China tempts Britain with free trade, says door to US talks open
HEINEKEN’S attempt to challenge Anheuser-Busch (AB) InBev in Brazil is squeezing profit margins, with the Dutch brewer forecasting a decline in profitability this year.
Shares of the world’s second-largest brewer fell the most in almost three years yesterday after it said it was expanding more quickly than expected in Latin America’s biggest economy, where its beer business is less profitable than elsewhere.
Heineken became Brazil’s second-biggest brewer last year when it bought Kirin Holdings’ business there for about 2.2 billion real (R7.8bn). The Japanese company had stumbled amid competition with industry giant AB InBev, and now Heineken is stepping up the fight with increased marketing, causing a decline in its overall profitability even as it sells more beer.
“We weren’t expecting these
products to accelerate so fast in the first year,” said chief financial officer Laurence Debroux.
The company’s roster of brands in Brazil now includes Schincariol in the mass-market segment as well as more expensive Devassa and Eisenbahn lagers. Kirin’s Brazil unit was not profitable at the time of acquisition, though it is now, Debroux said.
Heineken had double-digit volume growth in Brazil in the first half, while AB InBev reported 9.4 percent revenue growth in Brazil in the second quarter. By contrast, the Dutch brewer’s volume slipped 0.1 percent in Europe, its largest market, in the first six months of the year.
The full-year margin will shrink about 20 basis points, Heineken said, also pointing to currency headwinds. Adjusted operating profit rose 1.3 percent to €1.75bn in the first half, missing analysts’ estimates.
“This should lead to a low- to mid-single-digit downgrade, on a stock which had performed well,” Morgan Stanley analysts led by Olivier Nicolai wrote in a note to investors.
Heineken fell as much as 6.1 percent in Amsterdam. The Dutch brewer in February had forecast its margin to improve by 25 basis points this year, lower than its target for past years. Higher raw material costs and a currency headwind are also reasons the brewer gave for cutting its forecast yesterday.
AB InBev reported earnings below estimates last week as marketing spending on the soccer World Cup hurt second-quarter profit growth.
Heineken’s beer volume rose 4.5 percent on an organic basis, compared with the estimate of 3.1 percent. – Bloomberg CHINA offered Britain talks on a post-Brexit free-trade deal yesterday, reaching out to London as Beijing remains mired in an increasingly bitter trade war with Washington, even as a senior diplomat reiterated that the Chinese door remained open for dialogue.
China has been looking for allies in its fight with the US, initiated by the Trump administration, which says China’s high-tech industries have stolen intellectual property from American firms and demands that Beijing act to buy more US products to reduce a $350 billion (R4.6 trillion) trade surplus.
Britain has pushed a strong message to Chinese companies that it is open for business as it prepares to leave the EU next year, and China is one of the countries with which Britain would like to sign a post-Brexit free-trade deal.
Speaking to reporters in Beijing after meeting British Foreign Secretary Jeremy Hunt, the Chinese government’s top diplomat, State Councillor Wang Yi, said both countries agreed to step up trade with and investment in each other.
Hunt said Wang had made an offer “to open discussions about a possible free-trade deal done between Britain and China post Brexit”.
“That’s something that we welcome, and we said that we will explore,” Hunt said.
Wang made no direct mention of the free-trade talks offer, but said both countries had “agreed to proactively join up each others’ development strategies, and expand the scale of trade and mutual investment”.
China and Britain should also oppose trade protectionism and uphold global free trade, Wang added.
While a trade pact with China would be a political win for Britain’s government, formal talks cannot begin until it leaves the EU next year.
‘US to blame’
In the briefing, Wang again slammed Washington for intransigence and intentionally hyping up the idea that the US was the real victim in their trade dispute.
“The responsibility for the trade imbalance between China and the US lies not with China,” Wang said, citing the global role of the US dollar, low US savings rates, huge levels of US consumption and US restrictions on high-tech exports as among the reasons.
The US has benefited a great deal from trade with China, getting lots of cheap goods, which is good for US consumers, and US companies benefit hugely in China too, he added.
Both China and the US had appeared to have avoided a fullscale trade war in May, with China agreeing to buy more US agriculture and energy products, but the deal collapsed and the two sides slapped import tariffs on their respective goods. – Reuters