Morning Note: Market news and an update from Heineken.

Market News

The US and European Union agreed on a deal that will see the EU face 15% tariffs on most of its exports, including automobiles, to stave off a trade war. The deal was announced by President Donald Trump and European Commission President Ursula von der Leyen, who said it would bring stability and predictability. The EU agreed to purchase $750bn in American Energy products and invest $600bn in the US.

US and Chinese officials are meeting to extend their tariff détente beyond a mid-August deadline and discuss other ways to defuse trade tensions. The meeting agenda includes discussions about US levies tied to fentanyl trafficking and Chinese purchases of sanctioned Russan and Iranian oil. US Treasury Secretary Scott Bessent said the US would use the meeting to work out what’s “likely an extension” to the current tariff pause.

There’s a Federal Reserve meeting on Wednesday. Officials are determined to hold interest rates steady, though an increasingly contentious debate may bolster expectations for rate cuts in the fall. The US central bank is widely expected to leave its benchmark rate unchanged, with policymakers awaiting more data revealing the impact of tariffs on consumer prices.

Equity markets are firmer this morning, while the 10-year Treasury yields is steady at 4.40%. The FTSE 100 is currently 0.4% higher at 9,154, with Sterling trading at $1.3420 and €1.1480. Gold steadied after its recent pullback at $3,335 an ounce. Brent Crude trades at $68 a barrel.

This week is another busy one for earnings, with results from Amazon, Apple, Meta, Microsoft, Visa, Unilever, and Shell. There is also key US data including GDP and non-farm payrolls.

Source: Bloomberg

Company News

Heineken has this morning released its first-half results which highlight profit a touch better than expected. Despite volatile consumer and geopolitical trends, the group has reiterated its full-year guidance for operating profit growth of 4%-8%. Within this, the group has trimmed its volume guidance and raised its expectation for productivity savings. The €1.5bn share repurchase programme is ongoing. Ahead of this afternoon’s analysts’ meeting, the shares are trading down 2%. Although they remain on a depressed valuation, given mixed execution over the last few years, the market will want to see more consistency in order to re-rate the shares.

Heineken is the world’s second largest brewer, generating net revenue of €30bn from a portfolio of iconic brands, many of which have been quenching the thirst of consumers for decades. In addition to the core Heineken brand, the company owns several well-known beers and ciders, including Sol, Tiger, Amstel, Murphy’s, and Strongbow, as well as 340 or so local brews. The company also owns around 2,400 pubs in the UK, runs a wholesaling operation in Europe, and has a strong global distribution capability. Over time, the group has expanded and developed its global footprint through investment in new breweries, partnerships, and acquisitions. It has also exited several businesses to refine the portfolio.

We believe the company is well placed to benefit from long-term growth opportunities in emerging markets (which generate 55% of revenue), where young and growing populations, low per-capita beer consumption, and increased wealth are expected to drive growth. The company believes the biggest opportunity is in India, with strong prospects in Mexico, Brazil, China, Vietnam, and South Africa.

The group generates more than 40% of its revenue from premium brands, where volume is growing faster than mainstream beer because consumers turn to better brands as they grow older and wealthier. Premium brands tend to have greater pricing power. Finally, the group is benefiting from the growth of low and no-alcohol products, where it is the global leader, and products ‘beyond beer’ such as seltzers and ready-to-drink products.

We believe the shareholding structure, supported by family ownership, ensures the company is run for the long term and in the best interests of all shareholders.

Over the medium term, the group has faced a challenging macro environment with multiple headwinds including Covid-19, higher input costs, and specific country challenges. As a result, volume remains below pre-covid levels. This a partly explained by the lack of a full recovery in the on-trade business (i.e. pubs, bars, and restaurants), especially in Europe where there are 10% less outlets. Volumes have also been held back by the intentional removal of low quality, low margin business. Looking forward, the group is focused on generating a healthy balance between volume and price growth. We note that private label penetration is much lower in beer than in other consumer products.

In first half of 2025, as anticipated, the group faced several challenges. Furthermore, currency translation negatively impacted revenue, mainly caused by the strengthening of the euro.

Net revenue grew by 2.1% on an organic basis to €14.2bn, an acceleration on the 0.9% growth generated in Q1. Growth was driven by a 3.3% increase in net revenue per hectolitre as pricing was used to mitigate inflationary pressure. Total consolidated volume slipped by 1.1%, while the underlying price-mix was up 3.7%, helped by portfolio premiumisation.

Beer volume fell by 1.2% in organic terms, with Q2 (-0.4%) outpacing Q1 (-2.1%). Year to date, the company has gained or held market share in more than half of its markets.

Volume growth in Asia Pacific (+3.1%) was driven by distribution led gains in Vietnam, India, and China. In Africa & Middle East (+1.1%), the business benefitted from strong portfolios and a transformed cost base. In the Americas (-1.2%), Mexico and Brazil showed resilience in a softer market environment. Lower US remittances in Mexico is an incremental challenge to a key market where consumer confidence is already stretched. The largest decline was in Europe (-4.7%) as extended retailer negotiations temporarily impacted volume but were important to preserve future sustainable category development.

The group continues to benefit from an ongoing shift towards product premiumisation, with volume up 1.8% organically, outpacing mainstream volume growth of 0.5%. The Heineken brand itself grew volume by 4.5% in the period, with 27 markets growing double-digit.

In the low & no-alcohol category, volume was slightly down in the first half due, in part, to lower off-trade availability in Europe impacted by trade negotiations with key retailers. Heineken 0.0 was flat.

The group’s e-commerce platforms continued to grow, with gross merchandise value captured via B2B digital platforms up to €6.3bn.

The EverGreen strategy continues to generate benefits and leaves Heineken better placed to cope with ongoing macroeconomic volatility. The company is only part-way through its productivity improvements in Europe and there is much more to do in the digital space. The programme delivered €0.3bn of savings in the first half, ahead of plan, and is now expected to exceed €0.5bn in 2025, versus previous guidance to generate €0.4bn. This provides the funds to invest in growth and in building strong brands - marketing and selling expenses rose organically 2.6%, concentrated on the largest markets with the biggest opportunities.

Group operating profit rose by 7.4% in organic terms to €2,027m, a touch better than the market forecast for growth of 7.0%. Pricing, improved portfolio mix, and productivity savings more than offset inflationary pressures in the cost base and incremental brand investments. The margin expanded by 26 basis points to 14.3%.

Heineken has a strong balance sheet and generated free cash flow of €257m. The company is beyond peak capex and has more to do in terms of working capital improvements. At the end of June, financial gearing was 2.3x net debt to EBITDA, in line with the long-term target to be below 2.5x.

The priority for capital allocation remains organic investment, the dividend, and bolt-on M&A. The dividend policy is to pay a ratio of 30%-40% of full-year net profit – today the company has declared an interim dividend of €0.74 per share, up 7%.

Significant deleveraging in 2024 left the company well positioned to return additional capital to shareholders – a two-year €1.5bn share buyback programme is ongoing. The first tranche of €750m is expected to be completed no later than 30 January 2026, with €224m acquired up to and including 18 July 2025.

Regarding tariffs, the company has previously highlighted that over 95% of its volume is locally produced. The main exception is the US into which the group imports from Mexico and The Netherlands. However, given the US accounts for less than 5% of group revenue, the impact of any tariffs won’t be material. The impact of tariffs on the local economy, particularly in Vietnam and Mexico, have been acknowledged but not quantified.

For the full year, the company now expects volume to be broadly stable (vs. some growth previously), following the customer disruptions in Europe in the first half and softer markets in the Americas than originally anticipated. However, a positive price-mix is still expected to lead to continued positive revenue growth.

The company is still guiding to operating profit organic growth of between 4% and 8%, with the range a reflection of the current macro-economic, geopolitical uncertainty, and other factors. As highlight above, profit growth will now be supported by productivity gains of more than €500m.

Source: Bloomberg