Bunzl’s Earnings Call: Mixed Outlook Amid Growth

Bunzl ((BZLFY)) has held its Q4 earnings call. Read on for the main highlights of the call.

Bunzl’s latest earnings call presents a mixed outlook, reflecting both strategic successes and operational challenges. The company achieved strong operating profit growth, record acquisition activity, and increased own brand penetration. However, these positives are countered by challenges such as deflation impacting revenue growth, currency translation issues, and increased leverage.

Strong Operating Profit Growth

Bunzl reported a robust adjusted operating profit growth of 7.2% at constant exchange rates. This growth was primarily driven by an expansion in operating margin from 8% to 8.3%, showcasing the company’s ability to enhance profitability despite external pressures.

Record Acquisition Spend

The company committed a record GBP 883 million to acquisitions this year, announcing 13 acquisitions across five sectors and nine countries. This aggressive acquisition strategy underscores Bunzl’s commitment to expanding its market presence and diversifying its portfolio.

Increased Own Brand Penetration

Bunzl successfully increased its own brand penetration to 28% from 25% last year. This growth was primarily driven by strategic efforts to develop the own brand offering in North America, contributing to margin expansion and brand strength.

High Return on Invested Capital

The company achieved a return on invested capital of 14.8%, significantly outperforming the group’s weighted average cost of capital (WACC). This indicates strong capital efficiency and effective investment strategies.

Cash Conversion and Dividend Growth

Bunzl demonstrated consistent cash generation with GBP 634 million of free cash flow and a 93% cash conversion rate. The total dividend per share increased by 8.2%, reflecting the company’s commitment to returning value to shareholders.

Revenue Growth Impacted by Deflation

Revenue at constant exchange rates increased by only 3.1%, with net acquisitions contributing 5.1% to growth. However, this was offset by a 2.4% decline in underlying revenue due to deflation and volume reductions in North America, highlighting challenges in maintaining organic growth.

Currency Translation Impact

Bunzl’s results were negatively impacted by currency translation, with an adverse effect of between 3% and 4% across the income statement. This underscores the challenges posed by fluctuating exchange rates on international operations.

European Market Challenges

Continental Europe experienced moderate revenue growth, impacted by deflation and high operating cost inflation. These factors affected adjusted operating profit and margin, indicating a challenging market environment.

Debt and Leverage Increase

Leverage increased with adjusted net debt to EBITDA rising to 1.8x, driven by record acquisition spend and buybacks. This reflects the financial implications of Bunzl’s aggressive expansion strategy.

Forward-Looking Guidance

Looking ahead, Bunzl emphasizes its strong financial performance and strategic initiatives for 2024. The company anticipates robust revenue growth driven by acquisitions and slight underlying growth, with operating margins expected to remain consistent with 2024 levels. The strategic focus includes continued acquisition activity and increasing own brand penetration to support margin growth.

In summary, Bunzl’s earnings call highlights a balance of strategic achievements and operational challenges. While the company has demonstrated strong profit growth and strategic expansion, it faces headwinds from deflation, currency impacts, and increased leverage. Investors will be keen to see how Bunzl navigates these challenges while capitalizing on its strategic initiatives.