Lockhart parent company continues positive trajectory

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Bunzl is reporting growth in the first half of 2020 despite the foodservice industry downturn.

Bunzl, the parent company of Lockhart Catering Equipment, Aggora and Continental Chef Supplies, has reported overall revenue growth for the first 6 months of 2020.

Group turnover was up by 7% from £4.5bn during the same period last year to £4.8bn in the half year to 30 June 2020.

There were also double digit increases in adjusted operating profit and adjusted earnings per share, of 13% and 16.4% respectively. The operating profit grew from £302.7m to £340.8m.

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89% of the group’s revenue is generated outside the UK. In this country there was underlying revenue growth of 2.5%, but adjusted operating profit was down significantly due to Covid-19 related shutdowns in foodservice and non-food retail.

Bunzl CEO Frank van Zanten said in his review of the business: “The recent substantial declines in profitability in the lower margin foodservice and retail sectors were more than offset by strong performances in the generally higher margin safety, cleaning and hygiene and healthcare sectors, primarily driven by significant sales volumes of Covid-19 related products including masks, sanitisers, gloves, disinfectants, coveralls, disposables wipes, face shields and eye protection.

“Our foodservice businesses in both the UK and Ireland suffered from substantial reductions in demand as a result of the lockdown while our non-food retail operations were adversely impacted by the closure of high street outlets, although this was partly offset by increased sales of online packaging as our customers moved their businesses forward digitally.

“However, our businesses serving the grocery, safety, cleaning and hygiene and healthcare sectors saw a significant increase in sales of Covid-19 related products. Despite this, operating profit fell significantly by 21.4% to £29.4m as the losses in our foodservice and speciality retail businesses, which were partly due to an increase in provisions relating to our credit exposure from customers in these sectors, outweighed the profit improvement in our other sectors. As a result, the operating margin declined to 4.7% from 6.2% in the prior year.”

He continued: “The foodservice industry has been the most impacted by the Covid-19 crisis due to the closure of restaurants, pubs and hotels during lockdown as well as significantly reduced sales to contract caterers serving offices and other workplaces. Despite this, our businesses in this sector have shown their ability to be flexible and highly responsive by supplying Covid-19 related products and services to the frontline and key worker communities.

“They were heavily involved in the Nightingale Hospital mobilisations at the height of the pandemic and, using our sourcing expertise, were able to respond quickly to meet a large one-off order for face masks from the NHS in Wales.”

van Zanten further appraised: “Looking forward, although there remains considerable uncertainty, we expect to face challenging trading conditions during the second half of the year. However the fundamental aspects of our business model remain attractive with the group’s strong cash generation allowing us to maintain Bunzl’s long track record of dividend growth and continue our compounding strategy of consolidating the Group’s fragmented markets through focused acquisitions.

“Foodservice and retail, being those sectors that have been significantly adversely impacted by Covid-19 during the second quarter, are expected to recover partially as lockdown restrictions are gradually relaxed but we expect revenue in these sectors to remain below historic levels.”

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Clare Nicholls

The author Clare Nicholls

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