Final Results
Monday 25 February 2013
ANNUAL RESULTS ANNOUNCEMENT
Bunzl plc, the international distribution and outsourcing Group, today publishes its annual results for the year ended 31 December 2012.
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|
2012 |
2011 |
Growth as reported |
Growth at constant exchange |
|
Revenue |
£5,359.2m |
£5,109.5m |
5% |
6% |
|
Operating profit* |
£352.4m |
£335.7m |
5% |
7% |
|
Profit before tax† |
£323.9m |
£306.1m |
6% |
8% |
|
Adjusted earnings per share† |
71.8p |
68.5p |
5% |
7% |
|
Dividend for the year |
28.2p |
26.35p |
7% |
|
|
|
|
|
|
|
|
Operating profit |
£293.8m |
£279.3m |
5% |
|
|
Profit before tax |
£269.3m |
£193.7m |
39% |
|
|
Basic earnings per share |
59.9p |
38.2p |
57% |
|
Other highlights include:
· Committed acquisition spend of £272 million adding record annualised revenue of more than £500 million
· Significant expansion in South America with entry into four new countries
· Group operating margin* up 10 basis points at constant exchange rates to 6.6%
· North America operating margin* up 20 basis points to 6.4%
· Another year of strong cash flow with operating cash flow** to operating profit* of 93%
· Net debt to EBITDA† only increased from 1.7 to 1.8 times despite significant acquisition spend
· Strong track record of dividend growth continues with an increase of 7%
* Before intangible amortisation and acquisition related costs
† Before intangible amortisation, acquisition related costs and disposal of business
** Before acquisition related costs
Commenting on today's results, Michael Roney, Chief Executive of Bunzl, said:
"I am pleased to report another good set of results for Bunzl due to a combination of organic revenue growth, good performance from the acquisitions made in 2011 and significant acquisition spend in 2012.
While the macroeconomic outlook remains challenging, particularly in Europe, we believe that our strong market position, growing and resilient customer base and the promising pipeline of opportunities for additional market consolidation will provide the Group with a good platform for further growth."
Bunzl also today announces that it has acquired the business of McNeil Surgical Pty Ltd and its associated companies. Based in Adelaide, the business is engaged in the sale of healthcare consumables and equipment to aged care facilities, hospitals and medical centres as well as to redistributors, principally in South Australia. Revenue in the year ended 30 June 2012 was A$16 million. In addition the Company has completed the acquisition of Vicsa Brasil which was announced in January 2013.
Enquiries:
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Bunzl plc Michael Roney, Chief Executive Brian May, Finance Director Tel: 020 7725 5000 |
Tulchan David Allchurch Stephen Malthouse Tel: 020 7353 4200 |
Note:
A live webcast of today's presentation to analysts will be available on www.bunzl.com commencing at 9.30 am.
CHAIRMAN'S STATEMENT
I am very pleased to be able to report another good set of results for Bunzl despite the continuing difficult macroeconomic conditions which have persisted for the last few years across many of the international markets in which we compete.
Group revenue increased to £5,359.2 million (2011: £5,109.5 million), an increase of 6% at constant exchange rates, due to organic growth of 2.6% combined with the impact of recent acquisitions, net of the disposal of the UK vending business in August 2011.
Operating profit before intangible amortisation and acquisition related costs was £352.4 million (2011: £335.7 million), up 7% at constant exchange rates, with the improvement in the Group operating margin on the same basis being driven by the impact of acquisitions and the sale of the UK vending business. Adjusted earnings per share before intangible amortisation, acquisition related costs and the vending disposal were 71.8p (2011: 68.5p), an increase of 7% at constant exchange rates.
Adverse currency translation movements, principally the euro, reduced the growth rates marginally by between 1% and 2%.
Dividend
The Board is recommending a final dividend of 19.4p. This brings the total dividend for the year to 28.2p, up 7% compared to 2011. Shareholders will again have the opportunity to participate in our dividend reinvestment plan.
Strategy
We continue to pursue our proven strategy of developing the business through organic growth, consolidating the markets in which we compete through focused acquisitions in both existing and new geographies and continuously improving the efficiency of our operations.
We achieve our organic growth by applying our resources and expertise to enable customers to outsource to Bunzl the purchasing, consolidation and distribution of a broad range of goods not for resale. By doing so our customers are able to focus on their core business more cost effectively by achieving purchasing efficiencies and savings, freeing up working capital, improving their distribution capabilities and simplifying their internal administration.
Acquisition activity increased significantly in 2012, particularly towards the end of the year, with 13 acquisitions announced and a total investment of approximately £270 million adding annualised revenue of over £500 million. A key highlight this year was our first acquisition in South America outside Brazil which has provided Bunzl with a first entry into four new countries in the region. Having pursued our strategy consistently over many years, we have built leading positions in a variety of market sectors across the Americas, Europe and Australasia.
Investment
While Bunzl does not have high levels of capital expenditure for a company of its size, both organic growth and acquisitions require investment in the business to expand and enhance its asset base. Our IT systems and warehouse facilities are critical to our ability to serve our customers in the most efficient and appropriate manner. We have therefore continued to invest in order to support our growth strategy and ensure that we retain our competitive advantage. By doing so we maintain our leadership in the marketplace, as we integrate new businesses into the Group and look to improve our existing infrastructure.
Corporate responsibility
Efficient and ethical management of our business and long term relationships with all our stakeholders, whether customers, employees or suppliers, remain key to our sustained business success. During 2012 our managers and sales and procurement staff completed tailored training covering our Corporate Responsibility ('CR') policies which included our Business Standards/Code of Ethics and our stance on gifts and entertainment, facilitation payments and information on our whistle blowing process. Our employee survey again provided useful feedback and resulted in a variety of actions. We have also continued to assist our customers in meeting their CR objectives by providing them with product choices, including some innovative environmentally friendly products made from materials such as bamboo and sugar cane as well as, in some cases, offering them a closed loop recycling facility. Our Quality Assurance and Quality Control department based in Shanghai continues to work with our Asian suppliers to ensure that high quality and ethical standards of operation are maintained.
Employees
Our employees' experience, dedication, commitment and approach to their work remain key strengths of Bunzl. Across the world we depend on them to continue to provide high quality care to our customers, adding value to our service provision. The relationships formed by our employees with all our stakeholders shape the reputation of Bunzl and build our culture of a positive 'can-do' company. As ever, we are genuinely grateful for the loyalty and hard work of all our employees and we are delighted that 2012 has been a year in which many new employees have joined the Group through acquisition, providing new ideas and challenges to continue the development of Bunzl internationally.
Credit facilities
The Group remains highly cash generative and we continue to have access to diverse sources of funding to achieve our strategic objectives. In October 2012 we refinanced some of our debt facilities by raising US$350.0 million of fixed interest rate borrowings in the US private placement market with maturities ranging from seven to 11 years at an average interest rate of 3.4%. US$110.0 million was drawn in December with the balance due to be drawn in April 2013. During the year we also refinanced or agreed new banking facilities totalling £150.7 million. Our undrawn committed facilities at the end of the year were £589.3 million.
Board
Ulrich Wolters, who has served as a non-executive director since 2004, will be retiring after the Company's Annual General Meeting in April 2013. We thank Ulrich for his significant contribution over many years and he will leave the Board with our gratitude and best wishes for the future.
Jean-Charles Pauze was appointed as a non-executive director in January 2013 and Meinie Oldersma will join the Board in the same capacity in April. Based in Paris, Jean-Charles is presently Chairman of Europcar and Chairman of the Supervisory Board of CFAO Group and was Chairman and Chief Executive of Rexel for 10 years until 2012. Prior to that he held a number of senior positions with PPR Group, Strafor Facom Group and Alfa Laval Group in France and Germany. A Dutch national, Meinie is currently based in the UK and has been Chief Executive of 20:20 Mobile Group since 2008 and previously held a variety of senior positions with Ingram Micro, most recently as Chief Executive and President of their China Group and Managing Director of their business in Northern Europe. Both Jean-Charles and Meinie have extensive international experience across a range of distribution and service sectors, particularly in Europe and Asia, which will be of great value to Bunzl as we continue to expand and develop. I am delighted to welcome them to the Board.
CHIEF EXECUTIVE'S REVIEW
Operating performance
The Group once again had a successful year in 2012 due to a combination of organic growth, good performance from the acquisitions made in 2011 and increased acquisition spend during the year.
Although some currencies, notably the US dollar, were marginally stronger than in 2011, the translation effects of the weaker euro and overall currency movements have reduced the reported growth rates of revenue and operating profit. The operations, including the relevant growth rates, are reviewed below at constant exchange rates to remove the distorting impact of these currency movements. Changes in the level of revenue and profits at constant exchange rates have been calculated by retranslating the results for 2011 at the average rates used for 2012. Unless otherwise stated, all references in this review to operating profit are to operating profit before intangible amortisation and acquisition related costs.
Revenue increased 6% (5% at actual exchange rates) to £5,359.2 million and operating profit was £352.4 million, an increase of 7% (5% at actual exchange rates). The percentage growth in operating profit at constant exchange rates was greater than that of revenue due to the improvement in Group operating margin by 10 basis points to 6.6% as a result of the impact of acquisitions and the sale of the UK vending business in August 2011.
In North America revenue rose 6% (7% at actual exchange rates) due to good organic revenue growth and the impact of acquisitions completed in 2011 and 2012, while operating profit increased 8% (9% at actual exchange rates). Revenue in Continental Europe rose 8% (1% at actual exchange rates) as a result of some organic revenue growth and the impact of acquisitions but operating profit was down 2% (8% at actual exchange rates) as margins came under pressure. In UK & Ireland revenue was flat at both constant and actual exchange rates primarily due to good organic revenue growth and the impact of relatively small acquisitions being more than offset by the impact of the sale of vending during the second half of 2011. However operating profit rose 8% at both constant and actual exchange rates due to the positive impact of cost reduction initiatives, product mix improvements in some businesses and the disposal of vending. In Rest of the World revenue increased 23% (20% at actual exchange rates) and operating profit was up 22% (17% at actual exchange rates) due to both excellent organic revenue growth and the impact of acquisitions.
Basic earnings per share were 61% higher (57% at actual exchange rates) at 59.9p due to the significant impact in 2011 of the loss on disposal of the vending business. Adjusted earnings per share, after eliminating the effect of intangible amortisation, acquisition related costs and the disposal of vending, were 71.8p, an increase of 7% (5% at actual exchange rates). Although the underlying return on average operating capital increased, the overall return decreased slightly from 57.4% to 56.4% due to the recent acquisitions currently having a lower return on operating capital than the rest of the Group.
Our operating cash flow continued to be strong. Despite an acquisition cash outflow of £254.7 million and net capital expenditure of £20.2 million, our year end net debt of £738.1 million was only £85.2 million higher than at the end of 2011. The net debt to EBITDA ratio increased marginally to 1.8 times compared to 1.7 times at the previous year end.
Our continued focus on the sustainability of our business has once again led to a further reduction, relative to revenue, of our Scope 1 and 2 carbon emissions. This has been achieved partly as a result of further investment in energy efficient lighting systems in our facilities and the introduction within our transport fleet of a number of vehicles which have lower emissions. The health, safety and well-being of our staff remains a key feature of the way in which we operate.
Acquisitions
Our committed acquisition spend in 2012 of £272 million was the highest level since 2004 with 13 transactions announced.
In February we acquired the business of CDW Merchants. Based in Chicago, the business is principally engaged in the sale of retail gift packaging and visual merchandising solutions and products to the specialty retail and online retailing sectors throughout the US. Revenue in the year ended 31 December 2011 was US$12 million. The business, which works closely with its customers to increase brand appeal and consumer loyalty through innovative gift packaging concepts and merchandising displays, complements our existing non-food retail supplies business in North America and extends our customer base, particularly in the specialty and online retail sector.
We acquired three businesses at the end of April. FoodHandler, also based in Chicago, is a leading supplier of a broad range of disposable gloves and other foodhandling products to the foodservice sector throughout the US. Revenue in the year ended 31 December 2011 was US$99 million. The business enhances our existing foodservice operations in North America and expands our product offering and import programme in this sector. Based near Tel Aviv, Zahav is a leading distributor of packaging supplies to the foodservice sector throughout Israel. Revenue in the year ended 31 December 2011 was ILS66 million. This is our second acquisition in Israel which is a market we entered in 2010 with the purchase of Silco. It has a strong and broad customer base, especially in the bakery sector, and significantly increases the size of our business in that country. The Group also purchased in April the Queensland based redistribution operations of Star Services International in Australia. Based in Brisbane and Cairns, the business is engaged in the supply of foodservice disposable products to wholesalers and redistributors throughout Queensland. Revenue for the year ended 30 June 2012 was A$12 million. The acquisition complements our existing foodservice supplies operations in Queensland and will allow us to penetrate further into the redistribution sector of this market.
Based near Seattle, Service Paper was purchased in June. The business is principally engaged in the distribution of disposable supplies to the grocery, foodservice, food processor and industrial packaging sectors throughout the Pacific Northwest. Revenue of the business acquired for the year ended 31 December 2011 was US$61 million. The business, which has a reputation for providing high levels of customer service, will expand our existing business in the region.
At the end of June we acquired Distrimondo which is based near Zurich and is principally engaged in the distribution of foodservice disposables and cleaning and hygiene products throughout Switzerland. Revenue in the year ended 31 December 2011 was CHF17 million. The acquisition extends our operations in Switzerland which is a key market that we entered in 2010 with the purchase of Weita.
The acquisition of Indigo Concept Packaging was completed in October. Indigo is based in the UK and is principally engaged in the sale of quality retail packaging products to a variety of customers. Revenue in the year ended 31 December 2011 was £6 million.
At the end of October we acquired Atlas Health Care in Australia. Based in Adelaide, the business is principally engaged in the supply of medical consumables to the healthcare sector and gives us an enhanced market position in this growing sector. Revenue in the year ended 30 June 2012 was A$22 million.
In December we entered into agreements to acquire five businesses. Based near Toronto, McCordick Glove & Safety is a distributor of gloves and other personal protection equipment to a variety of industrial and retail customers as well as to redistributors. It has enabled us to enter the personal protection equipment sector in Canada and enhances the Company's existing safety product offering. Revenue in the year ended 31 December 2011 was C$53 million. Vicsa Safety in Chile and its subsidiaries based in Peru, Argentina, Colombia and Mexico specialise in the sourcing and sale of a variety of personal protection equipment throughout the region. The aggregate revenue of the Vicsa businesses in 2012 was US$65 million of which more than half was accounted for by the business in Chile. At the same time we entered into an agreement to purchase Vicsa Brasil which was completed earlier this month following clearance from the Brazilian Competition Authority. Revenue in 2012 was US$9 million. The acquisition of the Vicsa businesses is an exciting development for us as they expand our operations in South America outside Brazil into four new countries as well as extending our business in Mexico into the safety sector. In December we also acquired Destiny Packaging in the US which had revenue in 2012 of US$52 million. Based in Monterey, California, Destiny Packaging is a leading distributor of flexible packaging supplies, principally produce bags, to fruit and vegetable growers throughout California and Arizona and complements both Cool-Pak and Netpak which we acquired in 2010 and 2011 respectively. Together these three businesses give us an increasing presence in the market of innovative packaging solutions for both growers and food retailers in North America. Finally the Company purchased Schwarz Paper Company in the US at the end of December. Based in Chicago and operating from 14 locations, Schwarz Paper Company is principally engaged in the provision of consumables and supply chain solutions for the non-food retail and grocery sectors. It significantly increases the size of our non-food retail business and will further enhance the Company's market leading position in the grocery sector. Revenue of the acquired business in the year ended 30 September 2012 was US$363 million.
The acquisition of McNeil Surgical in Australia was completed at the beginning of February 2013. With revenue of A$16 million in the year ended 30 June 2012, the business is engaged in the sale of healthcare consumables and equipment to aged care facilities, hospitals and medical centres as well as to redistributors and increases our market presence in this growing sector.
North America
In North America revenue increased by 6% to £2,905.8 million due to sales growth with existing customers, new business wins and acquisitions. This, together with the impact of higher margin acquisitions and good cost control, contributed to an 8% increase in operating profit to £184.6 million, with the operating profit margin improving 20 basis points to 6.4%. Our extensive distribution network and delivery fleet across North America and our experienced sales force continued to produce value for our customers in the diversified business sectors we service.
Our largest business, which serves the grocery sector, produced good growth in 2012 principally as a result of the full year impact of a significant customer win in the third quarter of 2011 but also as we expanded our business with other customers by offering integrated supply chain product and information supply chain solutions. Execution of our cornerstone programmes of direct store delivery, cross dock and warehouse replenishment programmes on a local, regional or national basis provides us with a unique competitive advantage in the marketplace and generates opportunities for us to reduce the operating costs and working capital investment of our customers. Our overall business in the Pacific Northwest was boosted by the acquisition of Service Paper in June.
The redistribution business also grew as we continued to enable our distributor customers, predominantly in the foodservice, jan/san (janitorial/sanitation) and office products sectors, to achieve increased profitability through our proximity and scale. Our business model allows not only these customers but all of our customers to consolidate their sources of supply and reduce their administrative and operating costs through our one-stop-shop offering. As a result of our excellent fill rates and dependable delivery capabilities, our customers can improve their profitability and asset utilisation by rededicating storage space, once occupied by the stock items we now provide, to support higher revenue generating items.
Our food processor business continued to perform well, with customers across the full breadth of the food processor supply chain from the fields to the stores. These include growers, packers, large food companies and meat, fresh cut produce, home meal and specialty food processors. The recent addition of Destiny Packaging and its flexible packaging offering complements Cool-Pak's and Netpak's rigid packaging product lines and increases our ability to provide innovative packaging solutions for growers, packers and retailers.
Our business serving the non-food retail sector also developed well despite slow US retail sales growth. Our coast to coast distribution network gives us the scale needed to support national retail chains cost effectively through our uniform operating platform. Our recent acquisition of Schwarz Paper Company complements our existing non-food retail and grocery distribution businesses. Schwarz will significantly expand our customer base and market presence in these sectors across the US in the coming year. We also continued to improve our expertise and breadth of product line through our acquisition of CDW Merchants in February. Their design and marketing offerings will further enhance our ability to introduce new and unique point of sale designs and, together with Keenpac, allow us to offer innovative packaging and store supply programmes that will lead to increased business with our existing customer base as well as attract new customers, particularly in the specialty and online retail sectors.
Although the convenience store sector is still impacted by higher fuel costs, it continued to expand in 2012. We continuously work with retail convenience store chains to provide additional programmes and products to help them meet the demands of the new services being offered at the store level. Our investment in a well trained sales force gives us a better opportunity to develop more expansive programmes with these local, regional and national chains. Wholesalers in this sector also continue to extend their services which provides us with additional sales opportunities.
We continue to strengthen our relationships with our preferred suppliers and further integrate our supply chains as we position their products closer to the customer reducing their operating costs and improving their profitability. Working as supply chain partners allows us to leverage our combined strengths to create unique programmes and products that best satisfy our customers' needs at competitive prices.
Our private label import and import logistics programmes saw further expansion by utilising our state-of-the-art Shanghai distribution centre and quality control services and leveraging our international logistics expertise. We also penetrated more deeply into the foodservice sector and strengthened our competitive position through our acquisition of FoodHandler, a leading supplier of own brand disposable gloves and other food handling products. Not only does FoodHandler expand our foodservice product offering, it also complements our existing foodservice operations, augments our sales force with extensive product sales and marketing expertise and extends our customer base. In addition, our recent acquisition of McCordick Glove & Safety enables us to enter the personal protection equipment sector in Canada which is a product area where we have already been very successful in a number of other geographies. It also has a wide range of successful own brands that will enhance our existing safety product offering.
We continued to manage successfully our operating costs despite ongoing pressures on fuel, freight and healthcare costs. As part of this process we diligently evaluate new warehouse technologies that could improve warehouse efficiencies and continually analyse the number of facilities we require in order to optimise our operating costs and service levels.
Continental Europe
Revenue rose by 8% to £1,079.4 million due to a combination of some organic growth and acquisition activity in 2011 and 2012, although operating profit fell 2% to £87.5 million. In the difficult economic environment in most of the countries in which we are present, pricing pressure in our markets together with a weaker euro impacting import prices has led to a decline in gross margin. Although operating costs remain tightly controlled, underlying revenue growth has slowed compared to recent years such that the revenue growth, together with the impact from acquisitions, was not sufficient to compensate for the gross margin decline.
Our largest business, the cleaning and hygiene operations in France, saw a slight reduction in sales. Gross margin continues to be under pressure, in particular from the healthcare and public sectors with cost control measures at our customers continuing to impact our business, leading to a decline in operating profit. Measures to increase gross margin and reduce costs have been implemented with a view to improving future profitability. By contrast, our personal protection equipment business in France enjoyed good sales growth with an improved operating profit.
In the Netherlands, sales continued to grow significantly in our businesses supplying the food and non-food retail sectors. Our healthcare business saw reasonable growth although the horeca (hotel, restaurant and catering) sector recorded a small decline. Margins remain under pressure although improved in the healthcare sector, partly due to synergies from recent acquisitions. Overall underlying operating profit improved and was further enhanced by the full year impact of the acquisition of D-Care which was acquired in 2011.
2012 was the first full year of ownership of Majestic Products, a personal protection equipment and safety products business in the Netherlands, Belgium, Germany and the US. While trading in the European businesses was soft, the US business recorded strong growth both in sales and operating profit, in particular due to the successful introduction of new products. It also relocated to a larger, purpose-built facility to allow for further growth in the coming years.
In Belgium, we recorded strong sales growth in the cleaning and hygiene sector due to further gains with a number of existing customers although sales in the retail sector declined following the loss of one larger account leaving overall sales flat. Good margin management led to an overall increase in operating profit and margins.
In Germany, sales growth was modest with gains in sales to fast food chains, coffee shops and wholesalers being partly offset by lower sales to contract caterers. Margins remain under pressure in particular from larger accounts. Costs were reduced during the year to compensate for lower margins leaving operating profit flat.
In Switzerland, our Weita business saw a slight decline in sales as the Swiss economy, and in particular its tourism industry, has been adversely impacted by the continuing strength of the Swiss franc, although margins were in line with last year. At the end of June we acquired Distrimondo, a distributor of foodservice disposables and cleaning and hygiene products throughout Switzerland, which is integrating well into the Group and generating synergies with Weita.
In Denmark, sales have declined in the retail and horeca sectors and grown in the personal protection equipment sector. Gross margins are also under pressure in the retail and public sectors and this, combined with some one-off costs associated with implementing a new IT system, resulted in a reduced operating profit.
In Spain, extremely difficult economic circumstances led to a fall in underlying sales in both the cleaning and hygiene and personal protection equipment businesses, although overall sales in the cleaning and hygiene business were ahead due to the purchase of King Espana in 2011. Margins have also fallen as a result of the weaker euro increasing import prices and competitive pressures although this has partially been mitigated by synergies achieved following the acquisition of King Espana.
In central Europe, sales grew after the decline of 2011 with the strongest growth in the retail sector although the cleaning and hygiene and safety sectors also improved. Margins, however, remain under pressure across the region leading to a lower level of operating profit.
In Israel, our foodservice disposables business, Silco, continued to deliver strong sales growth but margins have declined, partly due to the strength of the US dollar. In April we acquired Zahav, a leading distributor of packaging supplies to the foodservice sector which is integrating well into the Group.
UK & Ireland
Our businesses in the UK & Ireland have shown a continued improvement in performance in 2012. Although total revenue was flat at £992.1 million, due to the impact of the sale of vending in August 2011, operating profit increased 8% to £65.2 million. In a market where demand is still suppressed and there is constant pressure from customers to make savings, we have achieved underlying growth and margin improvement by further developing our market position and by successfully integrating the recent acquisitions. We have also improved results by constantly appraising our resource levels and operating efficiency, investing in product sourcing and procurement and the continued development of our own brands.
The London 2012 Olympics was an important event for Bunzl as we provided a number of products specifically for the Games through our catering and hospitality customers. These included catering disposables, healthcare consumables and cleaning and hygiene supplies. In addition to the business opportunity it presented, we were able to enhance our reputation for delivering an outstanding level of service.
The safety market has continued to be subdued as a result of reduced demand, particularly in the construction and industrial sectors, although the results for the year of our safety supplies business were boosted by the integration of SIG Safety and Workwear which was purchased during 2011. Our cleaning and hygiene supplies business performed well as a result of good organic growth in the facilities management sector and the full year impact of the Cannon Consumables business also acquired in 2011. We remained focused on operating costs in this difficult environment and further consolidated the branch network of our cleaning and safety businesses, reducing the number of facilities by two.
In hospitality we saw good growth, particularly with high street coffee shops and contract caterers. Our ability to offer an extensive range of own brand products, which complement branded products, helped to make savings for our customers and maintain our operating margins. This remains a very competitive market, so we are conscious of the need to provide high levels of service at low levels of operating cost. As part of our programme to deliver these, we have further rationalised our network and closed two locations.
In our food retail business we have continued to increase sales by gaining an additional major grocery retailer during the year, together with the impact of a new grocery account won towards the end of 2011. Our non-food retail packaging business had a successful year, despite the significant challenges being faced by many of our high street customers, due to continuing strong demand from luxury branded retailers and the acquisition of Indigo Concept Packaging in October. Gross margins are under constant pressure in the retail supplies market and it is through offering innovative supply solutions and reducing customers' existing costs that we have managed to continue to be successful.
Although the healthcare market has been challenged by ongoing government spending constraints, we have made good progress during 2012. This has been achieved by focusing on more profitable business, expanding and developing our range of own brand products and by taking measures to reduce operating costs. During the year we also increased the efficiency of our operations by introducing a new electronic ordering platform for our customers.
In spite of a continuing difficult economy in Ireland and the negative impact of the weaker euro, our business there has seen further recovery in 2012. This reflects the work that had already been done to reduce our cost base and improve the sales performance. The overall market that we serve has stabilised, reflecting an increase in demand from hotels and the hospitality sector. We have also been successful in winning tenders for supply to government agencies and facilities management companies. This has enabled us to offset the ongoing weak demand from high street retailers and the takeaway food market.
Rest of the World
In Rest of the World revenue increased 23% to £381.9 million while profits rose 22% to £33.2 million. Both Australasia and Brazil experienced strong organic revenue growth with the results also benefitting from the impact of recent acquisitions.
In Australasia, our largest business, Outsourcing Services, which supplies the healthcare, cleaning and catering sectors, continued to perform strongly and again delivered strong results. This was achieved through a consistent strategy of focusing on the resilient market sectors and growing market share in aged care facilities and hospitals where we supply a wide range of disposable and medical consumables. We also saw some solid growth with our catering and cleaning customers who supply into the mining and resource sectors. In addition in April we made our first entry into the redistribution sector through the acquisition of the redistribution business of Star Services International in Queensland.
To help consolidate our market position in healthcare, in October we acquired Atlas Health Care which is a major supplier of specialist healthcare consumables in South Australia. This acquisition brings additional market specialisation and expertise in woundcare and nutrition and complements our current product offering. The purchase of McNeil Surgical in February 2013 will further strengthen our position in this growing sector.
Although sales in our food processor business increased in 2012, it performed below expectations. The business is continuing to develop expertise with major national non-meat food processors which diversifies and balances our stronger position with retail supermarkets. We are also growing in our traditional markets by introducing a number of new product development initiatives. The business has created capacity for continued growth and made a number of operational improvements, recently implementing scanning technology into the warehouse operations, to improve accuracy and increase productivity in the future.
Our catering equipment businesses had a disappointing year as we continued to be challenged by further softening in the traditional hospitality markets. To offset this, the business has been refocusing its efforts to grow market share in the more resilient healthcare and resources sectors. During the year we successfully integrated our largest business onto the main IT platform which has improved operational performance and increased efficiency and service levels.
Our business in Australasia continues to invest in infrastructure and technology to enable the business to grow efficiently. During 2012 two of our business units successfully relocated their New South Wales operations into our new 20,000m2 distribution centre in the Sydney suburb of Enfield. This facility will improve operational efficiency and represents a major investment to facilitate future growth in Australia's most populated region. In 2013 we will consolidate two further facilities into this location as their current property leases expire.
In Brazil our personal protection equipment businesses performed well despite the continuing slowdown in the rate of economic growth as the year progressed and weakness in the Brazilian real which particularly impacted import prices. Danny, the redistribution business with a focus on own brands acquired in November 2011, was successfully integrated into the Group and launched a series of new products. Prot Cap also grew and increased its profitability, partly as a result of new customer wins particularly in the oil and gas sectors which are continuing to expand, and developed some important relationships with additional suppliers which has enhanced our product offering. The recent acquisition of Vicsa Brasil, which was completed on 19 February 2013, complements and further extends our range of safety products.
Ideal, the cleaning and hygiene business which was also acquired in 2011, gained a number of new accounts in the retail sector and was able to realise operational efficiencies and increase the operating margin through the implementation of a new IT system and a logistics restructuring programme.
The purchase in December of Vicsa Safety with its operations in Chile, Peru, Argentina, Colombia and Mexico, expands our personal protection equipment business in the region outside Brazil and provides Bunzl with an exciting first entry into five high growth safety markets.
Prospects
The macroeconomic outlook continues to be challenging but we believe that our resilient customer base and the opportunities for additional market consolidation will provide the Group with a good platform for further growth.
In North America we expect to see stronger growth as a result of the six acquisitions completed last year and an improvement in organic revenue growth from the levels seen in the second half of 2012. In spite of the difficult market conditions in Continental Europe, we currently anticipate some growth with a stable operating margin. The performance of UK & Ireland should continue to improve, in spite of the sluggish economies, led by organic growth and ongoing cost reduction initiatives. Rest of the World should see a strong performance through a combination of good organic growth and the impact of the recent significant acquisition activity.
Acquisition growth is an important part of our strategy. The pipeline is promising as we continue discussions with a number of potential targets.
The Board believes that the prospects for the Group are positive due to our strong market position, growing customer sectors and good opportunities to consolidate further the markets in which we compete.
FINANCIAL REVIEW
Group performance
Revenue increased by 6% at constant exchange rates to £5,359.2 million (2011: £5,109.5 million) reflecting organic growth and the benefit of acquisitions net of the disposal of the UK vending business in August 2011. Operating profit before intangible amortisation and acquisition related costs increased by 7% at constant exchange rates to £352.4 million (2011: £335.7 million) as a result of the revenue growth and the operating profit margin at constant exchange rates increasing from 6.5% to 6.6%. Currency translation had a 1% to 2% negative impact on the results for the year principally due to some weakening of the euro and the Brazilian real, partially offset by the strengthening of the US dollar. At actual exchange rates, both revenue and operating profit before intangible amortisation and acquisition related costs increased by 5%.
Intangible amortisation and acquisition related costs of £58.6 million were up £2.2 million due to a £2.3 million increase in transaction costs and expenses and a £1.2 million increase in intangible amortisation, partially offset by a £1.3 million decrease in net deferred consideration payments relating to the continued employment of former owners of businesses acquired and earn outs.
The net interest charge of £28.5 million was down £1.1 million on 2011, principally due to lower average net debt levels. Interest cover improved to 12.4 times compared to 11.3 times in 2011.
The profit on disposal of business of £4.0m reflects the reassessment of provisions relating to the disposal of the UK vending business in 2011 (2011: loss of £56.0 million).
Profit before income tax, intangible amortisation, acquisition related costs and disposal of business was £323.9 million (2011: £306.1 million), up 8% on 2011 at constant exchange rates and up 6% at actual exchange rates, due to the growth in operating profit before intangible amortisation and acquisition related costs and the benefit from the lower interest charge.
Tax
A tax charge at a rate of 27.7% (2011: 27.5%) has been provided on the profit before tax, intangible amortisation, acquisition related costs and disposal of business. Including the impact of intangible amortisation of £47.7 million, acquisition related costs of £10.9 million, the profit on disposal of business of £4.0 million and the associated deferred and current tax of £15.7 million, the overall tax rate is 27.5% (2011: 36.1%). The underlying tax rate of 27.7% is higher than the nominal UK rate of 24.5% for 2012 principally because many of the Group's operations are in countries with higher tax rates.
Profit for the year
Profit after tax of £195.3 million was up £71.5 million, primarily due to the non-recurrence of the £56.0 million loss on disposal of vending in 2011 and the 6% increase in profit before income tax, intangible amortisation, acquisition related costs and disposal of business.
Earnings
The weighted average number of shares increased to 326.1 million from 324.0 million due to employee option exercises, partially offset by shares being purchased from the market into the Company's employee benefit trust. Earnings per share were 59.9p, up 57% on 2011, principally due to the non-recurrence of the loss on disposal of business in 2011. After adjusting for intangible amortisation, acquisition related costs and the respective associated tax and the profit/loss on disposal of business, earnings per share were 71.8p, an increase on 2011 of 7% at constant exchange rates and 5% at actual exchange rates.
The intangible amortisation and associated tax and the profit/loss on disposal of business are non-cash charges which are not taken into account by management when assessing the underlying performance of the business. Similarly, the acquisition related costs and associated tax do not relate to the underlying performance of the business. Accordingly, such charges are removed in calculating the adjusted earnings per share on which management assesses the performance of the Group.
Dividends
An analysis of dividends per share for the years to which they relate is shown below:
|
|
|
|
2012 |
2011 |
Growth |
|
Interim dividend (p) |
|
|
8.80 |
8.05 |
9% |
|
Final dividend (p) |
|
|
19.40 |
18.30 |
6% |
|
Total dividend (p) |
|
|
28.20 |
26.35 |
7% |
|
Dividend cover (times)* |
|
|
2.5 |
2.6 |
|
*Based on adjusted earnings per share
Acquisitions
The principal acquisitions made or agreed to be made in 2012 were CDW Merchants, the redistribution business of Star Services International, FoodHandler, Zahav, Service Paper, Distrimondo, Indigo Concept Packaging, Atlas Health Care, McCordick Glove & Safety, Vicsa Safety, Vicsa Brasil, Destiny Packaging and Schwarz Paper Company. Annualised revenue and operating profit before intangible amortisation and acquisition related costs of the businesses acquired or agreed to be acquired were £518.4 million and £36.1 million respectively. A summary of the effect of acquisitions is as follows:
|
|
£m |
|
Fair value of assets acquired |
156.5 |
|
Goodwill |
63.6 |
|
Consideration |
220.1 |
|
Satisfied by: cash consideration deferred consideration other consideration |
206.0 13.1 1.0 |
|
|
220.1 |
|
Contingent payments to former owners |
16.3 |
|
Net bank overdrafts acquired |
21.8 |
|
Transaction costs and expenses |
6.9 |
|
Total expected spend in respect of current year completed acquisitions |
265.1 |
|
Committed spend in respect of current year acquisitions not completed |
7.2 |
|
Total committed spend in respect of current year acquisitions |
272.3 |
|
|
|
|
The net cash outflow in the year in respect of acquisitions comprised: |
|
|
|
£m |
|
Cash consideration |
206.0 |
|
Net bank overdrafts acquired |
21.8 |
|
Deferred consideration in respect of prior year acquisitions |
6.7 |
|
Net cash outflow in respect of acquisitions |
234.5 |
|
Acquisition related costs |
20.2 |
|
Total cash outflow in respect of acquisitions |
254.7 |
Cash flow
Cash generated from operations before acquisition related costs was £349.1 million, a £41.0 million decrease from 2011, primarily due to a working capital outflow in 2012 of £22.4 million compared to a £31.4 million inflow in 2011, attributable to a particularly low working capital level at the end of 2011, partially offset by a £17.8 million increase in profit before tax, intangible amortisation, acquisition related costs and disposal of business. The Group's free cash flow of £234.7 million was down £40.5 million from 2011. After payment of dividends of £85.7 million in respect of 2011, a £3.7 million outflow on employee share schemes and an acquisition cash outflow of £254.7 million, the net cash outflow was £109.4 million. The summary cash flow for the year was as follows:
|
|
£m |
|
Cash generated from operations* |
349.1 |
|
Net capital expenditure |
(20.2) |
|
Operating cash flow* |
328.9 |
|
|
|
|
Operating cash flow* to operating profit† |
93% |
|
|
|
|
Net interest |
(30.6) |
|
Tax |
(63.6) |
|
Free cash flow |
234.7 |
|
Dividends |
(85.7) |
|
Acquisitions |
(254.7) |
|
Employee share schemes |
(3.7) |
|
Net cash outflow |
(109.4) |
* Before acquisition related costs
† Before intangible amortisation and acquisition related costs
Balance sheet
Return on average operating capital employed before intangible amortisation and acquisition related costs decreased to 56.4% from 57.4% in 2011 due to the impact of acquisitions having a lower return on operating capital than the rest of the Group. Return on invested capital increased from 17.3% in 2011 to 17.9% due to a combination of improved returns in the underlying business and the disposal of the UK vending business, partly offset by the impact of recent acquisitions. Intangible assets increased by £66.1 million to £1,322.9 million reflecting goodwill and customer relationships arising on acquisitions in the year of £158.3 million, partially offset by an amortisation charge of £47.7 million and a reduction of £44.5 million due to exchange. The Group's pension deficit of £75.5 million at 31 December 2012 was £1.2 million higher than at 31 December 2011, with an actuarial loss of £13.5 million and a service cost of £5.4 million being largely offset by contributions of £13.2 million, a net financial return of £2.2 million and an exchange gain of £2.3 million. The actuarial loss arose primarily as a result of the £28.8 million impact of changes in assumptions relating to the present value of scheme liabilities, principally due to lower discount rates, partially offset by the actual return on scheme assets being £15.3 million higher than expected.
The movements in shareholders' equity and net debt during the year were as follows:
|
Shareholders' equity |
£m |
|
At 1 January 2012 |
806.7 |
|
Profit for the year |
195.3 |
|
Dividends |
(85.7) |
|
Currency |
(30.4) |
|
Actuarial loss on pension schemes |
(13.5) |
|
Share based payments |
11.1 |
|
Other |
2.0 |
|
At 31 December 2012 |
885.5 |
|
Net debt |
£m |
|
At 1 January 2012 |
(652.9) |
|
Net cash outflow |
(109.4) |
|
Currency |
24.2 |
|
At 31 December 2012 |
(738.1) |
|
Net debt to EBITDA (times) |
1.8 |
The Group has significant financial resources, a well established, fragmented customer base, strong supplier relationships and a diverse geographic presence. As a consequence, the directors believe that the Group is well placed to manage its business risks successfully. Based on the expected future profit generation, cash conversion and current facilities' headroom over the 12 months to March 2014, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason the directors believe it is appropriate to continue to adopt the going concern basis in preparing the financial statements.
Consolidated income statement
for the year ended 31 December 2012
|
|
|
|
Growth |
|||
|
|
|
|
|
|
Actual |
Constant |
|
|
|
|
2012 |
2011 |
exchange |
exchange |
|
|
|
Notes |
£m |
£m |
rates |
rates |
|
Revenue |
|
2 |
5,359.2 |
5,109.5 |
5% |
6% |
|
|
|
|
|
|
|
|
|
Operating profit before intangible amortisation and acquisition related costs |
|
2 |
352.4 |
335.7 |
5% |
7% |
|
|
|
|
|
|
|
|
|
Intangible amortisation and acquisition related costs |
|
|
(58.6) |
(56.4) |
|
|
|
Operating profit |
|
2 |
293.8 |
279.3 |
5% |
7% |
|
Finance income |
|
3 |
22.1 |
21.8 |
|
|
|
Finance cost |
|
3 |
(50.6) |
(51.4) |
|
|
|
Disposal of business |
|
|
4.0 |
(56.0) |
|
|
|
Profit before income tax |
|
|
269.3 |
193.7 |
39% |
42% |
|
|
|
|
|
|
|
|
|
Profit before income tax, intangible amortisation, acquisition related costs and disposal of business |
|
|
323.9 |
306.1 |
6% |
8% |
|
|
|
|
|
|
|
|
|
Income tax |
|
4 |
(74.0) |
(69.9) |
|
|
|
Profit for the year attributable to the Company's equity holders |
|
|
195.3 |
123.8 |
58% |
62% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share attributable to the Company's equity holders |
|
|
|
|
|
|
|
Basic |
|
6 |
59.9p |
38.2p |
57% |
61% |
|
Diluted |
|
6 |
59.5p |
38.0p |
57% |
61% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend per share |
|
5 |
28.20p |
26.35p |
7% |
|
Consolidated statement of comprehensive income
for the year ended 31 December 2012
|
|
|
2012 |
2011 |
|
|
|
£m |
£m |
|
Profit for the year |
|
195.3 |
123.8 |
|
|
|
|
|
|
Other comprehensive income |
|
|
|
|
Actuarial loss on pension schemes |
|
(13.5) |
(35.5) |
|
Foreign currency translation differences for foreign operations |
|
(47.5) |
(10.7) |
|
Gain/(loss) taken to equity as a result of designated effective net investment hedges |
|
18.5 |
(9.5) |
|
(Loss)/gain recognised in cash flow hedge reserve |
|
(0.4) |
0.8 |
|
Movement from cash flow hedge reserve to income statement |
|
(1.0) |
0.6 |
|
Income tax credit on other comprehensive income |
|
3.7 |
11.0 |
|
Other comprehensive expense for the year |
|
(40.2) |
(43.3) |
|
Total comprehensive income for the year attributable to the Company's equity holders |
|
155.1 |
80.5 |
Consolidated balance sheet
at 31 December 2012
|
|
|
|
2012 |
2011 |
|
|
|
Notes |
£m |
£m |
|
Assets |
|
|
|
|
|
Property, plant and equipment |
|
|
111.4 |
109.0 |
|
Intangible assets |
|
7 |
1,322.9 |
1,256.8 |
|
Investment in associates |
|
|
- |
0.5 |
|
Derivative financial assets |
|
|
8.2 |
18.4 |
|
Deferred tax assets |
|
|
7.9 |
13.2 |
|
Total non-current assets |
|
|
1,450.4 |
1,397.9 |
|
|
|
|
|
|
|
Inventories |
|
|
587.6 |
528.6 |
|
Income tax receivable |
|
|
0.3 |
0.6 |
|
Trade and other receivables |
|
|
819.5 |
738.6 |
|
Derivative financial assets |
|
|
2.2 |
1.5 |
|
Cash and deposits |
|
8 |
81.2 |
74.2 |
|
Total current assets |
|
|
1,490.8 |
1,343.5 |
|
Total assets |
|
|
2,941.2 |
2,741.4 |
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
Share capital |
|
|
114.2 |
113.8 |
|
Share premium |
|
|
143.9 |
136.4 |
|
Translation reserve |
|
|
7.3 |
37.3 |
|
Other reserves |
|
|
9.7 |
10.8 |
|
Retained earnings |
|
|
610.4 |
508.4 |
|
Total equity attributable to the Company's equity holders |
|
|
885.5 |
806.7 |
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
Interest bearing loans and borrowings |
|
8 |
599.2 |
678.8 |
|
Retirement benefit obligations |
|
|
75.5 |
74.3 |
|
Other payables |
|
|
28.7 |
17.9 |
|
Derivative financial liabilities |
|
|
1.2 |
2.3 |
|
Provisions |
|
|
21.3 |
39.2 |
|
Deferred tax liabilities |
|
|
120.1 |
126.7 |
|
Total non-current liabilities |
|
|
846.0 |
939.2 |
|
|
|
|
|
|
|
Bank overdrafts |
|
8 |
25.4 |
29.2 |
|
Interest bearing loans and borrowings |
|
8 |
204.9 |
37.5 |
|
Income tax payable |
|
|
53.5 |
44.9 |
|
Trade and other payables |
|
|
906.9 |
874.4 |
|
Derivative financial liabilities |
|
|
0.9 |
0.3 |
|
Provisions |
|
|
18.1 |
9.2 |
|
Total current liabilities |
|
|
1,209.7 |
995.5 |
|
Total liabilities |
|
|
2,055.7 |
1,934.7 |
|
Total equity and liabilities |
|
|
2,941.2 |
2,741.4 |
Consolidated statement of changes in equity
for the year ended 31 December 2012
|
|
Share capital |
Share premium |
Translation reserve £m |
Other reserves* £m |
Retained earnings† £m |
Total equity |
|
At 1 January 2012 |
113.8 |
136.4 |
37.3 |
10.8 |
508.4 |
806.7 |
|
Profit for the year |
|
|
|
|
195.3 |
195.3 |
|
Actuarial loss on pension schemes |
|
|
|
|
(13.5) |
(13.5) |
|
Foreign currency translation differences for foreign operations |
|
|
(47.5) |
|
|
(47.5) |
|
Gain taken to equity as a result of designated effective net investment hedges |
|
|
18.5 |
|
|
18.5 |
|
Loss recognised in cash flow hedge reserve |
|
|
|
(0.4) |
|
(0.4) |
|
Movement from cash flow hedge reserve to income statement |
|
|
|
(1.0) |
|
(1.0) |
|
Income tax (charge)/credit on other comprehensive income |
|
|
(1.0) |
0.3 |
4.4 |
3.7 |
|
Total comprehensive income |
|
|
(30.0) |
(1.1) |
186.2 |
155.1 |
|
2011 interim dividend |
|
|
|
|
(26.1) |
(26.1) |
|
2011 final dividend |
|
|
|
|
(59.6) |
(59.6) |
|
Issue of share capital |
0.4 |
7.5 |
|
|
|
7.9 |
|
Employee trust shares |
|
|
|
|
(9.6) |
(9.6) |
|
Share based payments |
|
|
|
|
11.1 |
11.1 |
|
At 31 December 2012 |
114.2 |
143.9 |
7.3 |
9.7 |
610.4 |
885.5 |
|
At 1 January 2011 |
113.3 |
133.9 |
57.5 |
9.8 |
481.9 |
796.4 |
|
Profit for the year |
|
|
|
|
123.8 |
123.8 |
|
Actuarial loss on pension schemes |
|
|
|
|
(35.5) |
(35.5) |
|
Foreign currency translation differences for foreign operations |
|
|
(10.7) |
|
|
(10.7) |
|
Loss taken to equity as a result of designated effective net investment hedges |
|
|
(9.5) |
|
|
(9.5) |
|
Gain recognised in cash flow hedge reserve |
|
|
|
0.8 |
|
0.8 |
|
Movement from cash flow hedge reserve to income statement |
|
|
|
0.6 |
|
0.6 |
|
Income tax (charge)/credit on other comprehensive income |
|
|
|
(0.4) |
11.4 |
11.0 |
|
Total comprehensive income |
|
|
(20.2) |
1.0 |
99.7 |
80.5 |
|
2010 interim dividend |
|
|
|
|
(16.6) |
(16.6) |
|
2010 final dividend |
|
|
|
|
(52.3) |
(52.3) |
|
Issue of share capital |
0.5 |
2.5 |
|
|
|
3.0 |
|
Employee trust shares |
|
|
|
|
(14.3) |
(14.3) |
|
Share based payments |
|
|
|
|
10.0 |
10.0 |
|
At 31 December 2011 |
113.8 |
136.4 |
37.3 |
10.8 |
508.4 |
806.7 |
* Other reserves comprise merger reserve of £2.5m (2011: £2.5m), capital redemption reserve of £8.6m (2011: £8.6m) and cash flow hedge reserve of £(1.4)m (2011: £(0.3)m).
† Retained earnings comprise earnings of £833.8m (2011: £722.2m) and own shares of £223.4m (2011: £213.8m).
Consolidated cash flow statement
for the year ended 31 December 2012
|
|
|
|
2012 |
2011 |
|
|
|
Notes |
£m |
£m |
|
Cash flow from operating activities |
|
|
|
|
|
Profit before income tax |
|
|
269.3 |
193.7 |
|
Adjustments: |
|
|
|
|
|
depreciation |
|
|
23.0 |
25.4 |
|
intangible amortisation and acquisition related costs |
|
|
58.6 |
56.4 |
|
share based payments |
|
|
5.7 |
5.3 |
|
disposal of business |
|
|
(4.0) |
56.0 |
|
Working capital movement |
|
|
(22.4) |
31.4 |
|
Finance income |
|
|
(22.1) |
(21.8) |
|
Finance cost |
|
|
50.6 |
51.4 |
|
Provisions |
|
|
(6.4) |
1.7 |
|
Pensions |
|
|
(7.8) |
(12.1) |
|
Other |
|
|
4.6 |
2.7 |
|
Cash generated from operations before acquisition related costs |
|
|
349.1 |
390.1 |
|
Cash outflow from acquisition related costs |
|
9 |
(20.2) |
(12.1) |
|
Income tax paid |
|
|
(63.6) |
(63.4) |
|
Cash inflow from operating activities |
|
|
265.3 |
314.6 |
|
|
|
|
|
|
|
Cash flow from investing activities |
|
|
|
|
|
Interest received |
|
|
2.2 |
2.9 |
|
Purchase of property, plant and equipment |
|
|
(23.0) |
(22.6) |
|
Sale of property, plant and equipment |
|
|
2.8 |
1.7 |
|
Purchase of businesses |
|
9 |
(234.5) |
(149.2) |
|
Disposal of business |
|
|
- |
30.6 |
|
Cash outflow from investing activities |
|
|
(252.5) |
(136.6) |
|
|
|
|
|
|
|
Cash flow from financing activities |
|
|
|
|
|
Interest paid |
|
|
(32.8) |
(33.5) |
|
Dividends paid |
|
|
(85.7) |
(68.9) |
|
Increase/(decrease) in loans |
|
|
123.8 |
(90.3) |
|
Realised losses on foreign exchange contracts |
|
|
(0.9) |
(0.2) |
|
Net purchase of employee shares |
|
|
(3.7) |
(12.6) |
|
Cash inflow/(outflow) from financing activities |
|
|
0.7 |
(205.5) |
|
|
|
|
|
|
|
Exchange loss on cash and cash equivalents |
|
|
(2.7) |
(2.4) |
|
|
|
|
|
|
|
Increase/(decrease) in cash and cash equivalents |
|
|
10.8 |
(29.9) |
|
|
|
|
|
|
|
Cash and cash equivalents at start of year |
|
|
45.0 |
74.9 |
|
Increase/(decrease) in cash and cash equivalents |
|
|
10.8 |
(29.9) |
|
Cash and cash equivalents at end of year |
|
8 |
55.8 |
45.0 |
Notes
1. Basis of preparation
The consolidated financial statements for the year ended 31 December 2012 have been approved by the directors and prepared in accordance with EU endorsed International Financial Reporting Standards ('IFRS') and interpretations of the International Financial Reporting Interpretations Committee ('IFRIC'). The consolidated financial statements have been prepared on a going concern basis and under the historical cost convention with the exception of certain items which are measured at fair value.
Bunzl plc's 2012 Annual Report will be published during March 2013. The financial information set out herein does not constitute the Company's statutory accounts for the year ended 31 December 2012 but is derived from those accounts and the accompanying directors' report. Statutory accounts for 2012 will be delivered to the Registrar of Companies following the Company's Annual General Meeting which will be held on 17 April 2013. The auditors have reported on those accounts; their report was unqualified and did not contain statements under Section 495 (4)(b) of the Companies Act 2006.
The comparative figures for the year ended 31 December 2011 are not the Company's statutory accounts for the financial year but are derived from those accounts which have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the auditors was unqualified and did not contain statements under Section 495 (4)(b) of the Companies Act 2006.
2. Segment analysis
|
|
North America |
Continental Europe |
UK & Ireland |
Rest of the World |
Corporate |
Total |
|
Year ended 31 December 2012 |
£m |
£m |
£m |
£m |
£m |
£m |
|
Revenue |
2,905.8 |
1,079.4 |
992.1 |
381.9 |
|
5,359.2 |
|
Operating profit/(loss) before intangible amortisation and acquisition related costs |
184.6 |
87.5 |
65.2 |
33.2 |
(18.1) |
352.4 |
|
Intangible amortisation |
(8.1) |
(27.7) |
(6.5) |
(5.4) |
- |
(47.7) |
|
Acquisition related costs |
(4.4) |
(3.5) |
(0.4) |
(2.6) |
- |
(10.9) |
|
Operating profit/(loss) |
172.1 |
56.3 |
58.3 |
25.2 |
(18.1) |
293.8 |
|
Finance income |
|
|
|
|
|
22.1 |
|
Finance cost |
|
|
|
|
|
(50.6) |
|
Disposal of business |
|
|
|
|
|
4.0 |
|
Profit before income tax |
|
|
|
|
|
269.3 |
|
Profit before income tax, intangible amortisation, acquisition related costs and disposal of business |
|
|
|
|
|
323.9 |
|
Income tax |
|
|
|
|
|
(74.0) |
|
Profit for the year |
|
|
|
|
|
195.3 |
|
|
North America |
Continental Europe |
UK & Ireland |
Rest of the World |
Corporate |
Total |
|||||
|
Year ended 31 December 2011 |
£m |
£m |
£m |
£m |
£m |
£m |
|||||
|
Revenue |
2,727.9 |
1,067.1 |
996.6 |
317.9 |
|
5,109.5 |
|||||
|
Operating profit/(loss) before intangible amortisation and acquisition related costs |
169.2 |
95.6 |
60.2 |
28.4 |
(17.7) |
335.7 |
|||||
|
Intangible amortisation |
(6.9) |
(27.1) |
(7.8) |
(4.7) |
- |
(46.5) |
|||||
|
Acquisition related costs |
(1.2) |
(5.2) |
(0.7) |
(2.8) |
- |
(9.9) |
|||||
|
Operating profit/(loss) |
161.1 |
63.3 |
51.7 |
20.9 |
(17.7) |
279.3 |
|||||
|
Finance income |
|
|
|
|
|
21.8 |
|||||
|
Finance cost |
|
|
|
|
|
(51.4) |
|||||
|
Disposal of business |
|
|
|
|
|
(56.0) |
|||||
|
Profit before income tax |
|
|
|
|
|
193.7 |
|||||
|
Profit before income tax, intangible amortisation, acquisition related costs and disposal of business |
|
|
|
|
|
306.1 |
|||||
|
Income tax |
|
|
|
|
|
(69.9) |
|||||
|
Profit for the year |
|
|
|
|
|
123.8 |
|||||
Acquisition related costs for the year ended 31 December 2012 include transaction costs and expenses of £6.9m (2011: £4.6m) and net deferred consideration payments of £4.0m (2011: £5.3m) relating to the continued employment of former owners of businesses acquired and earn outs.
3. Finance income/(cost)
|
|
|
|
2012 |
2011 |
|
|
|
|
£m |
£m |
|
Interest on deposits |
|
|
0.8 |
1.8 |
|
Interest income from foreign exchange contracts |
|
|
1.8 |
1.0 |
|
Expected return on pension scheme assets |
|
|
18.5 |
18.3 |
|
Other finance income |
|
|
1.0 |
0.7 |
Finance income |
|
|
22.1 |
21.8 |
|
|
|
|
|
|
|
Interest on loans and overdrafts |
|
|
(33.2) |
(32.6) |
|
Interest expense from foreign exchange contracts |
|
|
(1.0) |
(1.4) |
|
Interest charge on pension scheme liabilities |
|
|
(16.3) |
(16.4) |
|
Fair value gain on US dollar bonds in a hedge relationship |
|
|
5.7 |
5.9 |
|
Fair value loss on interest rate swaps in a hedge relationship |
|
|
(5.7) |
(5.9) |
|
Foreign exchange loss on intercompany funding |
|
|
(8.7) |
(12.9) |
|
Foreign exchange gain on external debt not in a hedge relationship |
|
|
8.9 |
12.7 |
|
Other finance expense |
|
|
(0.3) |
(0.8) |
Finance cost |
|
|
(50.6) |
(51.4) |
The foreign exchange loss on intercompany funding arises as a result of foreign currency intercompany loans and deposits. This is substantially matched by external debt to minimise this foreign currency exposure in the income statement.
4. Income tax
In assessing the underlying performance of the Group, management uses adjusted profit which excludes intangible amortisation, acquisition related costs and the profit/loss on disposal of business. Similarly the tax effect of these items are excluded in monitoring the tax rate on the adjusted profit of the Group which is shown in the table below:
|
|
|
2012 |
2011 |
|
|
|
£m |
£m |
|
Income tax on profit |
|
74.0 |
69.9 |
|
Tax associated with intangible amortisation, acquisition related costs and disposal of business |
|
15.7 |
14.3 |
|
Tax on adjusted profit |
|
89.7 |
84.2 |
|
|
|
|
|
|
Profit before income tax |
|
269.3 |
193.7 |
|
Intangible amortisation, acquisition related costs and disposal of business |
|
54.6 |
112.4 |
|
Adjusted profit before income tax |
|
323.9 |
306.1 |
|
|
|
|
|
|
Reported tax rate |
|
27.5% |
36.1% |
|
Tax rate on adjusted profit |
|
27.7% |
27.5% |
5. Dividends
|
|
|
|
|
2012 |
2011 |
|
|
|
|
|
£m |
£m |
|
2010 interim |
|
|
|
|
23.2 |
|
2010 final |
|
|
|
|
52.3 |
|
2011 interim |
|
|
|
26.1 |
|
|
2011 final |
|
|
|
59.6 |
|
|
Total |
|
|
|
85.7 |
75.5 |
Total dividends per share for the year to which they relate are:
|
|
|
|
|
Per share |
|
|
|
|
2012 |
2011 |
|
Interim |
|
|
8.80p |
8.05p |
|
Final |
|
|
19.40p |
18.30p |
|
Total |
|
|
28.20p |
26.35p |
The 2012 interim dividend of 8.80p per share was paid on 2 January 2013 and comprised £28.8m of cash.
The 2012 final dividend of 19.40p per share will be paid on 1 July 2013 to shareholders on the register at the close of business on 10 May 2013.
6. Earnings per share
|
|
|
|
2012 |
2011 |
|
|
|
|
£m |
£m |
|
Profit for the year |
|
|
195.3 |
123.8 |
|
Adjustment |
|
|
38.9 |
98.1 |
|
Adjusted profit* |
|
|
234.2 |
221.9 |
|
|
|
|
|
|
|
Basic weighted average ordinary shares in issue (million) |
|
326.1 |
324.0 |
|
|
Dilutive effect of employee share plans (million) |
|
|
1.9 |
1.9 |
|
Diluted weighted average ordinary shares (million) |
|
|
328.0 |
325.9 |
|
|
|
|
|
|
|
Basic earnings per share |
|
|
59.9p |
38.2p |
|
Adjustment |
|
|
11.9p |
30.3p |
|
Adjusted earnings per share* |
|
|
71.8p |
68.5p |
|
|
|
|
|
|
|
Diluted basic earnings per share |
|
|
59.5p |
38.0p |
|
Adjustment |
|
|
11.9p |
30.1p |
|
Adjusted diluted earnings per share* |
|
|
71.4p |
68.1p |
* Adjusted profit, adjusted earnings per share and adjusted diluted earnings per share exclude the charge for intangible amortisation, acquisition related costs and the respective associated tax net of the profit/loss on disposal of business. The intangible amortisation and associated tax and the profit/loss on disposal of business are non-cash charges which are not taken into account by management when assessing the underlying performance of the business. Similarly, the acquisition related costs and associated tax do not relate to the underlying performance of the business. Accordingly, such charges are removed in calculating the adjusted earnings per share on which management assesses the performance of the Group.
7. Intangible assets
|
|
|
2012 |
2011 |
|
Goodwill |
|
£m |
£m |
|
Beginning of year |
|
784.6 |
789.0 |
|
Acquisitions |
|
63.6 |
50.4 |
|
Disposal of business |
|
- |
(44.8) |
|
Currency translation |
|
(25.9) |
(10.0) |
|
End of year |
|
822.3 |
784.6 |
|
|
|
|
|
|
|
|
2012 |
2011 |
|
Customer relationships |
|
£m |
£m |
|
Cost |
|
|
|
|
Beginning of year |
|
707.9 |
661.0 |
|
Acquisitions |
|
94.7 |
100.4 |
|
Disposal of business |
|
- |
(35.7) |
|
Currency translation |
|
(26.3) |
(17.8) |
|
End of year |
|
776.3 |
707.9 |
|
Amortisation |
|
|
|
|
Beginning of year |
|
235.7 |
205.4 |
|
Charge in year |
|
47.7 |
46.5 |
|
Disposal of business |
|
- |
(9.3) |
|
Currency translation |
|
(7.7) |
(6.9) |
|
End of year |
|
275.7 |
235.7 |
|
|
|
|
|
|
Net book value at 31 December |
|
500.6 |
472.2 |
|
|
|
|
|
|
Total net book value of intangible assets at 31 December |
|
1,322.9 |
1,256.8 |
Both goodwill and customer relationships have been acquired as part of business combinations. Customer relationships are amortised over their estimated useful lives which range from 10 to 19 years.
8. Cash and cash equivalents and net debt
|
|
2012 |
2011 |
|
||
|
|
£m |
£m |
|
||
|
Cash at bank and in hand |
77.0 |
63.6 |
|
||
|
Short term deposits repayable in less than three months |
4.2 |
10.6 |
|
||
|
Cash and deposits |
81.2 |
74.2 |
|
||
|
Bank overdrafts |
(25.4) |
(29.2) |
|
||
|
Cash and cash equivalents |
55.8 |
45.0 |
|
||
|
|
|
|
|
||
|
Current liabilities |
(204.9) |
(37.5) |
|
||
|
Non-current liabilities |
(599.2) |
(678.8) |
|
||
|
Derivative assets - fair value of interest rate swaps on fixed interest rate borrowings |
10.2 |
18.4 |
|
||
|
Interest bearing loans and borrowings |
(793.9) |
(697.9) |
|
||
|
Net debt |
(738.1) |
(652.9) |
|
||
|
|
|
|
|
||
|
|
2012 |
2011 |
|
||
|
Movement in net debt |
£m |
£m |
|
||
|
Beginning of year |
(652.9) |
(716.8) |
|
||
|
Net cash (outflow)/inflow |
(109.4) |
63.0 |
|
||
|
Realised losses on foreign exchange contracts |
(0.9) |
(0.2) |
|
||
|
Currency translation |
25.1 |
1.1 |
|
||
|
End of year |
(738.1) |
(652.9) |
|||
9. Acquisitions
2012
The principal acquisitions made or agreed to be made in the year ended 31 December 2012 were CDW Merchants, the redistribution business of Star Services International, FoodHandler, Zahav, Service Paper, Distrimondo, Indigo Concept Packaging, Atlas Health Care, McCordick Glove & Safety, Vicsa Safety, Destiny Packaging, Vicsa Brasil and Schwarz Paper Company.
CDW Merchants, a business principally engaged in the sale of retail gift packaging and visual merchandising solutions and products to the specialty retail and online retailing sectors throughout the US, was acquired on 21 February 2012. The Star Services International redistribution business, which is principally engaged in the supply of foodservice disposable products to wholesalers and redistributors throughout Queensland, Australia, was acquired on 27 April 2012. FoodHandler, a leading supplier of a variety of disposable gloves and other foodhandling products to the foodservice sector throughout the US, was acquired on 30 April 2012. Zahav, a leading distributor of packaging supplies to the foodservice sector throughout Israel was acquired on 30 April 2012. Service Paper, a business principally engaged in the distribution of disposable supplies to the grocery, foodservice, food processor and industrial packaging sectors throughout the Pacific Northwest in the US, was acquired on 11 June 2012. Distrimondo, a business principally engaged in the distribution of foodservice disposables and cleaning and hygiene products throughout Switzerland, was acquired on 29 June 2012. Indigo Concept Packaging, a business based in the UK and principally engaged in the sale of quality retail packaging products, was acquired on 3 October 2012. Atlas Health Care, a business principally engaged in the supply of medical consumables to the healthcare sector in South Australia, was acquired on 31 October 2012. McCordick Glove & Safety, a distributor of gloves and other personal protection equipment to a variety of industrial and retail customers as well as to redistributors, was acquired on 14 December 2012. Destiny Packaging, a leading distributor of flexible packaging supplies to fruit and vegetable growers in the US, was acquired on 20 December 2012. Vicsa Safety, a business specialising in the sourcing and sale of a variety of personal protection equipment throughout Chile, Peru, Argentina, Colombia and Mexico, was acquired on 21 December 2012. Schwarz Paper Company, a business based in Chicago and principally engaged in the provision of consumables and supply chain solutions for the non-food retail and grocery sectors, was acquired on 28 December 2012.
The Company also entered into an agreement to acquire Vicsa Brasil on 21 December 2012 which distributes personal protection equipment throughout Brazil. Following clearance from the Brazilian Competition Authority, the acquisition was completed on 19 February 2013.
Acquisitions have been accounted for under the acquisition method of accounting, involving the purchase of the acquiree's share capital or, as the case may be, the relevant assets of the businesses acquired. Part of the Group's strategy is to grow through acquisition. The Group has developed a process to assist with the identification of the fair values of the assets acquired and liabilities assumed, including the separate identification of intangible assets in accordance with IFRS 3 'Business Combinations'. This formal process is applied to each acquisition and involves an assessment of the assets acquired and liabilities assumed with assistance provided by external valuation specialists where appropriate. Until this assessment is complete, the allocation period remains open up to a maximum of 12 months from the relevant acquisition date. At 31 December 2012 the allocation period for all acquisitions completed since 1 January 2012 remained open and accordingly the fair values presented are provisional.
Adjustments are made to the assets acquired and liabilities assumed during the allocation period to the extent that further information and knowledge come to light that more accurately reflect conditions at the acquisition date. To date the adjustments made have impacted assets acquired to reflect more accurately the estimated realisable or settlement value. Similarly adjustments have been made to acquired liabilities to record onerous commitments or other commitments existing at the acquisition date but not recognised by the acquiree. Adjustments have also been made to reflect the associated tax effects.
The consideration paid or agreed to be paid on completion, deferred consideration and payments which are contingent on the continued employment of former owners of businesses acquired. IFRS 3 requires that any such payments that are contingent on future employment are charged to the income statement. All other consideration has been allocated against the identified net assets, with the balance recorded as goodwill. Transaction costs and expenses such as professional fees are charged to the income statement. The acquisitions provide opportunities for further development of the Group's activities and create enhanced returns. Such opportunities and the workforces inherent in each of the acquired businesses do not translate to separately identifiable intangible assets but do represent much of the assessed value that supports the recognised goodwill.
A summary of the effect of acquisitions completed in 2012 is detailed below:
|
|
Book value at acquisition £m |
Provisional fair value adjustments £m |
Fair value of assets acquired £m |
|
Intangible assets |
|
94.7 |
94.7 |
|
Property, plant and equipment |
9.3 |
(1.2) |
8.1 |
|
Inventories |
81.0 |
(1.2) |
79.8 |
|
Trade and other receivables |
72.0 |
(0.2) |
71.8 |
|
Trade and other payables |
(54.3) |
(5.1) |
(59.4) |
|
Net bank overdrafts |
(21.8) |
|
(21.8) |
|
Provisions for liabilities and charges |
|
(2.3) |
(2.3) |
|
Tax and deferred tax |
(0.2) |
(14.2) |
(14.4) |
|
|
86.0 |
70.5 |
156.5 |
|
Goodwill |
|
|
63.6 |
|
Consideration |
|
|
220.1 |
|
Satisfied by: |
|
|
|
|
cash consideration |
|
|
206.0 |
|
deferred consideration |
|
|
13.1 |
|
other consideration |
|
|
1.0 |
|
|
|
|
220.1 |
|
Contingent payments to former owners |
|
|
16.3 |
|
Net bank overdrafts acquired |
|
|
21.8 |
|
Transaction costs and expenses |
|
|
6.9 |
|
Total expected spend in respect of current year completed acquisitions |
|
|
265.1 |
|
Committed spend in respect of current year acquisitions not completed |
|
|
7.2 |
|
Total committed spend in respect of current year acquisitions |
|
|
272.3 |
|
|
|
|
|
|
The net cash outflow in the year in respect of acquisitions comprised: |
|
|
|
|
Cash consideration |
|
|
206.0 |
|
Net bank overdrafts acquired |
|
|
21.8 |
|
Deferred consideration in respect of prior year acquisitions |
|
|
6.7 |
|
Net cash outflow in respect of acquisitions |
|
|
234.5 |
|
Acquisition related costs |
|
|
20.2 |
|
Total cash outflow in respect of acquisitions |
|
|
254.7 |
Acquisitions made in the year ended 31 December 2012 contributed £111.3m to the Group's revenue and £8.7m to the Group's operating profit before intangible amortisation and acquisition related costs.
The estimated contributions of businesses acquired or agreed to be acquired to the results of the Group, as if the acquisitions had been made at the beginning of the year, are as follows:
|
|
£m |
|
Revenue |
518.4 |
|
Operating profit before intangible amortisation and acquisition related costs |
36.1 |
2011
The principal acquisitions made in the year ended 31 December 2011 were Omega, Cannon Consumables, Hospitality Depot, King Espana, SIG Safety and Workwear, Netpak, D-Care, Majestic, Ideal and Danny.
Omega, a business principally engaged in the supply of catering equipment and disposables to contract caterers, hotels and other foodservice customers in New South Wales, Australia, was acquired on 4 March 2011. Cannon Consumables, a business principally engaged in the supply of cleaning and hygiene consumable products, was acquired on 31 March 2011. Hospitality Depot, a business principally engaged in the distribution of catering equipment and supplies to hotels, restaurants and caterers as well as to aged care facilities and education establishments in New South Wales, Australia, was acquired on 6 May 2011. King Espana, a leading distributor of foodservice disposables and cleaning and hygiene supplies to the catering and cleaning sectors in Spain, was acquired on 26 May 2011. SIG Safety and Workwear, a leading distributor of personal protection equipment and workwear to a variety of market sectors throughout the UK, was acquired on 31 May 2011. Netpak, a business principally engaged in the supply of packaging supplies and equipment to a variety of sectors throughout Canada, was acquired with effect from 1 July 2011. D-Care, a business principally engaged in the distribution of medical disposable products to hospitals and other healthcare customers throughout the Netherlands, was acquired on 2 September 2011. Majestic and its associated companies, which supply personal protection equipment and safety products to customers in the Benelux, Germany and the US, was acquired on 23 September 2011. Ideal, a leading supplier of cleaning and hygiene consumable products to facilities management companies, contract cleaners and other customers in the industrial, healthcare and education sectors in Brazil, was acquired on 22 September 2011. Danny, a leading supplier of personal protection equipment throughout Brazil, specialising in the sourcing and sale of gloves and safety glasses for a variety of industrial uses including the automotive, consumer goods, food processing, petrochemical and mining sectors, was acquired on 3 November 2011.
A summary of the effect of acquisitions completed in 2011 is detailed below:
|
|
Book value at acquisition £m |
Fair value adjustments £m |
Fair value of assets acquired £m |
|
Intangible assets |
|
100.4 |
100.4 |
|
Property, plant and equipment |
5.4 |
(0.8) |
4.6 |
|
Inventories |
34.2 |
(6.8) |
27.4 |
|
Trade and other receivables |
32.6 |
(1.2) |
31.4 |
|
Trade and other payables |
(19.4) |
(2.4) |
(21.8) |
|
Net cash |
3.0 |
|
3.0 |
|
Provisions for liabilities and charges |
|
(3.7) |
(3.7) |
|
Tax and deferred tax |
(1.4) |
(22.7) |
(24.1) |
|
|
54.4 |
62.8 |
117.2 |
|
Goodwill |
|
|
50.4 |
|
Consideration |
|
|
167.6 |
|
Satisfied by: |
|
|
|
|
cash consideration |
|
|
144.8 |
|
deferred consideration |
|
|
22.8 |
|
|
|
|
167.6 |
|
Contingent payments to former owners |
|
|
15.7 |
|
Net cash acquired |
|
|
(3.0) |
|
Transaction costs and expenses |
|
|
4.6 |
|
Total expected spend in respect of current year acquisitions |
|
|
184.9 |
|
|
|
|
|
|
The net cash outflow in the year in respect of acquisitions comprised: |
|
|
|
|
Cash consideration |
|
|
144.8 |
|
Net cash acquired |
|
|
(3.0) |
|
Deferred consideration in respect of prior year acquisitions |
|
|
7.4 |
|
Net cash outflow in respect of acquisitions |
|
|
149.2 |
|
Acquisition related costs |
|
|
12.1 |
|
Total cash outflow in respect of acquisitions |
|
|
161.3 |
Acquisitions made in the year ended 31 December 2011 contributed £89.6m to the Group's revenue and £9.4m to the Group's operating profit before intangible amortisation and acquisition related costs.
The estimated contributions of acquired businesses to the results of the Group, as if the acquisitions had been made at the beginning of the year, are as follows:
|
|
£m |
|
Revenue |
204.3 |
|
Operating profit before intangible amortisation and acquisition related costs |
24.2 |
10. Related party transactions
The Group has identified the directors of the Company, the Group pension schemes and its key management as related parties for the purpose of IAS 24 'Related Party Disclosures'. There have been no transactions with those related parties during the year ended 31 December 2012 that have materially affected the financial position or performance of the Group during this period. All transactions with subsidiaries are eliminated on consolidation.
11. Principal risks and uncertainties
The Group operates in many business environments and across a number of geographies in which risks and uncertainties exist, not all of which are necessarily within the Company's control. The risks identified in the 2011 Annual Report remain those of most concern to the business at the end of 2012. However in particular the risks relating to the impact of price deflation and competitive pressures are considered to have increased and the risk relating to financial liquidity has decreased since the previous year. The principal risks and uncertainties faced by the Group and the steps taken to mitigate such risks and uncertainties are detailed below. This summary is not intended to be exhaustive and is not presented in order of potential probability or impact.
Competitive pressures - The Group operates in highly competitive markets and faces competition from international companies as well as national, regional and local companies in the countries in which it operates. Increased competition and unanticipated actions by competitors or customers could lead to an adverse effect on results and hinder the Group's growth potential, either through pressure on margins or loss of customers.
The Group seeks to remain competitive by maintaining high service levels and close contacts with its customers to ensure that their needs and demands are being met satisfactorily, developing a national presence in the markets in which the Group operates and maintaining strong relationships with a variety of different suppliers thereby enabling the Group to offer a broad range of products to its customers.
Product price changes - The purchase price and availability of products distributed by the Group can fluctuate from time to time, thereby potentially affecting the results of operations. Adverse economic conditions resulting in a period of commodity price deflation and increased levels of imported products may lead to reductions in the price and value of the Group's products. If this were to occur, the Group's revenue and, as a result, its profits, could be reduced and the value of inventory held in stock may not be fully recoverable.
The Group endeavours, whenever possible, to pass on price increases from its suppliers to its customers and to source its products from a number of different suppliers so that it is not dependent on any one source of supply for any particular product. Increased focus on the Group's own import programmes and brands, together with the reinforcement of the Group's service and product offering to customers, helps to minimise the impact of price deflation.
The Group mitigates against the risk of holding overvalued inventory in a deflationary environment by managing stock levels efficiently and ensuring they are kept to a minimum.
Economic environment - The Group's business is partially dependent on general economic conditions in the US, the UK, France and other important markets. A significant deterioration in these conditions could have an adverse effect on the Group's business and results of operations.
The Group's operations and its customer base are diverse, with a variable and flexible cost base, and many of the sectors in which it competes are traditionally, by their nature, relatively resilient to economic downturns.
Foreign exchange - The majority of the Group's sales are made and income is earned in US dollars, euros and other foreign currencies. As a result, movements in exchange rates may have a material translation impact on the Group's reported results.
The Group believes that the benefits of its geographical spread outweigh the associated risks.
The Group may also be subject to transaction exposures where products are purchased in one currency and sold in another and movements in exchange rates may also adversely affect the value of the Group's net assets.
The majority of the Group's transactions are carried out in the functional currency of the Group's operations. As a result, transaction exposures are usually limited and exchange rate fluctuations have minimal effect on the quality of earnings unless there is a sudden and significant adverse movement of a foreign currency in which products are purchased which may lead to a delay in passing on to customers the resulting price increases.
The Group's businesses, reported results and net assets could similarly be affected by the exit from the eurozone of countries where the Group has operations.
Although the consequences of a country leaving the eurozone, and the resulting impact this will have on other countries both within and outside the eurozone, are difficult to predict, the Group's operations in those countries most likely to do so at the current time are relatively small.
Financial liquidity and debt covenants - The Group needs continuous access to funding in order to meet its trading obligations, to support investment in organic growth and to make acquisitions when appropriate opportunities arise. There is a risk that the Group may be unable to obtain the necessary funds when required or that such funds will only be available on unfavourable terms.
The Group arranges a mixture of borrowings from different sources and continually monitors net debt and forecast cash flows to ensure that it will be able to meet its financial obligations as they fall due and that sufficient facilities are in place to meet the Group's requirements in the short, medium and long term.
The Group's borrowing facilities include a requirement to comply with certain specified covenants in relation to the level of net debt and interest cover. A breach of these covenants could result in a significant proportion of the Group's borrowings becoming repayable immediately.
Compliance with the Group's biannual debt covenants is monitored on a monthly basis based on the management accounts. Sensitivity analyses using various scenarios are applied to forecasts to assess their impact on covenants.
Acquisitions - A significant portion of the Group's historical growth has been achieved through the acquisition of businesses and the Group's growth strategy includes additional acquisitions. Although the Group operates in a number of fragmented markets which provide future acquisition opportunities, there can be no assurance that the Group will be able to make acquisitions in the future or that any acquisitions made will be successful.
The Group's acquisition strategy is to focus on those businesses which operate in sectors where it has or can develop competitive advantage and which have good growth opportunities. The Group continually reviews acquisition targets and has established processes and procedures with regard to detailed pre-acquisition due diligence and post-acquisition integration.
In the longer term, if an acquisition consistently underperforms compared to its original investment case, there is a risk that this will lead to a permanent impairment in the carrying value of the intangible assets attributed to that acquisition.
The Group endeavours to maximise the performance of an acquisition through the recruitment and retention of high quality management combined with effective strategic planning, investment in resources and infrastructure and regular reviews of performance by both business area and Group management.
Business continuity - The Group would be affected if there was a significant failure of its major distribution facilities or information systems.
The Group seeks to reduce the impact of facilities' failure through the use of multi-site facilities with products stocked in more than one location and the impact of information systems' failure through the adoption of detailed back up plans which are periodically tested and which would be implemented in the event of any such failure.
Laws and regulations - The international nature of the Group's operations exposes it to potential claims as the Group is subject to a broad range of laws and regulations in each of the jurisdictions in which it operates.
Although the Group does not operate in particularly litigious market sectors, it has in place processes to report, manage and mitigate against third party litigation using external advisers where necessary.
In addition the Group faces potential claims from customers in relation to the supply of defective products or breaches of their contractual arrangements. The sourcing of products from lower cost countries increases the risk of the Group being unable to recover any potential losses relating thereto from the relevant supplier.
The use of reputable suppliers and internal quality assurance and quality control procedures reduce the risks associated with defective products.
12. Forward-looking statements
This announcement contains certain statements about the future outlook for the Group. Although the Company believes that the expectations are based on reasonable assumptions, any statements about future outlook may be influenced by factors that could cause actual outcomes and results to be materially different.
13. Responsibility statements
The Annual Report and financial statements comply with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority in respect of the requirement to produce an annual financial report.
We confirm on behalf of the Board that to the best of our knowledge:
· the Group and parent company financial statements have been prepared in accordance with the applicable set of accounting standards and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
· the Annual Report and financial statements include a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
On behalf of the Board
Michael Roney Brian May
Chief Executive Finance Director
25 February 2013
This information is provided by RNS
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