Bunzl revenue falls in challenging third quarter

Distribution services giant Bunzl said in a trading update on Tuesday that its revenue fell in nominal and real terms in the third quarter, although it reaffirmed its 2023 adjusted operating profit growth forecast.

The FTSE 100 company said group revenue declined 4.8% during the quarter at constant exchange rates, with underlying revenue adjusted for trading days decreasing 4.7%.

That decline was attributed to reduced Covid-19 product sales, lower inflation benefits, and post-pandemic normalisation, resulting in expected volume weakness.

The presence of one fewer trading day than the comparable period also hurt revenue.

Acquisitions contributed growth of 2% at constant exchange rates during the period, while the disposal of the UK healthcare business had a 1.3% impact on revenue.

Considering the weakening of sterling in the prior year, group revenue, in actual exchange rates, declined 8.8% over the quarter.

However, operating margins remained significantly higher than pre-pandemic levels in 2019, exceeding the group’s expectations.

Bunzl expressed confidence in achieving a moderately higher adjusted operating profit for 2023 compared to 2022 at constant exchange rates.

At constant exchange rates, group revenue was expected to be slightly lower than in 2022 due to organic decline, acquisitions, and the UK healthcare disposal.

However, the operating margin for 2023 was anticipated to reach record levels.

In September, Bunzl announced the acquisition of CT Group - a Brazilian distributor of surgical and medical devices and value-added logistics services to healthcare providers.

The acquisition was intended to expand Bunzl’s product offering and national presence, with completion contingent on competition authority clearance.

Additionally, in August, Bunzl acquired Pittman Traffic & Safety Equipment in Ireland - a safety and asset protection solutions distributor.

The acquisition supported the growth of Bunzl’s North America-based McCue business, which already had a UK presence.

Pittman Traffic & Safety Equipment generated €7m (£6m) in revenue in 2022.

“Our performance continues to highlight the strength and resilience of the group’s business model, with revenue over the quarter 29% higher, and operating margin substantially higher, than the comparable period in 2019 at constant exchange rates,” said chief executive officer Frank van Zanten.

“I remain confident in our ability to sustain a higher operating margin compared to pre-pandemic levels, supported by the acquisitions we have made over the period.”

Van Zanten also noted Bunzl’s announcement of its 13th and 14th acquisitions of 2023, with a total year-to-date committed spend of more than £425m.

“I remain excited by the group’s medium-term opportunities, which continue to be driven by our proven compounding growth strategy and active acquisition pipeline, supported by a strong balance sheet.”

Reporting by Josh White for Sharecast.com.