UPDATE 2-UK's Bunzl sees underlying sales growing more than host economies

Tue Aug 26, 2014 5:38am EDT

Related Topics

* CEO says should beat GDP growth of countries it operates in

* Strong pound drives 1 percent fall in first half sales

* Business supplies distributor's sales at constant FX up 7 pct (Recasts with CEO comments, analyst notes)

By Li-mei Hoang

LONDON, Aug 26 (Reuters) - British business supplies distributor Bunzl expects underlying sales growth for the rest of its financial year to beat broader economic growth, after a strong pound dented first half revenue by 8 percent.

Referring to like-for-like growth at constant exchange rates, Chief Executive Michael Roney said this should be ahead of the GDP forecasts in the countries in which it operates, and that acquisitions would help boost revenues further.

"We expect our underlying growth to be ahead of GDP -- for example, if (GDP growth) is 2 percent, we would expect to be somewhere around 2.5-3.5 percent in that area," he told Reuters in a phone interview.

The company, which supplies supermarkets, hospitals and hotels with products ranging from carrier bags to toilet rolls and generates 83 percent of revenues abroad, said on Tuesday it had posted strong sales growth in North America, Britain and Latin America.

But Australia and some parts of Continental Europe remained sluggish.

Helped by the impact of recent acquisitions in Brazil, Germany and the Netherlands, the company posted a 7 percent rise in first-half revenue at constant exchange rates - just ahead of a forecast of 6 percent it gave in June.

But adjusted for currency fluctuations, sales fell 1 percent.

Pretax profits rose 5 percent to 176.6 million pounds ($292.9 million).

Shares in Bunzl, which have risen 13 percent since the start of the year, were up 0.6 percent at 1,640 pence by 0914 GMT, shedding some of their early gains.

ASIA ON ACQUISITION AGENDA

The company has been on a steady acquisition drive, spending 1.7 billion pounds on 80 deals over the past ten years.

Roney said it would continue to look for new businesses in the second half of the year and that it was making progress in seeking out an anchor acquisition in Asia.

"The key point is that we have a individual on the ground now, based in Shanghai. That individual is making contact with individuals in China and further afield in Asia," he said.

"I wouldn't be expecting things very quickly in China, you have get out there, get to know the people, get to know the opportunities and hopefully something will happen."

Analysts have estimated that Bunzl could afford to spend about 300 million pounds a year on acquisitions in the next four years.

"We continue to view Bunzl as a business services core holding with resilient growth, impressive cash conversion and excellent opportunities to consolidate its markets," said Citi analysts, who have a "buy" rating on the stock.

"Given the likelihood of a prolonged low interest rate environment, we feel Bunzl should continue to outperform."

Bunzl said it had acquired four new businesses in the past two months, with annualised revenue of 34.8 million pounds, bringing its total acquisition spending this year to 119 million for 12 business.

Last year, Bunzl spent 295 million pounds on 11 acquisitions, the highest amount in a single year since 2004, in countries including Brazil, Australia and Canada.

($1 = 0.6028 British Pounds) (Editing by Mark Potter and editing by John Stonestreet)

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