Bunzl plc

Good morning and thank you for attending Bansal's 2024 half-year results presentation. I appreciate you joining us today. Richard House, our CFO, is also on the call and will cover our financial performance, capital allocation and outlook for the remainder of the year following my initial remarks. After that, I will summarize our strategic progress year-to-date. Let me start with the key takeaways from today's results. Firstly, we have achieved real success in delivering our acquisition strategy and have already surpassed our record total committed spend. August year to date, we have committed more than 650 million pounds, announcing seven acquisitions, including one more today. Our pipeline is active. and I'm confident that we will have even more acquisitions to announce before the end of the year. Despite the step change we've made in increasing our level of acquisition spent in recent years, our leverage has remained well below our target range for some time. This is due to the success of our investments and our consistently strong cash generation over the last few years. Therefore, today we are committing to measures intended to steadily return to our target leverage range by the end of 2027. To do this, we will allocate around 700 million pounds per annum primarily towards value-accretive acquisitions and, if required, returns of capital to shareholders in each of the three years ending 31 December 2027. To kick this off, we are launching Bansal's first-ever share buyback programme today, returning an initial £250 million by 3 March 2025. We expect to extend this programme in 2025 with a further share buyback of around £200 million. Richard will take you to the details later in the call. I'm also very pleased that our operating margin has continued to expand strongly, increasing from 7.4% in the first half of 2023 to 8% in the first half of 2024. Therefore, today we upgrade our full-year profit forecast for 2024. Encouragingly, the group is also seeing improving revenue trends, which further supports our outlook. Finally, these achievements would not be possible without the excellent work of my talented colleagues across the business, and I would like to thank them all for their contributions to Bansal's ongoing successes. Now moving on to the main highlights of the first half. Over the period, we achieved strong adjusted operating profit growth of 7.4% at constant exchange rates, mainly driven by continuing operating margin expansion thanks to the exceptional efforts of our teams in managing margins, including increasing own brand penetration and the contributions from higher margin acquisitions. Revenue at constant exchange rates declined by 0.4% and was mainly impacted by deflation as well as volume softness in North America, which more than offset our acquisition growth in the first half. The group has seen an improvement in organic revenue trends in July and August. We have achieved a 2% increase in our own brand penetration compared to the year end, and it's now at 27% across the group. We've seen a meaningful improvement in our own brand penetration in North America, which has had a visible impact on the group's overall numbers. We continue to collaborate with our strategic third-party branded suppliers to provide unparalleled product choice for our customers. Our model remains highly cash generative free cash flow increased by 8.4% at actual exchange rates against the first half of 2023, while cash conversion was excellent at 100%. The consistency of our cash generation means that even despite committing a record amount to acquisitions so far this year, Leverage remains meaningfully below our target, with adjusted net debt to EBITDA of 1.5 times. We therefore have substantial headroom for continuing to self-fund value-accretive acquisitions alongside additional returns of capital to shareholders. We are announcing a 10.4% increase in our interim dividend per share as we continue to normalize dividend cover to more historical levels. We are expecting dividend cover of 2.65 times in 2024 with further normalization in 2025. Now I want to go to the key contributors to our model for shareholder returns and reiterate my confidence in Bansal's ability to achieve high-quality growth in the medium term. Following several years of exceptional growth, we have seen revenue decline slightly in the first half of 2024. However, it has been encouraging to see an improvement in underlying revenue trends during the period. We expect further improvement as our businesses continue to focus on our customer value proposition and a net inflationary environment should support revenue growth in the medium term. Secondly, as we've seen already, our operating margin has grown substantially in the last few years. Lastly, our cash generation remains as strong as ever. Between 2019 and 2023, we generated a total of £2.9 billion free cash flow and spent £2.8 billion on both value-accretive acquisitions and dividends. Even though we have step-changed our acquisition spend over recent years, our leverage remains well below our target range, hence our commitment to return to our target leverage by the end of 2027. These key contributors continue to be supported by the tailored solutions we provide, our focus on continuous innovation, including our sustainability offering, digital investments, our agile and resilient business model, and of course, our talented people. Each of these elements will help ensure the company maintains its trajectory of high quality growth. I will now hand over to Richard.

Thank you, Frank. Good morning, everyone. With almost 90% of adjusted operating profit generated outside the UK, our results on average were negatively impacted by currency translation of between 3% and 4% across the income statement. All my comments are at constant exchange rates unless otherwise specified. Starting with revenue. The group has achieved strong revenue growth of 28% from H1 2019 to H1 2023. Following this period of strong growth, revenue in the first half declined by 0.4% to remain at £5.7 billion. Acquisitions contributed 3.7% to revenue growth. and revenue also benefited by 0.8% from an additional trading day in the period. However, this was more than offset by a 4.9% decline in underlying revenues, reflecting deflation, as well as volume reductions, primarily in our food service redistribution business in North America. Overall, this resulted in an organic revenue decline of 4.1%. Encouragingly, we have seen an improvement in quarterly underlying revenue trends, with Q2 being better than Q1. These trends improved further in July and August, with an underlying revenue decline of only 1-2%, in part due to softer comparators. And this gives us confidence to reiterate our guidance for a return to organic revenue growth towards the end of the year. Now turning to the income statement. Adjusted operating profit grew strongly by 7.4% to 456 million pounds. This was driven by a strong increase in operating margin from 7.4% in H1 2023 to 8.0% in H1 2024. This increase has been driven by an improvement in underlying margins supported by good margin management and increasing own brand penetration, as well as the higher margins attributable to acquisitions. Adjusted earnings per share increased by 6.2% to 90.8 pence, reflecting the strong profit performance. Adjusted net finance expenses increased by £4.1 million to £46.8 million, driven by increases in lease expense and interest rates on floating debt, partially offset by lower average debt during the period. Adjusted profit before income tax increased by 6.7% to £409 million. The effective tax rate for the period was 25.5% compared to 25.2% last year, reflecting the impact of the increase in the UK corporation tax rate in the first quarter. Reflecting our confidence in the outlook for the group, we continue to normalise our dividend cover to historical levels. We are therefore increasing our interim dividend per share by 10.4%. Reported earnings were impacted by the currency translation driven loss related to the disposal of our business in Argentina in March. Additionally, we completed the disposal of a German business in which supplies incontinence products shortly following the end of the period. The disposal of this small business does not impact our half year income statement. Moving on to cash flow. The group's cash generation remained strong during the first half of 2024. Cash conversion was 100%, ahead of the 93% achieved in the first half of last year. Free cash flow was strong as well, with £310 million generated during the period, an 8.4% increase in actual exchange rates versus the first half of 2023. During the first half, we paid £61 million in dividends and made a net payment of £54 million to buy shares for our employee benefit trust, leaving total cash generation prior to investment in acquisitions and disposal proceeds of £196 million. Cash outflow and acquisitions totaled £439 million. Turning to the balance sheet. Working capital increased by £29.7 million since the end of 2023, mainly due to the impact from acquisitions and some underlying increasing receivables, partly offset by a decrease from currency translation. Our adjusted net debt to e-migdala was 1.5 times at the half year 2024, compared to 1.2 times at the end of 2023. This leverage ratio has been adjusted to include deferred and contingent consideration to be paid on acquisitions as debt alongside the associated level of EBITDA. Adjusted net debt on this basis was 1.7 billion pounds. This headline ratio continues to exclude the impact of leases. We therefore have substantial capacity to enhance shareholder returns with our preference being to self-fund value-accreted acquisitions. I will outline our new commitments on capital allocation shortly. Returns remain strong, with a return on invested capital of 15.3% and a return on average operating capital of 45.3%. Before I discuss the sector performance for the period, I want to reiterate our views on the medium term growth outlook. We see good growth opportunities in all our sectors besides bricks and mortar, non-food retail. Safety, cleaning and hygiene and healthcare remain the sectors where we see the greatest growth opportunity, both organically and through acquisitions. Overall in H1 2024, Volume growth in most sectors has been offset by deflation. Combined, our safety, cleaning and hygiene and healthcare sectors declined 0.8%. Revenue in our safety businesses saw a small impact from deflation. We continue to expect our North America safety businesses to benefit from the increased infrastructure spend in the medium term. Our cleaning and hygiene businesses have seen volume growth throughout the period. However, deflation has more than offset this growth, leading to a small organic revenue decline. The same is true for our healthcare businesses, however. Looking forward, the backlog of elective surgeries remains a tailwind. Our grocery sector declined 2.9%, impacted by deflation, particularly in the U.S., and some softer volumes in the UK and Ireland. Food service and retail declined by 7.6%. As previously disclosed, food service was impacted by deflation and volume softness in our North American food service redistribution business, where we continue to grow our own brands. Retail was impacted by deflation, and the ongoing impact from the decision to transition ownership of customer-specific inventory in our US retail business, which is now annualized. As volumes continue to increase and deflationary pressures ease further in H2, we are confident that the business will return to organic revenue growth towards the end of this year. Now moving on to our business area performance. The factors driving the underlying revenue decline in North America are as outlined on the previous slide. Operating margin performance, however, was strong with good margin management, including meaningful expansion of own-brand penetration, which also supported an increase in the return on average operating capital. Continental Europe saw good revenue growth driven by significant acquisition activity, which offset a 3.4 percent underlying revenue decline driven by deflation. Which is expected to be temporary. Operating margins were resilient and returns were strong, increasing to 45 percent. UK and Ireland saw underlying revenue decline driven by selling price deflation across most market sectors, which is expected to be temporary. And softer volumes, particularly in the grocery and food service sectors. The continued focus on margin management, including increased own brand penetration, greatly benefited operating margin, which increased strongly to 7.6%. resulting in very strong underlying profit growth. In the rest of the world, revenue growth was very strong, driven by acquisitions, while underlying revenue increased by 2.2%, mainly driven by volume growth in Latin America and some inflationary benefits and volume growth in Asia Pacific. Rest of the world's operating margin increased very strongly to 12.2%, reflecting the positive contributions from acquisitions and good margin management. In all business areas, our teams have managed operating cost inflation well, with wage inflation remaining manageable at close to historical levels. Property costs continue to increase significantly, particularly in North America and UK and Ireland. with this being partially offset by our programme of warehouse relocations and consolidations. Now moving on to capital allocation. As to our disciplined approach to capital allocation, our priorities remain unchanged. To invest in the business to support organic growth and operational efficiencies, to pay a progressive dividend, to self-fund value accretive acquisitions and, where appropriate, distribute excess cash to shareholders. Unsworth has performed exceptionally well over the last few years. Our cash generation and EBITDA growth have been very strong, and as a result of this success, the group has structurally deleveraged. EBITDA increased by 55% between 2019 and 2023, while net debt only increased by 2%, resulting in leverage declining from 1.9 times in 2019 to 1.2 times at the end of 2023. Over the same period, the group generated £2.9 billion of free cash flow and spent a total of £2.8 billion across value accretive acquisitions and dividend payments. We have also seen a strong increase in return on invested capital, reflecting the success of our investments and the organic improvements we have made to the business over this period. In 2024, we have seen leverage increase to 1.5 times as a result of the acquisition of NISBIS. Even having completed our largest deal to date, the strength of our balance sheet and cash flow continues to provide us with substantial opportunities to enhance the returns we provide to shareholders. Recognizing that we have structurally deleveraged and remained below our target leverage range of two to two and a half times in recent years, we are today committing to return to our target leverage range by the end of 2027 through increasing the amount of capital we allocate through our disciplined framework. We begin with a launch of a shared buyback programme today with an initial £250 million buyback to be completed no later than 3 March 2025. We then intend to commence a further buyback programme of around £200 million to be completed by the end of 2025. We will confirm the amount and our four-year results for 2024. In the three years ending 2027, we are committing to allocate around 700 million pounds annually towards acquisitions and if required, additional capital returns. If at the end of each year, the full amount has not been deployed in value accretive acquisitions, then we will top up the amount of committed spend achieved to around 700 million pounds with a capital return in the following year. By way of example, if we spend 500 million pounds in 2025 on value accretive acquisitions, then we will announce a 200 million pound buyback at the end of February 2026 with our full year 2025 results. This would be completed by December 2026. I want to be very clear that we are in this position to make such a commitment to additional capital allocation as a result of the success the group has achieved in the last few years and the associated structural deleveraging. Our clear preference remains to allocate this additional spend towards value accretive acquisitions. We operate in very large and fragmented sectors, with a substantial opportunity to consolidate our existing markets. And as we have demonstrated with our recent steps into Poland and Finland, new markets also provide additional growth opportunities. Our pipeline remains active with well over a thousand targets in our database. Now moving on to dividends. Our track record of 31 years of consecutive annual dividend increases is a testament to the resilience of the Basel business model, the strength of its cash generation and the success of its compounding growth strategy. We remain committed to continuing growth in our dividend per share. We have announced a 10.4% increase in our interim dividend as we continue to normalise dividend cover back to historical levels. leading to an expected dividend cover of 2.65 times in 2024, before a further reduction in 2025 to between 2.5 and 2.6 times. Turning to the outlook, we upgrade our profit guidance for the full year, driven by an increase in operating margin expectations. We now expect adjusted operating profit in 2024 to show a strong increase in comparison with 2023 at constant exchange rates, mainly driven by an increase in the operating margin due to positive contributions from acquisitions and good margin management, including increased own brand penetration. Group operating margin is now expected to be moderately above the level reported for 2023. We continue to expect to deliver robust revenue growth in 2024 at constant exchange rates driven by acquisitions already completed in 2024 with a small decline in underlying revenue. We are also providing the following guidance on other parts of our income statement. Please note this guidance does not account for the impact of the share buyback announced today. The group now expects tax rates of approximately 25.5% in 2024, lower than the previous guidance of around 26%. Net finance expense in 2024 is expected to be around 100 million pounds, with an increase predominantly reflecting the spend on acquisitions year to date. As previously explained, we expect dividend cover of 2.65 times in 2024. And finally, we expect the weighted average number of shares prior to the impact of the buyback to be around 335.5 million shares. I will now hand you over to Frank to take you through our business performance and strategy in more detail.

Thank you, Richard. Lanzel today is a structurally more profitable and higher margin business than it was several years ago. This is due to the success of our strategic focus on margin management, increasing own brand penetration and acquiring businesses which provide more added value. Between 2004 and 2015, when I was Bonzel's Managing Director for Continental Europe, we expanded the region's operating margin from around 6.5% to 9.3%. Since taking over as CEO in 2016, I have applied the same strategies at the group level, taking us to where the margin is today. Operating margin increased strongly from 7.4% in the first half of 2023 to 8.0% in the first half of 2024, maintaining the record operating margin reported at the year end. Of the 1.4 percentage point increase in operating margins from 2019, roughly half relates to an underlying margin increase, while the remaining half has been driven by acquisitions made since. Our underlying operating margin increase has been driven by good margin management, with a particular focus on increasing own brand penetration, which was around 27% at the end of June. Additionally, operational efficiency remains part of our DNA, with our investments in digital technology and warehouse consolidation continuing to partially offset operating cost inflation and support our underlying margin performance. Finally, a focus on value added distribution has allowed us to materially reduce the percentage of group revenue subject to cost plus arrangements. Overall, we remain focused on these drivers of margin expansion, and I'm pleased with the direction that we're moving in. Now let's turn to an example of our strategy in action, looking at how sustainability is increasingly driving organic growth opportunities. We recently won a tender with Core Highways, a leading and fast-growing provider of temporary traffic management solutions in the UK. They are focused on sustainability, so this was a key element in our overall value proposition to them, supporting this contract win. Firstly, our carbon footprint tool helps identify ways for core highways to reduce their carbon footprint. This includes working with us as their sole distributor, replacing a network of independent distributors, allowing us to consolidate and reduce the carbon emissions associated with deliveries. Our product award guide also helps Core Highways to select those products that have the best environmental credentials. Additionally, our digital procurement tools give them better visibility over the delivery and ordering process, giving them better insights to optimize their decision making. And finally, our scale and experience allows us to deliver strategic solutions tailored to their requirements, while our national footprint is able to service them across the country, supporting their growth. Overall, we are committed to working with our customers on reducing their Scope 3 emissions and achieving their sustainability targets. This contract win highlights some of the exciting opportunities for organic growth driven by our value proposition that we have in the UK and across all of our markets. Turning to acquisitions. As mentioned before, I'm immensely proud that this is already Bansal's record year in terms of committed spend, having step-changed our acquisition spend in recent years. We have completed some fantastic deals already this year, and today we are also announcing another addition to the Bonsall family, PowerVac, a distributor of cleaning equipment in Western Australia, which complements our existing businesses. Overall, we've made acquisitions in five of our market sectors and across seven different countries, including our first acquisition in Finland, highlighting the breadth of our ongoing consolidation opportunity and our pipeline remains active. Finally, as has been mentioned already, we have optimized our portfolio this year through the disposal of two small businesses. Let me now give you some further details on two of this year's acquisitions. You will all be familiar with Nisbit, which is the largest acquisition we have made to date. What I've seen since the acquisition has only reinforced my belief in the quality of its people and the landscape of opportunity for the business, particularly with its own brands. So far, Nisbit has been trading in line with our expectations. The integration is proceeding well and we expect to start seeing thin energies in 2025. I'm also very pleased that Andrew Nisbitz and his team have already identified a few bolt-on acquisition targets that were not previously on our radar, which we have now added to our pipeline. This demonstrates the scalability of our locally sourced acquisition model. It is also worth highlighting our continued expansion into specialty healthcare in Latin America. This is a very attractive end market for us with good structural growth tailwinds, and typically these businesses have higher margins as well. RCL Implants, which we announced earlier in July, is one such higher margin business, specializing in distributing surgical devices and prosthetics across Brazil, expanding our offering and product range in this market. Now moving on to talk about another healthcare business in Latin America, Medcorp, to demonstrate some of the benefits that we provide to our acquisitions. We acquired Medcorp, which is a distributor of specialist healthcare products in Brazil, at the very beginning of 2020. Since being acquired, Medcorp's management team has embraced the benefits of being part of Bonsall which has translated into them achieving impressive revenue growth of over 20% in the first half of this year. Let me tell you about some of the key changes that enabled this. Medcorp now has access to our dedicated global supply chain solutions team. They worked with this team to identify key new supply partners, allowing them to expand their product offering to existing customers and grow into adjacent markets. When we acquired the business, Medcorp was typically selling only one or two key components required in a particular treatment area. For example, catheters required for kidney dialysis, We identified an opportunity to expand wallet share with Medcorp's existing customers by selling the full range of products required for this treatment to them, including needles, filters and cartridges as well. By leveraging our supply chain solutions team, Medcorp identified new suppliers of these products at competitive prices. Having access to Bansal's knowledge and support has also helped the team to further differentiate themselves by building digital tools and customized solutions, as well as becoming a sustainability leader in their local markets. All of these investments in the business have contributed to us achieving a three times decrease in the implied EV-EBIT-R multiple we've paid for this business based on its 2023 earnings. This is just one example of many acquisition successes from across the group. Finally, before we move on to Q&A, I want to reiterate our key takeaways from today and highlight how this will build on our long-term track record of success to keep driving further quality growth for the group. Firstly, we've been immensely successful at executing our acquisition strategy over the last few years, with committed spend already reaching a record level August year-to-date, and our pipeline remains active. Secondly, the successes that the group has achieved over the last few years in particular have resulted in a structural deleveraging, enabling us to commit to increasing our capital allocation to return to our leveraged target range by 2027 with the intention of enhancing shareholder returns. And finally, our ongoing focus on the drivers of our operating margin have delivered a strong expansion in operating margin compared to the first half of 2023, leading to a full year profit upgrade for 2024. Overall, I'm very pleased with what we have achieved so far this year and excited by the opportunities we have to further extend our track record of success. Thank you for your attention. We're now very happy to take any questions.