AMDP Investment Proposal

To: Clark Hansen, CEO of AMDP

From: Billy Nutt, Senior Research & Development Analyst and Employee of the Month 

Date: March 5th, 2023 

Subject: How to get Free Beer

___________________________________________________________________

I wanted to follow up on our last meeting regarding sustainable companies for the fund. We have a multitude of small-cap businesses, but a larger company with equal growth potential would balance out the portfolio.  Heineken is a large alcohol company based in Amsterdam.  It shows strong growth potential, a focus on the environment, and would be a strong investment for the fund.

I will first go over the sustainability guidelines that are at the forefront of our firm.  Then give you a brief background and insight into where Heineken is headed. I will provide some expert commentary and round it off with an investment summary.  

AMDP Investment Criteria

I wanted to illuminate some of the investment criteria AMDP holds that will be used in evaluating this venture.

Triple Bottom Line

The Harvard Business School writes, “The triple bottom line is a business concept that states firms should commit to measuring their social and environmental impact—in addition to their financial performance—rather than solely focusing on generating profit, or the standard “bottom line.” (Miller 2020)  She later breaks it down into three P’s :

• Profit- The financial return an organization generates for its shareholders

• Planet- An organization's commitment to positively impacting society

• People- An organization's effect on the environment

Corporate Social Responsibility

Stobierski of Harvard Business School writes that corporate social responsibility is, “...the idea that a business has a responsibility to the society that exists around it…is traditionally broken into four categories: 

• Environmental responsibility

• Philanthropic responsibility

• Ethical responsibility 

• Economic responsibility” (Stobierski 2021)

Social Enterprise

Eric Estevez summarizes social enterprise perfectly by writing it as a “...business with specific social objectives that serve its primary purpose. Social enterprises seek to maximize profits while maximizing benefits to society and the environment, and the profits are principally used to fund social programs.”

Carbon Footprint

“Carbon footprint, the amount of carbon dioxide (CO2) emissions associated with all the activities of a person or other entity (e.g., building, corporation, country, etc.). It includes direct emissions, such as those that result from fossil-fuel combustion in manufacturing, heating, and transportation, as well as emissions required to produce the electricity associated with goods and services consumed.” (Britannica 2024) It is important to reduce these as they have a strong warming effect on the environment.

Overview of Heineken

Heineken was founded in 1864 by Gerard Adriaan Heineken when he acquired a brewery in Amsterdam(Heineken.com).  Although the region was known for ale, Gerald instead produced only lager. He took years to develop his recipe and ended up discovering A-yeast, which became a staple of Heineken’s brewing process ever since. 

Heineken’s gradual growth exploded in 1968 with the acquisitions of Amstel.  This continued in 2008 with Scottish & Newcastle Brewery making Heineken the second-largest beer company.  After Covid-19 Heinekin came in with a new CEO, van den Brink, who came in with two missions.  1) Modernize and grow the business while also 2) focusing on sustainability and responsibility.  

Financials

Heineken's financials show strong growth with these notable highlights:

• Revenues of 7.9b with growth of 4% year over year

• Operating income is 1.1b showing healthy margins and a strong core business

• Increasing 16% year over year

• Large increase in assets and cash allowing for strategic flexibility and capital deployment

• Large share repurchase shows management thinks the stock is undervalued

Current Growth Plans (Profit)

Pisani at the Harvard Business School outlines these new steps that Heineken is taking to expand their operations:

• Introduced non-alcoholic beers to appeal to the Gen Y crowd who consume less beer

• Introduced Heineken Silver, a premium beer, and a hard seltzer brand

• The introduction of new products helps drive return on invested capital and future growth.  

• Digitalized their distribution and production process to increase efficiency and cut costs.  

Sustainability Plans

Pisani highlights the Brew a Better World Program from Heineken which, “...commitments aimed at having a positive impact on the environment and promoting social sustainability and responsible alcohol consumption.”(Pisani 2023) This plan includes:

• Set to have an overall positive impact on the environment by 2030

• All initiatives were adopted by Heinekins subsidiaries 

Social Responsibility (People)

• Investing in their employees’ talent and skills while expanding diversity and inclusion

• Eliminated the pay gap

• All employees receive a living wage

• Integrating more minorities into management for better demographic equality

Sustainability (Planet)

• Investment in sustainable energy sources 

• Heineken has built 130 renewable energy projects in the past three years

• Investment in watershed programs and water recycling to reduce the brewing’s water impact

• 66% of breweries have a watershed program currently

• Sustainably sourcing its ingredients in accordance with The Sustainable Agriculture Initiative

Expert Opinions:

1)In a recent company analysis by Ahmed in February 2024, he outlines the wins Heineken’s management has made on the sustainability forefront. He summarizes his piece writing, “...Heineken's earnings call revealed a company navigating a complex global landscape with a focus on organic growth, efficiency, and sustainability. While facing volume declines and regional challenges, the company's cost-saving measures and strategic investments in key markets like Brazil demonstrate its adaptability and commitment to long-term growth.” 

2) Alanso writes a deep review of Heineken and its current strategic position writing, “Markets are volatile. As they change, consumer tastes will evolve with them. The success of your business depends on your ability to adapt and offer new products to new audiences, while still progressing towards your goals. 

With each generation, the Heineken family has pushed the limits of what people believed was possible in the beer industry. As its status grew, not even the 1983 kidnapping of Freddy Heineken could hinder the company’s rise.

In doing so, Heineken is not only the gentleman's beer, but also the choice of sports fans, non-drinkers, and craft beer lovers alike. With over 190 countries now enjoying its many brands, Heineken has become the beer of the world.”

Conclusion

Heineken has a history of strategically positioning itself to gain market share and increase profitability.  The sustainability requirements are also handily met by their Brew a Better World Program. This program fits all aspects of the PPP framework:

• Introduction of new products will aid in their profitability and value creation.  

• Their focus on diversity and equal pay shows care for people. 

• Creating substantial sustainable energy projects shows care for the planet. 

Heineken’s introduction of these frameworks into their subsidiaries could be an example of how we can implement more sustainable practices in our fund companies.

Rarely do I find a company with impressive sustainability targets and strong growth.  Warren Buffet says to only swing at balls right in your sweet spot, and I believe this is one of those.

Works Cited

“Carbon Footprint.” Encyclopædia Britannica, Encyclopædia Britannica, inc., 15 Feb. 2024, www.britannica.com/science/carbon-footprint.

“Earnings Call: Heineken Reports Organic Growth and Sustainability Progress by Investing.Com.” Investing.Com, Investing.com, 18 Feb. 2024, www.investing.com/news/stock-market-news/earnings-call-heineken-reports-organic-growth-and-sustainability-progress-93CH-3307091.

“Heineken N.V. (Heiny) Cash Flow.” Yahoo! Finance, Yahoo!, 6 Mar. 2024, finance.yahoo.com/quote/HEINY/cash-flow.

“How Heineken Became One of the World’s Most Popular Beers.” Strategy Study, www.cascade.app/studies/how-heineken-became-one-of-the-worlds-most-popular-beers. Accessed 6 Mar. 2024.

Team, The Investopedia. “Social Enterprise: What It Is, How It Works, and Examples.” Investopedia, Investopedia, www.investopedia.com/terms/s/social-enterprise.asp. Accessed 6 Mar. 2024.

“The Triple Bottom Line: What It Is & Why It’s Important.” Business Insights Blog, 8 Dec. 2020, online.hbs.edu/blog/post/what-is-the-triple-bottom-line.

Heineken Website., www.heineken.com/global/en/home. Accessed 6 Mar. 2024.

“What Is Corporate Social Responsibility? 4 Types.” Business Insights Blog, 8 Apr. 2021, online.hbs.edu/blog/post/types-of-corporate-social-responsibility.