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

Ladies and gentlemen, hello, and welcome to the Heineken Half Year Results Call. My name is Maxine, and I'll be coordinating the call today. [Operator Instructions] I will now hand over to Federico Castillo Martinez, Director of Investor Relations, to begin. Federico, please go ahead when you're ready.

Good afternoon, everyone. Thank you for joining us for today's live webcast of our 2021 half 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.

Thank you, Federico, and welcome, everyone. Good morning, good afternoon, and good evening wherever you may be. I hope you and your families are well and safe. I'm delighted to be together with Harold today to share with you our first half 2021 results. Harold joined the business on the 1st of June this year and brings a wealth of experience from previous roles and great companies like Unilever and Reckitt and I'm sure then he will continue enormously to our future success. I would like to start today with some reflections on my first year in the role. From my very first day, we adopted as a mantra that we needed balance, we need to navigate the crisis but also build a brighter future. This remains true today as the pandemic continues to impact the world and our business. I would like to thank our teams across the world for their energy, commitment and resilience. They make us very proud, working hard every day to deliver for the business whilst taking care of each of our customers and their communities. We see positive signs in some countries and regions, but we also see continued or new ways and lockdowns in other countries. Our teams have been fast to service our customers and consumers where markets reopened, yet remains agile, whenever restrictions were reintroduced. At the same time, we have been building the future on the strong fundamentals of the business. We launched EverGreen, our balanced growth strategy, to deliver superior and profitable growth in a fast-changing world. We have moved fast into implementation, and I will come back to that in a moment. One of these fundamentals is our #1 asset and flagship, the iconic Heineken brand. We have incredible momentum with the brand globally, and a big part of this because Heineken connects meaningfully with our consumers across time. Over the last year, it has been especially important for the brand to be relevant. People everywhere have faced the challenges of lockdown, social distancing and have been longing to meet again, share a beer and chat and laughter with friends. Heineken brand has accompanied them with spot-on communications through this journey. I'm proud of the different commercials we had aired over the last year from showing entity at the start of the crisis as we dealt with the challenge of social distancing with the commercial Ode to Close, to support to our customers with Back the Bars and to celebrating the reopening of Europe and opportunity to be finally together and to be rivaled again with our Euro 2020 campaign. Heineken achieved great recognition for this creative work. In addition, we have and will continue to support hospitality sector and the community where we operate. Now you may recall that when we introduced EverGreen, we shared with you our balanced growth algorithm. This slide will show how the different elements of our strategy contribute to long-term value creation for all stakeholders. At the top of the framework, you find superior growth, our first and foremost intention as a growth company. Here, we have made exciting progress. First, United Breweries in India has joined the Heineken Group, an historic milestone last week that further strengthens our footprint and gives us an even sharper growth advantage. Second, the growing momentum of the Heineken brand in many parts of the world; and third, we have expanded our portfolio in many of our markets with innovations to better serve our consumers, to name a few examples. To amplify our strong position in premium, we launched Dos Equis Ultra Dos Equis Ultra in Mexico and Birra Moretti Filtrata a Freddo in Italy. To further extend our global leadership in nonalcoholic, we complemented our range with Desperados Virgin Mojito and Lagunitas Non-Alcohol IPA. And we're stretching beer with low bitterness variant in many markets globally like Tiger and Bintang Crystal in Indonesia and continue to move beyond beer with the launch Inch's cider in the U.K. and our experiments with Pura Piraña, Seltzer in Mexico, New Zealand and Europe. I will be coming back to illustrate further. And we are shaping our growth as I walk you through the performance of each of our regions in the first half. Then in the lower part of the framework, we have the continuos productivity improvements that are needed to accelerate investments to drive future growth. Harold will speak later to these elements, but let me just say, we are building great traction with our productivity program. For example, we've implemented in the first half, the organizational redesign, including the head office. This was a difficult process as we saw colleagues leave, but necessary to make sure we come out of the crisis stronger. Then at the heart of the flywheel aligned with our values, our sustainability, responsibility and people strategy. You may recall that on Earth Day last April, we launched our Brewing a Better World 2030 ambition with bold titles on environmental and social sustainability and responsible consumption. I will also come back later to this to share some of the early progress. Overall, I'm very encouraged with the early momentum we are building towards our EverGreen ambitions. Now let's jump into our results, touching on a few highlights. We are pleased to report a strong set of results for the first half year. Net revenue (beia) grew 14.1% organically, benefiting from both a strong volume growth and revenue per hectoliter growth. Beer volume grew 9.6% and Heineken up strongly 19.6% with a very broad-based growth. Our operating profit (beia) more than doubled, and the margin was 16.3%, driven by top line growth leverage, continued cost mitigation actions and structural gross savings delivery, further helped by the phasing of marketing and sales expenses into the second half as per our original brand plans investing behind growth. The net profit increasing from the past have given the low profit from last year, higher profits from our JV partners and lower financing costs. Now as far as these results are, there is a reason for caution, too. COVID remains a factor, and we see a rise in commodity costs. Overall, we expect full year financial results to remain below 2019. Now allow me to briefly update you on our performance by region. Starting with AMEE, the Africa, Middle East region. Net revenue grew organically by 30.4% and operating profit by almost 90.2% with strong growth in the majority of our operations, particularly South Africa and Nigeria. Beer volume grew 16.8% organically with Nigeria, the DRC, Ivory Coast, Burundi, Rwanda and Lebanon ahead of 2019 volume. Price/mix was up 9.5%, mainly driven by assertive pricing in Nigeria, Russia and Ethiopia. The strong recovery in Nigeria continues, gaining share in the market. The premium portfolio grew close to 60%, driven by Heineken's, Tiger and newly launched Desperados. The low and nonalcohol portfolio grew in the high 20s, driven by Maltina and its expanded range of flavors. In South Africa, total volume grew in the 50s ahead of the market and cider volume more than doubled. The market has been impacted by alcohol bans in January, Easter and more recently, during July. Moving on to the Americas. Net revenue and operating profit (beia) grew organically by 25.7% and 85.7%, respectively, mainly driven by Mexico and Brazil. Organic beer volumes grew by 16.7%, coming close to the volume of 2019. Price/mix on a constant geographic basis grew by 9.4%, mainly driven by Brazil. Mexico, beer volume recovered strongly with growth in the mid-30s ahead of 2019. Revenue came even further ahead as price/mix increased by a low single digit this year despite the reinstatement of our promotional activity, which was suspended last year during the second quarter. The premium portfolio grew in the 50s and we launched Dos Equis Ultra, the first Mexican Ultra to further accelerate premiumization. Our SIX stores accelerated the expansion of new stores and grew strongly in the same-store sales, including the development of non-beer categories. In Brazil, we continue to rebalance our portfolio and gain share in premium and mainstream. Heineken continues its remarkable momentum and became the #1 brand in value in the off-trade. Price/mix grew in the high 20s following our price increases last year, lower promotional activity this year and the rebalancing of our portfolio. Early July, we implemented an additional price increase. We started successfully the transition of our route to market on July 1 and launched Tiger through the Coca-Cola bottlers network. Heineken U.S.A. grew ahead of the market, driven by Heineken and Dos Equis, which benefited from innovations like Dos Equis Ranch Water and Dos Equis Lime & Salt and the reopening of the on-trade. We observed strong growth across the majority of our markets in the regions, especially Panama, Peru and Ecuador. Next up, Asia Pacific. Beer volume declined 1% organically with beer volume down 5.6% versus 2019. Net revenue (beia) increased 5.4% organically with price/mix up 3% on a constant geographic basis. Operating profit increased 15.9% organically, driven by Indonesia, Malaysia and restructuring of our business in the Philippines, partly offset by Cambodia. Following a strong start of the year in Vietnam, the last 2 months we saw steep declines following restrictions to contain COVID to several regions, especially in our strongholds like Ho Chi Minh City and the Mekong Delta. Heineken Silver more than doubled its volume, and the mainstream portfolio grew in the low teens, led by Larue and Bia Viet and Bia Viet as we continue our expansion strategy outside of main cities. In China, Heineken grew by strong double digits led by Heineken Silver. The initial volume and coverage reached by Amstel in the very first few months of introduction are encouraging. Indonesia partly recovered, although still significantly behind 2019. We introduced Bintang Crystal, a smooth cold brewed variant with low bitterness. Restrictions remain nationwide, including the key regions of Bali and Java. Beer volume grew double digits in Singapore and South Korea and Laos and other markets in the region, driven by the growth of our premium portfolio. Now as you may have seen, last week, United Breweries Limited became part of the Heineken Group, a special moment after 13 years of strategic patience after we took an initial position as part of the acquisition of Scottish & Newcastle in 2008. My special gratitude to Jean-François and many others that have helped this happen over so many years. And it is with great delight that we now welcome all of our colleagues at United Breweries to the Heineken family. We believe India provides fantastic long-term growth opportunities with a population of 1.4 billion, a strong emerging middle class and low per capita beer consumption. UBL has a proud history dating back more than a century. It built its position as the undisputed market leader in India with a strong network of breweries across the country and a fantastic brand portfolio, including its iconic Kingfisher brand family. We are honored to build on this legacy and look forward to work with our colleagues at UBL to continue to win in the market, delight consumers and customers and unlock future growth. UBL will be a top Heineken operating company and Kingfisher top 5 global brand. We have initiated procedures to integrate UBL into our network of operating companies. Finally, moving to Europe, net revenue grew by 3% with price/mix growing 0.8% with a relative stable channel mix. Operating profit grew materially from a very low base. Following the beer volume decline of 9.7% in the first quarter and the second quarter, volume grew 13% to finish with a 3.2% growth for the first half. On-trade volume was down by a low single digit for the first half despite the easing of restrictions during the second quarter. Compared to 2019, on-trade volume was down circa 50%. And looking at the exit rate of June with around 80% of the on-trade reopened, volume was behind 2019 by a high single digit. The off-trade, on the other hand, is growing ahead of 2019 driven by our premium portfolio and outperforming in markets like Italy, Spain and France. The premium portfolio grew in the low teens versus last year, driven by Heineken Desperados and Birra Moretti. The low nonal portfolio grew around 10% led by Heineken 0.0 and Desperados Virgin. The Heineken brand shows continued strong momentum, growing 19.6% versus 2020 and 16.7% versus 2019. The growth came from a very broad base of markets with more than 50 markets growing double digits, including Brazil, China, Vietnam, Nigeria, South Africa, Italy, Mexico, Poland and Colombia. Heineken 0.0 grew close to 40% and is now available in 95 markets. Heineken Silver quadrupled its volume, driven by strong growth in Vietnam and China. Now we are also making big strides in our ambition to become the best-connected brewer. Our business-to-business or B2B digital platforms continued its strong momentum and capture more than EUR 1 billion in digital sales value in the first half of this year, more than double versus last year. We're now connecting more than 200,000 customers in traditional channels. That is more than 4x the number we had last year with the biggest expansion coming from Mexico and Brazil. In Mexico, in particular, we accelerated the deployment of our Heishop B2B platform. And in June, we captured orders representing 58% of the net value from traditional channels. In Brazil, we expect growth to accelerate as part of our plans to transition and expand our own route to market in the coming months. We have also expanded our B2B markets to new markets, so now we cover 30 operating companies in total. Our direct-to-consumer platforms, D2C, also continued to grow strongly. Beerwulf in Europe grew its net revenue by close to 60% with particular strong growth in home draught with The Sub and Blade. In Mexico, our D2C activities grew around 90% in volume. Now lastly, I would like to share with you some of our early progress on our sustainability responsibility ambition. We raised the bar on our environmental social responsibility actions in April with our refreshed Brew a Better World 2030 commitments. We are further integrating our operationalizing our S&R agenda into our business, improving our data reliability to ultimately allow for more transparent reporting. On our path to zero environmental impact, several of our markets have already committed to reaching carbon neutrality in their production ahead of our global commitment, such as Brazil by 2023 and Indonesia by 2025. You might have noticed that the recent Formula E Race hosted in U.K., we also launched the Greener Bar showcasing innovative ways to reduce waste and carbon by using only recycled materials. To show our commitment to an inclusive fair and equitable world, we will leverage the strength of our brands to raise awareness and support on social issues. One recent example in Brazil was that “I am what I am” Amstel campaign with commitment to spend 10% of the brand's Brazilian media budget to raise awareness and support the LGBT+ community. On the path to moderation and no harmful use, we will ensure a zero alcohol line extension for at least 2 strategic brands across the majority of our operating companies accounting for 90% of our business, of which 1/3 is already in place. So to summarize, there's very momentum building towards EverGreen with initiatives kicked off in all parts of the flywheel. Brand Heineken shows strong momentum. We're strengthening our ability to drive consumer-centric innovation, building traction on our productivity program and shaping our path to meet our Brew a Better World commitment. I'm confident that we're heading in the right direction. And with that, I would like to hand over to Harold.

Thank you, Dolf. It's a great privilege to join Heineken and succeed Laurence. I'm particularly motivated to contribute to Heineken to fulfill its ambitions with a positive impact for our business, our world, our stakeholders and our people. That's why I believe the goal set with EverGreen are the right ones. It starts with growth very much at the heart of Heineken and what we are known for. And we now build on it by putting more focus on profitability, capital efficiency, sustainability and responsibility. I'll do my best and add a bit of my own [ value ] in this exciting journey. I'm looking forward to meeting you all in person when conditions allow. Looking now at our top line performance on Slide 15. Our teams demonstrated great agility to capture the partial recovery seen in the first half of the year, and this is reflected in our net revenue (beia) growth, organically by 14.1% or EUR 1.3 billion. Total consolidated volume on an organic basis grew 8.2% with quarter 2 recording a consolidated volume growth of 19.3% as more markets reopened for business. About 3/4 of the half 1 volume growth came from Mexico, South Africa and Nigeria, where, in particular, the first 2 markets were affected by significant lockdowns in the first half of 2020. Spain, Italy and the U.S.A. also saw significant volume increases. In Asia Pacific, we saw a slowdown in the second quarter due to the increase in COVID-19 cases in the region and consequent government-imposed restrictions in many countries. Net revenue per hectoliter was up 5.5% with price/mix on a constant geographic basis up 5%. Our business took action to mitigate currency deflation and cost inflation with pricing, most notable in Brazil and with significant pricing steps in Nigeria, Russia and Ethiopia. Consequently, Americas and AMEE recorded close to double-digit price/mix growth. In Europe, our price/mix was positive in the low single digits with U.K., Spain and Italy leading the way, despite the negative net channel mix from lower on-trade revenue. Price/mix in APAC was in the low mid-single digits, driven by Malaysia, with the region impacted by the recent restrictions as I just mentioned. The currency translation was significant at EUR 567 million, decreasing our net revenue by 6.1%. This is attributable mostly to the devaluation of the Brazilian real, the Nigerian naira and the Vietnamese dong The consolidation impact in half 1 was not material with a net impact of just negative EUR 5 million on net revenue and no major transactions to report. As a reminder, we acquired UBL shares increasing our shareholding from 46.5% to 61.5%. However, as we did not have management control until last Thursday, we recorded the acquisition of shares under investments and associates and joint ventures. We closed half 1 just shy of EUR 10 billion net revenue (beia), still 13% short of the first half of 2019. Let's now look at the operating profit (beia) on Slide 16. Operating profit more than doubled in the first half year, predominantly driven by our top line growth. The EUR 1.3 billion organic revenue growth I called out on the previous slide converted in EUR 904 million organic operating profit growth versus the first half of 2020, a conversion rate of almost [ 70%]. The operating profit growth was very broad-based with the majority of our operations contributing but in particular, Mexico, South Africa, Brazil, Spain and France. Clearly, revenue was the main driver of growth, and this was further boosted by structural growth savings, continued cost mitigations and the phasing of marketing and sales expenses into half 2. Let me give some additional color. Input cost (beia) grew by mid-single digit on a per hectoliter basis with a significant impact from transactional currency effects. Prices of commodities had a small negative effect as we benefited from our hedge positions last year. Given higher commodity prices currently, we will see this impacting more in the coming quarters. We had a favorable portfolio mix effect, mainly from our growth in premium and growth in returnable packaging versus last year although the pack-type mix effect is still negative compared to 2019. Marketing and sales expenses (beia) came in lower than last year due to phasing lower credit losses and continued cost mitigation actions in markets under lockdown. Personnel expenses (beia) increased slightly as labor cost inflation and the reinstatement of variable pay were largely offset by savings from our organizational redesign. Other expenses also reduced with lower travel, depreciation and savings in general expenses. The currency translation impact on operating profit was EUR 101 million, principally driven by the same currency group I called out on the net revenue bridge. And as I just mentioned, there was no material consolidation impact on operating profit this half year. We therefore closed half 1 with EUR 1.6 billion operating profit (beia), still 9% short over 2019 level. On Slide 17, I would like to give some additional insights in how we work our growth algorithm to accelerate investments enabled by productivity gains. As Dolf shared with you earlier, we are substantially stepping up investments behind our digital transformation. The deployment of our B2B platforms continue at pace, more than doubling their reach versus last year, and our B2B footprint now spans 30 operating companies. We also continue the journey to standardize and transform our ERP platforms. We are funding our Brew a Better World ambitions, especially to decarbonize and achieve water balance and circularity. We're equally committed to grow our marketing and sales investments to levels before the pandemic by no later than 2023. To support our growth initiatives, focus on premiumization and expansion of our portfolio. For the first half, these have moved in the other directions, but this is mainly driven by phasing, and we will see an acceleration in the second half as we remain committed to our original full year brand support plans. All these investments will be enabled by our productivity program, and we are pleased with the traction we see in our operating units. As a reminder, we have set a target to deliver EUR 2 billion of gross savings by 2023 compared to the 2019 cost base. We expect that by the end of this year, we will have captured more than EUR 1 billion of these savings. You may recall from the introduction of the program that it is mainly focused on 3 areas: first, the organizational redesign, which is about rightsizing our cost base and streamlining our organization. Most of the changes have been effectuated with appropriate phasing to ensure minimal disruption to our operations. For example, the new head office redesign became effective fully on April 1, 2021. To date, over half of the targeted FTE reduction has been realized with savings captured and the remainder will be largely achieved by the end of 2022, quarter 1, that is. Close to 1/3 of the headcount savings realized is in Europe. Secondly, our supply chain efficiency program, which tackles complexity and optimizes conversion and logistics costs. We have started to selectively streamline our portfolio. For example, in the Netherlands, we cut about 30% of SKUs. We are harmonizing bottles across products and lightweighting where possible. Regarding logistics, we achieved great gross savings in the U.K., introducing a modern and flexible primary distribution network and improved our demand planning systems. And as you know, we are making a big transition and expanding our route to market in Brazil, thereby achieving better coverage with greater efficiency. Finally, our commercial effectiveness programs where we see significant progress across many of our operations, we achieved the largest savings in the U. S., while maintaining the same level of effectiveness for our brand investments, reducing nonconsumer-facing spends and improving media ROI. As you might also recall, we indicated our intent to reinvest these savings. Now I would like to cover other key financial metrics from our half 1 results that deserve some attention. First, our share of profit from associates and joint ventures (beia). The growth was very strong, given the low base from last year as some of our partners were significantly impacted by lockdowns in their markets. The growth was primarily driven by China Resources Beer in China, CCU in Chile and UBL in India. Net interest income and expenses (beia) improved by 9.9%, benefiting from a lower interest rates and the repayment of bank loans. We have lowered the expected interest in our outlook to around 2.7%. Net profit tripled versus last year, with a higher relative increase due to the low base in 2020. The effective tax rate (beia) was lower than last year, mainly due to the substantial increase in profits. As a reminder, last year, the tax rate was high due to losses for which no deferred tax assets could be recognized and higher nondeductible interest in the Netherlands. As our business results improved, this is no longer the case. As a result of all these factors, EPS grew almost threefold to EUR 1.56 per share, but still 15% below 2019. A last word on the financing headroom. Total net debt increased by EUR 854 million for the 30th of June 2021 versus the 31st of December 2020 as the cash outflow acquisitions and dividends exceeded the positive free operating cash flow. Furthermore, net debt increased due to a negative foreign currency impact on our non-euro debt. The pro forma rolling 12 months net debt-to-EBITDA ratio was 3 on the 30th of June 2021, which was an improvement of 0.4 versus a closing of 2020 and 0.5 versus the half year. Heineken remains commit d to return to the company's long-term net debt-to-EBITDA target of below 2.5x. Let us now turn to free operating cash flow on Slide #19. In the first half of 2021, the cash flow was EUR 650 million, an increase of rounded EUR 1.5 billion. You will recall last year, that the cash flow declined by close to EUR 1.4 billion to an outflow of EUR 809 million for the first half of 2020, impacted both by the operating profit decline and a further working capital impact despite measures taken, such as the reduction in the rephasing of capital spend. You will now see this reversing into 2021. Cash flow from operations before working capital changes improved by EUR 848 million, including a EUR 151 million reduction in provisions mainly related to the utilization of provisions as we progressed with our organizational redesign. Working capital improved by EUR 384 million as business partially recovered with positive payables offset by higher inventories and increased trade and other receivables, including the recognized tax benefits in Brazil. Our position on payables, trade receivables and inventories have largely returned to their normal level considering the seasonality effects of the middle of the year. Additionally, last year we benefited from delayed payments of value-added taxes granted by governments. These have been paid this year, and the total difference in cash amounts to EUR 200 million and is reflected in working capital. Cash out from CapEx was EUR 932 million or 9.3% of revenue, which was EUR 230 million lower than the first half of 2020. In part, this is prudency related to COVID uncertainty, in part caused by 2020 planned investments that were now phased into 2021. Main projects of this year include the expansion of capacity in our breweries in Ponta Grossa in Brazil and Vung Tau in Vietnam and the acquisition of Strongbow in Australia. Interest, dividend and tax were in aggregate roughly flat versus last year, with slightly lower income taxes paid in 2021 due to the lower profit base in 2020 and the payment of deferred taxes last year. Before wrapping up and handing the call back to the operator to open for questions, I would like to share the outlook for the year. Our theme continues, cautious on the outlook and agile on the recovery. The COVID-19 pandemic continues to present challenges for the world with the biggest impact for our business currently in Asia. Vietnam is severely impacted and is one of our largest and most profitable businesses. We believe the rest of the year to continue to be volatile with some markets gradually reopening, while others continue to implement restrictions until vaccinations are more broadly rolled out. Furthermore, we expect headwinds and input costs in the second half of 2021 and a material impact from commodity costs in 2022. We will be assertive on pricing and drive revenue and cost management to face this challenge. However, we expect margin pressure to intensify in the second half year. In addition, we will increase our marketing and sales expenses investment behind growth initiatives versus last year, fully in line with our full year original plans. As a consequence, we expect operating profit margin (beia) to be lower in the second half compared with the second half of last year. And as indicated before, full year financial results are expected to remain below 2019. Let me close, however, by stating that whilst uncertainty remains, we should take confidence from our first half results, our progress on EverGreen and the commitment of our people. We believe that we are on the right track to deliver on our long-term ambitions. And with that, I would like to hand over the call to the operator so we may take your questions. Thank you.

[Operator Instructions] our first question comes from Edward Mundy from Jefferies.

Three questions from me, please. Dolf, the first is to you perhaps. It is still very early days on the EverGreen strategy, but part of EverGreen is to be -- become more consumer and customer-centric. Can you talk about any early signs that the business is evolving in this direction? Second question perhaps to Harold. You weren't involved in the setting of the cost program initially, that's a key component of EverGreen. From what you've seen in the business so far, what's your degree of confidence in delivering the EUR 2 billion? And how do you think about medium-term opportunities to productivity that you give for operating leverage beyond 2023, in particular from leveraging such as the global standardized ERP landscape? And then the third question is on India perhaps, for Dolf. Appreciate the integration is ongoing. It's still very early days, but what are you most excited about with India, is it the long term volume opportunity, given the caps are -- or is it the opportunities to move to much more of a portfolio brand company?

Very good. Thanks, Ed. Let me indeed speak to your first and third part, and then I hand over to Harold. Yes. No, as we set out in February, EverGreen is really about superior, profitable growth. It's about balance. And we introduced this concept of the flywheel with 4 components: delivering superior growth, continuous productivity improvements, accelerated investments for the future and sustainability and responsibility step-up at the heart in order to drive long-term value creation. But indeed, it starts by superior growth, which is something that we are proud of that the company has been delivering over the years and, for sure, something we want to assure we are able to continue, if not, accelerate. And there's a couple of components, still starting with footprint. And we believe we have an viable footprint. This is the legacy that Jean-François, my predecessor left us with. We are not taking it for granted. We continue to invest in footprint with the UBL acquisition, a case in point. Then of course, it's really about our portfolio, led by brand Heineken. It's amazing to see the continued momentum. This already started before COVID. But it has accelerated rather than slowed down during COVID with still almost 20% growth now. And then indeed, we feel the need to further strengthen our ability to drive consumer-centric innovation. And that starts by really being more extraordinarily focused, by really strengthening our CMI, our data and data analytics capabilities in order to bring innovations to market faster and faster and I am happy, if I see the number of innovations that we're able to launch over the first 6 months of the year within premium, within 0.0, within beyond beer. And at the same time, I think it's early days. I think there's much more to be done. There's more to be done to really take ownership of the category and make sure that we drive future growth of the category, not only in emerging markets, but also in the developed markets. Very happy with James Thompson, our new Chief Commercial, coming onboard with fresh ideas and fresh energy. So I hope we will be able to continue to update you on developments in this direction. Now on to your question on India. Indeed, we are very excited about the long-term potential. Just looking at the sheer numbers, 1.4 billion people, tens of millions of people entering legal drinking age a year, tens of millions of people entering the middle class a year. So the fundamentals, the demographics are very favorable. At the same time, we all know per capita consumption is still very low. This has regulatory structural issues, which we will have to address going forward. And in that sense, it is really an opportunity with a mid- and long-term perspective on it. The Kingfisher brand is a phenomenal brand with incredible brand power, with a lot of powerful line extensions into premium, into lagers and would have few. But now that we have full control of the company, we believe that we can further accelerate the development of the international portfolio. And also more in general statement, every time in the past, when we were able to integrate these proud acquisitions, whether FEMSA in Mexico, Kirin in Brazil, APB in Southeast Asia, simply by applying our global standards, by applying our global best practices, we're able to unlock a lot of revenue and cost synergies. So we believe the story around UBL will be kind of multidimensional. Short term, of course, India is still grappling with, yes, the turbulence related to COVID, although the recent couple of months have been a bit better than the preceding months. Now on that, let me hand over to Harold.

Yes. So just a few words from what I've seen on the cost program, as you call it. Well, firstly, EUR 2 billion is a bold ambition for Heineken. And it was kicked off a year ago. And I want to compliment the entire organization on the speed and, let's call it, the commitment that has been shown in order to do this at pace. And one of the examples that you can see therefore is that the organizational redesign has been, in a way, already affected mostly this year and will be finalized in quarter 1 2022. I also have seen a very programmatic approach. This is not like a cost squeeze everywhere on the budget. There has been a whole machine stood up. And I think this is really very well done so that we really know where the cost savings are coming from and how to replicate them across the business. And that the combination of speed commitment and the programmatic approach has delivered the traction that we need, which is why we've been comfortable to call out the EUR 1 billion that will be realized this year. But EUR 2 billion is twice as much as EUR 1 billion. So there is still much more to come there. And we shouldn't get ahead of ourselves by talking it up what is beyond 2023. I want to close with one final thing. I think this initiative was done in a very timely manner. It was in the middle of the COVID crisis that was brewing at that moment in time and within a quarter this was set up. Now a year later, COVID is still with us. And therefore, it was absolutely the right thing to do, to go in and really take a good look at the cost structure. We also commented in February last year -- February this year that this was going to be used to counter inflation and ForEx. And guess what is happening now? Foreign exchange inflation was already part of the real life now and our commodity inflation is coming. So I think it has been a very timely intervention, and I'm very pleased with the progress that we're making.

Our next question comes from Simon Hales from Citi.

Three as well, please. Firstly, if you could just talk a little bit more about the scale of the input cost headwinds you think you're facing going forward? I mean you referenced mid-single-digit per hectoliter inflation in the first half. I mean, Harold, how do we think about that in H2? And what is your thinking at this point for 2022, perhaps more, importantly. Secondly, maybe one for Dolf. Dolf, you historically talked about a slow recovery of the on-premise channel, particularly in Europe. And I think back in February, you were sort of talking about perhaps the on-premise not fully coming back until 2023, if ever. In the meantime, I think that more recently, given the reopenings been, some of your peers have noted perhaps a stronger rebound than they initially thought. What are you seeing in your business? Are you still sort of very conservative over that medium-term time frame recovery? Or do you think it is a bit stronger now than perhaps you were thought you might be. And then just finally, just a point of clarification around the cost saving, the EverGreen savings delivery. The EUR 1 billion that's coming through in 2021, will that be the gross number that will have been delivered as it were to the bottom line by the end of the year? Or is that the annualized run rate that you'll be looking at by the end of 2021?

Okay. Thanks, Simon. Let me speak to the on-premise question and then over to Harold on input costs and the gross savings. So on the on-premise, you indeed see different patterns depending on where you are geographically. I think the bounce back in the U.S. is much commented on where we and others in D.C., the on-trade bouncing back to at or even above 2019 levels in big parts of the U.S. The Europe, it's more recent. And let's not forget that the European on-trade opened only early June. So that's not even 2 months ago, basically, until the end of May, we were in lockdowns. For the second -- the first -- for the first half the on-trade is still 50% down 2019. Even in the second quarter, the on-trade is still 30% down. And we -- I think we put it in the press release in June, the exit rate. So in June, with most of the on-trade reopened across Europe, we were still high single digit below 2019. That's in absolute volume. At the same time, at that time, only 80%, 85% of the outlets was back. So on a -- from a throughput per outlet, it looks more close to 2019 levels. But we all may know or fear that when the extensive government support in Europe, and over the next weeks and months, there will be an impact in somewhat of an fallout. We don't know. Most expect around 5% to 10% of the outlets to not make it -- make it back. So we still don't see the on-trade coming back fully yet in the short term. Mid-, long term, remain confident as we have said before. The universal desire to socialize over a beer in a bar restaurant has intensified rather than slowed down. Now what was great to see in the second quarter that even though the on-trade started bouncing back, that we retained good trends in the off-trade, somewhat of a slowdown versus prior quarters, but still positive and delivering altogether around a 13% growth in the second quarter. And as we may think that the on-trade short term may be a bit compromised, not fully bouncing back, the flip side may be that in the off-trade, some of the increases may be retained post-COVID as consumers may have discovered new occasions for beer consumption in around the house. And only time will tell how that will shake out. So yes, we do think there's a somewhat different, more nuanced pattern in Europe visible at this moment in time. Now on that, let me hand over to Harold fully over to two questions.

Yes. let me start with the last one, which is an easy point of clarification. When we're talking about EUR 1 billion of gross savings in the context of the EUR 2 billion that we have committed to by 2023, this is really an annualized saving that we're talking about. So that, I think, is that point. Then on the input cost headwinds, maybe to decompartmentalize it into half 1, half 2 and then looking into 2022. So our input costs in the first half as I indicated has -- have increased by about mid-single-digit. This was primarily driven by transactional, ForEx. For example, related to the Brazilian real. We've hedged that last year. But of course, these hedges are actually starting to translate into input cost pressures in the first half of the year. This transactional ForEx will -- you will have seen the translation difference also in our first half year results. So unfortunately, we're not out of the woods yet with currency volatility. And this is the main driver why we expect pressures to continue into second half of the year. We've also observed like, frankly, the whole market that input commodity costs have really risen very, very materially in the last couple of months to the tune of 20%, 30% even sometimes 50% on commodities like barley, like plastics, like aluminum. And this is currently not going to hit us significantly in the second half of the year because we take commodity hedges out over a 12 to 18 month time horizon, but they will start to impact 2022. So this is how it decomposes. And we are talking about a material inflation. So that is significantly higher than the input cost that we saw in half 1.

Our next question comes from Sanjeet Aujla from Credit Suisse.

A couple of questions from me, please So a lot of talk about input cost pressure, but I just loved to get your outlook on revenue per hectoliters, quite a strong performance there in H1, particularly as we think about the European on-trade sequentially improving in H2, is it logical to assume revenue per hectoliter accelerate in the back half of the year? And tied to that, as you think about 2022 and the input cost pressures, can you just talk a little bit about what sort of pricing actions you're taking in the market at the moment. You talked about price increases in Brazil in June, July, but I'd love to get your take on other markets perhaps, where pricing is to come.

Very good. Thank you, Sanjeet. Yes. And I think we have spoken about this at full year and a year ago as well that revenue management is a very important part of the business, that when we talk about superior profitable growth and we need to make sure that we drive our growth through both volume and revenue per hectoliter. I think we have shown over last year to be, yes, assertive on pricing in the key markets, especially in markets where we were facing inflationary pressures, case in point being Brazil. And year-to-date, we are delivering high 20, which is a combination of 3 price increases in a row and a massive mix effect. As you may recall -- and we're out of capacity in Brazil, so we're letting go of significant amount of economy brand volume, we're regrowing our premium and mainstream portfolio in the 20s, which is generating a very positive mix effect on top of these price increases and -- sorry, guys, we are getting a feedback sound here. So you can please -- thank you. So very strong pricing in Brazil. Across the Americas, it was almost double digit, across the Africa, Middle East region, almost double digit, driven by South Africa and Nigeria. So that -- you will see us continue to pursue. In environment like Europe, of course, that is more challenging. We had about 0.8% pricing in the first half. Given the input cost commodity price heading our way, we will have to be alert on that and, yes, be agile in taking the pricing as we see fit. You will see an acceleration somewhat of our revenue per hectoliter in the second half of the year. And at this moment of time, I find it premature to speak about next year other than the intent as we have expressed that in our press release. What is important, we continue to invest not only in getting these outcomes, but also invest in the capability, in really creating that revenue growth management capability and muscle in the operating companies across the different regions. So I think some of these results are the early outcomes of that -- those efforts. Thank you, Sanjeet.

The next question comes from Tristan Van Strien from Redburn Partners.

I just wanted to follow up on India and then a question on Africa, if you don't mind. So on India, well done on getting that done. I've seen that 2-liter per capita consumption figure for the last 30 years, I think. I don't think it's really changed. So I guess, can India really grow as long as it stays to -- as long as there's a strong beer market, do you need to turn it into a mall beer market at lower alcohol? And what can you do differently now and this is just a portfolio of planners. Something else needs to happen in India to really unlock that potential on the per capita side of things. And the second question on Africa. I mean it looks like this is the best performance you've had in Africa since H1 '17. Can you maybe just give a bit more insight what's happening in Africa? Obviously, I don't expect everybody to be vaccinated there in the next few years. But what is happening there? This ability to take price, does that continue. There's a bit to main side of what's happening, particularly, outside of South Africa, that would be great.