Federico Martinez - Director of Investor Relations Jean-François van Boxmeer - Chief Executive Officer Laurence Debroux - Chief Financial Officer

Trevor Stirling - Bernstein Mitch Collett - Goldman Sachs Tristan Van Strien - Redburn Partners Simon Hales - Citi Edward Mundy - Jefferies Von Stackelberg - Liberum Norman - Societe Generale Fernand de Boer - Petercam

Good morning, everyone, and thank you for joining us today for our 2018 half year results conference call. I am joined by Jean-François van Boxmeer, our CEO and Laurence Debroux, our CFO, for today's call.

Following some prepared remarks on the results, we will be happy to take your questions. With that, I would like to hand the call over to Jean-François.

So thank you, Federico. Good morning, everyone.

I will start on Slide 3. The top line came in strong in the first half, with organic net revenue up 5.6%, and that was up in all region.

The consolidated beer volume grew 4.5%, and net revenue per hectoliter grew 1.1%. Note that country mix have a negative impact of 1.3% in net revenue per hectoliter growth driven by Brazil and Asia.

The Heineken brand grew strongly, with volume up 7.5%. Operating profit margin was lower than last year mainly due to the consolidation of Brasil Kirin but also adverse currency effects and higher input costs.

Diluted EPS was up 3.8% due to organic growth and consolidation changes, partially offset by adverse currency effects. In the second half, we expect a continuation of our revenue growth and an acceleration of our operating profit growth on an organic basis.

We continue to invest behind our brands, innovations, e-commerce platforms and commercial strategy. For the full year, given the market acceleration of our business in Brazil, with margins still below the group average and the negative impact from currencies, we now expect the operating profit margin to decrease by approximately 20 basis points.

Turning now on Slide 4, we can see an overview of our performance, with all regions delivering organic net revenue growth, as Europe was back to growth in the second quarter whilst the other regions maintained their positive momentum. Net revenue per hectoliter was up organically across all regions, except Asia Pacific due to country mix.

Operating profit beia grew 1.3% organically, driven by the phasing of some expenses into the first half and also higher input costs. Starting with Africa, Middle East & Eastern Europe, where consolidated beer volume grew 5.6% organically and net revenue per hectoliter beia was up 5.2%.

We saw strong double-digit volume growth in South Africa, Russia, Ethiopia and Egypt. This offset a volume decline in Nigeria due to the continued weak economic environment, some destocking at distributor level and competitive pressure.

Regional operating profit beia was up 4.3% organically, mainly driven by South Africa and Ethiopia. In the Americas consolidated beer volume was up 6.1% organically, driven by growth in Brazil and Mexico which more than offset lower volume in the U.S.

and Panama. Revenue per hectoliter was up 1.7% organically, with a significant negative country mix coming from Brazil.

In Mexico, Tecate and Dos Equis grew high single digit and double digit, respectively, benefiting from strong execution and effective campaigns. Heineken's largest greenfield in history, the Meoqui brewery, opened in February 2018 and has started to contribute to the efficiency of our local operations.

In Brazil our existing operation grew double digit, driven by our premium portfolio led by Heineken. The Brasil Kirin portfolio also grew double digit.

The truckers' strike of May led to some lost sales, which were partially recovered in June. In the U.S., Heineken USA volume declined high single digit, with depletions down mid-single digit.

Overall, the Americas delivered 8.1% organic operating profit beia growth. Asia Pacific volume grew by 13%, driven by double-digit growth in Vietnam, Malaysia and Cambodia, offsetting a decline in Indonesia and Singapore.

In Vietnam the year started strong due to the timing of Tet; and accelerated in the second quarter, driven by Tiger, along with Larue, which continues its expansion into small cities and rural areas. Cambodia was up double digit despite increased market competition through aggressive price promotion.

Volume in China was back to growth, supported by the expansion into modern trade and ecommerce channels. Regional net revenue beia per hectoliter declined by 4.4% due to the country mix.

The region delivered organic profit beia growth of 2.7%. In Europe consolidated beer volume was slightly down by 0.1%.

Net revenue beia per hectoliter was up 1.4% despite continued off-trade pricing pressure. In the U.K.

volume declined low single digit, as the relisting at a large retailer and good early summer weather helped to partially offset the impact of the cold first quarter and CO2 shortages in June. The pubs acquired from Punch are now fully integrated into Star Pubs & Bars and are performing in line with expectations.

In France volume was slightly down. And the French national railways strikes had a negative impact on logistical costs.

Spain declined mid-single digit due to unseasonably cold and rainy weather impacting the on-trade. The Netherlands was marginally down, as we continued to focus on value growth whilst the market remains promotion driven in the off-trade.

In Poland volume was down slightly, with our premium portfolio growing double digit. And the low- and no-alcohol portfolio, led by Zywiec, continued to outperform the market.

Regional operating profit beia declined by 6.5% due to the higher logistic costs, phasing of expenses into the first half and continued investments in ecommerce platforms. Turning to Slide 5 now.

Heineken volume was up 7.5% organically, with growth accelerating particularly in AMEE and the Americas. The brand grew double digit in Brazil, South Africa, Russia, Mexico, U.K., Nigeria, Poland and Romania.

The brand also saw healthy growth in Italy, Argentina, Chile and Spain. Heineken Lager is the main driver of growth; also supported by the rollout of Heineken 0.0, which is now available in 33 markets, with a strong performance.

The brand continues to benefit from global sponsorship platforms such as the UEFA Champions League and Formula 1, of course. Turning now to Slide 6, I would like to talk through some key developments which also contributed to our top line growth.

Our overall portfolio of international brands grew high single digit. And notably, Affligem, Tiger, Krušovice and Desperados grew double digit.

Our global cider portfolio grew double digit, mainly in South Africa, Vietnam and Poland. In the U.K.

cider was up low single digit. Cider is now locally produced in 14 markets.

Moderation trends continue and create new drinking occasions for our low- and no-alcohol brands. Their volume increased low single digit to 6.3 million hectoliters, as the performance of Radler and the rollout of HEINEKEN 0.0 more than offset lower volumes of malt products in Nigeria.

Our craft and variety beers continued to perform well, with volumes up double digits, coming from both our international craft beers Lagunitas, Affligem and Mort Subite; as well as our local craft propositions. We began local production trials of Lagunitas in selected markets innovation continues to be one of our main growth drivers.

The Blade, our countertop premium draught beer system launched last year, is now available in 12 markets, with increased penetration into small outlets. We continue to invest in our e-commerce platforms, both B2B and B2C, as they gain traction across all markets.

Moving now to Slide 7, I would like to share some highlights of our Brewing a Better World agenda. We launched our new global campaign When You Drive, Never Drink with Formula 1 world champion Nico Rosberg, focusing on the social pressures surrounding drinking and driving.

As part of the Drop the C ambition to grow our renewable energy usage to 70% by 2030, several projects were started to source wind, solar and biomass energy. Part of the investments required will be borne by our partners as we engage in purchase price agreements.

For example, in the Netherlands we plan to install 21,800 and very precise solar panels over the next two years. And with that, I would like to hand over to Laurence now.

Thank you, Jean-François. And good morning, everyone.

So we're going to turn to Slide 8 and the financial overview of the first half year. As commented by Jean-François, the 5.6% organic growth in net revenue is a result of positive momentum in volumes combined with a 1.1% increase in revenue per hectoliter.

Underlying price-mix is plus 2.9%, with pricing alone contributing more than 2%. Operating profit was up 1.3% Organically.

And here the benefit of the strong top line growth was partially offset by higher input costs and the phasing of some expenses into the first half of the year indeed. Operating profit margin was lower than last year by 118 basis points, and as you expect, I will come back to that number in detail in a short while.

Net profit reached €1.1 billion, up 8.9% organically, so growing much more than our operating profit. And what you see here is a very good performance of our JV partners, CCU and UBL in particular, but also a decrease in other net finance expenses and a lower income tax in this first half.

Diluted EPS beia of €1.89 was 3.8% higher than last year. Free operating cash flow grew to €909 million, an increase of 21.8% driven by improvement in working capital, and that's coming mainly from payables.

We've told you in the past that our ambition was to come back to industry average, as regards payment terms. And we did feel that we were treated a bit less favorably, and that is what we're doing without compromising on our long-term relationships with local suppliers or our sustainability agenda.

And finally, as you can see at the bottom of this table, our net debt-to-EBITDA beia ratio remains stable at 2.5 times, in line with our target. Moving now to Slide 9.

Net revenue reached €10.8 billion. On top of the organic growth of 5.6%, consolidation changes added 5.1% or €529 million, mainly driven by Brasil Kirin, of course, and to a lesser extent by Punch in Europe and Lagunitas in the Americas.

The negative impact of currency was again significant, reducing revenue by €682 million or 6.6%. And that's mainly attributable to the Mexican peso, the Brazilian real, the Nigerian naira, the Vietnamese dong and the U.S.

dollar, with actually no positive impact as the euro strengthened pretty much against all currencies. Turning to Slide 10.

Operating profit beia reached €1.75 billion, with consolidation changes adding €52 million or 2.9% mainly coming again from Brasil Kirin. The currency impact was also negative, reducing operating profit by €127 million or 7.1%, with the Mexican peso and the Vietnamese dong adding the most impact, followed by the Nigerian naira.

If we exclude these consolidation changes and the currency impact, operating profit was up by 1.3% organically. And the benefit of the strong top line growth again was partially offset by the growth of total expenses, which are up 6.5% organically.

That reflects higher input costs and the phasing of some expenses into the first half of the year. So looking at input costs first.

They saw an organic increase of 7.6% overall. And part of this is due to increase in volume, of course, but there is also a 3% increase on a per hectoliter basis.

And that, you can trace back to increasing underlying commodity prices but even more to unfavorable transactional currency impact on the costs of our packaging materials. Marketing and advertising expenses increased organically by 3.4%, resulting in a ratio of 11.6% of revenue, which combined with the investments in our commerce organization represents a steady support behind our brands.

Indeed our other commerce and also our support costs increased more than revenue in the first half as we continued to invest, for instance, in the development of e-commerce and also in the back-office transformation projects. Just to say here that our investments in e-commerce started to build up in Europe in the second half of 2017, so the base of comparison is still unfavorable in the first half, and that's part of the phasing that I was mentioning.

And we don't call on one-off, tell of one-off in any period, positive weather or negative weather, small things here and there. There have been indeed a few specific events in this first half that are worth mentioning: the railway strike in France, for instance, increasing the costs of logistics; still in France, the provision for VAT adjustments on past years.

And obviously, those one-offs did impact our margins. And now with Slide 11 we want to provide you a bit more insight on the development of the operating profit beia margin in the first half indeed.

First, to say that given the buildup of margin in 2017, again the phasing for 2018 was clearly expected to be skewed towards the second half. And the first reason for that, of course, has always been the consolidation of Kirin in Brazil from the end of May last year.

So for the first five months, we are comparing a period with Kirin to a period without Kirin. And that, we knew, of course, but what was not expected is that the former business of Kirin with still low margin would grow double digit in that period.

And as a consequence, the consolidation impact is higher than expected. So out of the 118 basis points decline, about 43 comes directly for -- from the consolidation of Kirin.

The remaining 76 decrease has two main explanations. The increase of our input cost per hectoliter by 3% organically and the mix impact induced by the negative translational currency effects affecting some of our high-margin opcos.

We did mention, this year, we see an impact from translational currency comparable to the one-off last year, but it's distributed quite differently. It is really euro against all currencies, which means it's affecting high-margin opcos, first of them Vietnam, for instance.

So as mentioned earlier, there were also a few one-offs in this first half that didn't help the margin, but we're not calling on that. Now to turn to Slide 12, and then to extrapolate to the full year and, as promised, give you more explanation on the margin guidance update.

And you've heard it's the update is mainly driven by what is long-term good news, which is that the integration of operation in Brazil is going extremely well, with our combined portfolio growing double digit and gaining market share, but this stronger-than-expected performance has a double dilutive impact on our margin. In the first five months, the dilutive impact of the consolidation of Kirin was higher than expected.

And for the remainder of the year, the marked acceleration of our combined operation, with an operating margin still below group average, plays negatively on the mix. Actually the second dilutive impact is much bigger than the first one.

I mean the two combined are attributable to Brazil and are responsible for about half, more than half actually, of the adjustment of the guidance, but the second one, the acceleration, we started to see in June. And then that going into the second -- hopefully, into the second half of the year -- May, June and then the second half of the year is where we expect to have more impact.

In addition, we are again facing a continued negative mix impact coming from currencies. So that's to say it's also already played into the first half of the year.

It's expected to stabilize but to play still a bit in the second half of the year. And finally, we're committed to continue to invest steadily behind our brands and our transformation programs such as ecommerce venture or back-office upgrades, hence the decision to update our guidance now, which does no mean -- by no way mean that we are lifting our internal pressure on costs.

So given that the decrease was more than 100 basis points in the first six months now, I mean, here you see that an expected decrease of 20 basis points for the full year means that, in the second half of the year, we do expect our revenue growth momentum to continue. And actually we expect our operating profit growth to accelerate, so better margin.

For example, in Europe we will benefit from more favorable comparison base. If you'll remember, last summer was really -- Q3 was really bad in Europe, with a horrible summer in many geographies, while it doesn't start that way on -- and even continue that way this year.

And again the weight of the B2B and B2C e-commerce, which a lot of it is being carried on in Europe, then we will enter months where it's more comparable from one year to another in terms of our investments. And then in Mexico: I want also to mention something about Mexico.

That's now that we have the Meoqui business brewery up and running, we will derive savings in logistics from the Meoqui brewery. And it's that will enable us to produce our Miller brands locally instead of importing them.

And that does play a role in Mexico profitability in the second half versus first half. I will now move to Slide 13 briefly and finish with the first half year P&L by going all the way down to diluted EPS.

So it's up 3.8%. It's €0.16 coming from organic growth and €0.04 from consolidation.

And again here currency translation had a significant negative impact with EUR 0.14. All in all, a first half marked by strong development of the top line, good news from integration and our portfolio in Brazil and an extra weight on our margin development coming largely from country mix and main currency mix.

So let me wrap up with a complete full year outlook. Although in the first 6 months we have -- already had a €127 million negative impact from translation of currency at an operating profit level, the recent trends of our main currencies against the euro have been somewhat better, so we maintain our assumption that for the full year the negative effect will be comparable to 2017, needless to say we expect economic conditions to remain volatile.

Again, revenue growth expected to continue into the second half, with organic operating profit growth accelerating on -- accelerating. And given the marked acceleration of Brazil and currencies that are playing negatively on the mix, we're updating our operating profit margin guidance for the full year to a decrease of about 20 basis points.

And then on the other elements of the guidance, we expect the average interest rate of our debt for the full year to be broadly in line with 2017, and we expect an effective tax rate of about 28%. On that, good to remember that we had some extraordinary tax benefits in the second half of 2017 that will not be repeated, and which does explain the phasing in the year.

And finally, our CapEx guidance remains unchanged. And with this, I would like to hand the call back to the operator for us to take your questions.

Laurence and Jean, two questions from my side. The first is relating to Brazil.

That acceleration we've seen is clearly negative for margins, but presumably it's positive for actually operating profit growth at a group level. So maybe by focusing solely on margins, we are losing -- missing something there.

The second question, in February, when we were talking, putting guidance to one side, which I know you're very skeptical about, Jean, you were very clear that the underlying trend towards long-term margin expansion was still there from country mix, from revenue per hectoliter growth and from an continued pressure on costs. With the acceleration in Brazil, with the growth from Ethiopia, with the increase in Larue in Vietnam, does that country mix start to become less important going forward?

Thank you, Trevor. The responses to your questions are embedded in the questions you asked.

Brazil is good news because it's growing ahead of our expectations. It has grown up margins, which are of course lower than the average of the group.

These margins will over time increase, as we will continue to reap the benefits of the integration of our acquisition of Kirin Brazil; and as the premium end of the markets and our premium brands will continue to grow, which inherently boasts a lot of higher-margin products in there. But that is a matter of three to five years before we get there.

That is one thing, but it's worthwhile absolutely the effort because, down, it of course contributes to an improvement of our return on investments. Remember we acquired Kirin Brazil for a affordable price.

And secondly, it also improves our operating profits overall. So that is the good news.

And you are also absolutely right to point out that a number of geographies are growing fast, like Ethiopia. And there also Ethiopia has tangentially lower margins, and they're also in the improving phase.

So there is a phasing here, whereas in Vietnam it's a little bit the other way around. We have been reaping all the potential of the big city centers and noticeably Ho Chi Minh City in the South.

And as we progress in the countryside, if I may say, or to secondary towns, the proportion of mainstream products like Larue or Tiger is of course increasing. But there again, even if the average margin in Vietnam would be slightly under pressure, the operating profit would be on the increase, as well as our market share.

So that is what it is. And the third thing about the margin pressure is -- and I'm speaking about trends now and not so much about occurrences, which I will leave to Laurence to explain perhaps a little bit more what are the one-off occurrences in costs that we had in the first half, but what is important to note is also that we not only invest in our brands, our new geographies et cetera but we also invest in systems.

We are facing a long-due overhaul of a number of our management systems at large. And we are embarked on large projects in Asia and Africa to rebase -- the project is, by the way, called BASE, but to reignite a new generation of ERPs.

Those are substantial investments, and we don't want to binge on the rhythm of implementation of these investments. So the same applies also for our e-commerce initiatives, which are taking up a lot of financial effort because we believe that, that is part also of a successful, continued top line growth.

So that is to give a little bit of color to your questions.

And maybe to come back to the first part of your question, on the impact of Brazil. You're absolutely right.

The growth from Brazil is only organic from the end of May. So once we consolidate Brazil actually yes, you're right.

The acceleration of Brazil brings more operating profit even if it is at a lower margin. We did not have so much the benefit of that in the first half because most of it was in consolidation differences.

Maybe just one follow-up. Laurence, you highlighted that there will be -- or should be a significant change in margin trajectory in the second half.

Could you just try to put some weight on which are the biggest factors there?

So if I take out this kind of like a one-off or specific even that weighs negatively on the first half and whether it's the truckers' strike in Brazil, the -- and a bit of CO2 in the U.K., the railway strike in France or the VAT payment, the extra payment in France or the Miller in Mexico as well, I would say one thing that you'll see is -- coming from Europe, if you look at Q3 last year in Europe, it was really a bad quarter in terms of volume. Weather was horrendous in most of the countries during the summer.

And that's definitely we're going to be lapping more comfortable comps than what we had in the first half. Europe had a very, very good month of June, a good month of May but a very good month of June last year, so that puts the bar pretty high.

So that is part of the difference.

Two, please. On a similar vein, I think, Laurence, you said at the full year results there was no break in trend with margins, so perhaps could you just update us as to whether you still think the underlying margin expansion this year will be close to the 40 basis points you were delivering?

And then secondly, just a bit more context on why the marketing-to-sales ratio was down, in particular given some of the investments you highlighted.

So on the first one, yes, we highlighted at the year-end results that it was really we'll continue to work on growing our top line, superior top line, whilst continuing to work on our margins, operating margins. And that's what we're doing.

None of our zero bad cost or commerce and productivity programs, which are actually also yielding benefits in terms of percentage of ATL/BTL we spend of revenue -- that helps. That's helping it cap it.

That hasn't stopped. Now what we're saying now is that we expect 20 basis point decrease for this year.

And the bridge between the plus 25 that we were expecting and the minus 20 is really, again, half of it comes from this acceleration of Kirin, pretty much. And then the rest is on the impact of currency mainly, which is on -- it's transactional on the input costs and it's translational on the mix of countries.

So that is for this year. What we don't see as broken is also the way we work on our margin to keep them up.

Now I'm not going to give you -- we didn't give a three year guidance because we do feel that we are in a moment where we need to make a number of investments, where it's very important to have a dynamic top line, when you look at the volume dynamism, when you look at the fact that we are able to price, not everywhere -- and it remains very difficult with a number of geographies, but you get some price. You get some mix, which is even more important because you work on your innovation.

That is where you're actually building the future, so we want to continue. And it's always kind of a creative tension and quite an important one between working on our costs and working on our top line.

You know our kind of like famous, or not, golden triangle; that our long-term value creation is made of a balance between top line growth, return on sales and then return on assets invested. And depending on the moment, we want to be able to push one more than the other, depending on the moment of the -- and on the opco.

So this is really what we're working with. So saying that underlying trends are not broken is one thing, but we explained very, I would say, candidly what's happening this year which is in a way a bad-ish -- a bad news coming out of good news, which is that the top line is accelerating faster, with the margin improving, improving also faster but not yet at group level.

Marketing and -- as a percentage, well, I gave you part of the answer by saying that we have a number of commerce and productivity programs. And then we are really trying to get much better at our maximizing the proportion of our working expenses, the one that are really facing the consumer, compared to the more technical production expenses, if you will.

We've actually also had a tender and came back to two major media agencies in the world instead of having a much more split landscape. So that is part of the reason.

And also, ATL -- well, advertising and marketing is part of it, but what you have to see, the commerce expenses, the feet on the ground you're putting behind your brands. And today, it's more and more a global balance.

Actually if you look at craft, it's even that they don't want to do any advertising. And they go all on the feet on the ground and other types of programs.

So that is really -- and if you look at the sum of what we're investing in advertising and marketing and what we're investing in commerce, there we are actually very close to the rhythm at which our sale, our revenue increase.

And one unrelated follow-up, if I may, the tax rate. I guess I would have thought that, with country mix being adverse for profitability, perhaps there will be a reduction in tax rate that goes alongside that.

Can you perhaps give a bit of color on why your guidance on tax hasn't changed?

There is definitely a mix effect which is favorable. Second half of last year, there were a number of favorable impacts, one-offs, some linked to innovation box, including implemented.

And that's we don't have this year anymore. When you look at the measures, non deductibility of interest above a certain level, a number of measures that have been put in place at the level of Europe, what you see, that the ambition to keep the tax rate pretty much stable is already a pretty good ambition.

And then this is what we're seeing because it's a balance of country with lower tax rate but also a new -- I mean, new measure being implemented that cost us a bit of money.

Jean and Laurence, just a few questions. First, I wanted to ask about Punch.

I mean previously you said that the Punch acquisition is accretive, but if I look at your scope and I back out Sligro, it appears that the margin actually is much lower than what we'd expected from the Punch A acquisition, so I'm just wondering whether I'm reading that right. And what happened in terms of the investments that you have done into the taverns?

Why is that margin much lower? The second question, on Nigeria.

I was wondering if you are taking of that -- for that matter, seeing any pricing being taken in that market to offset your currency devaluation. And then the third question is around your U.S.

market. It looks like your shipments to wholesale is doing much higher than your shipments to retailers, which is quite unusual going into the summer.

So I was wondering what's driving that and whether you will see they've converged by the end of the year.

Yes, on the first one, we'll have to look at your calculation because I found a positive, accretive impact of Punch in line with expectations. So that is one.

Maybe do you want to answer the third one, on the U.S.?

I'm not so sure that you said that depletions are ahead of the depletions of the shipments.

No, your depletions are ahead of shipments at the moment.

Yes. The depletions is what we ship to wholesalers...

[Indiscernible]

I'm sorry. What we ship to...

No, no. Your sales to retailers...

Yes, yes.

Are higher than your sales to wholesalers is the way I'm reading it.

Yes, yes, that's correct. Yes, yes -- no, no.

Yes, yes.

What's driving that gap?

To be sure, I don't have a -- in between, you have stocks, Tristan. And frankly, I don't know, so it's difficult to say whether -- I wouldn't read anything into it in the U.S.

There is a stock in-between. There is inventory in-between.

If you look at it month by month, I must say, I got very excited by. So excited by talking about sales and depletion in my first six months at Heineken.

And then I gave up a little bit because it's doesn't exact you can see on the market. So we always give them, but it goes up and down.

And the factors that impact, stocking a little bit more or a little bit less in one...

The one is trailing the other tangentially. And I don't read any trend into it, having been in the business long time.

So I look at the shipments. And they are not great, to be frank, so we certainly have an issue in the United States of performance.

I will not, not acknowledge that fact. That's for sure.

And your second question, Tristan, was about ForEx...

No, about pricing in Nigeria, whether you are taking any or whether you're seeing any in the market.

We are taking pricing in the market. And what's been widely communicated is that one of our competitors is not taking prices and not reflecting excise price increase.

In a country like Nigeria we don't think it's a very sustainable gain. So it's a gain that makes you win the market share in the short term, and probably when you have extra capacity coming online, you want to be filling this capacity.

But yes, we are taking pricing. It's a balance always between affordability and taking pricing to compensate from costs for inflation, but we have been taking pricing, yes.

So last, can I just come back to the Punch transaction? When we looked at the transaction, Punch A was making margins close to 43%.

That was, those were the published numbers. Is that, are those the type of margins we can expect as we put it into your numbers?

Or are they much lower? Maybe that's a better way of putting the question around Punch.

No, we will not communicate independently on the margin of Punch or Star pub and bar, but they are definitely, I mean, accretive to the UK, definitely, and neutral -- accretive to the -- to beer in the UK and positive to the group in general.

A few ones, please. First one, sorry to go back to the margins again, but your guidance is implying a good improvement, right, on the underlying business in H2 even if we adjust for the lower FX impact.

So question is, if we see top line growth remaining strong in countries with lower margins, like Brazil, do you have any flexibility in other lines of the P&L that gives you confidence that you'll reach that guidance? And then second question, can you give us an update on the arbitration process in Brazil?

And also, what actions have you taken that you can make sure that you'll continue to grow the business this strongly, right, despite operating two separate systems?

Okay, so on your first question, on margin, yes, we do say that we expect continuous increase both for top line but accelerated increase for the bottom line. And then -- and again, I stated earlier on in the call you can link part of that to Europe, where definitely the effect on volume and deriving from margin as well will be more favorable, much more favorable, in the second half.

Do you want to comment on the second question, Jean?

Well, to say we won't comment: It's in the hands of an arbitration procedure, and so we are bound to say nothing about it. It's following its normal course.

That said, our business continues to work with two route to markets in Brazil, and it functions okay. One has to say that the bulk of the cost synergies were in the production and the purchasing.

And the revenue synergies have more to do with the fact that we can exploit the whole brand portfolio across a network which spreads all over the country and through 11 breweries. It is long term, still, our intention and also our opinion that having 1 route to market totally dedicated to beer is necessary for sustaining our top line and innovation rate in Brazil on the long term.

But so far, so good, but I can't comment specifically on the ongoing arbitration.

Three, please. Firstly, sorry to sort of come back to margin, but if I can just clarify, trying to get this clear in my mind.

Laurence, I think, at the full year, obviously you're guiding towards 25 bps of reported margin change. I think, when we broke that down, I think it was broadly a minus 10 basis move on FX.

It was minus 15 at that stage as your assumption around scope, and therefore the underlying organic was still expected to be plus 40. It sounds from what you're saying this morning that maybe that FX headwind has moved from minus 10 to minus 30 bps for the year.

The scope has moved from minus 15 to minus 35, but still the underlying assumption around a plus 40 is broadly there or thereabouts. Is that the right way to look at it, I suppose, is my first question broadly.

Secondly, I wonder if you could just talk a little bit about the transactional impact that you're seeing on packaging and which particular regions that's hitting you most in. And finally, any comments around low- and no-alcohol, just specifically the launch of Heineken 0.0?

Where are we on the rollout of that? How many markets etcetera now, please?

So thank you, Simon. So actually you're right, that we see an increased impact from consolidation.

And I'm not going to confirm the exact number, but it's a ballpark figure. And we do see also an increased impact on translational because translational plays on the margin.

And the main impact will come from -- will be on Vietnam; and basically will be on the margin -- on the high-margin Vietnamese dong, not against dollar but against euro. I'm not going to comment on the 40 basis points because, once you take out everything that you don't like, I mean, it's always -- I can always come back to 40 basis points.

What I'm saying is that we had a number of things playing against us for that guidance in the first half that we see continuing in the second half. And again, that's bad news or the consequences of good news, but the calculation that you made actually makes sense, especially if you also take on board a few one-offs that, hopefully, does not continues.

But it will have also one-offs in another year, so it's -- now in the transactional impact, basically you're talking about all the emerging countries that are importing packaging in hard currencies. And then you think about the big can markets but also other types of markets, but again here it's Africa is very impacted.

And then Asia Pacific is also very impacted by that. It is concentrated on our packaging.

You have to say that this is also -- it's partly mitigated by the productivity that we've done and by our procurement savings. So the effect that you see here is net of everything we've managed to save in terms of procurement, which has been quite significant and which continues to be quite significant.

And for the Heineken 0.0. We don't give these numbers specifically, but we are rolling out the proposition, the product in more and more countries.

We are in 33 now. And we see it -- in those early, where we introduced it early on, we see a continued growth and a good trend.

And the big contributors are Russia, in the first place. It's most probably it is the largest market for Heineken 0.0 but also followed by the Netherlands, by France, by Spain and increasingly by the U.K.

And then we have a number of smaller countries which each on its own merit do not contribute a lot, but the string of it is doing a good job. So we're really very pleased with the performance of Heineken 0.0.

Jean-François, Laurence, I have three questions, please. Just a quick point of clarification on your outlook statement.

So revenue growth expected to continue. Does that imply that you expect the same run rate in H2 versus H1?

The second question is regarding your expectation for margin expansion in the second half. Is pricing a major part of seeing the margin step-up, or is it just the other factors you've talked around comps and some of the other factors?

And then the third question is the investment in systems. You flagged the e-commerce that [you can be] lapping into the second half.

Are there any other big-IT-spend projects that are sort of underway that could last for a couple of years that we may not be aware about?

So the first question, on the outlook statement, I'm not going to present -- we expect definitely to -- that to be at least comparable. What we wanted to flag is that we expect that -- for the same growth or maybe slightly better growth, we expect a disproportionate growth in our operating profit.

So there is definitely an acceleration here, but we still see the growth in volume sustaining the growth of our second half. Do you want to take...

The margin expansion...

Well, I'm not going to -- with even pricing, I mean, that better volume in Europe really helps more...

It's a bit of both.

Yes, it's a bit of both.

I mean we have lesser-tough-comps mix next half year than we had in the first half year. And I think Laurence explained that for both the seasonality, like it is the case in Europe, but also the kind of enormous amount of one-offs we had in the costs on the first half.

And I know that problems fly in squadrons, but we don't kind of expect and factor in yet another kind of flurry of CO2 shortages and strikes in key opcos going forward. And we shouldn't do that.

And the spend on the projects, this is most of these projects are multiyear projects; and you wouldn't like to stop them, obviously. But they have been factored in at the time where we were giving a guidance of 40 basis points.

I mean this is not something that we tailor in function of the guidance we give on margin. I think one has to realize that what really changed in the margins is a profound -- it's a faster shift in our geographical portfolio than we originally anticipated.

And it is bad news on the short term for these margins, but it's a fantastic promise also for the future. Now that said, we would then always put these margin deteriorations towards our guidance.

Of course, you could correct that if you would like to do it, but then you would forgo all what you have to do to continue to have that superior top line like we are displaying today. And for us, if you will, this is the key consideration going forward into the second half of the year.

It's that we maintain our policy of focus on the top line with all the innovations we have, the craft agenda, the cider agenda, the low and no alcohol agenda, the international brands agenda and the Heineken agenda; and the investment in e-commerce. We don't want to change that program.

And at the time same, we are still executing our cost programs. We are not complacent about costs.

An organization cannot be complacent about cost management and relentless productivity improvements, so we continue for that. But for this year, the mix has been playing out differently as we thought.

And in addition, frankly, the strength of the euro has also surprised us. I think it has been quite something, and that has also an impact on these margins.

I hope that helps you frame the perspective.

Yes, quick question on Nigeria. I can see that one actually was soft, but I'm just wondering whether or not improvement is baked into guidance for the second half.

And I'm also wondering with the oil price, given where it is today, if that will trickle down to consumers at some point in the second half. Maybe it's more back-end weighted.

I'm not sure if you have any view on that. And then the second question is on free cash flow.

You guys delivered stronger-than-expected free cash flow. And I was wondering if that €2.1 billion mark for the full year implied then by consensus, if that's easily beatable; or how you're feeling about that guidance, frankly or sorry, consensus number.

So on the free cash flow. So we are seeing the improvement in terms of payables, which will also help in the second half.

That actually helped mitigate higher CapEx. You know that, last year, we ended up doing less CapEx than what we'd said.

It's because a number of large projects, whether extension projects in Vietnam, in Ethiopia, for instance, actually were kind of done toward the end of the year and some of the cash out was more in the beginning of the following year. And we're -- so that's why we are guiding this year for CapEx that is slightly above 2 billion.

So these are the different elements of the cash flow. I'm not going to comment on whether the sort of consensus is beatable or not.

We're definitely working on our cash flow. And we felt that where we had to work quite a bit was on these payment terms where we're more at a -- we were really at 90 days, where actually the average of the industry is more around 120 days, without going to the extremes of some of our competitors.

And you can see the impact. And actually it's an impact that we saw in Brazil particularly because by pulling our volumes we were able to have discussions with a number of large suppliers on actual volumes that are pretty big and to reopen and renegotiate a number of contracts that was favorable on both sides.

Now if you look at Nigeria, yes, we do hope that in terms of consumer sentiment things will get better and people will start trading up due to the price of oil being a bit better. Well, frankly, that's not really solved right now, so we're not factoring a big turnaround between now and the end of the year in our estimates for the second half.

That is not what drives it.

And we have also to be clear Nigeria is a competitive pressure point with ABI. We should not hide that.

It is difficult. They are gearing up with capacity.

They're coming from the market down-up, if you will, where we as -- coming in South Africa from up, down. And that's a bit the situation we're in.

And we have high competitive pressure, and that will still have to settle. And for us it's a mix, as market leader, to continue to lead in the general level of pricing in a market, it's a very competitive market; and also working on our cost structure.

And that in an environment where the purchasing power is not -- has not really improved yet. And that brings that people are looking for value propositions.

Now the very noticeable thing in Nigeria is that, where all these value propositions are battling with each other, on the other hand, you see emerging and growing premium markets, with still Heineken growing quite robustly in Nigeria. And that despite the new competition coming from ABI with Budweiser, who was recently launched in the market.

So it is a market which is changing. We don't know where to it will change, but it is also definitely a market where we are under pressure.

We are not hiding from it. And we don't expect that to kind of turnaround back to old fortunes just overnight, as you can imagine.

Long term, it remains a market, I think, with a lot of potential, seeing its population, but it needs also, on the one hand, to have an improvement on the oil prices. That helps a lot in Nigeria because this is an economy which is still heavily dependent on oil and especially the public sector.

So we think it's -- it remains an attractive option for the future; obviously, now as we speak, very much under pressure.

I have some questions about the market. Firstly, Mexico.

Your main competitor was very upbeat about their performance and for their market position, so just really, first, to check out how you feel about your position there. And more generally Mexico is a place to do business now that the elections are out of the way.

Second question is on Spain, which for most of the year, I suppose, growth is -- was a real stored. Clearly and rather freakishly, it suffered from poor weather.

But just a comment on the kind of medium-term potential for that market. And very finally, a question on the U.K.

and the CO2 shortage; and whether having built up stocks, you're now able fully to supply the trade.

On Mexico, yes, we noted also the bid reports, but our performance have been rather good in Mexico, though I admit we lost a bit of share. If you look at on the longer term, there were periods where we gained a bit.

There were periods where we lost a bit. On average, it remains pretty balanced.

There is a kind of a beat in that market when we're going to bid. Then it unleashes a reaction on the other right side, and I suppose they would tell you the same.

Anyhow, we go not so much after our competitor. We go after our -- after consumers in Mexico, and that is where the focus go on.

And I have to say we had a very good growth still in Mexico over the first half of this year. And your second question was about Spain and the medium term.

Spain remains a beer market. It remains -- the beer category is very well developed in Spain, and -- but one of the features that you have to observe in Spain, it is a very regional market.

That is one that you have to bear in mind. And we are a very leading player in the southern part of Spain, in the southeastern part of Spain.

This is where our strongholds are. These are also the regions in Spain who economically on average are a bit weaker than the North of Spain and Catalonia.

That -- and so in terms of relative position, we might feel that a little bit, but it is a business that has been rebounding quite nicely from the crisis back now 10 years ago. And so this year was a little bit more under pressure, I would say, but that has for a lot to do also because of the positions that we have in Southern Spain.

And then the...

And then on the CO2. So back on track, still replenishing the stock, so quite a stressed position given the incredible weather.

And yes, we lost a bit of volume. What I will say is that costs increased a bit because what happened -- we didn't lost too much volume because there was a huge solidarity of also shipping from other places and other breweries in Europe.

But then your logistics costs are higher to actually deliver the beer, so that is the impact. But we're back on track.

It's Fernand de Boer from Degroof Petercam. Two questions actually.

One is on Brazil, the much faster growth than you anticipated. What is driving that growth?

Is it actions taken in the year? Or is it any of your markets just to market?

And then the second question is on your financial position. You say the first half cash flow is sustainable with your payables and your net debt-to-EBITDA moving in the right direction of 2.5 times and probably being low at year-end.

Is that meaning that you have some room for doing share buybacks?

Quickly, on Brazil, it's across-the-board, and it's markedly in the premium portfolio. It's across-the-board.

I mean it's in the portfolio of Heineken, Amstel, Sol, but it's also the premium portfolio of Kirin, Devassa, Baden Baden, Eisenbahn; all these six key brands on a high growth trajectory, with a good performance of Kaiser and a slight decline perhaps of Schincariol but not in an alarming way. So the mix works quite well.

The overall volume is also quite well in Brazil. And it's across-the-board, which is particularly all regions are contributing to the growth in Brazil, so a pretty balanced growth profile in Brazil.

And as regards our net debt-to-EBITDA position, yes, we are at about 2.5 times, which is our long-term target. As you know, every year, we do a number of acquisition, acquisition of greenfield, which is another way, I mean, to develop in countries where we are not yet.

We don't want share buyback program in the recent past. Of course, EMPAQUE, when we sold EMPAQUE, we actually say we sell a noncore business.

We will actually give back the money to the shareholders, but share buybacks are not something that we're planning to do.

Yes, with that, I thank you for your attention. Federico stands by, if you have further questions.

And thank you for your time this morning. Thank you.

Have a nice day. Bye-bye now.