Bunzl plc

Good morning and thank you for joining Bonsall's 2025 half-year results presentation. After a short introduction, I will focus on updating you on our North America and continental European businesses. After this, Richard House, our CFO, will walk through our financial performance, leverage and outlook. We will then move to Q&A. But first, I want to thank all of my Bonsall colleagues for their hard work and dedication in what has been a challenging operating environment for many. I know many of you are working tirelessly to support customers and to deliver an improved performance in the second half of the year. I will start by summarizing performance over the first half. Bonsall delivered revenue growth of 4.2% at constant exchange rates. Growth was driven by acquisitions with underlying revenue broadly stable. However, group-adjusted operating profit declined by 7.6% at constant exchange rates, with our operating margin reducing by around 100 basis points to 7%. This has been driven by certain larger businesses within North America and continental Europe, with both business areas seeing a similar level of margin decline as the group overall. I will spend much more time discussing these shortly. Our cash conversion was better than we expected at 97%, although free cash flow declined by 22% due to our operating profit decline. We ended the period with an adjusted net debt to EBITDA of 1.9 times slightly better than guidance, driven by good cash conversion. Richard will discuss leverage in more detail later, but we are now broadly in line with our target leverage range. Our capital allocation priorities remain unchanged, and within this we remain committed to sustainable annual dividend growth. We are therefore announcing a 0.5% increase in the interim dividend today. August year to date, we have announced five acquisitions with a committed spend of approximately £120 million. As is typically the case when there is macro uncertainty, the number of signed deals has been lower than usual, but our pipeline remains active. In the first few months of the year, we also executed £114 million of an announced £200 million share buyback. We had paused further purchasing at the time of our Q1 announcement, aligned to capital allocation priorities and our short-term leverage target. Today, given our current expectations for committed acquisition spend, we are resuming this buyback. £86 million remains and will be fully completed by the end of the year. Before I go into the detail of performance, I want to highlight the main points I would like to take away today. Firstly, fixing the issues we see is our priority, and I am confident in the actions we are taking. While it is still early days, these actions are performing in line with our expectations. In particular, and importantly, our North America distribution business is re-energized. I remain confident in our outlook and our expectations for an improved second half performance, with a moderation of operating margin decline year on year compared to the decline in the first half. While it's only the first month, and with the external operating environment remaining challenging, operating in July is demonstrating the anticipated improvement we are looking for in the second half. Secondly, I want to emphasize that we are committed to building further on Bonzo's historic success. Our performance in historic periods means that despite our earnings weakness in 2025, we have still delivered 6% compound annual profit growth since 2019. The Bonzo business model is fundamentally strong and we continue to have an attractive long-term compounding growth opportunity. I am confident in Bansal's underlying resilience and consistency, and after fixing the issues, I intend for Bansal to be associated once again with these key characteristics. So let me go straight to discussing the actions we are taking. Starting with the North America business. I will dive into the specifics of recent performance shortly. but I would first like to spend a few moments giving some additional context to help you understand the evolution of this business. Our North America business area comprises around 35 operating companies, of which our distribution business is the largest. It generates around half of North America's revenue and around 30% of group revenue. It largely services grocery and customers and food service redistributors and is a leading national distributor in both these markets. Whilst we have experienced challenges in this business recently, it is important to remember that given its size, it has historically been an important contributor to the strong characteristics you typically associate with the group. Its resilience, for example, is supported by its exposure to both food service and grocery, which have complementary end-market drivers. Furthermore, it has generated an attractive return on average operating capital, driven by strong S&T in line with the business area overall. Distribution's strong customer proposition is supported by its scale and category expertise. We take these core strengths and apply them to our two main customer segments slightly differently. In grocery, given historical consolidation in this sector, our revenue is mostly attributable to national and larger regional customers. Grocery customers are using our products directly in their businesses to operate their stores and merchandise their products, and they prefer to allocate their own working capital and network capacity to goods they can sell on. They typically buy consumables from us over a contracted period, and we are often their sole distributor for all goods not for resale. Whilst all our customers care about price and product quality, this customer set really values reliability and consistency of service. It is slightly different for food service redistributors, because the product we sell to them are items they will sell on to their customers. They are typically focused around 90% on food and 10% on non-food items, and so they leverage the scale and depth of ranges that distributors and importers such as Bonzel provide on that non-food side. These customers will often utilize more than one distributor in order to find the best availability and price. Speed of service is essential. Revenue in this part of the distribution business is more of a mix between local and larger customers. Overall distribution generates around one-third of its revenue to local customers, with revenue weighted towards food servers. The other two-thirds is generated via larger customers, with revenue weighted to grocery. Whilst distribution has continued to hold a strong market position for many years, As with any business, we need to keep evolving. So let me now take you to the strategic and structural changes we have been implementing in this business over the last five years. In 2019, we were operating a branch-based model, which meant that 40 general managers across the business were each managing the entirety of their own operations locally, from sales right to all of the supporting processes. National account managers coordinated our service delivery to national customers via these general managers. We delivered a very strong proposition to customers, but customer needs were changing. Our grocery customers in particular have become larger. Servicing them from our highly decentralized footprint impacted consistency and local management inward focus on operations. rather than being able to dedicate their attention outwards on sales and business development, also impacted our ability to drive new business. Over the years leading to 2019, we're seeing revenue momentum slow. There were some other factors at play. For example, the low level of coordination of our overall product range had resulted in minimal development of own brands. In 2019, we generated only 5% of revenue through our own brands. We were also being impacted by our exposure to cost plus percentage contracts, with operating cost inflation and product deflation having reduced distribution's operating margin. So strategic actions were sketched out for the business. Even though the DNA of Banzel is to decentralize and empower local teams, we recognize we would need to flex our approach if we wanted to strengthen our leadership position and enhance our service and offering to customers. This would require us to move to a sales and operations model, which would separate operational activities, such as ordering from suppliers, managing the warehouse infrastructure and logistics, from sales processes, allowing local teams to focus their efforts on business development. Given the different nature of our core customers, the new organization will need to strike the optimal balance between centralization and local agility. Furthermore, we saw a strong opportunity to increase own brand penetration to complement our branded product range. We have long established relationship with branded domestic suppliers and the right balance can be achieved with the correct development plan. We also needed to transition large customers from cost plus percentage margin contracts to index fee per unit contracts. This would reduce the downside risk to our margins in case of product deflation. New leadership was appointed to drive the operating model chains and own brand development in particular. This strategy was and continues to be the right one for the business to deliver a stronger platform for growth and improve margins. However, the challenges have been in the execution, as we will talk about shortly. Initially, we were seeing some positive progress. By the end of 2024, a lot of these actions were underway and working successfully. We have increased our own brand penetration to 14%, with good demand supported by the product's price point and quality. We have successfully reduced our exposure to cost plus margin contracts, with the revenue exposure across the Bonzo Group being around mid-single digit percentage today. Furthermore, whilst we have seen some gains and losses, we are starting to see good momentum with grocery wins. Over the period 2020 to 2024, we delivered strong compound annual growth in profit. This was supported by our management of high levels of product cost inflation, as well as our strong capabilities managing significant supply chain disruptions, as well as the growth in our own brand portfolio. However, whilst we had moved to 14 regional hubs and implemented the sales and operations model in 2023, our execution of the strategy fell short in some key areas. Centralizing decision making and processes had improved consistency for large accounts, but had reduced agility for some smaller local customers. We had gone too far with centralization for our local business. Our local teams had less autonomy and became slower to respond to business inquiries in this more dynamic part of the market. This particularly impacted our local food service customers, who rely on speed of service and we saw a loss of wallet share. Furthermore, own brand growth had been delivered alongside reduced engagement with branded suppliers. Some of these issues were starting to become clear early in 2024, and leadership were tasked with taking corrective action. However, the impact on the business was obscured by offsetting benefits, in particular the transition to own brand and a strong holiday season at the end of 2024. The business ended 2024 with a view that performance was picking up, having seen volume growth with redistribution customers in the second half. In the first half of 2025, our North American distribution business went through a very challenging inflection point, which became fully evident in April. The backdrop had become more challenging with continued pricing deflation and a difficult food service end market. Furthermore, leadership had not been fast enough to implement corrective actions and team morale had fallen. Volume growth with branded suppliers and own brand conversions fell well below our expectations. We had expected to win business on the back of the organizational changes, but this did not happen over this period. This was compounded by the loss of a higher margin category of business with a major ongoing customer. This category had supported a program which is no longer available in its stores. We did not win any large business over this period to offset this specific loss. Many of the offsetting benefits we had seen in 2024 fell away. You've seen higher operational costs with the business fixed cost base having increased with significant investments in people toward the end of 2024, higher inventory related costs, as well as operating cost inflation. All these elements combined resulted in a significant drop in distribution's profit versus the prior year. As a result, we took decisive action to improve performance during the half. Firstly, we changed the leadership of the business. Jim McCool, the head of North America, who has extensive experience within this operating company, took on direct leadership. He immediately sought to address team morale and remove the barriers to our local sales teams. I am spending a lot of time in this business and we have been working closely with Jim in overseeing the change processes. Both Jim and I are committed to and aligned on how to fix these issues. We are also very confident that the issues are fixable. Importantly, we have the right strategy and organizational model, and as we see the results of actions taken, we are going to have a much stronger business at the other end. One of the most impactful steps taken so far has been to push more decision-making and authority back to the local level, where appropriate. Instead of certain tasks being centralized, our 14 local market teams have regained control over pricing and margin for local customers as well as product availability. This has restored the agility and customer responsiveness that had eroded. We also took some costs out. At the same time, we focused on tackling the inventory position that had built up. We are refocusing our efforts on branded domestic suppliers who are core to our supply chain and making sure that we have a good balance of growth between their ranges and our own brand ranges, as we continue to launch further products in complementary non-branded categories. These swift measures are starting to pay off. The distribution team is re-energized and focused on turning the business around. Our service levels are now normalizing toward the usual high Bonsall standard, even as we navigate some ongoing tariff-related supply chain complications. Inventory levels are normalizing, which eases the pressure on operational costs and improves productivity of our warehouses. We saw our own brand strategy continuing to deliver, with successful launches in Q2 and further launches planned toward the end of the year. While we saw fewer than expected business wins in the first half, the pipeline of wins is looking positive for the second half. And I am pleased to say that profitability momentum through the first half was in line with our expectations, despite the challenging market. Importantly, these early indicators are positive and tracking in line with our plan. In the second half we expect a moderated operating margin decline compared to the significant decline experienced in the first half. Although the benefits of some actions are not expected until well into 2026, I am confident in the progress we are making. This is the right strategy and when executed we expect to show continued market leadership. a well-functioning operating model which allows us to enhance our focus on sales and deliver an optimal service for both larger and local customers, continued complementary own-brand growth alongside preferred branded supplier programs, the business operating once again with high product availability and strong service levels, and importantly, a highly motivated team. Given the importance of this business to the future success of the group, and my strong confidence in these actions, the team is taken, we will become an even better Bansal. Turning to continental Europe, where the operating environment also remains challenging. We saw continental Europe's operating margin decline by around 100 basis points over the first half, as had been expected. This follows trends already seen in the second half of last year. The decline was driven by France and certain online businesses. In France, we have seen the continued impact of deflation, with prices normalizing in the cleaning and hygiene sector from the higher levels seen during the pandemic. This has been compounded by a weak economy. With revenue pressure, the impact has been amplified by a relatively high fixed cost base as well as continued operating cost inflation. Profitability of certain online businesses was also impacted by revenue softness with lower traffic and conversion of online marketing activities. Despite muted economic growth across Europe, there were brighter areas of performance. In particular, our Benelux business returned to growth following a challenging second half of 2024 and Spain has been resilient against a good performance last year. Improvement actions are well underway in Europe, having been initiated in the second half of last year. We expect the net benefits from cost actions to start to accrue and expect our heightened focus on pipeline management to support net business wins in the second half. The region is also pursuing procurement opportunities, such as consolidated own-brand supply in certain regions. Furthermore, we face easier comparatives in the second half. Together with our actions, this supports our guidance for reduced operating margin decline in the second half. Whilst we are very focused on improving performance in the second half, I wanted to reiterate that our long-term compounding growth strategy remains unchanged. Many parts of our business are unaffected by our current challenges and are continuing to focus on delivery against this broad strategy. In the medium term, you can expect Bonsall to continue delivering growth organically and through value-accretive acquisitions. So far in 2025, Bonsall has completed five acquisitions with a committed spend of around £120 million. These acquisitions include our expansion into the attractive Chilean healthcare market, as well as our first acquisition in Mexico since 2013. The breadth of these acquisitions continue to demonstrate the large number of lakes we continue to fish in. Despite a slower pace of deals this year due to macroeconomic uncertainty, the acquisition pipeline remains active and historically Bonsall's M&A activity picks up quickly when conditions improve. We continue to have over 1300 targets in our database. Andrew Mooney, our Corporate Development Director, looks forward to discussing our acquisition strategy and opportunity in more detail on the 8th of October at our next investor seminar. Let me now pass you to Richard.

Thank you, Frank, and good morning, everyone. with around 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. Starting with revenue, group revenue grew by 4.2% at constant exchange rates to £5.8 billion, driven by net acquisitions, which delivered 4.9% to revenues. Underlying revenue declined 0.2%, and there was a 0.5% impact from an extra trading day in the prior year, nets of a small benefit from excess growth in hyperinflation economies. Underlying revenue grew by 0.6% in the second quarter, demonstrating an improvement on the challenging first quarter, where we saw a decline of 0.9%. Within underlying revenue, both price and volume were broadly stable for the half. Now turning to the income statement. Adjusted operating profit declined by 7.6% at constant exchange rates to £404.5 million. Operating margin reduced to 7% from 8% in the period last year at actual exchange rates. As Frank has mentioned, this margin decline was driven by the distribution business in North America and certain large businesses in continental Europe. Adjusted net finance expense increased by £12.1 million to £58.9 million due to higher average net debt during the period. We continue to expect adjusted net finance expense of around £120 million for the full year. The effective tax rate was 26.4% compared to 25.5% last year, reflecting the absence of one-off benefits from UK group relief and tax provision changes included in 2024. We continue to expect around 26% to be the effective tax rate for the full year. Adjusted earnings per share fell by 10.6% of constant rates to 77.8 pence. The higher tax rate and increased interest charge more than offset the benefit of a reduced average share count, reflective of the buybacks executed between the two periods. We have increased the interim dividend by 0.5% to 20.2 pence per share. Now turning to the business area performance. As you know, our performance in North America has been driven by our distribution business. While adjusted operating profit for the business area as a whole declined by 14.7% at constant exchange rates, excluding the distribution business, North America's adjusted operating profit was more stable, albeit still impacted by the uncertain environment. We have seen some tariff-related price increases during the second quarter. and expect to see further increases later this year. Performance to date suggests tariff-related price increases will provide some benefit in the second half, albeit impacted by the uncertainty we have seen and continue to see in tariff levels across Asia. Frank has covered the drivers of Continental Europe's 9.9% declining adjusted operating profit, at constant exchange rates, so let me turn to the other regions. Growth in the UK and Ireland has been driven by our acquisition of Nisbets, which was acquired in May last year. Over the first half, Nisbets has seen good sales momentum, despite a more challenging trading environment. However, profitability was impacted by product mix, with an increased weighting to heavy catering equipment such as fridges and freezers, and slower-than-anticipated progress on maximising the benefits of warehouse automation that the business invested in prior to acquisition. Elsewhere, our existing food service businesses performed well over the period, helped by customer contract renewals. The declining operating margin in the UK and Ireland has been driven by the diluted impact of consolidating nisbets, which tends to have a seasonally lower margin in the first half of the year compared to the second half, as well as its profit performance over the half. We have also seen some margin impact in our clean and hygiene business from selling price deflation. We are, however, making very good progress on synergy projects in Nisbet and expect these to largely benefit the second half. Our performance in the rest of the world has remained strong, with underlying revenue growth driven by strong inflation in Latin America and moderate volume growth in Asia Pacific. In Asia Pacific, we saw good performance in healthcare, the biggest sector in the region, and overall, operating margins in the rest of the world continue to be strong. However, trading has become more challenging in the second quarter in Brazil. Although businesses have had success in passing through some currency-driven product cost increases to customers, they have not been able to do so fully in a weakening market. This has impacted Latin America's operating margin. Moving to cash flow. Cash conversion over the period was 97%, which is better than expected, supported by improved inventory levels through the second quarter. We generated £243 million of free cash flow, a 22% decline year-on-year, reflective of the decline in our adjusted operating profit, with the change in net interest and income tax payments broadly offsetting each other. During the period, we paid out £67 million in dividends and made a net payment of £42 million to buy shares for our employee benefit trusts, leaving total cash generation price for acquisitions, disposals and share buybacks of £134 million. Net of a £17 million inflow from the disposal of R3 Safety in the US, cash outflow related to acquisitions was £31 million. All but one of the additional acquisitions announced year to date completed after the 30th of June. Turning to the balance sheet with comparisons made to the position at the end of 2024. Working capital increased by £25 million as lower inventory and the benefit from currency translation were more than offset by an increase in receivables and reduction in payables including the payment of share buyback commitments. Deferred consideration relating to acquisitions decreased by 15 million pounds to 243 million pounds. Inclusive of the off balance sheet components, deferred and contingent consideration was 336 million pounds compared to 375 million pounds at the end of 2024. This reduction is largely driven by payments in a period. Adjusted net debt, including deferred and contingent consideration to be paid on acquisitions, was £1.9 billion, down £52 million versus the end of 2024, but up £208 million compared to the end of June 2024. Our adjusted net debt to EBITDA was 1.9 times compared to 1.8 times at the end of 2024. This headline ratio continues to exclude the impact of leases, and the increase reflects our reduction in EBITDA in the first half of 2025, whilst being supported by a good second half of 2024. Returns have been impacted by our performance over the period. with a return on invested capital of 13.5% and a return on average operating capital of 38.8%. Despite the decline, our return on invested capital remains strong and broadly in line with the level achieved in 2019. Turning to capital allocation. The strength of funds' performance and high cash generation in recent years and resulted in low leverage. In the first half of 2023, our leverage was 1.3 times compared to 2.1 times in the first half of 2019 and compared to our target of 2 to 2.5 times. This was despite an increase in average annual acquisition spend over the recent years. As a result, last year we committed to returning to a more appropriate leverage. At an adjusted net debt to EBITDA of 1.9 times today, we have relevered. This has been delivered through both an acceleration of capital allocation, including share buybacks over the last 12 months, but also the weaker earnings we have delivered. Given macro uncertainty, we continue to believe leverage around two times is appropriate. However, our capital allocation priorities remain unchanged. Given our anticipated level of acquisition spend this year, we are resuming our previously announced £200 billion share buyback. We had paused the buyback alongside our first quarter trading update to provide sufficient headroom for acquisition spend in the year in line with our capital allocation priorities. Given the lower level of spend year-to-date, as well as our expectations for additional spend over the remainder of the year, we will complete the remaining 86 million pounds of share buyback by the end of the year. With this buyback and the anticipated additional acquisition spend, we expect leverage to be towards two times by the end of the year. Should we generate an annual free cash flow of 500 to 600 million pounds, this would leave 200 to 300 million pounds of excess cash after dividends and employee trust share purchases. With acquisitions supporting earnings growth, this allows us to continue to fund future acquisitions whilst maintaining our leverage. As part of our capital allocation framework, we are committed to a progressive dividend policy. further building on our 32 years of consecutive annual increases. We have announced a 0.5% increase in our interim dividend today, with continual annual growth supported by our conservative dividend cover. We expect our dividend cover to be around 2.4 times in 2025. Turning to the outlook, we have shared with you today the positive indicators that we are starting to see These are in line with what we had expected, and as such we reiterate the outlook we published in April and at the pre-close in June. We continue to expect moderate revenue growth in 2025 at constant exchange rates, driven by announced acquisitions and broadly flat underlying revenue. We expect group operating margin for the year to be moderately below 8%, compared to 8.3% in 2024. This guidance factors in a moderation of year-on-year operating margin decline in the second half, compared to the approximately 100 basis points decline seen in the first half. This confidence is driven by the expected benefit of actions taken in North America and continental Europe, the easier comparatives we see in continental Europe, and the benefit of NISVIP synergies. We also note that the group's second half operating margin is seasonally higher. And as Frank has already mentioned, trading in July is consistent with our expectations for the second half. I'll hand you back to Frank for some final comments before we move to Q&A.

Thank you, Richard. I would like to conclude the formal part of this presentation by reiterating my two earlier points. Firstly, our priority is fixing the issues that have impacted the group. I am confident in the actions we are taking, and while it's early days, these actions are delivering as expected. Secondly, we are committed to building further on Bansal's historic success and returning to the more consistent performance that you are used to. Thank you for your attention. We are now very happy to take any questions.