stock-ing filler


For Buhrmann, Christmas has come early this year – in the guise of its Q3 results. But can CEO Frans Koffrie carry the momentum into 2005?

It’s not that there is anything particularly stunning about Buhrmann’s latest set of results. Yes, net profit stood at 129.4 million ($38 million) in Q3, up from 16.2 million in the same quarter a year ago and up from 126.7 million in Q2.

And although sales fell in line with expectations to 111.35 billion from 112.05 billion a year ago – with the drop largely due to last year’s sale of Buhrmann’s paper merchanting division – at constant exchange rates, global organic OP sales actually increased 2 per cent, reflecting improving sales in North America, but also the continuing weak market conditions in several European countries.

Perhaps it was fortunate that the release of Buhrmann’s Q3 figures coincided with the publication of a US government report which showed that the economy added twice as many jobs as expected in October. The latter was seen by investors not only as a positive sign of economic growth, but also as a promise of stronger sales of office products, much needed after the weak demand over the past year as a result of customers slashing jobs in order to cope with the economic downturn.

Deutsche Bank analyst Robert Stassen plays down the importance of the payroll figures, however, as well as its positive effect on the firm’s share price. He says: "The whole issue has been a little overdone. Of course, it’s important as it’s fundamentally the driver of the market, but there are other factors to consider as well, such as prices and market share."

The reason that Buhrmann has every reason to be cheerful, Stassen says, is because it has finally got all the fundamentals right. "You have to look at the company itself, rather than its share price. Buhrmann said in the past that it didn’t want to be solely dependent on market recovery but instead create its own top line. Since Q4 of last year, it has set everything in place to grow and very gradually, this has been happening."

And it’s done it through a number of strategic initiatives which include the introduction of private label products – thereby increasing growth margin – and the expansion of its product portfolio into categories such as jan/san.

Buhrmann also started to reduce its supplier base in an effort to increase purchasing power, and it has tried to target a broader customer base that includes the US mid-market.

The first three goals it has achieved with some success. Buhrmann introduced 1,600 private brand products over the past 12 months and these now account for 18 per cent of US sales and 22 per cent in European sales. In the process, it has also consolidated the number of its suppliers.

The only area where Buhrmann has struggled, according to Stassen, is in its approach to the mid-market. "Rather than competing head on with the likes of Depot, OfficeMax and Staples, Buhrmann is trying to attract the small to mid-sized dealer," he says, "but it seems it hasn’t really figured out how to do it. It has now piloted a different model in California, with different levels of customer care in terms of sales approach, regularity of contact, etc. It’s obviously something Buhrmann has had to fine-tune."

The outlook for 2005 is good, however, particularly for the US where Buhrmann generates the majority of its revenues – (1899.3 million in Q3, compared to 1364.3 for Europe and Australia). Deutsche Bank estimates EPS for this year to be at 10.57. For next year, this is being revised steeply upwards to 10.89, considerably more than other analysts’ expectations of EPS of 10.70-10.75.

Stassen explains: "We are expecting the US market to grow 3 per cent next year in line with increased consumer confidence. With Buhrmann’s added initiatives, we believe it can add another 2 per cent, leading to a total growth of 5 per cent.

"In Europe, we expect a turnaround towards the second half of next year, including Germany, the worst performing of Buhrmann’s European markets. And don’t forget the seasonal effect in Europe which is much stronger than in the US. Taking all those details together, we have come up with EPS of 10.89."

So it looks like a happy New Year after all for Buhrmann, perhaps the first after several tough years following the acquisition of Corporate Express and USOP in the US, and Samas Groep’s OP division in Europe – all in the space of two years.