On Wednesday, Heineken N.V. reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.
Pricing in Europe
Ian Shackleton – Nomura: You’re flagging better pricing in the second half for this year and I just wonder whether you’d give us a little bit more detail about which markets. I mean it strikes me, but in Western and Eastern Europe, you see margin declines in the first half and that is presumably where you could be focusing, but please give us a little bit more color on that?
Rene Hooft Graafland – CFO: So, like you will see in the second half of the year is first of all that you got the full benefit of pricing they have taken in the first half of the year. Then secondly in number of countries we are pushing further up with prices in important marketing in that respect is Russia, and but also we try to catch up in the market like Poland, so it is certainly in Central and Eastern Europe where we will have to take more pricing. In Western Europe, it is more that you got the full benefit.
Ian Shackleton – Nomura: And really to curb the higher input cost guidance of 8% and other cost increases, what sort of price/mix are you really looking at in the second half? Or are you talking about another 4% for the Group?
Rene Hooft Graafland – CFO: We don’t give specific figure apart from that we expect better or further improved price mix in the second half of the year.
Ian Shackleton – Nomura: If I could just ask (what’s the improvement) around Nigeria, it’s flattened off in Q2 after some very strong growth last year or so. Is that a trend that we should expect to continue given the political situation there?
Jean-Francois van Boxmeer – CEO and Chairman: I think it’s hard to make prediction of political situation but the fundamentals of Nigeria are still are very good. The oil pricing is working for Nigeria. The high growth in the urban areas is – in particular in the southern part of the country is working for Nigeria. So even if we noticed a kind of a pause in the second quarter we don’t think that that is a trend going forward.
Input Costs Inflation
Trevor Stirling – Sanford C. Bernstein: Three questions please. The first thing return to the question about input costs inflation. I think I will remind you had guided a 6% with more higher costs in the first half and lower in the second half, now it’s 8% with a 6.9% in the first half presuming that means it’s closer to 9% in the second half. So maybe if you could talk just give us a little bit more color on what is your expectations, where did the increased country volumes come that are driving that higher inflation and where is that packaging increase coming? Second question, related to Central Eastern Europe and (as was) pricing there, your price mix in Russia you are implying was flat in the half though your two nearest competitors one in the last quarter reported 6% and the other reported 14% price mix in Central Eastern Europe in Russia and the Ukraine. I guess is the volume growth you’re getting in Russia of sufficient quality? And the third question around TCM and cost savings and how the money is being spent. I noticed a very positive result on TCM savings, but also personnel expenses were up 6.6% organically, so well ahead of revenue. Is that a phasing thing, are you getting double running cost at the moment on GBS and that personnel cost is going to reverse, or if that’s a real increase, perhaps you give us more color about how and where that money is being spent and what level of return you’re expecting from those higher personnel expenses?
Rene Hooft Graafland – CFO: Yeah, so on the input cost and then the fact that we are above to what we have guided before, that has a number of factors. It is partly because the growth in higher inflation countries and certainly in a country like Nigeria where we buy locally our (indiscernible), you have seen that after the withdrawal of the fuel subsidy inflation has spiked in Nigeria and you see that back in your input cost. Secondly, you see in a number of markets, shifts and strong shifts to one-way packaging. That has to do partly with the development of the market; in a market like Poland when modern retail is taking from the moms and pops stores and that is all one-way, so you go from returnable into one-way, but it is also the shift from the on-premise to the off-premise, and you can imagine that when you sell beer in kegs, as there are no packaging costs in that respect and if you then go to the off-premise and you have the one-way packaging, that has an impact on us. So it is not so much that the barley or the malt we had contracted at the beginning of the year. That is changing because that is not the case, but it is geographical mix, it is the change within the markets, and there is a number of just technical things because these are all organic figures. If you look at in the markets with hyperinflation like Belarus, there you get on your input cost per hectoliter and the way how it is reported, you get obviously a very strong spike.
Trevor Stirling – Sanford C. Bernstein: Russia?
Rene Hooft Graafland – CFO: Yeah, and the price mix in Russia, Trevor, we are obviously not market leaders, so in pricing we have to be mindful of the steps others – that are bigger than us are taking. We have been concentrating on gaining back share on the backdrop of our big losses when we made mistakes on how we could price in the markets some two years ago. We are back to where we wanted to be, and we pursue a policy which is aimed at creating share also in value and improving our mix. Certainly, the second half is going to be better than the first half in terms of pricing for us in Russia, and the second good news coming out of Russia is that our policy of focusing on the top end of the portfolio – the premium end of the portfolio, is starting to give really good results. So that is what I can say about Russia. So we’re confident to be able to improve the situation over there. May I add one thing because you implied a bit in your question that we have not been taking pricing in Russia? We have taken this year five price increases in total for over 6% – I think 6.5%. As Jean said, we’re certainly not leading in price in the market, but we’re taking price. The fact that the price mix is so low is because big part of the growth is at the lower end of the portfolio and that has an effect. The conclusion should not be that we don’t take price and as Jean is saying in the second half of the year we will try to be more prominent even in that area. Your question about TCM, the personal cost where you have more inflationary pressure coming from the emerging world noticeably Africa, Nigeria in particular, you have a much more upward pressure on personnel cost due to the whole inflationary environment which in fact was the whole energy situation over there or the liberalization of the – or the stop of the subsidies on oil so that that has an effect. The second thing is which is that the building of GBS is essentially personnel costs so it’s people. So, we build up in (indiscernible) financial chef service, which are hundreds of people who will have to serve more companies than they serve. So, there is a kind of front load effect in personnel cost which will then be build back down again as we’re nearing the completion of the project and that is of course what you find back in higher personnel costs.
Trevor Stirling – Sanford C. Bernstein: Can I just ask one small follow-up. Jean first of all you referenced improving ix in Russia and that Rene you said that actually in Russia you’re taking price but you got negative price mix because the volume growth is coming at lower priced packaging?
Jean-Francois van Boxmeer – CEO and Chairman: I realized a confusion we had, what I meant to say is that commercially we of course – we are heavyweight in the lower part of the price segment in the market. That is true towards our competitors. We have a big volume which is at an index of below 100 in the market. We gained share there and we gained loads of volume there. This is what is gives us the distribution muscle and the whole carry of our fixed cost base in Russia, but we devote a lot of marketing attention in developing our top premium brands like Heineken, like Amstel Premium Pilsener, which we launched with very good results so far this year, also licensed brands like Guinness. So, all these brands which are substantially higher than the index 100 are developing even above our total sales, so that is the good part and that is contributing ultimately to the enrichment of the mix as we go. Obviously, you don’t improve that situation in six months nor in one year. It is an ongoing effort to improve our mix going forward, so I hope that clarifies it.