Bunzl sales hit by Atkins
significant that even packaging groups such as itself have seen
their profits affected.
The company, which is a leading supplier of outsourced food packaging and cleaning and safety products for food processors, believes that its North American profits have been indirectly hit by this historic shift in consumer eating habits.
Globally, Bunzl reported a 10 per cent increase in sales in the first half of 2004, with operating profit before goodwill up 11 per cent at £103.2 million. But in the US alone, sales increased by just 3 per cent as modest year-on-year deflation lowered somewhat higher volume growth.
The company believes that sales have suffered because supermarkets, a major customer, continue to have difficulty defining their strategic response to consumer changes. Shifting in eating habits attributed to dietary considerations have caused them to focus on cost reduction and in some cases, due to rising prices, substitute lower cost products.
In the US, there are currently 30 million people following the Atkins plan or some sort of diet that restricts carbohydrate intake. This huge change in consumption has had a knock-on effect on the availability of certain foods, which in turn has had an effect on the packaging used.
Bunzl believes that profits were also flat due to competitive pressures on margins, and the company said that the weak dollar had also hit sales figures. Overall currency movements also contributed to significantly reducing reported growth of sales and operating profits in the first half.
However, Bunzl's European outsourcing business performed better, with salesand operating profits up by 21 per cent and 35 per cent respectively. Pre-tax profits for the six months to June 30 were £91.8 million against £92 million the year before.
Bunzl supplies products such as plastic bags and disposable coffee cups through its outsourcing services division, which accounts for around 75 per cent of turnover. Customers include supermarket chains Asda and Sainsbury.
"We have made good progress in the first half delivering double digit growth in sales, profits and adjusted earnings per share at constant exchange rates," said Bunzl chairman Anthony Habgood.
"The European outsourcing services business in particular demonstrated its continued evolution into a leading player of substance across Europe making it the logical partner for international customers and suppliers."
The group has also been expanding its operations in Europe during the first quarter of 2004. In May, Bunzl acquired Groupe Pierre Le Goff in France for £157 million, which increased the size of the European business by around a third.
The group said that the purchase would complement its existing operations in the UK, Benelux, Germany, Denmark and Ireland. Indeed, Bunzl expects sales growth within the European division to continue as recent acquisitions are integrated into the business. The profit growth in the first half is expected to be maintained as the cost savings and efficiency gains associated with increased scale are consolidated.
"We expect growth to occur across the geographies in which we compete especially in France where the integration of Groupe Pierre Le Goff will bring disproportionate growth in the immediate future," said the company in a statement. "As in the past, future acquisition activity will expand our geographic coverage and deepen our participation in existing markets."
Within the North American sector, Bunzl is confident that volume growth can be maintained, though the underlying slowdown in the grocery sector is likely to continue. The proportion of the division's sales to higher growth areas such as redistribution, food processors and convenience stores is likely to continue to increase.
