Final Results
Monday 24 February 2014
ANNUAL RESULTS ANNOUNCEMENT
Bunzl plc, the international distribution and outsourcing Group, today publishes its annual results for the year ended 31 December 2013.
|
|
2013 |
2012◊ |
Growth as reported |
Growth at constant exchange |
10 year CAGR as reported◊ |
|
Revenue |
£6,097.7m |
£5,359.2m |
14% |
12% |
11% |
|
Operating profit* |
£414.4m |
£352.4m |
18% |
16% |
10% |
|
Profit before tax† |
£372.2m |
£318.4m |
17% |
16% |
10% |
|
Adjusted earnings per share† |
82.4p |
70.6p |
17% |
15% |
11% |
|
Dividend for the year |
32.4p |
28.2p |
15% |
|
10% |
|
|
|
|
|
|
|
|
Operating profit |
£332.1m |
£293.8m |
13% |
|
|
|
Profit before tax |
£289.9m |
£263.8m |
10% |
|
|
|
Basic earnings per share |
63.5p |
58.7p |
8% |
|
|
Other highlights include:
· Strong double digit percentage increases in revenue, operating profit* and adjusted earnings per share†
· Acquisition spend of £295 million on 11 acquisitions in all business areas
· Group operating margin* up 20 basis points to 6.8%, with UK & Ireland back to 7.0%
· Rest of the World operating profit* up 65% at constant exchange rates to £51.2 million
· Another year of strong cash flow with operating cashflow** to operating profit* of 102%
· Net debt to EBITDA* at same level of 1.8 times despite £280 million acquisition cash outflow
· 21 year track record of strong dividend growth continues with an increase of 15%
◊ Restated on adoption of IAS19 (revised 2011) 'Employee Benefits' (see Note 1)
* 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 that Bunzl has delivered another excellent set of results with strong increases in revenue, operating profit, earnings and dividend. Organic growth, as we continued to gain additional business with existing customers combined with new customer wins, was bolstered further by acquisition activity with 11 acquisitions during the year.
We have announced two acquisitions today in Germany and the Czech Republic and we expect to complete further acquisitions in the coming months. We believe that an improving macroeconomic outlook, Bunzl's strong competitive position and the full year impact of the 2013 acquisitions should lead to good growth at constant exchange rates in 2014 as we continue to build value for our shareholders."
Enquiries:
|
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
Results
Although there were signs of improving macroeconomic conditions in some of the countries in which we operate, the market conditions in many of our sectors remained challenging throughout 2013. I am therefore delighted to be able to report an excellent set of results for 2013.
Group revenue increased to £6,097.7 million (2012: £5,359.2 million), an increase of 12% at constant exchange rates, due to organic growth of 2% combined with the impact of acquisitions.
Operating profit before intangible amortisation and acquisition related costs was £414.4 million (2012: £352.4 million), up 16% at constant exchange rates, with the improvement in the Group operating margin being driven by both organic growth and the impact of acquisitions. Adjusted earnings per share before intangible amortisation, acquisition related costs and the vending disposal were 82.4p (2012: 70.6p), an increase of 15% at constant exchange rates.
Positive currency translation movements, principally in the US dollar and euro, which were partly offset by adverse exchange rate movements elsewhere, increased the reported Group growth rates by around a further 2%.
Dividend
The Board is recommending a final dividend of 22.4p. This brings the total dividend for the year to 32.4p, up 15% compared to 2012. Shareholders will again have the opportunity to participate in our dividend reinvestment plan.
Strategy
We have continued to pursue our consistent and proven strategy of developing the business through organic growth, consolidating our markets through focused acquisitions and continuously improving the efficiency of our operations. Once again this has resulted in another successful year of growth for the Group.
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, reducing carbon emissions and simplifying their internal administration.
Acquisition activity continued at a similar pace to that seen in 2012. In addition to completing in February 2013 the purchase of Vicsa Brasil, which we agreed to acquire in December 2012, we made 11 acquisitions in the year. The committed spend in respect of these 11 acquisitions was £295 million, adding annualised revenue of over £280 million. 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
Investment in the business to support our growth strategy and to expand and enhance our asset base is an ongoing process. During the year we have continued to improve existing warehouses and open new ones. Upgrading our IT systems is also an important task as we integrate new businesses into the Group and increase the functionality and efficiency of our existing operations.
Corporate Responsibility
We continue to emphasise the requirement for high standards of business practice and sustainable operating processes throughout the Group. Bunzl has collected and analysed environmental performance data from across the businesses for a number of years. As the Group has grown, the collation of this data has become more complex and therefore we have, for the first time, obtained external independent assurance of our CO2 emissions and fuel usage data. We have also continued to review and enhance our policies and procedures to ensure that we remain compliant with changing practices and legislation and over the last year have focused on further understanding our waste stream and working with our suppliers to ensure compliance with recently introduced timber regulations.
Employees
A key differentiator of Bunzl is its long serving and loyal workforce. We believe that this is, in part, due to our decentralised organisation structure. This structure allows our people to understand easily their responsibilities and gives them the space to operate efficiently and effectively. We very much appreciate their consistent high levels of service, performance and hard work. As Bunzl continues to grow by acquisition, we benefit from new ideas and collaboration between our employees from across the world to improve our customer service and introduce more innovative products to our customers.
CHIEF EXECUTIVE'S REVIEW
Operating performance
The Group has had another successful year in 2013 due to a combination of some organic growth, good performances from the acquisitions made in 2012 and a high level of acquisition spend during the year.
The overall positive translation effect of currency movements has increased the reported Group growth rates of revenue and operating profit by approximately 2%. 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 2012 at the average rates used for 2013. Unless otherwise stated, all references in this review to operating profit are to operating profit before intangible amortisation and acquisition related costs.
Revenue increased 12% (14% at actual exchange rates) to £6,097.7 million and operating profit was £414.4 million, an increase of 16% (18% at actual exchange rates). The percentage growth in operating profit was greater than that of revenue due to the improvement in Group operating margin at both actual and constant exchange rates by 20 basis points to 6.8% as a result of improved levels of profitability in some businesses and the impact of acquisitions.
In North America revenue rose 15% (17% at actual exchange rates) due to good organic revenue growth and the impact of acquisitions completed in both 2012 and 2013, while operating profit increased 14% (16% at actual exchange rates). Revenue in Continental Europe rose 2% (7% at actual exchange rates) as a result of improved organic revenue growth and the impact of acquisitions, with operating profit up 6% (11% at actual exchange rates) as margins improved. In UK & Ireland revenue was up 2% (3% at actual exchange rates) due to the impact of relatively small acquisitions, but operating profit rose 10% at both constant and actual exchange rates as margins continued to recover during the year. In Rest of the World revenue increased 47% (38% at actual exchange rates) and operating profit was up 65% (54% at actual exchange rates) due to both good organic revenue growth and the substantial impact of acquisitions.
Basic earnings per share were 7% higher (8% at actual exchange rates) at 63.5p. Adjusted earnings per share, after eliminating the effect of intangible amortisation, acquisition related costs and the disposal of vending, were 82.4p, an increase of 15% (17% at actual exchange rates). The return on average operating capital increased from 56.5% to 56.9%. Return on invested capital was 17.9%, in line with 2012, despite our ongoing acquisition spend.
Our operating cash flow continued to be strong with the ratio of operating cash flow before acquisition related costs to operating profit at 102%. The net debt to EBITDA ratio was 1.8 times, the same level as at the previous year end despite an acquisition cash outflow of £279.9 million.
Corporate Responsibility ('CR') remains intrinsic to the effective running of our business. In particular we have continued to give outstanding customer service by providing innovative products and service solutions, many of which assist our customers in reducing their impact on the environment. During the year Bunzl has received a number of awards for CR activities from customers, public bodies and other organisations.
Acquisitions
Our committed acquisition spend in 2013 of £295 million was slightly higher than in 2012 and was the highest level since 2004. During the year 11 transactions were completed in addition to the completion in February 2013 of the purchase of Vicsa Brasil which we agreed to acquire in December 2012.
At the end of January 2013 we acquired McNeil Surgical in Australia. With revenue of £10 million in 2013, the business is engaged in the sale of healthcare consumables and equipment to aged care facilities, hospitals and medical centres as well as to distributors and increases our market presence in this growing sector. We completed the purchase of Vicsa Brasil in February, the proposed acquisition of which was agreed in December 2012, following clearance of the transaction from the Brazilian Competition Authority. Based in São Paulo, the business is engaged in the sale of personal protection equipment throughout Brazil and expands our growing safety business in Brazil. Revenue in 2013 was £6 million. In March we purchased Labor Import, a business principally engaged in the supply and distribution of own label medical and healthcare consumable products to distributors as well as to hospitals, clinics, laboratories and care homes throughout Brazil. Revenue in 2013 was £15 million. This is another important step for Bunzl as it represents our first move into the healthcare sector in Brazil, having previously acquired businesses in the safety and cleaning and hygiene sectors. The acquisition of MDA in the UK was also completed in March. The business, which had revenue in 2013 of £23 million, is involved in the procurement and fulfilment of promotional products and marketing point of sale materials for a variety of customers, principally in the food and drinks industries.
Our business in Australia was significantly expanded at the end of April with the purchase of three businesses which formed part of the Industrial & Safety division of Jeminex. The workwear and personal safety business distributes an extensive range of specialist personal protection equipment and workwear to the mining, resources, construction and general industrial sectors. The lifting, rigging and height safety business is principally engaged in the supply of lifting chains and ropes, slings and load restraints as well as the provision of accredited testing and repair services. The third business is involved in the supply of industrial packaging products to a variety of customers in different market sectors. Revenue of the acquired businesses was £98 million in 2013.
The acquisition of TFS in the UK was completed at the end of July. With revenue of £9 million in 2013, TFS complements MDA and has further strengthened that part of our business in the UK which is focused on marketing and point of sale materials. Espomega, which supplies a variety of safety products to distributors throughout Mexico, was acquired at the end of August. Revenue was £27 million in 2013 and the acquisition has expanded significantly our safety business in Mexico. ProEpta, a leading distributor of catering equipment throughout Mexico, principally to luxury hotels and restaurants, was acquired in September. Revenue in 2013 was £18 million.
Wesclean, a business engaged in the distribution of cleaning and hygiene equipment and supplies to a variety of customer markets throughout Western Canada with revenue of £40 million in 2013, was acquired in November. Our safety business in Germany was expanded with the acquisition at the end of November of pka Klöcker, a business based near Düsseldorf engaged in the sale to distributors of personal protection equipment, principally own label workwear. Revenue in 2013 was £5 million. De Santis, a business based near São Paulo principally engaged in the sale of personal protection equipment to end user customers in a number of different market sectors and with revenue of £5 million in 2013, was acquired in December. Finally, SAS Safety, a business based in California specialising in the sourcing and sale to distributors of a variety of own label personal protection equipment, principally safety gloves, was also acquired in December. Revenue in 2013 was £31 million.
Today we are announcing the acquisition of Bäumer and Protemo in Germany and Oskar Plast in the Czech Republic. The businesses in Germany had aggregated revenue of €11.9 million (c.£10 million) in 2013 and represent our first step into the cleaning and hygiene and healthcare sectors in Germany. Oskar Plast had revenue of CZK284 million (c.£9 million) in 2013 and has expanded our operations in the Czech Republic.
North America
In North America revenue increased by 15% to £3,401.7 million due to organic sales growth from new customer wins and overall revenue gains in our existing business, together with the impact of acquisitions, particularly those businesses purchased in 2012. This sales growth contributed to an operating profit increase of 14% to £213.6 million.
Our largest business, which serves the grocery sector, continued to produce solid results in 2013. We maintained strong positions with our existing large national and regional customers. We also gained several new locally based accounts to bolster our sales in this sector during the year. Our uniform IT platform and ability to execute our programmes on a local, regional and national basis give us a distinct competitive advantage and the ability to accommodate supply chain disruptions, such as those caused by bad weather, and thereby sustain our level and quality of service.
The redistribution business once again provided opportunities for our distributor customers to increase their sales and profitability. As a result of our distribution scale and proximity, customers can rely on our one-stop-shop offering, excellent fill rates, dependable delivery capabilities and extensive product lines and use us as a virtual extension of their own inventory. Customers can thereby improve their asset utilisation and reallocate storage space to higher revenue generating items previously occupied by the items we provide. Our domestically sourced, environmentally friendly and imported private label lines give customers the opportunity to substitute quality private label alternatives to increase their gross margins and profits. Our sales teams assist in consolidating the sources of supply that lead to administrative and operating cost reductions. Additionally, we provide sophisticated marketing tools to drive increased customer sales of our products. The acquisition of SAS Safety in December is a significant and strategic addition to our safety business in North America.
We are increasing our marketing and communication activities through the FoodHandler brand, which is recognised by the foodservice market for excellence in innovation, quality and safety. We also established a new FoodHandler distribution centre in the Midwest, in addition to our existing East and West Coast facilities, to reduce our operating costs, improve product availability and reduce lead times.
Our food processor business continued to grow through our ability to supply a wide range of MRO, personal protection equipment and packaging products to major producers in the meat, field and fresh cut produce, dairy and prepared foods industries. We gained business with growers, packers and retailers through our Cool Pak, Netpak and Destiny Packaging businesses which assist our customers in designing and sourcing both flexible and rigid packaging solutions and programmes that meet their specialised needs in the agricultural processing sector.
Our business serving the non-food retail sector expanded further despite the slow growth in US retail sales. Our uniform operating platform, coupled with our extensive branch network, give us the ability to create programmes that offer our retail customers centralised account management while leveraging our sourcing and import expertise thereby enabling us to service retailer locations on a local basis coast to coast. Further integrating the expertise, facilities and customer base of Schwarz Paper Company, which we acquired in December 2012, has strengthened our retail fulfilment capabilities and position in the marketplace. Schwarz has also extended our product lines, especially in-store fixtures and store supplies. Their materials consolidation division offers a dynamic solution for our customers in handling store fixtures and equipment. Similarly CDW Merchants, which was also acquired in 2012, continues to deliver creative expertise in the design of point of sale displays and specialty retail packaging. Overall, the retail supplies businesses are together able to offer a wide breadth of resources to our customers in this sector.
The convenience store sector also expanded in 2013. We have partnered with retail convenience store chains and increased the breadth of product lines provided through our programmes to assist retailers in improving their in-store offerings. We also developed our retail redistribution programme during the year and now distribute products for two of our preferred suppliers through a national wholesaler.
We increased the breadth of our imported private label product offering and significantly grew our import business. In order to do so we continued to utilise our state-of-the-art Shanghai export consolidation centre, quality control services and international logistics expertise. As a result, we have realigned our import sales and marketing resources to focus on growing import programme sales.
The recent acquisition of ProEpta in Mexico expands our presence in the restaurant and hospitality sector. This also gives us the opportunity to expand the business into other product lines available through our existing operations there.
Our business in Canada continued to grow and produce good results. McCordick Glove & Safety, acquired in 2012, performed well and has gained several new national accounts. Our recent acquisition of Wesclean has significantly expanded our operations in the cleaning and hygiene sector in Canada and broadened the range of products we can offer.
Continental Europe
Revenue rose by 2% to £1,151.5 million and operating profit improved 6% to £97.0 million. While macroeconomic conditions remained challenging, overall profitability and operating margins have improved due to a combination of organic sales growth, improved margin management, continued tight cost control and the full year impact of the 2012 acquisitions of Zahav and Distrimondo together with the acquisition of pka Klöcker in late November 2013.
In France, our cleaning and hygiene business saw a slight decline in sales but improved its gross margin despite ongoing market pressures, particularly in the healthcare and public sectors, helped partly by an increase in sales of own brand products. Cost reduction measures continued to deliver savings such that operating profit improved significantly following the reduction in profit last year. Our personal protection equipment business enjoyed good sales growth and consequently improved its operating profit.
In the Netherlands, sales improved in the healthcare, cleaning and hygiene and horeca (hotel, restaurant and catering) sectors. However sales declined in the food and non-food retail sectors given the ongoing market pressures on our customers in these sectors. While overall sales decreased slightly, margins improved and cost increases were kept to a minimum. Two of our businesses successfully migrated to a new IT system. The personal protection equipment and safety products business recorded strong sales growth from gaining market share and achieved better margins from the increase in sales of own brand products. Overall the operating profit for the Netherlands was at a similar level to the previous year.
In Belgium, we recorded strong sales growth in the cleaning and hygiene sector, particularly from increasing business with a number of existing key accounts, although sales remained weak in the retail sector. With margins improving, profitability grew strongly.
In Germany, stronger sales to hotels and butchers were offset by weaker trading in the foodservice and bakery sectors. Margins improved and costs were reduced leading to an increase in operating profit. At the end of November we acquired pka Klöcker which is engaged in the sale of personal protection equipment, principally own label workwear, to distributors. The business is integrating well and will help improve our position in the safety sector in Germany through cross-selling activities with our existing operations, including Majestic. The recent acquisition of Bäumer and Protemo in January 2014 has extended our business in Germany into the cleaning and hygiene and healthcare sectors.
In Switzerland, our Weita business increased sales, in particular in the retail and medical sectors, but margins remained under pressure and operating profit declined. We have benefited from the full year impact of the acquisition of Distrimondo in mid 2012 which continues to trade well and benefit from the significant synergies generated from the combination with Weita.
In Denmark, sales of personal protection equipment and packaging increased and revenue to horeca distributors improved but sales of horeca products to the public sector, which continues to seek significant cost savings, declined leading to a fall in overall revenue. Gross margins stabilised in the retail sector but declined in the horeca market, particularly as a result of public sector customers issuing a number of major tenders. Costs were reduced due to the impact of the new IT system in our horeca business and the same system was successfully implemented into the retail business but this was not sufficient to offset fully the reduction in gross margin leading to a decrease in operating profit.
In Spain, trading conditions have started to improve although our cleaning and hygiene business saw full year sales decline slightly compared to 2012. Sales increased in our personal protection equipment businesses, particularly due to exports, but also as a result of a return to modest growth in the Spanish economy in recent months. Margins improved in both sectors and cost increases were limited such that operating profit grew well. During the year we consolidated our various warehouses in Catalonia into one new facility which will generate cost savings going forward.
In central Europe, sales grew strongly, particularly in Romania and the retail business in Hungary, although margins remained under pressure across the region. Costs were carefully controlled and operating profit grew significantly. The purchase of Oskar Plast in February 2014 is an important addition to our business in the Czech Republic.
In Israel, Silco saw sales decline following the loss of a major customer. This was more than compensated for by the full year impact of the 2012 acquisition of Zahav but overall operating profit reduced in a difficult market environment.
UK & Ireland
Our operations in the UK & Ireland continued to build on the improvements seen in recent years. Although revenue was up 2% to £1,018.5 million, operating profit rose significantly by 10% to £71.6 million as we improved the efficiency of our businesses and, as a result, the operating margin once again increased. A notable element of this year's performance is that we have made good progress in each of the sectors in which we operate, including those that were particularly adversely affected at the onset of the financial crisis.
Against the background of the challenging macroeconomic conditions over the last few years, we have remained focused on margin management and tight cost control while also continuing to enhance the levels of service that we provide to our customers. This service offering has not only built our reputation in the markets in which we compete but has also delivered an increasingly efficient organisation. We continue to manage cash flow closely and are pleased to report a further improvement in the return on capital employed which was already the highest of our business areas.
In our food and non-food retail supplies businesses, our broad mix of customers has helped to produce a strong performance in a difficult market with both revenue and operating profit ahead. As our retail customers adapt to changes in their market conditions, we have assisted them as they have developed smaller local retail concepts and their online sales offerings to their customers. The flexibility of our services across procurement and different models of delivery, including direct to store, has seen us continue to develop our offering. Our retail packaging business, Keenpac, has opened a sales office in Shenzhen which allows us to sell direct to global retail brands with outlets in China.
During the year we acquired two marketing services businesses, MDA and TFS. These businesses manage and deliver the supply of point of sale and marketing materials on behalf of leading consumer brands to retail outlets. They are both performing strongly and have fitted in well alongside, and provided complementary services to, our existing operations.
In the hospitality business, our own brand product offering has grown and been well received and has partly helped to compensate for a reduction in sales and operating profit following the loss of some business towards the end of 2012. We have continued to make efficiency improvements, including in particular the consolidation of three branches and the imminent relocation to a purpose built facility in the West Midlands.
Our cleaning and hygiene supplies business had another good year following a strong performance throughout the recession. Our focus on efficiency and high service levels has continued to help this business remain successful and we have further consolidated our branch network, reducing the number of facilities by two.
In our safety business, demand has started to grow once more. Our strong market position and our ability to offer both leading brands and our own label products, combined with a responsive and flexible service, continue to make us an attractive proposition to our customers and position us well to take advantage of some major construction and maintenance projects as they come on stream.
Our healthcare business operates in a market that continues to be subject to tight spending constraints and ongoing cost reduction initiatives. In this environment, although revenue was slightly lower, our offering has once again proved to be competitive and our high service levels have contributed to a continued improvement in this business.
In Ireland, the hospitality sector has continued to recover and, having significantly adjusted our cost base following the initial economic downturn, we are now well positioned for further growth and have seen a significant improvement in profitability during the year. During the year we relocated one of our two facilities in Dublin into a new facility. This investment has greatly enhanced the quality and efficiency of our business serving the cleaning and safety sectors.
Rest of the World
In Rest of the World revenue increased 47% to £526.0 million and operating profit rose 65% to £51.2 million with the results benefiting significantly from the impact of acquisitions.
In Australia, the economy continued to be impacted by a slowdown in demand for resources from the major export markets in Asia. This has had a consequential effect on our customers supplying into the mining and resource sectors which in turn has reduced the demand for the products which we supply.
Our largest business, Outsourcing Services, which supplies the healthcare, cleaning and hygiene, catering and retail sectors, continued to develop its position providing consolidated value added supply solutions for disposable consumables across Australia and New Zealand. Although the business faced challenging market conditions, we increased our presence in the healthcare sector, in particular the aged care and private hospital markets, where we supply a wide range of disposable and medical consumables. To support our growth in this sector, we acquired McNeil Surgical in January 2013 which has provided us with increased levels of expertise and a critical mass in the medical consumables and wound care categories.
In April we acquired part of the Industrial & Safety division of Jeminex. Based in Sydney, the business operates nationally from a network of locations throughout Australia. While this business has been impacted by the downturn in the resources sector, it has benefited from having a spread of quality customers across other markets and has achieved purchasing synergies and cost reductions since acquisition. The business has settled well into our ownership and we have already seen the benefits of creating cross-selling opportunities into existing Bunzl customers.
Our food processor business delivered a much improved performance in 2013. We made progress on our strategy to develop our operations into non-meat and other food processors. To build on this strategy and further consolidate our position as a leading national supplier into this sector, we merged our existing business with Network Packaging which was purchased as part of the acquisition from Jeminex. Network Packaging has a long and successful history supplying into the fruit and produce markets, predominantly in Western Australia, and the merger provides the combined business with an infrastructure and platform to develop these markets nationally. In addition, we are leveraging the expertise of our US operations which have already established a supply chain for the specialist products in this sector. These developments have also provided a good platform for the larger market on the east coast of Australia.
Our operations in Latin America have performed strongly in 2013 and have grown substantially. Despite slower economic growth and currency volatility in Brazil, the organic revenue growth there continued to be strong and was supplemented by a significant impact from acquisitions both in Brazil and elsewhere in Latin America.
Our personal protection equipment businesses in Brazil have continued to develop positively. Prot Cap has gained several new key accounts and has successfully introduced new products and suppliers to its portfolio. This has resulted in a strong performance with increases in both revenue and operating profit. We are currently investing in a new distribution centre in São Paulo that will significantly improve our efficiency and establish a sustainable platform for future growth. Danny, our own brand redistribution safety business, has been successfully integrated into the Group and continues to introduce new innovative solutions for our customers. Vicsa Brasil, which was acquired in February 2013, is meeting our expectations and is also benefitting from purchasing synergies. In particular the own label products they have developed have expanded the range of our product offering in the safety sector throughout Brazil. Its back office operation has been successfully integrated with Danny's and we are continuing to invest in more efficient logistics solutions. Finally, the acquisition of De Santis in December has further expanded our presence in the safety sector. Overall our safety businesses in Brazil performed strongly with substantial growth in both sales and operating profit.
Ideal, our cleaning and hygiene business in Brazil, achieved good organic growth winning some new key accounts and also improving gross margins which together have led to an increase in profitability.
In March we acquired Labor Import which is principally engaged in the distribution of own label medical and healthcare consumables and represents our first move into the healthcare sector in Brazil. It has a market leading position and an excellent customer base which should provide a platform for us to develop a strong presence in this sector going forward. The company has integrated well and we are in the process of implementing a new IT platform.
Vicsa Safety, our personal protection equipment business with operations in Chile, Argentina, Peru, Colombia and Mexico which was purchased in December 2012, is performing in line with our expectations. New product development and partnerships with our global suppliers are providing interesting opportunities in the region, particularly in the mining and retail sectors. The business has moved to new distribution centres in Chile and Colombia which will be key for our future expansion in the region. We are introducing new product lines and also benefiting from synergies both within Vicsa's operations in Latin America and other Bunzl companies.
The acquisition of Espomega in August has significantly expanded our safety business in Mexico and has extended our product offering to customers in this large and important market. Despite some volatility in the Mexican economy, the business performed strongly in 2013 and is integrating well.
Prospects
We believe that an improving macroeconomic outlook, Bunzl's strong competitive position and the full year impact of the 2013 acquisitions should lead to a good performance in 2014. However, with the recent strengthening of sterling, our reported results will be negatively affected by foreign exchange translation if exchange rates remain at their current levels.
At constant exchange rates each of our business areas is expected to grow. In North America, we expect good growth as a result of both organic revenue growth and the acquisitions made in 2013. Even though the economic environment continues to be sluggish in Continental Europe, we expect to see continued growth this year. In UK & Ireland, after a long period of time with a weak revenue line, we expect to see some sales growth in 2014 with margin stability. Rest of the World should show significant increase in revenue and profit, especially in Latin America, due to a combination of underlying growth and the impact of recent acquisitions.
We have had three consecutive years of higher than our historical average acquisition spend and the pipeline of potential acquisitions continues to be promising. Discussions are ongoing with a number of targets in all of the business areas and we expect to complete further acquisitions in the coming months.
The Board is confident that our strong market position will enable the Group to grow the business and continue to build value for our shareholders.
FINANCIAL REVIEW
Group performance
Revenue increased to £6,097.7 million (2012: £5,359.2 million), up 12% at constant exchange rates and up 14% at actual exchange rates, reflecting organic growth of 2% and the benefit of acquisitions. Operating profit before intangible amortisation and acquisition related costs increased to £414.4 million (2012: £352.4 million), an increase of 16% at constant exchange rates and 18% at actual exchange rates, as a result of the revenue growth and the operating profit margin increasing from 6.6% to 6.8%. Currency translation had a positive impact of approximately 2% on the results for the year principally due to the strengthening of the US dollar and euro, partially offset by the weakening of the Australian dollar, Canadian dollar and Brazilian real.
Intangible amortisation and acquisition related costs of £82.3 million were up £23.7 million due to a £13.6 million increase in deferred consideration payments relating to the continued employment of former owners of businesses acquired, a £10.6 million increase in intangible amortisation and a £1.5 million increase in transaction costs and expenses, partially offset by a further reduction in estimated earn out payments of £2.0 million.
The net interest charge of £42.2 million was up £8.2 million on 2012, principally due to higher average net debt from the funding of acquisitions and additional interest expense from the new fixed interest US dollar bonds agreed in 2012 which replaced maturing floating interest US dollar bonds. Interest cover reduced to 9.8 times compared to 10.4 times in 2012.
Profit before income tax, intangible amortisation, acquisition related costs and disposal of business was £372.2 million (2012: £318.4 million), up 16% on 2012 at constant exchange rates and up 17% at actual exchange rates, due to the growth in operating profit before intangible amortisation and acquisition related costs, partially offset by the higher interest charge.
The profit on disposal of business of £4.0 million in 2012 reflects the reassessment of provisions relating to the disposal of the UK vending business in 2011.
Tax
A tax charge at a rate of 27.9% (2012: 27.7%) has been provided on the profit before tax, intangible amortisation, acquisition related costs and disposal of business. Including the impact of intangible amortisation of £58.3 million, acquisition related costs of £24.0 million and the associated deferred and current tax of £20.7 million, the overall tax rate is 28.7% (2012: 27.5%). The underlying tax rate of 27.9% is higher than the nominal UK rate of 23.3% for 2013 principally because many of the Group's operations are in countries with higher tax rates.
Profit for the year
Profit after tax of £206.8 million was up £15.5 million, primarily due to the £53.8 million increase in profit before income tax, intangible amortisation, acquisition related costs and disposal of business, partially offset by the increase in intangible amortisation and acquisition related costs of £23.7 million resulting from the increased acquisition activity in 2012 and 2013 and an increase in the tax charge of £10.6 million.
Earnings
The weighted average number of shares decreased to 325.8 million from 326.1 million due to shares being purchased from the market into the Company's employee benefit trust, partially offset by employee option exercises. Earnings per share were 63.5p, up 7% on 2012 at constant exchange rates and 8% at actual exchange rates. After adjusting for intangible amortisation, acquisition related costs and the respective associated tax and the profit on disposal of business, adjusted earnings per share were 82.4p, an increase on 2012 of 15% at constant exchange rates and 17% at actual exchange rates.
The intangible amortisation, acquisition related costs, profit on disposal of business and associated tax are items which are not taken into account by management when assessing the underlying performance of the business. Accordingly, such items 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:
|
|
|
|
2013 |
2012 |
Growth |
|
Interim dividend (p) |
|
|
10.0 |
8.8 |
14% |
|
Final dividend (p) |
|
|
22.4 |
19.4 |
15% |
|
Total dividend (p) |
|
|
32.4 |
28.2 |
15% |
|
Dividend cover (times)* |
|
|
2.5 |
2.5 |
|
*Based on adjusted earnings per share
Acquisitions
The acquisitions completed in 2013 were McNeil Surgical, Vicsa Brasil (which the Company agreed to acquire in December 2012), Labor Import, MDA, most of the Industrial & Safety division of Jeminex, TFS, Espomega, ProEpta, Wesclean Equipment & Cleaning Supplies, pka Klöcker, De Santis and SAS Safety. Annualised revenue and operating profit before intangible amortisation and acquisition related costs of the businesses acquired (excluding Vicsa Brasil) were £281.1 million and £37.5 million respectively. A summary of the effect of acquisitions is as follows:
|
|
£m |
|
Fair value of assets acquired |
159.1 |
|
Goodwill |
97.4 |
|
Consideration |
256.5 |
|
Satisfied by: cash consideration deferred consideration |
223.8 32.7 |
|
|
256.5 |
|
Contingent payments relating to continued employment of former owners |
32.4 |
|
Net bank overdrafts acquired |
7.5 |
|
Transaction costs and expenses |
8.4 |
|
Total committed spend in respect of current year acquisitions |
304.8 |
|
Spend on acquisition committed as at 31 December 2012 |
(9.7) |
|
Total committed spend in respect of acquisitions agreed in the current year |
295.1 |
|
|
|
|
The net cash outflow in the year in respect of acquisitions comprised: |
|
|
|
£m |
|
Cash consideration |
223.8 |
|
Net bank overdrafts acquired |
7.5 |
|
Deferred consideration in respect of prior year acquisitions |
22.5 |
|
Net cash outflow in respect of acquisitions |
253.8 |
|
Acquisition related costs |
26.1 |
|
Total cash outflow in respect of acquisitions |
279.9 |
Cash flow
Cash generated from operations before acquisition related costs was £446.4 million, a £97.3 million increase from 2012, primarily due to a £53.8 million increase in profit before tax, intangible amortisation, acquisition related costs and disposal of business and a working capital inflow in 2013 of £16.8 million compared to a £22.4 million outflow in 2012. The Group's free cash flow of £301.8 million was up £67.1 million from 2012. After payment of dividends of £91.8 million in respect of 2012, an acquisition cash outflow of £279.9 million and a £43.3 million outflow on employee share schemes, the net cash outflow was £113.2 million. The summary cash flow for the year was as follows:
|
|
£m |
|
Cash generated from operations* |
446.4 |
|
Net capital expenditure |
(25.3) |
|
Operating cash flow* |
421.1 |
|
|
|
|
Operating cash flow* to operating profit† |
102% |
|
|
|
|
Net interest |
(39.0) |
|
Tax |
(80.3) |
|
Free cash flow |
301.8 |
|
Dividends |
(91.8) |
|
Acquisitions |
(279.9) |
|
Employee share schemes |
(43.3) |
|
Net cash outflow |
(113.2) |
* 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 increased to 56.9% from 56.5% in 2012, with the impact of the lower return on operating capital from acquisitions being more than offset by improvements in the return on operating capital in the rest of the Group. Return on invested capital was 17.9%, in line with 2012, due to improved returns in the underlying business offsetting the adverse impact of recent acquisitions. Intangible assets increased by £116.3 million to £1,456.9 million, reflecting goodwill and customer relationships arising on acquisitions in the year of £208.5 million, partially offset by an amortisation charge of £58.3 million and a reduction of £33.9 million due to exchange. The Group's pension deficit of £45.0 million at 31 December 2013 was £30.5 million lower than at 31 December 2012, with an actuarial gain of £26.9 million and contributions of £14.1 million being partially offset by a current service cost of £6.6 million, net interest charge of £2.8 million and other net costs of £1.1 million. The actuarial gain arose primarily as a result of the actual return on scheme assets being £18.6 million higher than expected and the £8.2 million impact of changes in assumptions relating to the present value of scheme liabilities, principally due to higher discount rates.
The net debt to EBITDA ratio was 1.8 times, the same level as at the previous year end despite an acquisition cash outflow of £279.9 million. The movements in shareholders' equity and net debt during the year were as follows:
|
Shareholders' equity |
£m |
|
At 1 January 2013 |
885.5 |
|
Profit for the year |
206.8 |
|
Dividends |
(91.8) |
|
Currency |
(52.1) |
|
Actuarial gain on pension schemes (net of tax) |
16.8 |
|
Share based payments |
15.2 |
|
Employee trust shares |
(40.5) |
|
At 31 December 2013 |
939.9 |
|
Net debt |
£m |
|
At 1 January 2013 |
(738.1) |
|
Net cash outflow |
(113.2) |
|
Currency |
1.8 |
|
At 31 December 2013 |
(849.5) |
|
Net debt to EBITDA (times) |
1.8 |
Going Concern
The Group has significant financial resources, a well established and 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 2015, 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 2013
|
|
|
|
Growth |
|||
|
|
|
|
|
|
Actual |
Constant |
|
|
|
|
2013 |
2012* |
exchange |
exchange |
|
|
|
Notes |
£m |
£m |
rates |
rates |
|
Revenue |
|
2 |
6,097.7 |
5,359.2 |
14% |
12% |
|
|
|
|
|
|
|
|
|
Operating profit before intangible amortisation and acquisition related costs |
|
2 |
414.4 |
352.4 |
18% |
16% |
|
|
|
|
|
|
|
|
|
Intangible amortisation and acquisition related costs |
|
|
(82.3) |
(58.6) |
|
|
|
Operating profit |
|
2 |
332.1 |
293.8 |
13% |
12% |
|
Finance income |
|
3 |
2.6 |
3.6 |
|
|
|
Finance cost |
|
3 |
(44.8) |
(37.6) |
|
|
|
Disposal of business |
|
|
- |
4.0 |
|
|
|
Profit before income tax |
|
|
289.9 |
263.8 |
10% |
9% |
|
|
|
|
|
|
|
|
|
Profit before income tax, intangible amortisation, acquisition related costs and disposal of business |
|
|
372.2 |
318.4 |
17% |
16% |
|
|
|
|
|
|
|
|
|
Income tax |
|
4 |
(83.1) |
(72.5) |
|
|
|
Profit for the year attributable to the Company's equity holders |
|
|
206.8 |
191.3 |
8% |
7% |
|
|
|
|
|
|
|
|
|
Earnings per share attributable to the Company's equity holders |
|
|
|
|
|
|
|
Basic |
|
6 |
63.5p |
58.7p |
8% |
7% |
|
Diluted |
|
6 |
62.7p |
58.3p |
8% |
6% |
|
|
|
|
|
|
|
|
|
Dividend per share |
|
5 |
32.4p |
28.2p |
15% |
|
* Restated on adoption of IAS19 (revised 2011) 'Employee Benefits' (see Note 1).
Consolidated statement of comprehensive income
for the year ended 31 December 2013
|
|
2013 |
2012* |
|
|
£m |
£m |
|
Profit for the year |
206.8 |
191.3 |
|
|
|
|
|
Other comprehensive income/(expense) |
|
|
|
Items that will not be reclassified to profit or loss: |
|
|
|
Actuarial gain/(loss) on pension schemes |
26.9 |
(8.0) |
|
Tax on items that will not be reclassified to profit or loss |
(10.1) |
2.9 |
|
Total items that will not be reclassified to profit or loss |
16.8 |
(5.1) |
|
Items that may be reclassified to profit or loss: |
|
|
|
Foreign currency translation differences for foreign operations |
(68.6) |
(47.5) |
|
Gain taken to equity as a result of designated effective net investment hedges |
14.4 |
18.5 |
|
Loss recognised in cash flow hedge reserve |
- |
(0.4) |
|
Movement from cash flow hedge reserve to income statement |
0.8 |
(1.0) |
|
Tax on items that may be reclassified to profit or loss |
1.3 |
(0.7) |
|
Total items that may be reclassified subsequently to profit or loss |
(52.1) |
(31.1) |
|
Other comprehensive expense for the year |
(35.3) |
(36.2) |
|
Total comprehensive income attributable to the Company's equity holders |
171.5 |
155.1 |
* Restated on adoption of IAS19 (revised 2011) 'Employee Benefits' (see Note 1).
Consolidated balance sheet
at 31 December 2013
|
|
|
|
2013 |
2012* |
|
|
|
Notes |
£m |
£m |
|
Assets |
|
|
|
|
|
Property, plant and equipment |
|
|
118.8 |
111.1 |
|
Intangible assets |
|
7 |
1,456.9 |
1,340.6 |
|
Derivative financial assets |
|
|
6.2 |
8.2 |
|
Deferred tax assets |
|
|
7.5 |
7.9 |
|
Total non-current assets |
|
|
1,589.4 |
1,467.8 |
|
|
|
|
|
|
|
Inventories |
|
|
645.1 |
581.5 |
|
Income tax receivable |
|
|
0.7 |
0.3 |
|
Trade and other receivables |
|
|
863.0 |
818.7 |
|
Derivative financial assets |
|
|
0.2 |
2.2 |
|
Cash and deposits |
|
8 |
73.1 |
81.2 |
|
Total current assets |
|
|
1,582.1 |
1,483.9 |
|
Total assets |
|
|
3,171.5 |
2,951.7 |
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
Share capital |
|
|
107.2 |
114.2 |
|
Share premium |
|
|
153.0 |
143.9 |
|
Translation reserve |
|
|
(45.4) |
7.3 |
|
Other reserves |
|
|
17.8 |
9.7 |
|
Retained earnings |
|
|
707.3 |
610.4 |
|
Total equity attributable to the Company's equity holders |
|
|
939.9 |
885.5 |
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
Interest bearing loans and borrowings |
|
8 |
855.8 |
599.2 |
|
Retirement benefit obligations |
|
|
45.0 |
75.5 |
|
Other payables |
|
|
24.8 |
28.7 |
|
Derivative financial liabilities |
|
|
0.5 |
1.2 |
|
Provisions |
|
|
23.8 |
21.3 |
|
Deferred tax liabilities |
|
|
129.5 |
124.6 |
|
Total non-current liabilities |
|
|
1,079.4 |
850.5 |
|
|
|
|
|
|
|
Bank overdrafts |
|
8 |
26.3 |
25.4 |
|
Interest bearing loans and borrowings |
|
8 |
46.5 |
204.9 |
|
Income tax payable |
|
|
62.2 |
53.9 |
|
Trade and other payables |
|
|
1,004.4 |
909.3 |
|
Derivative financial liabilities |
|
|
0.8 |
0.9 |
|
Provisions |
|
|
12.0 |
21.3 |
|
Total current liabilities |
|
|
1,152.2 |
1,215.7 |
|
Total liabilities |
|
|
2,231.6 |
2,066.2 |
|
Total equity and liabilities |
|
|
3,171.5 |
2,951.7 |
* Revised on adjustment to provisional fair values on acquisitions made in 2012 (see Note 9).
Consolidated statement of changes in equity
for the year ended 31 December 2013
|
|
Share capital |
Share premium |
Translation reserve £m |
Other reserves◊ £m |
Retained earnings† £m |
Total equity £m |
|
At 1 January 2013 |
114.2 |
143.9 |
7.3 |
9.7 |
610.4 |
885.5 |
|
Profit for the year |
|
|
|
|
206.8 |
206.8 |
|
Actuarial gain on pension schemes |
|
|
|
|
26.9 |
26.9 |
|
Foreign currency translation differences for foreign operations |
|
|
(68.6) |
|
|
(68.6) |
|
Gain taken to equity as a result of designated effective net investment hedges |
|
|
14.4 |
|
|
14.4 |
|
Movement from cash flow hedge reserve to income statement |
|
|
|
0.8 |
|
0.8 |
|
Income tax credit/(charge) on other comprehensive income |
|
|
1.5 |
(0.2) |
(10.1) |
(8.8) |
|
Total comprehensive (expense)/income |
|
|
(52.7) |
0.6 |
223.6 |
171.5 |
|
2012 interim dividend |
|
|
|
|
(28.8) |
(28.8) |
|
2012 final dividend |
|
|
|
|
(63.0) |
(63.0) |
|
Issue of share capital |
0.5 |
9.1 |
|
|
|
9.6 |
|
Cancellation of treasury shares |
(7.5) |
|
|
7.5 |
|
- |
|
Employee trust shares |
|
|
|
|
(50.1) |
(50.1) |
|
Share based payments |
|
|
|
|
15.2 |
15.2 |
|
At 31 December 2013 |
107.2 |
153.0 |
(45.4) |
17.8 |
707.3 |
939.9 |
|
|
Share capital |
Share premium |
Translation reserve £m |
Other reserves◊ £m |
Retained earnings†* £m |
Total equity* £m |
|
|
At 1 January 2012 |
113.8 |
136.4 |
37.3 |
10.8 |
508.4 |
806.7 |
|
|
Profit for the year |
|
|
|
|
191.3 |
191.3 |
|
|
Actuarial loss on pension schemes |
|
|
|
|
(8.0) |
(8.0) |
|
|
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 |
2.9 |
2.2 |
|
|
Total comprehensive (expense)/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 |
|
◊ Other reserves comprise merger reserve of £2.5m (2012: £2.5m), capital redemption reserve of £16.1m (2012: £8.6m) and cash flow hedge reserve of £(0.8)m (2012: £(1.4)m).
† Retained earnings comprise earnings of £807.3m (2012: £833.8m) and own shares of £100.0m (2012: £223.4m).
* Restated on adoption of IAS19 (revised 2011) 'Employee Benefits' (see Note 1).
Consolidated cash flow statement
for the year ended 31 December 2013
|
|
|
|
2013 |
2012* |
|
|
|
Notes |
£m |
£m |
|
Cash flow from operating activities |
|
|
|
|
|
Profit before income tax |
|
|
289.9 |
263.8 |
|
Adjustments: |
|
|
|
|
|
depreciation |
|
|
25.9 |
23.0 |
|
intangible amortisation and acquisition related costs |
|
|
82.3 |
58.6 |
|
share based payments |
|
|
6.2 |
5.7 |
|
disposal of business |
|
|
- |
(4.0) |
|
Working capital movement |
|
|
16.8 |
(22.4) |
|
Finance income |
|
|
(2.6) |
(3.6) |
|
Finance cost |
|
|
44.8 |
37.6 |
|
Provisions |
|
|
(7.8) |
(6.4) |
|
Retirement benefit obligations |
|
|
(7.3) |
(7.8) |
|
Other |
|
|
(1.8) |
4.6 |
|
Cash generated from operations before acquisition related costs |
|
|
446.4 |
349.1 |
|
Cash outflow from acquisition related costs |
|
9 |
(26.1) |
(20.2) |
|
Income tax paid |
|
|
(80.3) |
(63.6) |
|
Cash inflow from operating activities |
|
|
340.0 |
265.3 |
|
|
|
|
|
|
|
Cash flow from investing activities |
|
|
|
|
|
Interest received |
|
|
1.5 |
2.2 |
|
Purchase of property, plant and equipment |
|
|
(26.5) |
(23.0) |
|
Sale of property, plant and equipment |
|
|
1.2 |
2.8 |
|
Purchase of businesses |
|
9 |
(253.8) |
(234.5) |
|
Cash outflow from investing activities |
|
|
(277.6) |
(252.5) |
|
|
|
|
|
|
|
Cash flow from financing activities |
|
|
|
|
|
Interest paid |
|
|
(40.5) |
(32.8) |
|
Dividends paid |
|
|
(91.8) |
(85.7) |
|
Increase in loans |
|
|
116.3 |
123.8 |
|
Realised losses on foreign exchange contracts |
|
|
(9.7) |
(0.9) |
|
Issue of ordinary shares to settle share options |
|
|
9.6 |
7.9 |
|
Net purchase of employee trust shares |
|
|
(52.9) |
(11.6) |
|
Cash (outflow)/inflow from financing activities |
|
|
(69.0) |
0.7 |
|
|
|
|
|
|
|
Exchange loss on cash and cash equivalents |
|
|
(2.4) |
(2.7) |
|
|
|
|
|
|
|
(Decrease)/increase in cash and cash equivalents |
|
|
(9.0) |
10.8 |
|
|
|
|
|
|
|
Cash and cash equivalents at start of year |
|
|
55.8 |
45.0 |
|
(Decrease)/increase in cash and cash equivalents |
|
|
(9.0) |
10.8 |
|
Cash and cash equivalents at end of year |
|
8 |
46.8 |
55.8 |
* Restated on adoption of IAS19 (revised 2011) 'Employee Benefits' (see Note 1).
Notes
1. Basis of preparation
The consolidated financial statements for the year ended 31 December 2013 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 2013 Annual Report will be published during March 2014. The financial information set out herein does not constitute the Company's statutory accounts for the year ended 31 December 2013 but is derived from those accounts and the accompanying directors' report. Statutory accounts for 2013 will be delivered to the Registrar of Companies following the Company's Annual General Meeting which will be held on 16 April 2014. 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 2012 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.
Some of the prior year numbers have been restated following the adoption of IAS19 (revised 2011) 'Employee Benefits', which is effective for the 2013 financial year, as a result of which the expected return on assets and the interest charge on pension scheme liabilities have been replaced with a net finance cost based on the relevant discount rate. For the year ended 31 December 2012 the impact has been to increase the net finance cost by £5.5m, to reduce profit before income tax by £5.5m and reduce profit after tax by £4.0m. The actuarial loss has been reduced by £5.5m and the income tax credit on other comprehensive income has been reduced by £1.5m. Basic earnings per share in 2012 decreases by 1.2p to 58.7p as a result.
For the acquisitions made in 2012, the fair value reallocation period remained open during 2013. In accordance with IFRS3 'Business Combinations' the Group has adjusted in 2013 the fair values attributable to some of these acquisitions. The balance sheet at 31 December 2012 has been revised accordingly, see Note 9 for further details.
2. Segment analysis
|
|
North America |
Continental Europe |
UK & Ireland |
Rest of the World |
Corporate |
Total |
|
Year ended 31 December 2013 |
£m |
£m |
£m |
£m |
£m |
£m |
|
Revenue |
3,401.7 |
1,151.5 |
1,018.5 |
526.0 |
|
6,097.7 |
|
Operating profit/(loss) before intangible amortisation and acquisition related costs |
213.6 |
97.0 |
71.6 |
51.2 |
(19.0) |
414.4 |
|
Intangible amortisation |
(12.6) |
(29.1) |
(7.1) |
(9.5) |
- |
(58.3) |
|
Acquisition related costs |
(6.8) |
(3.5) |
(1.6) |
(12.1) |
- |
(24.0) |
|
Operating profit/(loss) |
194.2 |
64.4 |
62.9 |
29.6 |
(19.0) |
332.1 |
|
Finance income |
|
|
|
|
|
2.6 |
|
Finance cost |
|
|
|
|
|
(44.8) |
|
Profit before income tax |
|
|
|
|
|
289.9 |
|
Profit before income tax, intangible amortisation and acquisition related costs |
|
|
|
|
|
372.2 |
|
Income tax |
|
|
|
|
|
(83.1) |
|
Profit for the year |
|
|
|
|
|
206.8 |
|
|
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 |
|
|
|
|
|
3.6 |
|||||
|
Finance cost |
|
|
|
|
|
(37.6) |
|||||
|
Disposal of business |
|
|
|
|
|
4.0 |
|||||
|
Profit before income tax |
|
|
|
|
|
263.8 |
|||||
|
Profit before income tax, intangible amortisation, acquisition related costs and disposal of business |
|
|
|
|
|
318.4 |
|||||
|
Income tax |
|
|
|
|
|
(72.5) |
|||||
|
Profit for the year |
|
|
|
|
|
191.3 |
|||||
* Restated on adoption of IAS19 (revised 2011) 'Employee Benefits' (see Note 1).
Acquisition related costs for the year ended 31 December 2013 include transaction costs and expenses of £8.4m (2012: £6.9m), deferred consideration payments of £22.0m (2012: £8.4m) relating to the continued employment of former owners of businesses acquired and a credit of £6.4m (2012: £4.4m credit) from adjustments to previously estimated earn outs.
3. Finance income/(cost)
|
|
|
|
2013 |
2012* |
|
|
|
|
£m |
£m |
|
Interest on deposits |
|
|
0.8 |
0.8 |
|
Interest income from foreign exchange contracts |
|
|
1.4 |
1.8 |
|
Other finance income |
|
|
0.4 |
1.0 |
Finance income |
|
|
2.6 |
3.6 |
|
|
|
|
|
|
|
Interest on loans and overdrafts |
|
|
(39.9) |
(33.2) |
|
Interest expense from foreign exchange contracts |
|
|
(1.5) |
(1.0) |
|
Interest charge on retirement benefit obligations |
|
|
(2.8) |
(3.3) |
|
Fair value gain on US dollar bonds in a hedge relationship |
|
|
2.0 |
5.7 |
|
Fair value loss on interest rate swaps in a hedge relationship |
|
|
(2.0) |
(5.7) |
|
Foreign exchange gain/(loss) on intercompany funding |
|
|
10.9 |
(8.7) |
|
Foreign exchange (loss)/gain on external debt not in a hedge relationship |
|
|
(11.0) |
8.9 |
|
Other finance expense |
|
|
(0.5) |
(0.3) |
Finance cost |
|
|
(44.8) |
(37.6) |
* Restated on adoption of IAS19 (revised 2011) 'Employee Benefits' (see Note 1).
The foreign exchange gain/(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 on disposal of business. Similarly the tax effect of these items is excluded in monitoring the tax rate on the adjusted profit of the Group which is shown in the table below:
|
|
|
2013 |
2012* |
|
|
|
£m |
£m |
|
Income tax on profit |
|
83.1 |
72.5 |
|
Tax associated with intangible amortisation, acquisition related costs and disposal of business |
|
20.7 |
15.7 |
|
Tax on adjusted profit |
|
103.8 |
88.2 |
|
|
|
|
|
|
Profit before income tax |
|
289.9 |
263.8 |
|
Intangible amortisation, acquisition related costs and disposal of business |
|
82.3 |
54.6 |
|
Adjusted profit before income tax |
|
372.2 |
318.4 |
|
|
|
|
|
|
Reported tax rate |
|
28.7% |
27.5% |
|
Tax rate on adjusted profit |
|
27.9% |
27.7% |
* Restated on adoption of IAS19 (revised 2011) 'Employee Benefits' (see Note 1).
5. Dividends
|
|
|
|
|
2013 |
2012 |
|
|
|
|
|
£m |
£m |
|
2011 interim |
|
|
|
|
26.1 |
|
2011 final |
|
|
|
|
59.6 |
|
2012 interim |
|
|
|
28.8 |
|
|
2012 final |
|
|
|
63.0 |
|
|
Total |
|
|
|
91.8 |
85.7 |
Total dividends per share for the year to which they relate are:
|
|
|
|
|
Per share |
|
|
|
|
2013 |
2012 |
|
Interim |
|
|
10.0p |
8.8p |
|
Final |
|
|
22.4p |
19.4p |
|
Total |
|
|
32.4p |
28.2p |
The 2013 interim dividend of 10.0p per share was paid on 2 January 2014 and comprised £32.6m of cash.
The 2013 final dividend of 22.4p per share will be paid on 1 July 2014 to shareholders on the register at the close of business on 9 May 2014.
6. Earnings per share
|
|
|
|
2013 |
2012* |
|
|
|
|
£m |
£m |
|
Profit for the year |
|
|
206.8 |
191.3 |
|
Adjustment |
|
|
61.6 |
38.9 |
|
Adjusted profit† |
|
|
268.4 |
230.2 |
|
|
|
|
|
|
|
Basic weighted average ordinary shares in issue (million) |
|
325.8 |
326.1 |
|
|
Dilutive effect of employee share plans (million) |
|
|
4.0 |
1.9 |
|
Diluted weighted average ordinary shares (million) |
|
|
329.8 |
328.0 |
|
|
|
|
|
|
|
Basic earnings per share |
|
|
63.5p |
58.7p |
|
Adjustment |
|
|
18.9p |
11.9p |
|
Adjusted earnings per share† |
|
|
82.4p |
70.6p |
|
|
|
|
|
|
|
Diluted basic earnings per share |
|
|
62.7p |
58.3p |
|
Adjustment |
|
|
18.7p |
11.9p |
|
Adjusted diluted earnings per share† |
|
|
81.4p |
70.2p |
* Restated on adoption of IAS19 (revised 2011) 'Employee Benefits' (see Note 1).
† 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 and the profit on disposal of business. The intangible amortisation, acquisition related costs, profit on disposal of business and associated tax are items which are not taken into account by management when assessing the underlying performance of the business. Accordingly, such items are removed in calculating the adjusted earnings per share on which management assesses the performance of the Group.
7. Intangible assets
|
|
|
2013 |
2012* |
|
Goodwill |
|
£m |
£m |
|
Beginning of year |
|
823.2 |
784.6 |
|
Acquisitions |
|
97.4 |
64.5 |
|
Currency translation |
|
(19.6) |
(25.9) |
|
End of year |
|
901.0 |
823.2 |
|
|
|
|
|
|
|
|
2013 |
2012* |
|
Customer relationships |
|
£m |
£m |
|
Cost |
|
|
|
|
Beginning of year |
|
793.1 |
707.9 |
|
Acquisitions |
|
111.1 |
111.5 |
|
Currency translation |
|
(17.0) |
(26.3) |
|
End of year |
|
887.2 |
793.1 |
|
Amortisation |
|
|
|
|
Beginning of year |
|
275.7 |
235.7 |
|
Charge in year |
|
58.3 |
47.7 |
|
Currency translation |
|
(2.7) |
(7.7) |
|
End of year |
|
331.3 |
275.7 |
|
|
|
|
|
|
Net book value at 31 December |
|
555.9 |
517.4 |
|
|
|
|
|
|
Total net book value of intangible assets at 31 December |
|
1,456.9 |
1,340.6 |
* Revised on adjustment to provisional fair values on acquisitions made in 2012 (see Note 9).
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
|
|
2013 |
2012 |
|
||
|
|
£m |
£m |
|
||
|
Cash at bank and in hand |
73.1 |
77.0 |
|
||
|
Short term deposits repayable in less than three months |
- |
4.2 |
|
||
|
Cash and deposits |
73.1 |
81.2 |
|
||
|
Bank overdrafts |
(26.3) |
(25.4) |
|
||
|
Cash and cash equivalents |
46.8 |
55.8 |
|
||
|
|
|
|
|
||
|
Current liabilities |
(46.5) |
(204.9) |
|
||
|
Non-current liabilities |
(855.8) |
(599.2) |
|
||
|
Derivative assets - fair value of interest rate swaps on fixed interest rate borrowings |
6.0 |
10.2 |
|
||
|
Interest bearing loans and borrowings |
(896.3) |
(793.9) |
|
||
|
Net debt |
(849.5) |
(738.1) |
|
||
|
|
|
|
|
||
|
|
2013 |
2012 |
|
||
|
Movement in net debt |
£m |
£m |
|
||
|
Beginning of year |
(738.1) |
(652.9) |
|
||
|
Net cash outflow |
(113.2) |
(109.4) |
|
||
|
Realised losses on foreign exchange contracts |
(9.7) |
(0.9) |
|
||
|
Currency translation |
11.5 |
25.1 |
|
||
|
End of year |
(849.5) |
(738.1) |
|||
9. Acquisitions
2013
The acquisitions completed in the year ended 31 December 2013 were McNeil Surgical, Vicsa Brasil, Labor Import, MDA, most of the Industrial & Safety division of Jeminex, TFS, Espomega, ProEpta, Wesclean Equipment & Cleaning Supplies, pka Klöcker, De Santis and SAS Safety.
McNeil Surgical, a business principally engaged in the sale of healthcare consumables and equipment to aged care facilities, hospitals and medical centres as well as to redistributors throughout South Australia, was acquired on 31 January 2013. Vicsa Brasil, the proposed acquisition of which was agreed in December 2012, was acquired on 19 February 2013. The business is engaged in the sale of personal protection equipment throughout Brazil. Labor Import, which is principally engaged in the supply and distribution of own label medical and healthcare consumable products to distributors as well as to hospitals, clinics, laboratories and care homes throughout Brazil, was acquired on 1 March 2013. MDA, which is engaged in the procurement and fulfilment of promotional products and marketing point of sale materials for a variety of customers in the UK, principally in the food and drinks industries, was acquired on 15 March 2013. Three businesses which formed part of the Industrial & Safety division of Jeminex in Australia were acquired on 30 April 2013. The workwear and personal safety business distributes an extensive range of specialist personal protection equipment and workwear to the mining, resources, construction and general industrial sectors. The lifting, rigging and height safety business is principally engaged in the supply of lifting chains and ropes, slings and load restraints as well as the provision of accredited testing and repair services. The third business is involved in the supply of industrial packaging products to a variety of customers in different market sectors. TFS, a business engaged in the procurement and fulfilment of promotional products and marketing point of sale materials for customers in the UK across various market sectors, was acquired on 31 July 2013. Espomega, a business supplying a variety of safety products, including gloves and protective clothing, to distributors throughout Mexico, was acquired on 30 August 2013. ProEpta, a leading distributor of catering equipment throughout Mexico, principally to luxury hotels and restaurants, was acquired on 27 September 2013. Wesclean, a business principally engaged in the distribution of cleaning and hygiene equipment and supplies to a variety of customer markets throughout Western Canada, was acquired on 1 November 2013. pka Klöcker, a business based in Germany engaged in the sale to distributors of personal protection equipment, principally own label workwear, was acquired on 29 November 2013. De Santis, a business based in Brazil and principally engaged in the sale of personal protection equipment to end user customers in a number of different market sectors, was acquired on 20 December 2013. SAS Safety, a business specialising in the sourcing and sale of a variety of own label personal protection equipment, principally safety gloves, to distributors in the US was acquired on 23 December 2013.
Acquisitions involving the purchase of the acquiree's share capital or the relevant assets of the businesses acquired, have been accounted for under the acquisition method of accounting. 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 IFRS3 '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 2013 the allocation period for all acquisitions completed since 1 January 2013 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 payable in respect of acquisitions comprises amounts 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 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 2013 is detailed below:
|
|
Book value at acquisition £m |
Provisional fair value adjustments £m |
Fair value of assets acquired £m |
|||||
|
Intangible assets |
- |
111.1 |
111.1 |
|||||
|
Property, plant and equipment |
11.6 |
(2.0) |
9.6 |
|||||
|
Inventories |
55.4 |
(4.2) |
51.2 |
|||||
|
Trade and other receivables |
51.3 |
(1.0) |
50.3 |
|||||
|
Trade and other payables |
(34.2) |
(3.8) |
(38.0) |
|||||
|
Net bank overdrafts |
(7.5) |
- |
(7.5) |
|||||
|
Provisions for liabilities and charges |
(0.3) |
(4.1) |
(4.4) |
|||||
|
Tax and deferred tax |
0.3 |
(13.5) |
(13.2) |
|||||
|
|
76.6 |
82.5 |
159.1 |
|||||
|
Goodwill |
|
|
97.4 |
|||||
|
Consideration |
|
|
256.5 |
|||||
|
Satisfied by: |
|
|
|
|||||
|
cash consideration |
|
|
223.8 |
|||||
|
deferred consideration |
|
|
32.7 |
|||||
|
|
|
|
256.5 |
|||||
|
Contingent payments relating to continued employment of former owners |
|
|
32.4 |
|||||
|
Net bank overdrafts acquired |
|
|
7.5 |
|||||
|
Transaction costs and expenses |
|
|
8.4 |
|||||
|
Total committed spend in respect of current year acquisitions |
|
|
304.8 |
|||||
|
Spend on acquisition committed as at 31 December 2012 |
|
|
(9.7) |
|||||
|
Total committed spend in respect of acquisitions agreed in the current year |
|
|
295.1 |
|||||
|
|
|
|
|
|||||
|
The net cash outflow in the year in respect of acquisitions comprised: |
|
|
|
|||||
|
Cash consideration |
|
|
223.8 |
|||||
|
Net bank overdrafts acquired |
|
|
7.5 |
|||||
|
Deferred consideration in respect of prior year acquisitions |
|
|
22.5 |
|||||
|
Net cash outflow in respect of acquisitions |
|
|
253.8 |
|||||
|
Acquisition related costs |
|
|
26.1 |
|||||
|
Total cash outflow in respect of acquisitions |
|
|
279.9 |
|||||
Cash flow on acquisition related costs relates to £9.6m (2012: £5.4m) of transaction costs paid and £16.5m (2012: £14.8m) of payments relating to continued employment of former owners.
Acquisitions made in the year ended 31 December 2013 contributed £129.5m to the Group's revenue and £16.5m to the Group's operating profit before intangible amortisation and acquisition related costs.
The estimated contributions of businesses agreed to be acquired during the year to the results of the Group, as if the acquisitions had been made at the beginning of the year, are as follows:
|
|
£m |
|
Revenue |
281.1 |
|
Operating profit before intangible amortisation and acquisition related costs |
37.5 |
2012
The principal acquisitions 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, Destiny Packaging, Vicsa Safety 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 on 21 December 2012 to acquire Vicsa Brasil which distributes personal protection equipment throughout Brazil. Following clearance from the Brazilian Competition Authority, the acquisition was completed on 19 February 2013.
For the acquisitions made in 2012, the fair value reallocation period remained open during 2013. In accordance with IFRS3 'Business Combinations' the Group has adjusted in 2013 the fair values attributable to some of these acquisitions. As a result, customer relationships have been increased by £16.8m, goodwill has been increased by £0.9m, other assets and liabilities have been decreased by £16.0m and deferred consideration has been increased by £1.7m. The balance sheet at 31 December 2012 has been revised accordingly.
A summary of the effect of the 2012 acquisitions is detailed below:
|
|
Book value at acquisition £m |
fair value adjustments in 2012 £m |
made in 2013 £m |
value adjustments £m |
of assets acquired £m |
||||||||||
|
Intangible assets |
- |
94.7 |
16.8 |
111.5 |
111.5 |
||||||||||
|
Property, plant and equipment |
9.3 |
(1.2) |
(0.3) |
(1.5) |
7.8 |
||||||||||
|
Inventories |
81.0 |
(1.2) |
(6.1) |
(7.3) |
73.7 |
||||||||||
|
Trade and other receivables |
72.0 |
(0.2) |
(0.8) |
(1.0) |
71.0 |
||||||||||
|
Trade and other payables |
(54.3) |
(5.1) |
(0.7) |
(5.8) |
(60.1) |
||||||||||
|
Net bank overdrafts |
(21.8) |
- |
- |
- |
(21.8) |
||||||||||
|
Provisions for liabilities and charges |
- |
(2.3) |
(3.1) |
(5.4) |
(5.4) |
||||||||||
|
Tax and deferred tax |
(0.2) |
(14.2) |
(5.0) |
(19.2) |
(19.4) |
||||||||||
|
|
86.0 |
70.5 |
0.8 |
71.3 |
157.3 |
||||||||||
|
Goodwill |
|
|
|
|
64.5 |
||||||||||
|
Consideration |
|
|
|
|
221.8 |
||||||||||
|
Satisfied by: |
|
|
|
|
|
||||||||||
|
cash consideration |
|
|
|
|
206.0 |
||||||||||
|
deferred consideration |
|
|
|
|
14.8 |
||||||||||
|
other consideration |
|
|
|
|
1.0 |
||||||||||
|
|
|
|
|
|
221.8 |
||||||||||
|
Contingent payments relating to continued employment of former owners |
|
|
|
|
16.3 |
||||||||||
|
Net bank overdrafts acquired |
|
|
|
|
21.8 |
||||||||||
|
Transaction costs and expenses |
|
|
|
|
6.9 |
||||||||||
|
Total committed spend in respect of acquisitions completed |
|
|
|
|
266.8 |
||||||||||
|
Committed spend in respect of acquisition agreed but not completed by 31 December 2012 |
|
|
|
|
9.7 |
||||||||||
|
Total committed spend in respect of acquisitions |
|
|
|
|
276.5 |
||||||||||
|
|
|
|
|
|
|
||||||||||
|
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 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 |
518.4 |
|
Operating profit before intangible amortisation and acquisition related costs |
36.1 |
10. Related party disclosures
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 2013 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 2012 Annual Report remain those of most concern to the business at the end of 2013. However, the risk of a negative impact due to countries leaving the eurozone is considered to have decreased since the previous year and is no longer regarded as a principal risk for the purposes of the Group risk assessment. 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 sales volumes or margins from customers, the loss of customers, increased price competition or unforeseen changes in the competitive landscape due to changes in technology or routes to market.
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. The Group also regularly reviews the competitive environment in which it operates.
Product price changes - The purchase price of products distributed by the Group can fluctuate from time to time, thereby potentially affecting the results of operations. There could be significant increases in the cost of specific products leading to a diminution in margins if cost increases cannot be passed on in full to customers or substitute products sourced from elsewhere. In addition, 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. The Group does not hedge the impact of exchange rate movements arising on translation of earnings into sterling at average exchange rates. As a result, movements in exchange rates may have a material translation impact on the Group's reported results.
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 Group believes that the benefits of its geographical spread outweigh the associated risks.
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
undertakes some forward purchasing of foreign currencies for identified exposures to reduce the impact of short term volatility.
The impact of changes in foreign exchange rates and related hedging activity is regularly monitored by senior management. The Group's approach to managing foreign exchange risk is reviewed annually by the Board.
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'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.
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.
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. There is also a risk that not all of the acquisitions made will be successful due to the loss of key people or customers after the acquisition, or deterioration in the economic environment of the acquired business.
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'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.
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.
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.
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.
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 Conduct 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
24 February 2014
This information is provided by RNS
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