Morning Note: Market News and Updates from Heineken and Bunzl.

Market News

A two-day rally in global stocks stalled as US trade conflicts showed no signs of abating after the Trump administration imposed new restrictions on Nvidia Corp.’s chip exports to China. This prompted a warning from the company that it may report $5.5bn in write-downs – the shares were down 6% after hours. ASML’s first-quarter bookings of less than €4bn was well below estimates.

Most US levies on the EU are expected to stay as the bloc’s trade chief, Maros Sefcovic, left Washington with little clarity. The WSJ reported Trump plans to use trade negotiations to pressure partners to limit their dealings with China. The president is also looking at tariffs on critical minerals.

Following last night’s reversal in the US – S&P 500 (-0.2%); Nasdaq (-0.1%) – the futures market is currently expecting a 1.1% decline at the open this afternoon. The subdued tone continued in Asia this morning: Nikkei 225 (-1.0%); Hang Seng (-1.9%). The FTSE 100 is currently 0.5% lower at 8,209.

Treasuries were little changed after a two-day rally and gold hit a record of $3,295 an ounce on demand for haven assets. The dollar pared some of its Tuesday advance as the Swiss franc and the euro led gains against most currencies. Japanese long-term bonds rallied.

UK inflation slowed more than expected to 2.6% in March. This compares to 2.7% forecast and 2.8% in the previous month. The data provides some relief for the Bank of England as the economy braces for the impact of tariffs. Sterling trades at $1.3275 and €1.1610.

Source: Bloomberg

Company News

Heineken has released its Q1 2025 results which were slightly ahead of market expectations. Despite volatile consumer and geopolitical trends, the group has reiterated its full-year guidance for operating profit growth of 4%-8%. The €1.5bn share repurchase programme is ongoing. Ahead of this afternoon’s analysts’ meeting, the shares are trading up 2% against a weak overall market. Although they remain on a depressed valuation, given mixed execution over the last couple of years, the market will want to see more consistency in order to further 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, and Strongbow, as well as 300 or so local brews. The company also owns around 3,000 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, with disposals in Sri Lanka, Nigeria, South Africa, and Slovakia.

We believe the company is well placed to benefit from long-term growth opportunities in emerging markets (which generate more than 50% 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 also seen 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 as mainstream beer because consumers turn to better brands as they grow older and wealthier. Finally, the group is benefiting from the growth of low and no-alcohol products and increased digital revenue.

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. 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 margin business. Looking forward, the group is focused on generating a healthy balance between volume and price growth.

In first quarter of 2025, as anticipated, the group faced several calendar-related factors, such as fewer selling days and the timing of Easter and Vietnamese Tết. Furthermore, currency translation negatively impacted revenue, mainly caused by the strengthening of the euro.

Net revenue grew by 0.9% on an organic basis to €6,544m, slightly better than the market expectation for a slight decline. 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 2.4%, while the underlying price-mix was up 4.1%, helped by portfolio premiumisation.

Beer volume fell by 2.1% in organic terms, with the company gaining or holding volume market share in more than half of its markets. Growth in Asia Pacific (+2.3%) and Africa, Middle East and Eastern Europe (+1.3%) was offset by a fall in Europe (4.7%) and The Americas (-3.7%) due mainly to the late Easter impact. Vietnam, India, and Ethiopia delivered ‘promising’ volume growth, benefitting from the strategic actions taken.

The group continues to benefit from an ongoing shift towards product premiumisation, with volume up 1.8% organically, outpacing overall volume growth. The Heineken brand itself grew volume by 4.6% in the quarter. In the low & no-alcohol category, Heineken 0.0 declined by a low-single-digit, as solid growth in the US was more than offset by a slight decline in markets impacted by the timing of Easter and the phasing of orders to some key export markets

The group’s e-commerce platforms continued to grow, with gross merchandise value captured via B2B digital platforms up 16% to €3.1bn.

The Evergreen strategy continues to generate benefits. The company is only halfway through its productivity improvements in Europe and there is much more to do in the digital space. The programme delivered €0.6bn of gross savings in 2024 and is on track to generate another €400m in 2025. This enables the company to invest in growth and in building strong brands.

As is usual at this stage, there is no update on the group’s profitability or financial position, although we would highlight Heineken has a strong balance sheet. At the end of 2024, financial gearing was 2.2x net debt to EBITDA, versus the long-term target to be below 2.5x. The dividend policy is to pay a ratio of 30% to 40% of full-year net profit, with the 2024 payment up 7.5% to €1.86 (2.5% yield).

The priority for capital allocation remains organic investment, the dividend, and bolt-on M&A. However, in 2024, the company achieved significant deleveraging, supported by strong free operating cash flow exceeding €3bn. Consequently, the company is well positioned to return additional capital to shareholders and is undertaking a two-year €1.5bn share buyback programme, a move that should be supportive for the share price. The first tranche of €750m is expected to be completed no later than 30 January 2026, with €86.5m acquired up to and including 11 April 2025.

On the subject of tariffs, the company 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, if eventually imposed, won’t be material.

For 2025, 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. The lower end (+4%) is more likely if tariffs are imposed and there is continued volatility in Africa with inflation in Nigeria and Ethiopia. For the upper-end (+8%) to be achieved requires good momentum in APAC markets of Vietnam and India needs to continue. Profit growth will be supported by productivity gains of at least €400m. The group expects to generate continued volume and revenue growth.

Source: Bloomberg

This morning, Bunzl has released a very weak trading update and lowered its guidance for 2025. Given the significant macroeconomic uncertainty, the group has also reduced its borrowing target and halted its share buyback programme. In response the shares have been marked down by 25% in early trading.

Bunzl is a specialist international distribution and services group. The company provides an efficient and cost effective one-stop-shop solution to enable its customers to reduce or eliminate the ‘hidden’ costs of sourcing and distributing a broad range of goods that are essential to the successful operation of their businesses but which they do not themselves resell – think disposable tableware, rubber gloves, and plastic trays. The strategy is to expand the business through organic growth, consolidating markets through focused acquisitions, and continuously improving operating efficiency. The group is also supporting customers looking to transition towards packaging better suited to the circular economy, with around half of Bunzl’s packaging sales made from alternative materials. The group now processes around three quarters of orders digitally, supporting customer retention and enhancing operational efficiency.

Against a more challenging economic backdrop, group revenue in the first quarter grew by 2.6% at constant exchange rates, with underlying revenue declining by 0.9%. Adjusted operating profit was down significantly, reflective of an operating margin decline driven by performance in North America and Continental Europe.

In North America, since the group’s last update, in a more uncertain macro environment, Bunzl has seen some revenue softness across its businesses. This has resulted in operating margin pressure across the business area, and in particular it has amplified challenges specific to the group’s largest business, which primarily services foodservice and grocery customers. The group has been evolving its strategy to complement its strong third-party supplier partnerships with an enhanced own brand offering to customers. This has required substantial investment and change in the sales and operating model, which has been more challenging to execute than expected. Trading in the first quarter has also been impacted by continued deflation which has compounded these execution challenges. In response, the company has taken a series of decisive actions to improve performance.

In Continental Europe, the operating margin decline in the first quarter continued to be driven by dynamics already seen in the second half of 2024, with the decline broadly in line with expectations. The company expects margin management and cost initiatives to deliver improvement towards the end of the second half of the year.

In the UK and Ireland, underlying revenue growth was lower than expected, driven by deflation, with a decline in operating margin reflective of mix. In the Rest of the World, strong underlying revenue growth continues, driven by Latin America, with the business area maintaining a good operating margin.

As a result of the profit warning, the company has lowered its guidance for the full year. It now expects moderate revenue growth in 2025, at constant exchange rates, driven by announced acquisitions and broadly flat underlying revenue (vs. guidance for slight underlying revenue growth previously). Group operating margin for the year is expected to be moderately below 8.0%, compared to 8.3% in 2024 (vs. previous guidance for a flat margin). This guidance has been given despite significant uncertainties relating to tariffs and their impact on inflation and economic growth.

Given the significant macroeconomic uncertainty, the company believes it is prudent to be around the lower end of its target leverage range of 2.0x to 2.5x adjusted net debt to EBITDA. As a result, it has paused its buyback programme for the remainder of 2025, having purchased around £115m of shares year to date. The aim is to be towards the lower end of target gearing range by the end of 2025.

Source: Bloomberg