Bunzl result beats market expectations: Chief's sweeping changes prompt upgraded estimates

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The Independent Online
ANTHONY HABGOOD yesterday celebrated his first full-year result as chief executive of Bunzl, the paper and packaging group, with a more than doubled profit for last year.

The taxable surplus soared from pounds 21m to pounds 45m - better than market expectations - despite a fall in group turnover from pounds 1.4bn to pounds 1.3bn. The total dividend has been held at 4p from earnings up from 1.5p to 6.7p.

However, the improvement reflects a sharp downward adjustment in Bunzl's previous year's result. Due to accounting changes, Bunzl was forced to write off pounds 19.3m from its 1991 figures.

Excluding the charge, trading profits last year rose by 13 per cent to pounds 56.4m thanks to a sweeping reorganisation by Mr Habgood after he replaced Jim White at the end of 1990 after the company ran into financial problems.

The results prompted City analysts to upgrade their profits estimates for this year. Tim Rothwell of Barclays de Zoete Wedd has raised his 1993 forecast by pounds 4m to pounds 53m with pounds 61m expected in the following year.

Mr Habgood said the results had benefited from the sale of poorly performing businesses, lifting profit margins from 3.6 per cent to 4.4 per cent.

Although Bunzl saw a net fourfold jump in cash inflow to almost pounds 35m, the group's net debts fell by pounds 8m to pounds 101m because of the strengthening dollar. However, the first increase in Bunzl's net assets in six years pushed its gearing from 55 per cent to 47 per cent.

Trading profits from paper and plastic disposable activities advanced from pounds 28.4m to pounds 31.6m with a strong performance by the US operations in spite of difficult market conditions and weakening prices.

Its fine paper arm experienced similar problems, leading to a pounds 1.2m decline in profits to pounds 13m. Bunzl believes that the sector is likely to deteriorate further this year.

Recession and a weak housing market were blamed for a collapse in trading profits at the group's US building supplies unit from pounds 1.8m to pounds 700,000. The business incurred restructuring costs of dollars 3.7m last year and its workforce was cut by a fifth to 850 in the last 18 months.

A new management team has been brought in to turn it around. But, despite producing the lowest returns among the group's activities, it is being retained for the time being. 'I want to see how well the new managers can run that business,' Mr Habgood said.

Growing demand for low-tar cigarettes saw trading profits at Bunzl's cigarette filter tips division race ahead by pounds 3m to pounds 10.4m. The group's plastic products side lifted its contribution from pounds 5m to pounds 6.4m.