Transcript

Company Name: Heineken
Company Ticker: HEIA NA

Date: 2016-06-16
Event Description: Deutsche Bank Global Consumer
Conference
Market Cap: 45,135.56

Current PX: 78.36
YTD Change($): -.41
YTD Change(%): -.520
Bloomberg Estimates - EPS

Current Quarter: N.A.
Current Year: 3.827
Bloomberg Estimates - Sales
Current Quarter: 5716.500
Current Year: 21231.037
Deutsche Bank Global Consumer Conference

Company Participants
Laurence Debroux
Other Participants
Raoul-Tristan van Strien
MANAGEMENT DISCUSSION SECTION

Hi. Good morning. My name is Tristan van Strien, I'm the beverage analyst here at Deutsche. It's an absolute pleasure
and privilege to have with us today, Laurence Debroux, Chief Financial Officer at Heineken NV.
Instead of having a presentation today, we'll do a fireside chat. The format is we're going to have three sections. We're
going to cover the overall business some of core markets, as well as proximity balance sheet and inorganic activity that
the company has undergone over the last few years.
After this section, I'll open up the floor to a few questions and we'll take it from there. Laurence?
Q&A
<Q - Raoul-Tristan van Strien>: Good morning.
<A - Laurence Debroux>: Good morning, Tristan.
<Q - Raoul-Tristan van Strien>: How are you?
<A - Laurence Debroux>: Fine. How are you?
<Q - Raoul-Tristan van Strien>: Good. It's been exactly almost a year now. You've been...
<A - Laurence Debroux>: Over a year.
<Q - Raoul-Tristan van Strien>: Yeah. Last year you were seating there as Jean-Franois was talking. So how's it
been? What surprised you positively, negatively over the last year?
<A - Laurence Debroux>: So the one really good thing [ph] is that it (01:05) has never been boring. So that's and I
don't think I have any danger of being bored anytime soon. What surprised me? Well, definitely, positively, the passion
for the brand, and that's something that's actually you see everywhere, and that has a lot of consequences on the way
you can run a company because you see that has every layer, and whatever the people are doing in that company, they
have a passion for the Heineken brand and the Heineken company, so that's very strong. It's a lot of leverage. Diversity
as well of the market, because this is at the same time, a very global product, you find in a way that you find it
everywhere, and you do have global brands and talking about global brands, you do have global platform that you can
activate, such as a platform we activate for Heineken, whether it's a Football, Rugby and Formula One.
But it's also a very local market, and every time I visit a country, and I'm now at 20 markets, you just have to find out
which markets on-trade, off-trade, dynamics, products, whether it's retail, whether it's mainstream or a premium
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market, and all of them are very different. So that's something that is very surprising, super interesting, but also denote
some granularity in the way you manage the company. So you can definitely leverage some economies of scale, which
you have to have a lot of granularity when you make the strategic choice that Heineken has made to be in each market
and not dependant on any single one.
<Q - Raoul-Tristan van Strien>: And then in the last year, what does your report card look like after year one, what
have you changed that you put it better?
<A - Laurence Debroux>: I think, I mean, I make a business of being the most boring CFO that they can think of. So
I've done a lot of things on, I would say, reporting KPIs, aligning what we tell you, what we commit to you, and the
way we look at our business internally. This is really an internally grown business with people that have been 30 years
with Heineken, which is very common, actually, 20 years is a short-time to be with the company, and a lot of the top
management in the country, at the region essentially are long-time Heineken people, which has a lot of great things.
The small downside is that very often people don't have that many benchmarks and the links with the outside world is
not that strong. So two years, three years ago, when Jean-Franois and Ren at that time decided to really step-up in
term of external communication come out with the guidance on margin increase, did much more transparent, and give
much more information, they did that, but at the same time, I have the feeling the internal world did not totally realize
what we were doing. And when I arrived, we still had a complicated reporting, and very frankly, KPIs that were
different externally and internally.
Just a very simple example, we guide you on margin increase, which is operating margin increase. In all the reporting
internally, I found EBIT margin increase, slightly different, difference is the profit from the JV and associates, but
never the same number. So aligning the way you talk about organic, the way you talk about revenue per hectoliters, the
way you talk about margin increase is very important then, because then you make people part of that journey. Second
thing that we changed is that we had, a year ago, still regional organization that were not self standing of course, but
still quiet independent with also regional targets, and that drives discussion in terms of capital allocation, in terms of
budget discussion, where actually your regional President has something to defend at the regional level.
We decided as a management team that we're going to align all the incentives, and that the full management team
would be on consolidated NV measures. And so we do have the local level and where we incentivize the local
management team, and then we have the central level. And then your decision become much more different, because
when you look at capital allocation, when you challenge the project in someone else's region, you cannot [ph] just
expect (05:13) of having a hidden agenda, and you are really looking at the best interest of the company as a whole,
which most people are, whatever they are incentivized on. But still just taking that layer off and that kind of like
suspicion off that someone could have a hidden agenda to want more CapEx for their region, or a more [ph] linear
(05:31) budget for their region has been a huge transformation.
So that are two examples of things. And then I can go on and on on capital allocation, resource allocation and the way
I'm talking about return on net asset, return on equity, probably much more than in the past, which people are very
sensitive to, and as long as you explain and see how it relates and show how it relates to the business, it definitely
messages that you can pass through the organization, again because people have this passion for the brand, and passion
for the company, that you should really explain clearly why you're doing it, and they feel good, they pick it up.
<Q - Raoul-Tristan van Strien>: Just to pick up on because one of the things you inherited as you mentioned was
that 40 basis points margin target, medium term margin target, again I mean, something you inherited. How
comfortable are you with it, and the way you look at it, where is that [indiscernible] (06:22) possibility and for how
long really?
<A - Laurence Debroux>: I think, first of all, moving a few years ago from communication on cost cutting plans to
communication of margin improvement was a very wise move, and when I see the way we still have to go in terms of
revenue management and I see how much we can still drive this company by better revenue management, I think really
you have to play on all the levers, and that's what this margin guidance enabled you to do, saying you, yes, you keep
cutting costs and we do have things to do, but you can reinvest some in the top-line, and at the end of the day you drive
the profitability. So I think it was a really good move.
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Now, the 40 basis points, I'm pretty comfortable with it. I think on the mid-term, it's a good guidance. It also says
something that we are not going to outcompete some of our competitors, particularly the most massive ones in terms of
efficiencies and in terms of margin. We don't have an absolute target. What we need to do is to keep improving to have
that on the radar screen and to keep working to improve our margin, while continuing to invest behind our brands and
being good at what we're good at, which is build the brands and continue to grow in our markets. And I think that really
enables us to keep the focus, to keep stretching the company, and at the same time make sure that we play for the
long-term, and we don't make stupid short-term decisions just to get to a guidance that would be overstretched.
<Q - Raoul-Tristan van Strien>: So, if we agree just to push on that, so [indiscernible] (07:55) sitting you've got
about a 1,000 basis points gap with SAV, you've got about ABI sitting above 40. So is that gap too big, [indiscernible]
(08:05) think about how much of that can you make up? I'm not asking you for a target.
<A - Laurence Debroux>: There is certainly some of that that we can make up, and we certainly have a way to go in
terms of margin expansion still. I'm not worried about margin expansion, I mean you have some years that are more
difficult or easier than others, but the capability to keep increasing the margin is there.
<Q - Raoul-Tristan van Strien>: Now, you talked about the passion of the Heineken brand, but over the last decade
we've seen Heineken evolved from this mono beer brands than the rest of the portfolio for strategic slave to drive that
basically to a much broader portfolio. So how should we think about that going forward, because we're seeing in some
markets where Heineken was strong like Vietnam, you purposely actually declined it. How should we think about your
broader portfolio, what are some of the bigger brands that you're thinking about currently?
<A - Laurence Debroux>: Yeah. And definitely brands like Tecate or Tiger cannot be and are definitely not strategic
slaves, they're like power houses, regional power houses of their own. It has been an evolution in the past five years to
10 years to move from the Heineken-centered company in terms of brand to a more portfolio company very much
geared towards premium, I think our buyers towards premium is at least double the buyers of our main competitor, but
Heineken still represents 15% of our volume and about 30% of our profit. So it's if Heineken was a separate business
unit, it will be by far the biggest business unit of the company. So it is still extremely important, and we would never do
something that damage the equity of the Heineken brand, but we've invested a lot in order to actually let those brands,
some of them come through acquisition or partnership in Mexico, in Vietnam become really regional national and
regional powerhouses.
<Q - Raoul-Tristan van Strien>: Let's go actually on the Heineken brand, probably the most damaged thing that's
occurred in the Heineken brands, about 20 years or 15 years ago was the expansion of Heineken Light in the U.S. at
that time did not help the Heineken franchise. Yet now you're talking about further expansion on the Heineken brands,
launching Heineken Light in Ireland, launching Heineken 47, for example. Why the change of thinking [ph] that's
(10:21) precious about Heineken basically?
<A - Laurence Debroux>: It's two very different things, Heineken Light and Heineken [indiscernible] (10:29) H41 or
Heineken Light is a proposition for market where [ph] their live (10:37) proposition is useful and necessary. It should
not be launched when the brand is actually starting to come down, it should be launched when the brand is strong, and
you want to get to more people and people that are not necessarily drinking Heineken and need a lighter beer. And
actually some of your light markets are not exactly where you would [ph] see has pain points (10:55) and see the major
likes and 0% market. So it is worth considering some Heineken Light for these kind of countries.
Now, you also have some innovation and we're nowhere near considering things like flavored Heineken or like things
that you can do with other brands. There is not going to be a Heineken [indiscernible] (11:16) for instance. But you can
also launch some innovation that are not meant to bring high volume, but conversation around the brand. H41 for
instance, I don't know, it's what we called white lager, so it's basically a Heineken that is brewed with the original yeast
of Heineken. So the historical yeast, yeast you actually reproduce and you have generations of yeast, and the original
yeast was found back somewhere in Patagonia.
And we did get a phone call from University in Patagonia, saying, we think, [indiscernible] (11:49) identified the
original Heineken yeast. And we felt there was something to say, and that was a really nice story to tell around that. So
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it's been launched at a very small scale, and it's supposed to remain small, and [indiscernible] (12:01) the conversation
and the interest around the Heineken brand, it's not supposed to be big. And you have to be very careful that you don't
want to make it big. You don't want to launch massively through your whole Heineken machine.
<Q - Raoul-Tristan van Strien>: It's more [indiscernible] (12:14). Maybe on the overall strategy and the margin
targets, are there any questions on that? No? Let's go to the next question then. Let's talk about some of your core
markets. I think the bigger one of course is Nigeria. We've got three markets that are over 10% of your EBITDA,
Nigeria is one of them. Like yesterday, the Central Bank Governor, Godwin Emefiele, they said on Monday, we're
going to go through a more flexible market driven currency system. So what does that mean for you guys and how are
you prepared for it?
<A - Laurence Debroux>: So there is still some uncertainty on how this is going to work. So most likely it's going to
be some kind of like managed flotation. I would say, if it brings liquidity back into the Nigerian market, this is really a
great move, so it is most welcome for the industry because the worse thing is not having Naira that devalues, the worst
thing is having no access to hard currency, and little by little Nigeria was getting closer to that situation. So we're really
welcoming this announcement, let's see how it turns out, let's see how the market opens on Monday and how next few
days go, but I really think it's an encouraging sign of things going in the right direction. And then if you compare, and
again, it's only forecast and what traders say, but if you compare the type of ranges that we hear about between NGN
280 to NGN 350 to the euro to the parallel market which is not very liquid that you see now, and through some of the
catastrophic thing that you heard before, it wouldn't be that bad. So let's wait and see how it develops.
<Q - Raoul-Tristan van Strien>: Got it. Just in terms of your input cost [indiscernible] (13:56) now in Nigeria, how
much of those are local, and how much are you dependent on the U.S. dollar [indiscernible] (14:01)?
<A - Laurence Debroux>: So we have about 30% real, real local input cost, because sometimes you can have a local
supplier, but if they are depending themselves on raw materials that is international, let's say, we have a local supplier
of cans, and that is aluminum is something that you would buy in dollar. So really, really local is closer to 30%. So that
does have an impact in terms of transactional headwind for the [indiscernible] (14:27) that definitely has an impact.
<Q - Raoul-Tristan van Strien>: Now, taking all this in consideration and of course the last five years in Nigeria,
you've seen about 500 basis points margin loss as the market went more towards the value end. Have we seen the end
of this as the market stabilized in terms of the portfolio in Nigeria, and how should we think about the way the margin
will develop in that market assuming these [indiscernible] (14:51)?
<A - Laurence Debroux>: Yeah. Clearly, the market that has been trading down as a factor of also going into the
crises, probably as a factor also of us not covering enough in the [ph] backside all the price engine (15:01) and all the
points in the market, which we do much better now. And if you look at our performance on that market, volume
performance is actually pretty good, but you have seen in 2015 very high performance from value and mainstream, and
lower performance and strong [indiscernible] (15:18) at the same time from what used to be the premium segment of
the market.
We do believe that given the segmentation of the market, given the increasing the population, the urbanization trends,
there will be some trading up again in Nigeria. And we do have, in the meantime, of course, margins have been hurt,
and we do have to protect our margin through costs, depending on what happened on the forex, not depending, but
depending on the scale of what happened on the forex. There will be price increase as we have to protect our margins.
And then I do believe we're going to come back up in not sure to the original level of gross margin because that was
really a market that was almost totally premium, but that there is some margin to trade up again.
<Q - Raoul-Tristan van Strien>: Maybe jump to another market that's quite big for you, in terms of Vietnam, you
took a lot of us to Vietnam a few weeks ago to your Capital Markets Day. It's been a phenomenal growth story. But it
did remind people back in U.S. when Heineken was fantastic in the U.S. and then it collapsed, basically [ph] all (16:22)
collapse, but...
<A - Laurence Debroux>: [ph] Very sad people there (16:26).
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<Q - Raoul-Tristan van Strien>: [indiscernible] (16:27) used to do. How do you mitigate the risk because population
is going to slow the expansion is going to slow down in Vietnam, the capital consumption is hitting Asian levels. So
how do you mitigate the risk of a market that's quite important to the overall Heineken story?
<A - Laurence Debroux>: I just want to answer a question you didn't ask on Nigeria. In our margin expansion forecast
we did factor some [ph] near value (16:51) evaluation, not the worst case, but we did factor something, so it will have
an impact, but part of it is already included in the margin guidance. Now, coming to Vietnam, if you look at Vietnam,
percentage of premium is still about or just below 20%, in Europe it's about one-third of the consumption is premium.
Urbanization is still going very fast, and actually Vietnam is not in advance compared to other parts of Asia. Extremely
dynamic demographics, every year 1 million persons entering the age of drinking. So no one sees that market slowing
down, from [ph] pure (17:34) market perspective, and I'm not talking about our position in the next five years.
If you look at Canadian, which is kind of like the external source for us, forecast for Vietnam, we'll see a comfortable
growth at least in the next five years. So I would say, I don't see an imminent danger on the market. Now, regarding our
position, what you see now is that Heineken is stabilized as a premium or super premium and then growing, but with
much slower growth as Tiger. What's really flying in Vietnam is Tiger, which has been an incredible marketing and
success story in the country. And we do have we are very strong, number two in terms of market position, much
better positioned in big cities than outside. So basically [indiscernible] (18:19) primarily. And we do have lot of the
territory to still compare. As you see that in smaller cities close to river area, you have some trading [indiscernible]
(18:29) and you have to move towards premiumization and you see that. So we do see some potential, significant
potential for the near and mid-term both in the market itself and in our position in the market.
<Q - Raoul-Tristan van Strien>: And then if we what's the next Vietnam actually, what's the next story that
Heineken has for next 10 years, when you take us there 10 years from that?
<A - Laurence Debroux>: Well, of course, we like to invest ahead of the curve and prepare for the next Vietnam. It's
also a strategy of string of pearls where you will put best in a number of countries, and it's not necessarily. If I knew
exactly what the next Vietnam could be, I would do capital allocation probably a bit differently. And also if you look at
Vietnam 15 years ago, it would consider an outlier in the portfolio, and so you also have to cater for changes in the
market. I would say very, very impressed by and I've been there recently by Ethiopia. Ethiopia, when the country
opens, there is a huge potential, and you see strong growth we've built, was actually entered in 2011 buying two
companies there, two national companies, Harar and Bedele. And then we built Greenfield 1.5 million hectoliters, we
doubled it last year. We're already short in capacity. We launched the brand, which is not that common, [ph] brand
called (19:52) Walia and it gained enormous traction, a young population, up and coming middle class, extremely
dynamic market.
<Q - Raoul-Tristan van Strien>: Let's maybe go back to the core, I guess, of Heineken in this year, over the year,
over the last decade you shut down over 40 breweries and plants [ph] through all those acronyms PCM and vitrified
(20:13), but there are still a lot of structural headwinds in terms of population and the modern trade. So how should we
think about Europe as we are today, and this decline of the on-trade, has that been [ph] rested (20:29) at the movement?
<A - Laurence Debroux>: If you look at major market, in particular, major Europe, it is an uphill battle in terms of
demographics, and that's one sure thing. You have demographics, you have the fact that in the past 10 years basically
the lunch occasion of drinking disappeared in most countries, and that it is not something you seem to regret it but...
<Q - Raoul-Tristan van Strien>: I am.
<A - Laurence Debroux>: [indiscernible] (20:56) it's pretty natural and that is definitely an uphill battle for our
market. So we did cut a lot of costs, and we did rationalize a lot in the past 10 years in terms of breweries,
[indiscernible] (21:10) some soft drink plants as well. Where I see the potential today is two ways; first of all in terms
of cost cutting, still a way to go in cutting complexity. So we don't like to call it ZBB, we would like to call it ZBC,
zero by cost, and then looking at complexity and cutting it everywhere we can. Clear example, number of SKU's.
We've geared the whole of organization towards innovation, that's really great. We introduced new SKUs, new
proposition, we'll also have to be able to kill some when they are not successful. And that is a negative side that's going
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on in countries like Spain, the Netherland, France. And I can tell you, without any impact on the consumer because
we're not talking about reducing consumer choice, we're talking about different presentation, sizes and that's when you
don't need it from a return on your, or your brand point of view, just don't have it, don't have supply chain produce it.
And that will help a lot, that will help with our costs, with our marketing costs, with our support costs and that will help
with our CapEx. Because Europe, while it's not going very fast, is very capital intensive, because innovation is capital
intensive.
And that's why we have to look at CapEx that gives us flexibility, produce smaller [indiscernible] (22:28), give choice
to the consumer, but we have to be very, very careful about end-to-end CapEx, and productivity of our strategic and
marketing choices. So this is one way, one place where we are putting much, much more attention, and I'm already
finding if you look at the plan for Europe. I'm sure we will see the fruit of that in the next two years, three years. Then
the other thing is, and it goes with it, is revenue management, and here it's really getting much more data oriented in
how we look at our promotion, and how we look at our execution on the brand. The Heineken is a very impressive
company from brand positioning, brand equity, brand building point of view. In terms of execution, we've gone a long
way in the past five years, but we're now entering an era where it's going to be much more data, internal data, and how
to also integrate external data, and this is really a big focus that we have is to power revenue management. So we
started with six countries in Europe, it's yielded benefits, we'll extend it, rolling it out to the whole of the European
region in 2016, and we've also started to become much, much more, I would say, professional or industrial or organized
asset in the Americas as well [indiscernible] (23:44).
<Q - Raoul-Tristan van Strien>: And then, in terms of obviously [indiscernible] (23:47) in Europe, the competitive
environment, has that changed? We've heard [indiscernible] (23:51) focus on more value. Do you see changed behavior
on the ground and markets like Poland and Romania and Italy?
<A - Laurence Debroux>: Every time a competitor who comes out with a strategic presentation such as Carlsberg,
you're happy because that means they have to be rational about return on their investments and develop capital
allocation. So it's necessarily good news for the industry. Yes, of course the competitive environment is changing. You
have kind of, on one side is [ph] Megabrew or Mega Monster (24:20), and then on the other side, you have like super
small craft and they're very agile and flawless capital intensive, because what people don't really know is that lager beer
is much more capital intensive, it's much more complicated to make than a [indiscernible] (24:36) craft beer.
So not all of those craft brewers by far are making money, but they're eating into the pie of premium and of the people
willing to pay more to us a diversity of taste and other proposition. So and in the middle, you have all the larger brewer
and the sources of growth are the same for everyone. Premium rather than mainstream, cider, low and no alcohol class
and variety. Basically, that's where the market is forecast to grow the fastest. So we are, in terms of the market, playing
with the same cards. So you have to make a difference with what differentiates you. We're never going to [ph] have
complete AVI (25:14) in terms of efficiencies, doesn't mean we don't have a long way to go, doesn't mean we can't
keep improving, and we have to keep our focus on that. But let's not try and [indiscernible] (25:24) there, we have to
outcompete in the quality of our execution [indiscernible] (25:28), and basically, will you compete on the
market-by-market.
So keeping the focus on your market execution is very important, and what we've been good at is also at driving the
company that is not deriving 70% of its EBIT from five geographies, but deriving 70% of its EBIT from 14
geographies. And that might look like you have less economies of scale [indiscernible] (25:53) actually economies of
scale, yes, you do with your strategic suppliers, but it also looks like you have geographies covering for each other. If I
showed you, which I'm not going to do, but I showed it to my supervisory board three days ago, the heat map of where
the top three contributor and the top three negative contributor every year in the past 10 years or organic growth,
country-by-country, you would see that countries have changed over time.
And that was Mexico has been here since we acquired Mexico and stayed here, and hopefully stayed here for the
long-term. Vietnam wasn't here in the beginning, and then came into the list. U.S.A. was more destroying value, and
now it's turn around, and it's contributing a lot of value. And you see the beautiful footprint, or actually you have to
manage it with a lot of granularity, but when you know how to do it, and Heineken does know how to do it, you get the
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fruit out of that. And you do get the balance of your risks.
<Q - Raoul-Tristan van Strien>: Maybe we'll just pick up on that footprint in the next question I want to cover, and
that's, you've done a lot of acquisitions and new entries greenfield, JVs, you've now got restaurant in Jamaica, you've
got to control all Malaysia, and just two weeks ago you're going into the Philippines with the JV. What's the common
threat there, what's the thinking behind your acquisition, your bolt-on acquisition strategy?
<A - Laurence Debroux>: So really two phases, in the past 10 years, three transformational deals S&N, APB and
Mexico, so that's totally transformational. You get to a footprint which is pretty much the one that you want to have as
a whole. And then you start with kind of more string of pearls, and then identify where you have either blank spots or
you can accelerate your growth. Philippines, for example, we believe it's a great market, a great demographics, and it's
growing market, and premium segment is not very much developed, we can do a lot about that. There is one massive
dominant player, 94% of the market, but every time you have a situation like that, you should play a different game,
you can actually find a way to enter, because people in the long run want diversity, and what the monopoly is not
giving them is that type of choice and diversity, and usually a monopoly doesn't do very well in terms of catering for
the consumer needs, because it doesn't need to do so.
So here we look at, and we say, okay, two ways to enter greenfield or partnering with an existing player, smaller but
existing. We look at the cost, we look at the business plans, it's much more profitable, and the risks are much lower by
acquiring participation in that company, making the JV, making a bit of CapEx to put the breweries, two breweries up
to speed, and that's how we enter it. So it's really a string of pearl strategy. I could tell you a story about every single of
the acquisition that we've made, and how we looked at it in terms of return on investment in the short-term or very
long-term, because whether Philippines will add a significant amount of EBIT in the next two years, three years, the
answer is no. Whether it is a relatively small investment that we think could bring a lot in the future, the answer is yes.
<Q - Raoul-Tristan van Strien>: Now, last year Jean-Franois van Boxmeer sat here and he said, he didn't need to do
a craft acquisition. Two months later he did, buying Lagunitas. So what happened, what changed?
<A - Laurence Debroux>: I think he said, never say never, if I remember well, so he took that precaution. We were
definitely presented with a beautiful opportunity to learn about the vast market in the U.S., which is gaining ground,
and then much more important in terms of percentage of volume and revenues than in any other markets in the world,
also because of the specificities of the distribution system in the U.S. And when we met Tony Magee, we recognized
someone that we could really work with because he is brand builder. Lagunitas is one of the rare craft brand that really
has enough repeat consumer, and he has been there for 20 years. So [indiscernible] (30:04) but he is someone who has
been there for 20 years patiently building its brand, and when we work with him we recognize a lot of the things that
are very familiar to us. So for us it's a way to get into the crafts market, first of all with the company that's growing very
fast, and it is growing very fast, and we're not consolidating it because as you know, we are 50% and it's really a joint
control, but it wouldn't be margin dilutive if we did. So it's one of the craft beer that is actually making money. But at
the same time we can learn in a way that is not totally foreign to our DNA what we are, and the way we believe in
brands.
<Q - Raoul-Tristan van Strien>: [indiscernible] (30:45) maybe a bit of an unfair question, but you've had a lot of JVs
or you've got few JVs that are quite successful with [indiscernible] (30:52) at the moment in Mexico and Canada.
Should we read more into that, or it's a more opportunity to do more things with them, I don't think you're ever going to
buy them, I'm not going to ask you that, unless you want to answer me.
<A - Laurence Debroux>: We definitely have a great cooperation with them in a number of geographies, and we're
always looking at everything that makes sense for the brands. There is no way you're going to get me to comment on
them.
<Q - Raoul-Tristan van Strien>: I'll leave it like that. Just to go back to the CapEx allocation, you've become quite
more focused on that, and you're spending quite a bit, I mean [ph] you're the only brewery that's (31:23) spending
double-digit, not just this year, but also next year on CapEx. So first of all, where's the money going, and how should
we think about that going forward?
Page 7 of 9

Date: 2016-06-16
Conference

Current PX: 78.36
YTD Change($): -.41

Current Year: 3.827
<A - Laurence Debroux>: Just first of all, want to remind that back in 2010 we spent 4% of our revenue in CapEx,
and we were much lower than the other brewers, and actually we're under investing. And that was after the S&N
acquisition, and this company [indiscernible] (31:49) cash to reimburse the debt. And we are, I mean, the thing with
CapEx is that you have to be very strict, but if you under invest in terms of your maintenance CapEx at some point you
have to catch up. So part of what you're seeing now is some catch-up, and this is why we are confident as well that
we're moving back into the 7%, 8% more historical long-term trend that you see. Well, 2016, 2017 these are the years
of investment in Brazil, we announced an investment [indiscernible] (32:18) of Chihuahua in the north of no, that's
not only the name of a dog, it's also a name of a real place, I've learnt it in the north of Mexico to serve the Mexican
market, but also the United States market. It is another tranche of Ethiopia, it is another brewery in Shanghai, a brewery
in China. So it is an investment in well, greenfield in [indiscernible] (32:44), a number of other greenfields. So we have
a lot of things that we're starting or expanding, and we're definitely doing that very consciously because we think it's a
right moment to actually increase our position in a number of markets even in some markets that are going through
difficult phases.
<Q - Raoul-Tristan van Strien>: Maybe [indiscernible] (33:04).
<A - Laurence Debroux>: 75% of our investments, of our CapEx is going towards emerging, so this is really in line.
<Q - Raoul-Tristan van Strien>: [indiscernible] (33:11). Maybe before we close, maybe a final question and this is
just, how what is the impact for you guys, both positively and negatively the way you look at it in terms of
Megabrew? Do you see there is opportunities, do you see some increased threats?
<A - Laurence Debroux>: Well, they were huge, now they are super huge. So on the local market-by-market basis, it
doesn't change that much there. I mean, we said it, there are not that many markets, almost no significant market where
we are actually competing against the two of them. So on a daily basis, and of course [ph] all they haven't closed
(33:46), it's not there yet, but it doesn't we don't see that changing enormously. You have a competitor which is four
times your size. So definitely it has the money to fight many more battles. So I would say, as a CFO, I like it, because I
can make rational decision and choice about our battles and regional investment that we make behind brand and
revenue management and things that I believe very much are going to help this company, which is great at brand
building, and already good at execution, come to the next stage. It's definitely an agenda that is meeting the strategic
interest and the strategic focus of the company. So I think we just have to continue being great at what we've been good
at, and we have identified the places where we had to be better, and it's just like a reminder that we have to do that as
well.
<Q - Raoul-Tristan van Strien>: [indiscernible] (34:37). Any questions from the back there? None.
<Q>: As you said, a lot of your big strategic acquisitions have been basically grow your footprint, your geographical
footprint. But if we look at it there's a very clear correlation between the margins of the top one or two producer in the
country and how concentrated that country is. For example, I think, Bolivia, as you know, has one producer that
[indiscernible] (35:10) margins are mid-20% something for that guy, and in Germany, nobody makes more than 3% or
4% margins, at the other end. Are you looking at that in your M&A going forward, or is that something that you would
like to get too? Is there regulatory problems with that, without giving us any name or anything else just generally
speaking?
<A - Laurence Debroux>: And you definitely take the two extremes and they are very well chosen.
<Q>: Yes.
<A - Laurence Debroux>: So there is in between there are a lot of places where you have room to leave for two year
or three good competitors, and that definitely is the case. One way to make big money historically has been to be a
dominant player, and there is no way you're going to be build dominant position by acquiring and acquiring, even
maybe higher some limit in Brazil. So you can grow that, and being able to grow that from an internal position organic
growth is not that easy. It also drives positions where when you have one dominant player you have something that you
can play which is to be total in a total different lead and play premium. That is a way, we've entered Brazil and it's a
very successful venture for us, and that is a way we're planning to enter the Philippines.
Page 8 of 9

Date: 2016-06-16
Conference

Current PX: 78.36
YTD Change($): -.41

Current Year: 3.827
So there is room for making money, you cannot have the same strategy, you cannot have a mainstream strategy, if you
have a dominant player somewhere, but there is room to make money and good money even in market where it's too
late to be the dominant player. It definitely play the role, when you look an acquisition, when you look at the
Greenfield, if you look at, how you're going to get to the level of margin that you like to have that is not dilutive and
even accretive to the group. There are different ways to get there, and then definitely it's easier if you can build the
position where you have the strongest position in the market.

Laurence, thank you very much.
Laurence Debroux
Thank you.
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Company Name: Heineken

Company Ticker: HEIA NA

Market Cap: 45,135.56

Bloomberg Estimates - EPS

Deutsche Bank Global Consumer Conference

MANAGEMENT DISCUSSION SECTION

Company Name: Heineken

Market Cap: 45,135.56

Bloomberg Estimates - EPS

Company Name: Heineken

Market Cap: 45,135.56

Bloomberg Estimates - EPS

Company Name: Heineken

Market Cap: 45,135.56

Bloomberg Estimates - EPS

Company Name: Heineken

Market Cap: 45,135.56

Bloomberg Estimates - EPS

Company Name: Heineken

Market Cap: 45,135.56

Bloomberg Estimates - EPS

Company Name: Heineken

Market Cap: 45,135.56

Bloomberg Estimates - EPS

Company Name: Heineken

Market Cap: 45,135.56

Bloomberg Estimates - EPS

Company Name: Heineken

Market Cap: 45,135.56

Bloomberg Estimates - EPS

Raoul-Tristan van Strien

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