Bunzl H1 operating profits fall, margin contraction offsets modest revenue growth

(Sharecast News) - Distribution giant Bunzl said on Tuesday that margin pressure and flat revenues had offset ongoing strength in its base business throughout the six months ended 30 June. Bunzl said adjusted operating profits fell 11.2% to £404.5m, driven by a one percentage point contraction in operating margins to 7.0% and just a 0.8% increase in revenues to £5.75bn. Reported operating profits dropped 14.0% to £300.5m and adjusted earnings per share fell by 10.6% to 77.8p

The FTSE 100-listed group also said free cash flow decreased by 21.6% to £243.2m at actual exchange rates, due to a decrease in adjusted operating profit alongside a broadly unchanged combined net interest and income tax payments, and net debt widened from £2.31bn to £2.1bn.

However, Bunzl still opted to lift its interim dividend by 0.5% to 20.2p, reflecting confidence in long-term cash generation.

Looking forward, Bunzl reiterated guidance for "moderate revenue growth in 2025", buoyed by bolt-on deals and pricing discipline, and noted that while margin pressures may persist, it expects to see a "moderation of year-on-year operating margin decline" in the second half.

Separately, Bunzl announced that the acquisitions of Spanish foodservice distributor Quindesur and Mexican PPE distributor Guantes Internacionales had been completed in July and August, respectively.

AJ Bell's Russ Mould said: "Distribution and outsourcing group Bunzl is supposed to be boring and reliable, providing businesses with everyday items which are fundamental to their day-to-day operations, but it created the wrong sort of excitement in April as it endured its worst one-day sell-off in a decade. This followed a major profit warning, pegged on a challenging economic backdrop and cost challenges in North America, and the accompanying suspension of its buyback programme.

"Investors have now reacted with relief to a first-half results announcement which is reassuringly prosaic. Profits were lower as guided and the company has also resumed its buyback, suggesting the ship has been steadied thanks to divisional leadership changes, cost savings and an increased focus on higher margin own-brand products."

Reporting by Iain Gilbert at Sharecast.com