Bunzl revenues grow but margin concerns persist

DISTRIBUTION group Bunzl has posted solid interim numbers despite currency movements taking a bite out of headline growth rates, though worries about margins at the blue-chip business persist.

The company, which supplies items such as carrier bags to supermarkets, hard hats to builders and swizzle sticks to bars, reported revenue 5pc higher at £4.3bn.

Bunzl is based in the UK and reports in sterling. However, the largest part of its business is in North America, accounting for just over half of all sales. A fifth of revenues are generated in continental Europe.

The stronger pound in the half-year against the dollar and euro held back growth, and group revenue climbed 12pc at constant exchange rates. Pretax-profit rose 8pc to £197.3m.

Some analysts have warned that Bunzl is suffering from declining margins, but that its frequent buying of smaller companies is masking it.

During the six months to the end of June, it reported a group operating margin that was flat at 6.6pc, though this was before acquisitions and amortisation of customer relationships.

Margins in Bunzl’s North American business slipped 0.4 points to 5.7pc, something its management attributed to lower profits in “significant business previously won in the grocery sector”.

Margins in the UK and Ireland slipped 0.4 percentage points to 6.3pc, while in continental Europe they were 0.5 points better at 10pc, and in the rest of the world 0.6 stronger at 7.7pc.

Chief executive Frank van Zanten said while there had been a decline in margin, earnings per share were up 8pc. “The business model is intact, and we warned a number of times the North America margin would come down because we took on such a large piece of business from a supermarket that you would not expect to be at the same margin,” he added.

Many of the products Bunzl provides are single-use plastic, prompting concerns about how the business will be affected as awareness grows of their environmental impact.

Mr Van Zanten said: “We offer alternative ‘green’ products, which are often slightly more expensive. For example, we hardly sell any plastic stirrers now; they are all wooden.”

Retail giant Amazon has also begun to move into the sector, though Mr Van Zanten said most large customers prefer Bunzl’s bespoke service.

He conceded that the fact that 85pc of revenue is generated outside the UK had caused a “negative translation impact” on results but said this did not dent the company’s ability to deliver big payouts to shareholders.

Bunzl announced its first acquisition in Norway, buying catering equipment supplier Enor for an undisclosed sum.

In the year to date, Bunzl has bought four companies with a total value of £132m, while selling two units that were not deemed core to operations.

RBC analyst Andrew Brooke said margin growth in Europe and the rest of the world were primarily due to the company buying highly profitable businesses, boosting performance.

Bunzl shares slipped 5p to end at £23.25 yesterday.

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