoliter was down 3.6% organically due to adverse channel mix, most acute in Europe, and negative product mix effect as consumers shifted to larger packaging formats. Our operating profit (beia) declined organically 52.5%, so more than 3x our net revenue organic decline of 16.4%. This deleveraging effect was mainly caused by the decline in the on-trade in Europe. We took action in March and initiated a number of cost-mitigating initiatives that drove a net reduction of EUR 0.5 billion. Laurence will cover all these in more detail later. Net profit (beia) declined organically by 75.8%, leading to a diluted EPS (beia) result of EUR 0.39, and we also booked EUR 548 million of impairments, mostly in emerging markets, as exceptional items. I will start a brief review of the performance of each of the regions, and I will start with Africa, Middle East and Eastern Europe or AMEE, as we call it. This region was the last to be affected by the COVID-19. Many markets introduced containment measures. As a result, beer volumes declined by nearly 15.9%, with the largest impact in South Africa. Our operations were entirely suspended in April and May, and after resuming in June, a new ban on alcohol sales was implemented since mid-July. In the first half, Heineken 0.0 grew strongly, placing South Africa just behind the U.S. and Mexico in driving the global growth of the brand extension. Nigeria implemented the ban on the distribution of alcohol in some states. However, we outperformed the market and beer volume declined in the low teens. Maltina, our nonalcoholic malt drink, was broadly stable as we continued to produce and sell our nonalcoholic portfolio. In Ethiopia, our volumes declined in the low 20s as we have reflected in our prices the steep increase in excise duties of mid-February. Across 12 markets, including Nigeria, our premium portfolio also continued to grow. In Ethiopia, the growth came from Bedele Special, our local premium brand and in the Ivory Coast from brand Heineken as we started local production last year. For the region, net revenue declined organically by 16.6% and operating profit by 61.7%, with the largest impact coming from South Africa. Moving on to the Americas. In March, the pandemic started to affect our operations, resulting in overall organic decline in beer volume of 15%. Our operations in Mexico were suspended in April and May, and we resumed sales in June when our customers began rebuilding inventories. In July, unfortunately, we observed an increase in market restrictions, including alcohol sales bans in some states and on-trade restrictions. A few bright spots. Heineken 0.0, introduced only last year, is already one of the main growth drivers globally for the brand extension. And on the e-commerce front, impressive growth of our SIX TO GO home-delivery operations, but I will come back to that later. In Brazil, consumers continue to show strong demand for our premium and mainstream portfolios, which grew double digits, led by the growth of close to 50% of brand Heineken and the continued momentum of Amstel. During the quarter, we reached our highest market share ever, and we are particularly pleased that our strategy to rebalance the portfolio is working and our value share is now ahead of our volume share. In the U.S., brand Heineken had a good relative performance boosted by the growth of Heineken 0.0, while the Mexican portfolio was affected by supply-chain constraints. Net revenue declined 12.2% organically with price/mix up 5.2% on a constant geographic basis driven by the low teens growth in Brazil. Operating profit value declined 31% organically, mainly from the impact in Mexico and higher cost in Brazil. On to Asia Pacific, where the pandemic started early in the first quarter, impacting our beer volume relatively modestly with a decline of 4.7% organically. In Vietnam, there was a steady reopening of the on-trade during the second quarter. Our volume grew significantly ahead of the market, driven by our mainstream brands and innovations to expand our total portfolio, like Heineken Silver, Strongbow and most recently, Heineken 0.0 and Bia Viet. In many of our countries, and most notably in Cambodia and Indonesia, lower exports and the absence of tourism had a significant impact on the economies. Consumer income and confidence were under pressure, which resulted in significant volume losses and down-trading. We continue to make progress outside of our core markets in the region. For example, the Heineken brand became the #1 brand in the premium segment in South Korea. For the region, net revenue declined 10.4% organically. Operating profit (beia) decreased 15.7%, showing the lowest operational deleverage effect across our regions due to the strong performance of Vietnam. And finally, moving to Europe, where the pandemic curves stabilized across the continent at the end of the semester. For the first half year, beer volume declined organically by 8.1%. On-trade outlets, which represent 35% of the beer volume, were closed for several months in most countries. And as a consequence, our on-trade volume declined by about 50%, which more than offset the mid-teens growth in the off-trade. Our strong position in on-trade and our vertical integration into wholesale and pubs is a long-term competitive advantage, but there's no doubt that this year, it is a drag on our performance. Given the demand shock induced by COVID, a segment with structurally higher variable profits but also higher fixed cost causes a disproportionate negative deleveraging effect. These businesses allow us to be close to our consumers and customers, which will serve us well during recovery. Just to illustrate, towards the end of July, 85% of our own estate of 2,500 pubs in the U.K. had reopened within 4 weeks of the bans being lifted. In contrast, we observed only 51% of licensed pubs who have reopened. More broadly, across the region, we see that close to 90% of our on-trade customers have reopened. However, demand remains subdued as social-distancing restrictions continue to limit their capacity to serve. The off-trade performed strongly as consumers adapted and our brands continue to do well, with market share gains across a majority of our key markets, including the U.K., France, Italy and the Netherlands. And premiumization is still there, outperforming in this channel across the region. For example, we had an excellent performance and growth on Desperados, Affligem, Birra Moretti and Ichnusa. All in all, net revenue declined 20.8% for the region with a negative price/mix of 6.4% on a constant geographic basis due to the channel and product mix effect. Operating profit was down by 87% organically due to the big operational deleveraging effect from the closure of the on-trade. Now the Heineken brand performed strongly given the circumstances. Excluding South Africa, the brand would have been in positive territory. Consumers are turning towards brands they trust. So it's a good thing that, as measured by Kantar, the Heineken brand stands as the most trusted international beer brand in the world. Brand Heineken is clearly outperforming in the category. And in fact, we observed stable or growing share in over 80% of our key markets. The brand even grew double digits in 14 markets, including Brazil, China, the U.K., Poland, Germany, Ivory Coast and South Korea. Regarding China, in particular, we successfully started our partnership with CRB. They completed the integration ahead of schedule and have accelerated the performance of the brand with double-digit growth quarter-over-quarter. Heineken 0.0 grew double digits with growth across all regions and particular strength in the U.S., Mexico and South Africa. The latest line extension of the brand, Heineken Silver, is performing ahead of expectations in Vietnam and was introduced in China in April. Nearly all events linked to our global sponsorship platforms were paused in the first half, but they are starting up again in the second half. Now let me come back to comment further on e-commerce. Consumers and customers have embraced e-commerce since the start of the crisis, and we have been able to leverage this momentum and be more connected to them through our platforms across many countries. As consumers have created new consumption occasions at home, our direct-to-consumer platforms across 17 countries benefited and saw a significant acceleration during the lockdowns. For example, Beerwulf, our online platform in Europe, saw 3.3 million visitors, of which half was new and compared to last year, sold more than double of our home-draft systems like the Sub and Blade. Consumers are also more cautious and not willing or unable to go to the shops, resulting in a significant spike for in-home delivery within the hour. For example, SIX TO GO in Mexico received 10x the number of orders in the last 6 months versus the full year of 2019. Regarding our customers, we currently have digital B2B platforms operational in 24 markets, which is 7 more since we last updated you, connecting more than 60,000 customers in traditional channels and representing more than EUR 1 billion of our revenues last year. We have accelerated their growth and expect to more than double the number of customers connected this year. These platforms have proven to be very effective to engage with customers during the lockdowns, helping increase frequency and size of orders. Overall, we are encouraged by these results and are firmly committed to continue and where appropriate, accelerate our investments behind these B2C and B2B platforms. And with this, I would like to hand over to Laurence. Over to you.

Thank you, Dolf, and good morning to all. So let's now go to Slide 13 for the financial overview of the first half year. Starting with the net revenue (beia) of EUR 9.2 billion, which shows an organic decline of 16.4%. Volume is down 13.4%, and revenue per hectoliter (beia) is down 3.6% organically. Now on a constant geographic basis, you have seen the underlying negative price/mix is 1.3%, and that is essentially attributable to channel [indiscernible] in Europe. Operating profit (beia) declined 52.5%. I will provide more context on the deleveraging effect and on cost mitigation in the following slides. Net profit dropped to EUR 227 million, an organic decline of 75.8%. The decline of net profit was more pronounced than the decline in operating profit. What you find between those 2 lines is a number of items that accelerate the decrease and in particular, extra interest expenses from additional net debt. And on tax, the effect of higher operational losses for which no deferred tax assets can be recognized as well as higher nondeductible interest in the Netherlands. Diluted EPS (beia) ended at EUR 0.39, decreasing in line with net profit (beia). The impact of (eia) to exceptional items and amortization of acquisition-related intangibles amounted to EUR 742 million. The amount relating to amortization of intangibles is EUR 144 million, pretty much in line with last year. And the rest, which constitutes the bulk of the difference versus last year, is primarily coming from impairments and write-offs of fixed assets. We have considered COVID-19 as a potential trigger to review the carrying value of fixed assets in all our operating companies. And out of that, we have identified around EUR 3 billion that needed to be actually tested, resulting in a total impairment and write-off of EUR 548 million. The impairments themselves were in developing markets, where the cost of capital tends to be much higher and therefore, a decline in cash flow in the first few years causes significant drops in the overall value based on discounted future cash flow. For example, the largest impairment was in Papua New Guinea, where COVID-19 has drastically impacted the economy and where large liquid natural gas projects are now unlikely to materialize soon. As a result of these impairments, we recorded a net loss of EUR 297 million for the half year. Free operating cash flow was a negative EUR 809 million with the decrease versus last year coming mainly from the lower profit combined with less favorable change in working capital. I will come back to that. And finally, our net debt-to-EBITDA ratio reached 3.5x on a 12-month pro forma basis. Important to say here that we remain committed to our long-term objective of 2.5x or below in the coming year. Moving now to Slide 14. Consolidation changes had a negative impact of 0.5% or EUR 55 million on net revenue. Here, the negative effect coming from the divestments of our own activities in China was partially offset by the positive effects from acquisition, primarily Namyslów in Poland. Currencies had a negative translational impact, decreasing net revenue by 2.3% or EUR 265 million. This was mainly attributable to the Brazilian reals and the Mexican peso. On an organic basis, our top line declined EUR 1.9 billion, and the largest individual decline in beer volume came from Mexico, South Africa, so 2 countries affected by complete lockdown, and Spain, a country where the share of on-trade is particularly important. That's for volume -- the volume component. Now the revenue per hectoliter declined 3.6%, and the underlying price/mix on a constant geographic basis 1.3%. Again, Europe contributed more than 100% of that decrease as the most affected channels, on-trade, wholesale and pubs, have a much higher revenue per hectoliter. If you look at APAC, the negative price/mix effects after adjusting for the country mix is due to the faster growth of our mainstream portfolio in Vietnam and significant down-trading in countries impacted by the loss of export and tourism. In the Americas, the price/mix was positive, most notably in Brazil. Growth in the teens came from higher prices as well as a positive portfolio mix and particularly the strong growth of Heineken. And finally, in AMEE, the price/mix was also positive, coming from pricing in Ethiopia and the DRC, and more premium the mix in Nigeria. Let's now look at Slide 15 and the development of the operating profit (beia). Starting with consolidation changes and currency translation, which together had a small negative impact of EUR 20 million. Actually, for this half year, consolidation changes were EUR 37 million, mainly from the divestment of China and a small acquisition in Ecuador, and currency had a small positive translational impact of 1% or EUR 17 million. Moving to the organic decline of 52.5% or EUR 935 million, 84% of that decline came from Europe, Mexico and South Africa. In Europe, our strong position in the on-trade and our vertical integration into wholesale and pubs created a material deleveraging effect. With such a brutal shock in demand, it is really a double whammy from vertical integration. You lose volume with relatively higher gross profit per hectoliter and you keep your higher fixed cost base. So what usually makes our strength turns into a short-term drag. And in Mexico and South Africa, we had our operations suspended in April and May, as you know. Digging a little more into expenses. First, I will start with input costs, which grew about 10% per hectoliter. Input costs are significantly impacted by the channel and product mix as we sold more 1-way bottles and cans, which have an, in average, much higher cost per hectoliter than the returnable packaging SKU that we sell in the on-trade, typically, the kegs for the draft beer, for instance. Negative transactional currency effects were significant on some of our markets like Brazil. But in aggregate, they did not impact as much as the mix. All the negatives here came from inventory write-offs from products collected back from customers and onerous contracts which had volume commitments for raw and packaging materials. Talking now about our other costs. Fair to say that up to March, they had been higher than last year. During March, we implemented cost-mitigation measures that resulted, for the half year, in a net organic reduction of about EUR 500 million. Marketing and sales (beia) expenses represented 11.1% of net revenue (beia), so around 60 basis points below last year. Here, we adapted our commercial activities to the fast changes in consumer behaviors and consumption patterns. For instance, as on-trade outlets were mostly closed, we could save on visibility and point-of-sale materials and on promotion. Regarding personnel costs, while respecting our commitment to no restructuring layoffs in 2020, we have reduced by close to EUR 150 million organically. That includes, among other, hiring freeze, less overtime, cancellation of bonuses for the year and EUR 35 million of government support, mainly in a few European countries. And then we have cuts on all kind of discretionary spend, starting, of course, with travel, conferences and the like. That's for the addressable spend. Worth mentioning that at the same time, we have had higher depreciation and amortization that's not related to COVID, but to past investments. And more related to COVID, we took higher provisions for credit losses, and there were extra costs related to safety and protection equipment, which we don't consider as (eia). Moving now to diluted EPS (beia) on Slide 16, EUR 0.39 per share and down 78.6%, in line with the net profit decrease. We have a negative impact of EUR 0.08 from consolidation changes, mainly the divestment of China, and a small positive currency translation. The EPS organic decline was EUR 0.0139 (sic) [ EUR 1.39 ]. In addition to a decline in operating profit, I would again mention here increased interest expenses and the higher effective tax rate, since we have operational losses for which no deferred tax asset can be recognized, and higher nondeductible interest in the Netherlands. And both these effects, by the way, are amplified by the decrease in the base of profit before tax. Finally, the sale of Heineken shares to our Chinese partner, CRE, resulted in a small residual dilution of EUR 0.01. Let's finally go to cash flow on Slide 17. We had a cash outflow of EUR 809 million in the first half year. Looking at the EUR 1.4 billion decrease versus last year, the main driver was a lower cash flow from operation. Change in working capital also played a role, mainly coming from payables. Normally, we land the half year with higher payables due to seasonality, which is favorable. However, this time, we had a sharp decrease in goods and services received during the lockdown, while we still needed to pay for those received previously. In the second half, as markets reopen, the comparison should become more favorable. This development in payables was partially offset by relative stability in receivables in line with the lower revenue than last year. Cash-out from CapEx reached over EUR 1 billion, largely due to projects executed in 2019 and paid for in the first month of this year. Looking into the addition to purchase plant and equipment in the first half of 2020, they were EUR 484 million, so 36% lower than last year, as we suspended pretty much all CapEx not related to immediate business continuity or safety starting mid-March. The main projects that we are still investing in at the moment are the completion of the expansion of Sedibeng in South Africa and the extension of Ponta Grossa in Brazil and Vung Tau in Vietnam. As a company, we are secured and we maintain an ample buffer of liquidity. In the first half, we issued about EUR 3 billion bond with tranches ranging from 5 to as long as 20 years at an average coupon of 1.75%. As of June 30, after deducting commercial paper and short-term bank borrowings at central level, we had approximately EUR 4.5 billion in immediately-available financing hedges. And finally, on the outlook for the full year. Last April, we withdrew all guidance for 2020, given the lack of visibility on the end date of the pandemic and the duration of its impact. We have observed a gradual recovery across most markets, but the situation, as you know, continues to be very volatile and uncertain. So we're only able to explain directionally what we see or expect, but we cannot provide you with estimates. We expect channel and product to continue to adversely impact our results, especially in Europe as the on-trade keeps operating at reduced capacity and as a consequence, input cost per hectoliter are expected also for the full year to be significantly higher than last year. Strict cost mitigation actions will continue. And there, we will balance the reduction of discretionary expenses with providing sufficient support behind our brands and route to market. Noncommitted supply chain CapEx will continue to be mostly suspended while commercial CapEx will resume selectively following the needs of the market. And we will continue to update you, with the intent to provide enhanced clarity and transparency in that very special year. With that, I would like to hand back to Dolf.

Okay. Many thanks, Laurence. Now normally, at this point, I understand we would have moved to the Q&A. But I wanted to come back to that first slide and share some thoughts how, apart from navigating the crisis, we will build the future. Whilst the world around us continues to change and we remain agile in our response to the fast-evolving crisis, we have embarked on a journey together with the executive team to chart our next growth chapter. Over the last 2 months, I started by actively engaging and listening to a wide range of internal and external stakeholders and will continue to do so. It's clear there is consensus on our key strength that we need to continue building on: a diversified global footprint with exposure to many high-growth markets, a portfolio of great brands led by the unequaled Heineken brand, our entrepreneurial operating model with closeness and high adaptability to local market opportunities, and a highly dedicated and talented workforce. But at the same time, there are also areas that we need to improve on. Today, for example, we are reaping rewards of investments behind our brands and consumers made years or even decades ago. To remain a superior growth company in the long term, we will need to step up, once again, our consumer and customer-centricity, aiming to pioneer and create new brands and new propositions targeting unmet consumer needs. Secondly, we have a unique company culture with high levels of passion and engagement, but we can operate with more speed and in more agile ways, leveraging best practices much faster across the company. And lastly, we can and have to sharpen our cost mindset. Building on the efforts of the last quarter, we will intensify our focus in this area and become a more nimble company in order to make sure we can continue to invest big behind our brands and consumer and customer needs. Moving forward, and as markets recover, we will leverage these unique strengths as well as address both opportunities and challenges to chart our next growth chapter. I'm very pleased to have a strong executive team with me on this journey, bringing a good balance of experience and fresh perspective. We will introduce the team and our plans for the future in due course. Now I know it's a bit unusual, but I would really like to use this opportunity before going into the Q&A to show you 2 recent ads that Heineken has launched over the last few weeks. At Heineken, we like to be great brewers and great marketers. We love connecting with and staying close to our consumers in a unique and meaningful way, and this is especially true during these challenging times. First, we will show Ode to Close, which is a campaign that reflects our deep acknowledgment that we really are in this together. And secondly, as lockdowns start easing, going back to the bars is a long-awaited moment, and we want to support this channel to remain open and have launched a campaign called #SocialiseResponsibly to remind all our consumers to reflect the new rules. Because after all, there's only one thing better than a night out, and that's another night out. Right after that, the floor will be yours for questions. Let's roll the video. [Presentation]

[Operator Instructions] We have a question from Trevor Stirling from Bernstein.

Just 3 questions from me, please. First one is what do you think, Dolf, was the biggest negative surprise over the last 3 months. And second, what was the biggest positive surprise you saw? And the third thing is you've talked a little bit about your priorities moving forward, which I guess was part of the journey Heineken was on anyway. Are there any areas where you think you need a step-up of real intensity in terms of the change agenda as you move forward?

Very good. Thanks, Trevor, and good morning. I wouldn't say, per se, a negative surprise, but I would call it as something we are concerned about, and that's, of course, the impact that the crisis is having on the on-trade channel. And on-trade channel being about 35% to 40% of our business, that has a material impact. You have seen, and I think we have shared the numbers, for example, in Europe on-trade's down 50%. As a consequence, going forward, we do expect a gradual recovery, but it will be very much 2 steps forward, 1 step backwards, as we're seeing renewed flares of the crisis, renewed constraints in the off-trades -- in the on-trades across a couple of the markets. But yes, I would also like to emphasize what we are particularly proud of and I can't tell you how proud of I am of our people scattered across the globe, into the most far-flung places. We have people leading our organizations and working in our organizations in over 80 operating companies. And the way people have adapted and the way people are taking care of each other, taking care of our customers and the local communities is really amazing. We have a very decentralized model where we empowered our people to -- yes, to take responsibility. And I think during this kind of crisis, where there was so much volatility, so much happening at the same time, I think we really benefited from it. The other thing I'm really proud of is the Heineken brand, our flagship brand, just down 2.5%. Without South Africa, it would have been up growing double digits in 14 markets. China looking very promising at the start with the CRB platform. We see very strong market share results across a couple of important markets like Vietnam, like in Brazil, like in the off-trades in Europe. So for all the challenges, there is equally a lot of momentum in particular parts of our portfolio and our channels. Yes. Your second question, a part of your question that refer around areas where we feel we have to step up. So first of all, this is something that I'm really taking a step back to deeply listen and engage with the organization as well as with stakeholders outside to see what's truly needed. Going into the crisis, the company had a lot of momentum. I feel the fundaments were and are very strong, our global footprint, our exposure to fast-growth markets, our much more diversified portfolio than it was 10 years ago, the strength of brand Heineken and so forth. Having said that, as we have shown over our 155 years' history, it's a process of continuous renewal, of continuous revitalization, and we're living such a period once again. And yes, there are a couple of things that are on my mind, and we will come back on those later at -- in due course. In terms of our culture, I really like the passion, the engagement, how people take responsibility. But at the same time, I feel, at times, we can move faster, we can be more agile and be more deliberate about learning from each other. Very important, in the end of the day, and that's also why I wanted to share the commercials, we are a consumer company. It is all about meeting unmet consumer needs and being very creative and entrepreneur on this regard. And I would love to, yes, continuously renew and revitalize this muscle in the company as consumer habits and behaviors are changing very rapidly at this moment. And then, of course, cost, we have said that in my quote and in the release, we can do more in this regard. I feel in the second quarter, we took out EUR 0.5 billion in cost in a relatively short time frame. So cost control is very important, will be very important going forward. And what's particularly of concern to me is to make sure that we will be able to always invest big and bigger behind our brands and behind our customers. So those would be a couple of first thoughts in this regard, Trevor.

We have a question from Edward Mundy from Jefferies.

Three questions for me. The first is on your good market share performance in a number of markets. I was hoping you can provide a bit more color on what is driving that. And do you expect this momentum to continue beyond the crisis? The second question is around -- Dolf mentioned this, increasingly saw the step-up on consumer and customer-centricity. I was wondering whether you could provide any examples of where Heineken is doing that particularly well. And therefore, where is the gap for the rest of the business? And then the third question is around this point, adapting fast to new realities. I appreciate it's going to be a big step-up on being a more nimble company focused on costs. And it's very hard to make structural changes to the business until you know what the world looks like on the other side. But at what stage do you start to consider making potential structural changes, in particular to Europe where you're more vertically integrated and your business is very skewed towards the on-trade there? At what stage do you start to think about making changes, given it's very hard to know at this stage what it's going to look like on the other side?

Very good. Thank you, Edmond (sic) [ Edward ]. On your first question on these consistent share gains, I think it's really the fruits of many years of deliberate investments and very intentional strategies. Probably one of the most spectacular market share gains we are seeing in Vietnam, we have been seeing them for many, many years, and it's accelerating rather than slowing down. I think it's a combination. There's multiple drivers there. We have continued to invest in our route to market in the urban areas, in the more rural areas. In more recent time, we're strengthening the route to market in the North. On the portfolio, premium has always been our strength, and we're not taking anything for granted there. We keep revitalizing that portfolio with Tiger Crystal behind the all-important Tiger brand, the Tiger brand only being down low single digit. The Heineken brand, where we launched as the first market globally, Tiger -- sorry, Heineken Silver as a more sessionable extension on Heineken doing extremely well, doubling its size in the first half of the year. But then I think what's particularly relevant at this moment in time that about 1.5 years, 2 years ago, we made a very conscious decision to also extend our portfolio more intentionally into mainstream. And in hindsight, that was absolutely the right thing to do. At the time, we didn't realize how relevant it would be right now. But we see very fast gains in our mainstream portfolio. We also launched a new national mainstream brand, Bia Viet. So we really see it is route to market, it's portfolio, it's premium, it's mainstream. I think in Brazil, it's a similar case. For many years, we have seen quite spectacular growth on brand Heineken. That's continuing. Even in the middle of this crisis, brand Heineken growing almost 50% year-to-date. Also, they're extending into mainstream with the Amstel brand continuing its very positive momentum. We keep investing there and rebalancing the portfolio to the more mainstream and higher-end, resulting in very positive mix effect, around double-digit price/mix effect as a consequence. In Europe, in the off-trade -- the on-trade is hard to see because that has been so disrupted. But if you look to the off-trades in Europe, we are gaining share in the majority of our markets, and we are doing it with the key premium brands, brands like Desperados up significantly; we are seeing Affligem; we see Moretti, for example, in the U.K.; we see Ichnusa in Italy. So we keep leaning into building those brands, building our premium positions. And we like to believe that, that's one of the key reasons why we're seeing these persistent share gains, Edmond. On consumer and customer-centricity, that's something that is and should be priority at any moment in time, but I do believe it goes a little bit in waves up and down. At times, I find we can become a bit too centric on our own brands and our own products, and it's important to really have that outward-in perspective, really understanding where our consumers are going. I think we can do better in this regard. We -- that's a muscle we can strengthen further but we're also doing it quite spectacularly, I would say, on, for example, 0.0, where a couple of years ago, we made a very big bet on Heineken 0.0, on the biggest brand. 25% of the brand budget is going there. And we have seen the fruits with, I think, now almost 60 operating companies who have rolled out the brand with continued double-digit growth even in the middle of this crisis. Now on to your third part of the question, adapting to new realities. That's not something we are postponing. We're actually -- we're really doing that in this moment. As said before we took out EUR 0.5 billion in cost. Apart ATL/BTL, where you need to be cautious that you don't overdo it, so we're quite deliberate in assuring that we maintain our share-of-voice levels in key markets, but there are efficiencies, there is media deflation that we can take advantage to. And we're really looking at our other fixed cost. Yes, we made a firm commitment of no restructurings linked to COVID, and we will stay true to that commitment through the end of the year. And going forward, it will be really finding the right balance between assuring the health of the business, protecting the business while minimizing the impact on our people. And we are in the middle of really, yes, figuring that out together with the team. But I'm quite confident that we will find that balance in the right way. Thanks, Edmond.

We have a question from Sanjeet Aujla from Credit Suisse.

A couple of questions, please. Firstly, just on the on-trade business in Europe. Can you just talk a bit about what you see in June and July, in particular, as many of these [ outlets ] have started to reopen? And if you can, point us to where you think trading is relative to the down 50% in the first half of the year. And secondly, just going back to the point on intensifying the focus on costs. Dolf, where do you think are the biggest opportunities, if you can highlight 2 or 3, please?

Yes. On the on-trade, I think we have commented that we have seen a sequential improvement as the on-trades reopened. At this moment in time, around 90% of the outlets across the on-trade outlets across Europe are open again. Critically, for us in the U.K., we reopened later. We already have about 85% of our pub estate in the U.K. is open. But we do realize that a good portion of the improved volume performance in June was related to refilling the pipelines in the channel. So we don't -- we want to be cautious and yes, maybe we're a bit more cautious than the market expected, but we feel it's important to realize that there will be volatility as consumer behavior is still adapting itself to perceived risk levels. There are still many restraints even in a reopened work that is constraining the ability to serve. So yes, I think it will be really a tale of 2 step forwards, 1 step backwards in this regard. I'm not the first one to comment. I think James Quincey made the same comment that until there will be a vaccine or any other structural solution to the virus, we don't see the on-trade coming back to its exact pre-COVID level. So in the meantime, we need to maintain agility and adapt up and down, as I'm very proud to say our supply chain and customer service organizations have been able to do quite effectively. Maybe Laurence, can you take the question on cost?

Yes. In many respects, the moment that we're in provides us with some kind of 0 base view on discretionary costs. And we're going to be, of course, very careful in how we add back those costs. Now more structurally, cost savings moving forward will come from automation. In a way, we worked a lot on our productivity in the supply chain domain. And we are increasingly doing so in other aspects, including the support function, for instance. And in terms of automation, we have accelerated in the past 2 years. What you see as well is that the way we do things, the way we even deploy our big programs is changing radically. During the lockdown, we were able to continue to deploy. We made the choice actually not to stop that part of our investment, to continue to deploy our system, our ERP system changes in a number of countries. And we did the go-live completely remote, something we would not even have imagined. Closing the book remote is something we didn't imagine and we did it, but deploying a new ERP system with no one on the ground is something we would not have thought possible. We did that, and we didn't do that in Germany, France or Italy. We did that in Burundi, in Ethiopia and in Saint Lucia. So that is opening up a whole new way of working, and that's something that we've been realizing. And those are benefits that we want to keep moving forward. Again, there will be no stones unturned. It's also, I would say, the beauty of a new collective, as an executive team coming together, asking each other the questions and then looking at it together because the plan and the ambition is to be able, through full focus on cost and a sharper resource allocation process, to really fund the big battles of growth because that will remain the essence of this company.

Got it. And just a quick follow-up on that, Laurence. As you think about the new normal and whenever the business might go back towards previous levels of sales, do you think the -- as you think about balancing cost and investment, do you think the business can go back to a higher margin level or at least in line with pre-COVID levels?

The primary focus is really to get more margin of maneuver in order to fund the big battles of growth. And moving forward, that's what really enable us to have a sustainable way of profitable growth. So the first worry, the first concern is to really make sure that we free up resources in order to be able to work on resource allocations. Now absolutely, sliding margin is not something that we're happy about, and it's not something that we want to see. This year is not the right year to talk about margin. But definitely, we want to balance what goes down to the profit, net profit and what gets reinvested in the business.

We have a question from Simon Hales from Citi.

I've got 2 or 3 questions, if I can, please. I mean, Dolf, you talked about the need to look at some targets unmet consumer needs. Does that mean that you would perhaps consider at this point pursuing opportunities beyond beer and beyond low and no alcohol? Or are you talking specifically about unmet needs within the portfolio sort of broadly as it stands? Secondly, I wonder if you could just talk a little bit more about the moving revenues per hectoliters -- revenue per hectoliter in Europe through the first half. You're clearly still cautious on the outlook into H2. I know you don't want to talk about volume exit run rates in June and into July, but how do we think about sequentially perhaps how revenue per hectoliters moved in somewhere like Europe from perhaps the April lows through to the end of the quarter? And then, finally, just a quick one around the sort of tax rate. Clearly, a number of issues impacting the tax rate in the first half. Do all of those issues remain structurally into the second half as well as, Laurence?

Okay. I will take those first 2, and then maybe Laurence, any comments you may have from revenue per hectoliter, but then particularly on the tax rate. Thanks, Simon. Regarding consumer and customer-centricity and focus on unmet needs and whether that would take us beyond beer. For me, what is really key is it's all about the consumer. And it's being much more deliberate about servicing how -- our consumers. Why is beer still so underrepresented with female consumers? What's happening with consumer penetration with younger generation? That's something that really concerns me. That's something that's very top of mind. And we really want to take responsibility and make sure that, first and foremost, the beer category stays relevant and becomes more relevant and drives consumer penetration with all these relevant consumer targets. And that may mean that it looks and smells like beer today, it may look different. I think we're already tapping into certain trends, whether it's 0.0 beer, whether it's much more sessionable beers that we're seeing in some markets; much less sessionable beers, more on the craft spectrum in others. And yes, for me, it's to be much more open-minded and not be caught in a very -- in a fixed mental model or to be too inward-focused on the portfolio as we have it, but really deeply understand what's going on with our consumers and make sure we satisfy their current and future needs. And again, I can name many great examples where we're already doing it. And at the same time, I know and I'm convinced that there is much more we can do in that regard. Now revenue per hectoliter. First and foremost, one of the things -- it is always important to -- and our intention to make sure we get the pricing in respect to the cost. The whole disruption in the channel mix is really upsetting this picture in a major way. Because in the shift from on-trade to off-trade, the revenue per hectoliter is significantly lower. But your input costs are also much higher. So it's a very difficult situation we are facing there. I think in the release, we are signaling that some of these effects, that we still expect them for the remainder of the year. But Laurence, maybe you want to comment on that before addressing the tax-rate question.

Absolutely. Yes, we do expect that the shift will remain switch towards -- switching toward off-trade in the second half of the year even though we've seen gradual reopening, we're not at 100%. And the one that we open are not at 100% of the previous volume. So that will continue to have an impact in the second half. And answering to your question on the tax rate. Definitely, the fixed part of the tax becomes much heavier in terms of tax rate when you have a lower profit before tax. And that fixed part can be things like withholding tax on goods and services provided internationally. We also have indeed the nondeductibility of certain part of interest or some losses that we cannot -- for which we cannot book the deferred tax asset. Those 3 elements will remain a factor in the second half. So not guiding on the tax rate, but you should expect that the tax rate in the second half would be probably closer than what you see in the second -- in the first half than on the normal year tax rate. That will still offset quite massively.

We have a question from Pinar Ergun from Morgan Stanley.

My first question is would the COVID crisis change your long-term views about your integrated business model in Europe if lockdowns were to take longer to ease fully or if the footfall remains lighter for longer. And the second one is you've called out Europe, Mexico and South Africa explaining about 84% of the H1 EBIT decline. It appears that these regions are likely to stay -- well, face ongoing challenges in the near term. Would that be a fair assessment? And are you planning to change anything in the way you run the business to counter these headwinds in the second half?

Thank you, Pinar. Regarding our long-term view on the integrated business model. I'm a firm believer that in the end of the day, human beings are social beings, and they love to connect. They love to come together, enjoy life and often over beers and often in these kind of on-trade environments. So long term, I absolutely am convinced this will remain a significant and important and profitable part of our business. Short-term outlook, very volatile. Long term, we remain committed. The question is to what extent we would have adapt to our cost structure in, let's say, the midterm. And this is something that Soren Hagh, our new Regional President, Europe, is tasks to look into. He has mobilized his team to assess this. So this is very much something that is top of mind. But once again, let me reiterate, long term, we really believe in the strategic value of our integrated business model as it has served us so well also in the past. Your comment on Europe, Mexico, South Africa representing 84% of the profit decline, it's impossible to say anything meaningful on the future, Pinar. I think things may improve there, but they may deteriorate. In other place, it may continue as is. I think in the end of the day, the only wise thing we can do is, one, to remain very realistic about what we are facing; two, to be very transparent about it; and three, to really make sure that the agility and adaptability that we have seen across the business, that we really maintain that. As said, I'm very, very impressed by our supply chain. We have a complex opco footprint, considered how widespread it is, and it has been amazing how efficient and effective the supply chain organization has been in ramping very quickly down, but also ramping up very quickly. Now one thing we haven't spoken about yet but something that is really taking and showing a big acceleration is our e-commerce business, where, for example, in Mexico, also in places where we were in the lockdown, the SIX TO GO B2C platform really helped us in reaching consumers whereby the traditional channels were not able to do so. As said, I think the number we shared is that we had 10x the orders in the first 6 months of the year compared to the full year of 2019. The same thing for Beerwulf, our Pan-Europe platform, almost doubling the revenue, doubling the number of consumers we have there. So I think it will be really a tale of 2 stories, where in some places, we will accelerate and we will have to scramble to make sure we are able to satisfy demand; and in other places, where very unexpectedly, things may roll the opposite way. But I'm confident in our organization in managing to do both. Thank you, Pinar.

We have a question from Tristan Van Strien from Redburn Partners.

Three for me, please. So for the first one, Laurence, on -- the question's on impairment testing. When I look at your WACC rates, which are 20% and higher, it seems much higher than what I'm calculating in terms of the contribution to premium and also much higher than when I look at your competitors doing 10% to 12% WACC rates in similar geographies. So I guess the question is are you perhaps being too conservative. And what drives that? Then the second one, you're very much a federated organization that drives that agility. And you're doing this -- the IT investment in your infrastructure. What are the opportunities to leverage that scale better on the back of that? What are the things that allows you to get a bit better cost control and bit better agility on the back of that infrastructure investment, which has been quite large? And then the third point, Dolf, you mentioned obviously that one of the opportunities in terms of beyond beer was really to target women better, which is something I think I've been hearing for the last 25 years. But it also seems to be the problem that often, particularly in beer, management is still very much male-dominated. So perhaps, where do you see the opportunity there?

I think the first one was for you, Laurence.

I thought it was the third one that was for me, Dolf.

You can take that one as well. I'm very happy.

Thank you very much, Tristan. So no, I will take care of the one about the WACC of Papua New Guinea. So we can have a further discussion on this. We take our WACCs from external sources and we look at it country by country. There might be a pretax, posttax tax way to look at it in-- so happy to answer your question in detail. Frankly, I don't think we're particularly conservative. We have long discussion with our auditors, again, country by country, and you can different -- external sources can give different things. But as a matter of a general statement, we're not considered neither too optimistic nor too negative on those. Now you say WACC is a country risk and sometimes it's for -- it's very uncertain, so it just reflects the external source you're picking.

Yes? That's all you wanted to share on the impairment?

Well, I can actually go down on the WACC of Sierra Leone or Solomon Island or...

No, no, I'm happy to take the second part of Tristan's question. On our federated model, which both is a huge strategic asset as well may complicate leveraging skill, I think that's how I understood your question, Tristan. And what are our intentions going forward? Now as I said before, I'm a big believer in our opco-centric model, where we are putting the accountability and the P&Ls with local management, as close to local consumers, local customers as possible. That gives us the agility, the adaptability, the entrepreneurial spirit, and we will continue to do so. What is true that -- and I've been as much part of this as anybody else, that we have not yet been very -- not as effective, I would say, as we like to be in leveraging our scale across all dimensions. We have done so, for example, in procurement. That is an area where we really centralized and we have reaped the benefit. In other areas, for example, the management of the Heineken brand, which 10, 15 years ago was extremely federated with 23 different agencies and we really harmonized that and drove a much more globalized strategy. And I think that's one of the primary reasons why we are seeing these very strong results on brand Heineken. So I think we're on a continuous journey of finding that perfect balance between local entrepreneurial spirit, local empowerment while driving commonalities, driving global strategies where it's relevant and where it matters. And with the major digital and technology investments that we're facing, it is a moment in time where we will further nuance our operating model and there will be further elements in our operating model where we will push for common standards, common systems rather than allow opcos to each go their individual way. And again, this is not something new. This is something that we have done over the years, and it's just one of those moments in time where we will probably see an intensification and acceleration in this regard. And it's not just for cost control. It is also really important. If you truly want to become a digital-enabled company, you need common data systems. In order to have common data systems, you need standardized transactional processes. You need standardized IT systems. And we are firmly committed to be heading in that way and accelerate our efforts in this regard. Now your last question on beyond beer and how you've heard that for over 20 years, and that's a point well taken. And it's embarrassing, to be honest, and it's bad business because half the consumers out there, the half -- the potential consumers happen to be female. And I really feel we need to do a better job at that. And I do believe adjacent categories have done a better job than beer in this regard. And you're also fully right to point out that there may be a correlation with the internal diversity in beer companies and the diversity of our consumer base. So this is something that's high in my agenda. With 85,000 people, there's no quick wins where you surely dramatically transform it, but it is something that Laurence and I, the whole executive team, are really committed to move the needle on, not just because it's the right thing and it fits our value of respect for people, but also because it's good and important for business. Thank you, Tristan.

I think -- was that -- is there -- are there any more questions or not?

No, I don't think we have more time for questions.

That was our last question. Dolf, I will hand it back to you.

Okay. Yes. No, just a short final word. And thank you all for your questions. No, as I wrap up, I would just like to again thank all our people, all the 85,000 men and women from Heineken around the world, for their relentless commitment to our Heineken values, by taking care of each other and the customers and our communities while at the same time, we are adapting swiftly to the changing business environment and fast-evolving consumer and customer needs. Despite the current challenges we are facing, I am and remain very confident that while navigating the crisis, we will build a bright future and continue Heineken's growth journey. We will emerge stronger and once again be the pioneer in leading and shaping the global beer industry. I thank you all for joining the call, and I look forward to meet in person and to have a beer together as soon as circumstances allow. We wish you a very good day. Bye-bye.

Goodbye. Thank you.