Packaging groups warns of 'very difficult' trading

Packaging and outsourcing group Bunzl today warned that a "very difficult" economic climate would limit growth prospects in the UK and Ireland this year.

Packaging and outsourcing group Bunzl today warned that a "very difficult" economic climate would limit growth prospects in the UK and Ireland this year.

The group, which supplies "not for resale" items for sectors such as retail and catering, saw operating profits in the UK and Ireland slip below the previous year in the second half of 2008, despite rising 4% to £78m (€88.2m) over the year as a whole.

Demand for its catering equipment weakened while corporate cutbacks also hit its vending business, Bunzl said.

"In spite of new client wins in UK & Ireland, the very difficult economic situation is likely to continue to put pressure on sales thereby limiting the potential for growth in 2009," the company said.

The UK caution came despite an 8% rise in pre-tax profits to £206.9m (€233m) for 2008 overall.

The firm, which employs 13,000 people and operates in 23 countries, gained from the weakness of the pound against the dollar and the euro as well as new acquisitions.

Bunzl thrust into faster-growing markets such as Brazil last year and said it was confident of further progress due to its market-leading position in "relatively resilient" sectors.

In the UK, Bunzl saw lower plastic bag volumes as many environmentally-conscious retailers sought to cut down on customer usage.

Revenues and margins elsewhere in its retail supplies business also came under pressure amid lower volumes of Asia-sourced paper bags and luxury packaging goods, which were also dearer due to the stronger dollar.

While the weakness of sterling is expected to give a further boost to Bunzl's profits this year, it also exaggerated the group's borrowings in foreign currency to fund acquisitions.

The firm's net debt jumped by £203.1m (€229.7m) to £870.7m (€985m).

Panmure Gordon analyst James Cooke said: "While the higher levels of debt has become more of a concern on the back of these results, we do think Bunzl will continue to perform better than most in times of economic contraction."

The group, headquartered in London, has around 240 distribution centres.

It was incorporated in 1940 and listed on the London Stock Exchange in 1957, but traces its origins back to 1854 when Moritz Bunzl opened a small haberdashery business in Bratislava, now the capital of Slovakia.

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