When a global business finds itself threatened by a global crisis- communication is vital. In the case of Bunzl, the early warnings that coronavirus would become a major threat to the distribution and outsourcing giant they were not just heeded- they were quickly passed on to the leaders of its businesses in 30-plus countries.
Richard Howes, who had joined the FTSE-100 constituent as CFO a few months earlier, says “we had the head of our Italian business telling the rest of the team what to expect, how to protect our people and the practical elements of supply and keeping customer service going,” he says.
The guidance, coming from the country worst hit by coronavirus by March, proved vital in ensuring Bunzl’s broad set of businesses were able to withstand the worst of the pandemic. “It was hugely beneficial because it allowed everybody else to get ready and prepare, at the time the threat was
still quite conceptual for many. In the US and South America it seemed quite a long way away, but very early on we were able to bring to life what was happening and how we should respond,” says Howes.
The move reveals the importance of sharing information, which had already started once the virus was being felt in Bunzl’s sourcing operation in China in February. It was also a time when Howes was still getting to grips with being CFO at one of the UK’s 50 biggest companies with a market cap of
over £8bn by the middle of November, having joined the previous August.
Howes says the response came after initial surprise caused by the speed and scale of coronavirus. “I doubt if anybody’s scenario plan has preparations for this level of pandemic,” he says.
But what Howes was able to bring to the table was his experience of the global financial crisis (GFC) when he was CFO of food manufacturer Bakkavor, and where he says “he learned how to lead a big business through a time of very significant uncertainty,” he says.
“It was a different kind of crisis to what we’re seeing today, but I think that the themes are the same. You have to simplify, focus, and then communicate, and that’s something that has been highly relevant to this period. We’ve done effectively the same thing in the last few months,” he says.
The response plan focused on three areas- protecting Bunzl’s employees, maintaining customer service, and protecting cash. “We held ourselves to account to say if we’re not doing these three things we need to think again,” says Howes.
On the cash management side, Howes exercised rigour by putting in place daily cash reporting, “to see daily cash movements across the group,” and managing the business on a “receipts and payments basis to see how much we could afford to pay our suppliers,” he adds.
As well as the practical benefits of a rigorous control structure, Howes says even greater value came from the message he says it sent out to the group about the importance of cash management. “In a global business like this you have to set the tone and direction and make sure everybody aligns to
it,” he says.
One of the benefits of a model built through acquiring firms is that many of the businesses are still run by former owners who he says have an instinct for preserving cash. “In the DNA of Bunzl are many ex-owners who have never lost the ability to manage cash,” he says.
The model has prospered in the current climate- as Bunzl has been responsible for distributing amongst its product range hygiene and healthcare products that have been invaluable during the pandemic.
It’s a long way from Bunzl’s beginnings in Hungary in 1854 when the Bunzl family launched a haberdashery store before a company manufacturing paper and fabrics was moved from Vienna to London in 1940. It became a distributor through a divestment process which began in the early
1990s and ended with the sale of cigarette filter maker Filtrona (now Essentra) in 2005.
Howes came to Bunzl via a series of increasingly high-profile CFO roles after a geography degree at Loughborough University and training at Ernst & Young’s Leicester office where Britvic, Next and Thomas Cook featured amongst his clients.
As a banker at Dresdner Kleinwort Benson he built up skills in M&A and corporate strategy that would be hugely beneficial as finance director of FTSE 250 food maker Geest, that was swallowed up by Bakkavor. At Geest he did his CFO apprenticeship undertaking “every finance role there is to do,
putting tools in my toolkit”.
But it was at Bakkavor that he was to endure the baptism of the GFC, that he describes as a “very formative experience in which you definitely grow,” he says. By way of the top finance role at oilfield services group Topaz Energy and Marine, Howes became CFO of two FTSE 250 London-listed global firms- industrial thread manufacturer Coats and then automotive distribution and retail group Inchcape.
Given the challenge of working across time zones, Howes says the objective was to “find a way to be visible, a way to communicate with teams. In my experience, there’s no substitute to doing that face to face,” he says.
On arrival at Bunzl, Howes looked to build on the strong controls and develop solid relationships in order to gain trust, but the impact of coronavirus has meant doing things differently, “so you have to be quite innovative in the way you make yourself visible,” says Howes.
He was also keen to build on the strong finance function he had inherited by looking into technologies such as RPA and machine learning. But the total focus on addressing coronavirus has curbed those plans at present.
A key aspect of Howes’ role has been shoring up Bunzl’s balance sheet to ensure the group would be able to continue performing effectively through the coronavirus period. Although the group had been run conservatively with modest levels of leverage (x1.9 in December) a decision was taken to
pause the M&A programme and defer the dividend which was “a huge decision to make, because we’re proud of 27 years of unbroken dividend growth,” he says.
But by August, Bunzl had announced a double dividend and restarted M&A including a significant US acquisition and revealed it had raised £400m in the public bond market by the end of October with a view to delivering more bolt-ons. The group also revealed in August half year adjusted operating profit up 12.6 percent to £340.8m from the previous year on revenue that increased 7 percent to £4.85bn over the same period.
Bunzl will use its traditionally strong cash generation position to acquire more companies, whilst staying within a limit of up to 2.5x leverage, reflecting a cautious approach. “There’s going to be more opportunities for us to consolidate fragmented markets in the next few years,” says Howes.
At the same time, Howes is maintaining a vigilant approach when it comes to looking ahead, continuing Bunzl’s approach of monthly forecasting “which gives us a good view of what the businesses are feeling on a monthly basis as well as a weekly sales picture,” he adds.
“Visibility is still incredibly low so it is very difficult to forecast, but I think the market understands that,” warns Howes. “Our approach has been to be open and honest and tell it as we see it,” he says.
One aspect of the group Howes has been keen to explain to external parties is the strength of its decentralised model focused on collaboration between businesses. “The ownership remains very much local, the delivery is very much local, but we give them the benefit of scale and the benefits of
seeing what other people are seeing so collaboration has been a key theme, through this, making sure people are aware of what’s happening,” says Howes.
“Because we’re a very diversified business, we have products in our range which have responded well to the pandemic such as masks, gloves and high protection coveralls. We’ve been able to supply those at a time of extreme demand and often supply shortage,” he says.
Critically, Bunzl has been able to sell these items directly to many different customers who would not normally buy them, balancing out falls in revenues from the food service and retail businesses that resulted in a drop in the share price in April and May. “We knew that parts of our business, were going to be badly affected because we knew that certain customers were going to be completely shut for a period of time. But we also knew the fact that we supply essential items meant we should be less affected than most.
“It talks to the resilience of the business, that although some parts of our business found it very difficult, the rest of the group has been able to over deliver,” says Howes.
He describes the experience of providing such vital products during this time, in which the group has been defined as an essential supplier and given key worker status, as “hugely humbling.”
Howes says: “Our teams have been operating throughout the whole crisis. You have to constantly admire what they are going through and what they’re doing, day in, day out,” he adds.
“Ultimately it was about finding a way to as openly as we could communicate that this is a very resilient business, that, in 2020, we have seen positives more than offsetting negatives,” says Howes.