Q1 2025 Bunzl plc Trading Statement Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Suhasini Varanasi - Goldman Sachs - Analyst : Hey, good morning. Thank you for taking my question. Just two from me, please. Can you provide more color on what happened in North America, please? Because it feels like, on the one hand, you have the challenges linked to own brand offering, where volumes seem to be a lot softer than expected. And the second, you also seem to have a customer category loss. Is there any way you can provide more color what happened here? Was it a loss that was due to pricing, for example? And then secondly, in the own brand offering, what exactly went wrong, please?

Question: Suhasini Varanasi - Goldman Sachs - Analyst : Just a quick follow-up, please. Is it possible to mention which vertical the customer loss was in? And then secondly, on the detail on national accounts or managed centrally versus local options is very helpful. So just to be clear, the weakness that you saw in North America was on the local side within own brand?

Question: Suhasini Varanasi - Goldman Sachs - Analyst : Understand. And the vertical where the customer loss was in?

Question: Suhasini Varanasi - Goldman Sachs - Analyst : Okay thank you.

Question: Sylvia Barker - JPMorgan - Analyst : Hey, morning, everyone. Just coming back on North America. Could you talk about kind of just in terms of numbers, obviously, we don't know what you were expecting for H1 before. But could you give us some idea of the costs that are going into that business versus the shortfall in revenue do you expect just to get a better sense of that kind of profit shortfall that we're seeing in the first half? Second question on Nisbets. So it seems like most of the issues that you had last year are now behind us, and this is more of a mix impact. But can we just check where is the profit of Nisbets now relative to where you had budgeted for it when you bought it? And how quickly can we get back up to budget if we are below? And then finally, on Continental Europe, it seems like that's broadly tracking in line with expectations, but we do -- I guess your guidance assumes a relatively quick recovery in the margin and indeed, margins going up in the second half. Could you give a little bit more color around what you're budgeting for on that Continental European margin in the second half? And what are the key risks and opportunities there?

Question: Sylvia Barker - JPMorgan - Analyst : Okay. Can I just go back just on the North American kind of shortfall. I appreciate there's quite a few things in terms of the moving parts. But how do you think about kind of the revenue shortfall versus the profit shortfall. And I guess some of it will be operating leverage as well. But could you give us an idea of relative to where you expected, I guess, for the first half. How much is it down to the revenue? And how much is it down to kind of the other impact?

Question: Sylvia Barker - JPMorgan - Analyst : Thank you.

Question: Annelies Vermeulen - Morgan Stanley - Analyst : Hey, good morning, Richard, I have three questions, please. So I just wanted to delve into the volume piece specifically in North America, if you put to one side, own brands and deflation and other things that you've mentioned. I assume it's too early for that business have seen any real impact from tariffs and so on. So what is it that has driven that volume shortfall specifically? And did that get materially worse as you moved through the Q1? And what are you hearing from your customers in that regard? Secondly, just on capital allocation. Given you've paused the buyback, you want to be at the low end of your leverage range. Can we assume that you won't spend your full GBP700 million this year on deals? Or is that still on the table? And then lastly, can I just double check the customer loss in grocery? Can I assume that that's not your largest US grocery customer that you've lost?

Question: Annelies Vermeulen - Morgan Stanley - Analyst : Thank you, understood.

Question: Rory McKenzie - UBS - Analyst : -- Rory here. Two questions, please. Firstly, just on the timing of these impacts. Given we last spoke to you about six weeks ago, could we conclude that most of this volume shortfall happened through March? Or is this a trend kind of through Q1 that you've only really identified now as you look back? I guess I'm just asking whether we should think about there being a weakening volume growth exit rate. And so Q2 underlying revenue could be weaker than the Q1 number? Or do you think Q1 is the trough? And then secondly, within your guidance, it sounds like the H2 group margins could be close to flat year-over-year. But what's the range of outcomes to think about for North America? You've clearly put actions in place quite quickly, but you mentioned that they would still be going well into next year, kind of take full effect. So should we expect margins to be falling through this fiscal year and also into the start of FY26 as well?

Question: Rory McKenzie - UBS - Analyst : Thank you.

Question: Karl Green - RBC - Analyst : Good morning. A couple of questions. Just going back to North America and apologies for pressing the point here, but I'm still a little bit confused about some of the phrases that you use, Frank, in terms of things like lost commercial agility. What exactly do you mean by that? And what's your sense about what's going on competitively? I mean, clearly, this customer loss has gone to someone. What's happening in terms of competitor dynamics in your view? And then volumes, again, linked to some of the comments you made before. I know via the -- channel is sometimes difficult to see the exact underlying trends. But what's your sense as to what the underlying drivers of the volume softness are? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 23, 2025 / 6:30AM, BNZL.L - Q1 2025 Bunzl plc Trading Statement Call Is it lower footfall in restaurants? Is it changing behavior in grocery? Just a bit more color there in so far as you're getting feedback from the sales team. And then the second question, very simplistically, I know you don't want to name the grocery customer, but can we at least get an approximate annualized revenue impact of that customer loss?

Question: Karl Green - RBC - Analyst : That's helpful. So basically, that's implying that this is market share loss. I mean these downstream customers have gone elsewhere in the short term. So would you be confident that you can get that share back with these changes quite quickly? Or do you think that they've gone elsewhere that those new relationships are going to be sticky?

Question: James Rosenthal - Barclays Inc - Analyst : I've just got one left. It's more just to confirm that the lower volumes you've experienced, it seems like you're saying it's entirely down to you, it's your own operational challenges and structure, which has caused that. I'm not trying to flag any specific end market trend or change in customer behavior or impact from tariffs or customers trying to move away from imported own brands or any of the above to explain it. It's a sort of operational problem of yourself. Is that fair?

Question: Thomas Burlton - BNP Paribas - Analyst : Thanks, Frank, thanks, Richard. One question regarding tariffs. I understand you're excluding that from the guidance today, which seems very prudent. But I wondered if you could just give us a kind of framework for how you're thinking about some of the sensitivities. And maybe a reminder of some of your sourcing from kind of tariff-affected countries, remind us kind of how much of the North American business is sort of sourced locally or domestically and how we should think about a framework for kind of your ability to pass through some of the tariffs that we've got in place today. I know this is the kind of moving piece and policy is changing, but some sort of framework for how we should think about maybe some of the sensitivities or your exposure to kind of policies as it stands today would be helpful, please.

Question: Suhasini Varanasi - Goldman Sachs - Analyst : Hey, I just have a couple of follow-ups, please. The customer loss in the US, sorry to come back to that. The reason for the loss was down to price. And if it's down to price, are customers basically shopping around a bit more given the macro uncertainty? Do you have more contracts that are coming up for renewal this year? And the second one is on margins. When you say margins are going to be moderately below 8%. Can you help us quantify how much below? Is it 20 bps, 30 bps, 40 bps?

Question: Suhasini Varanasi - Goldman Sachs - Analyst : Thank you.

Question: Sylvia Barker - JPMorgan - Analyst : Hey, I'm sory, very quick question. Just a very quick follow-up. Just in terms of inventory levels. So for the 10% of products that source from China, did you -- you said you saw a little bit of pull forward in Q4 from clients within safety. Did you actually kind of stock up on cheaper products ahead of tariffs yourselves? Or what are the inventory levels, I guess, within those businesses in the US today? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 23, 2025 / 6:30AM, BNZL.L - Q1 2025 Bunzl plc Trading Statement Call

Question: Sylvia Barker - JPMorgan - Analyst : Thank you.