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Stronger pound holds back distributor Bunzl's growth

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 to companies they need to operate but that are not core to their business - 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 further fifth of revenues are generated in continental Europe.
The stronger pound in the half year against the dollar and euro held back Bunzl’s growth, and group revenue climbed 12pc at constant exchange rates. Pre-tax-profit rose 8pc to ?197.3m.
Some analysts have warned that Bunzl - which is known for being acquisitive - is suffering from declining margins, but that its frequent buying and integration of smaller companies is masking that.
During the six months to the end of June, Bunzl reported a group operating margin which was flat at 6.6pc, though this was before acquisitions and amortisation of customer relationships.
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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” and operating cost pressures.
Margins in the UK and Ireland slipped 0.4 points to 6.3pc, while in continental Europe they were 0.5 points better at 10pc, and the rest of the world was 0.6 stronger at 7.7pc.
Many of the products Bunzl provides are single-use and made out of plastic, prompting wider concerns about how the “war on plastic” will affect the business as rising awareness of the environmental impact of such disposable products grows.
Retail giant Amazon has also begun to move into the sector, supplying companies which Bunzl dominates, raising further questions about the FTSE 100 group’s prospects.
Frank van Zanten, Bunzl's chief executive, said the fact that 85pc of Bunzl’s revenue is generated outside had caused a “negative translation impact”.
However, this was not enough to dent Bunzl’s ability to consistently deliver big payouts to shareholders, one of the key attractions of the company to investors.
Stronger pound holds back distributor Bunzl's growth

Bunzl supplies companies with products ranging from disposable coffee cups to protective clothing
Bunzl pointed to its 25-year track record of dividend growth and the interim payout was lifted by 9pc to 15.2p a share.
Alongside the results, Bunzl announced its first acquisition in Norway, buying catering equipment supplier Enor for an undisclosed amount.  
In the year to date, Bunzl has bought four companies with a total value of ?132m, as well as selling two units that were not deemed core to operations.
RBC analyst Andrew Brooke said that margin growth in Europe and the rest of the world were primarily due to the company buying highly profitable businesses, boosting performance.
Saying there were better defensive stocks in the sector, he added; “We remain negative. We believe organic growth will revert to normalised low levels, gross margin pressure will continue and headwinds from Amazon and less plastic packaging will continue.”
Bunzl shares slipped 0.6pc to to ?23.10 in mid-morning trading.
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