Final Results
Monday 29 February 2016
ANNUAL RESULTS ANNOUNCEMENT
Bunzl plc, the international distribution and outsourcing Group, today publishes its annual results for the year ended 31 December 2015.
|
Financial results |
2015 |
2014 |
Growth as reported |
Growth at constant exchange |
|
Revenue |
£6,489.7m |
£6,156.5m |
5% |
5% |
|
Adjusted operating profit* |
£455.0m |
£429.8m |
6% |
7% |
|
Adjusted profit before income tax* |
£411.2m |
£387.8m |
6% |
8% |
|
Adjusted earnings per share* |
91.0p |
86.2p |
6% |
7% |
|
Dividend for the year |
38.0p |
35.5p |
7% |
|
|
|
|
|
|
|
|
Statutory results |
|
|
|
|
|
Operating profit |
£366.5m |
£341.8m |
7% |
|
|
Profit before income tax |
£322.7m |
£299.8m |
8% |
|
|
Basic earnings per share |
71.0p |
64.5p |
10% |
|
Highlights include:
· Record acquisition spend of £327 million on 22 businesses, including the acquisition of Dental Sorria announced today, with entry into two new countries, Turkey and Austria
· Good increases in revenue, adjusted operating profit* and adjusted earnings per share*
· Group operating margin of 7.0% up 10 basis points at constant exchange rates
· Operating margins up in North America, Continental Europe and UK & Ireland with the margin down in Rest of the World
· Continued strong cash conversion with operating cash flow† to operating profit* of 97%
· Operating cash flow† up 9% to £442.6 million
· Long track record of dividend growth continues with an increase of 7% in the dividend for the year
* Before intangible amortisation and acquisition related costs
† Before acquisition related costs
Commenting on today's results, Michael Roney, Chief Executive of Bunzl, said:
"I am pleased to report that Bunzl has once again delivered a good set of results with adjusted operating profit and earnings per share up 7% at constant exchange rates as a result of the continued successful implementation of the Group's consistent and proven strategy.
Following on from a record year for acquisitions in 2015, we have announced further acquisitions today and, with a promising pipeline, we expect to complete additional transactions as the year progresses. We believe that Bunzl's strong competitive position, the impact of the significant acquisition spend in 2015 and the opportunities to consolidate our fragmented markets further will lead to continued growth in 2016."
Business area highlights:
|
|
Revenue (£m) |
Growth at constant |
Adjusted operating profit* (£m) |
Growth at constant |
Operating margin* |
|||
|
|
2015 |
2014 |
exchange |
2015 |
2014 |
exchange |
2015 |
2014 |
|
North America |
3,751.8 |
3,372.1 |
5% |
244.0 |
211.1 |
9% |
6.5% |
6.3% |
|
Continental Europe |
1,121.0 |
1,146.3 |
7% |
104.5 |
103.2 |
10% |
9.3% |
9.0% |
|
UK & Ireland |
1,102.4 |
1,078.5 |
3% |
84.9 |
80.1 |
6% |
7.7% |
7.4% |
|
Rest of the World |
514.5 |
559.6 |
6% |
42.1 |
55.5 |
(11)% |
8.2% |
9.9% |
North America
· Revenue increase principally from recent acquisitions with operating margin* up 30bp at constant exchange rates to 6.5%
· Grocery and redistribution businesses impacted by price declines in plastic products and some lost business
· Three safety acquisitions (Tillman, Cordova and Steiner) significantly enhance growing portfolio of own brand products
· Recent acquisition activity in Canada creates national distribution platform in cleaning & hygiene
· Strong revenue and profit growth in businesses serving food processor and agriculture sectors
Continental Europe
· Strong constant exchange revenue and profit growth with operating margin* up 20bp at constant exchange rates to 9.3%
· Entry into two new countries, Turkey and Austria
· Impact of lower sales in France offset by continued cost reduction measures
· Good growth in the Netherlands driven by acquisitions and progress in the safety, healthcare, retail and food processor sectors
· Significant profit growth in Denmark
· Further improvement in Spain and Central Europe
UK & Ireland
· Good profit growth with operating margin* up 30bp to 7.7%
· Significant profit increase in safety led by acquisitions and expanded own label product ranges
· Grocery and retail sectors remain challenging
· Hospitality continues to grow well and further development of own label product ranges
· Healthcare performed well despite increased customer focus on cost reductions
· Significant improvement in Ireland driven by increased retail activity and tourism
Rest of the World
· Margins under pressure due to challenging macroeconomic conditions and currency weakness affecting product purchase prices
· Latin America
o Weaker performance in Brazil safety with significant fall in profitability
o Other businesses trading broadly in line with expectations
· Australasia
o Market position further consolidated in consumables
o Industrial and safety adversely impacted by slowdown in resources sector
* Before intangible amortisation and acquisition related costs
Enquiries:
|
Bunzl plc Michael Roney, Chief Executive Brian May, Finance Director Tel: +44 (0)20 7725 5000 |
Tulchan David Allchurch Stephen Malthouse Tel: +44 (0)20 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 challenging macroeconomic conditions persisted in many of the countries in which we operate, particularly in Latin America and Australasia, and difficult market conditions continued to affect some of the sectors we serve, I am pleased to report another good set of results. Overall currency translation movements had a small positive impact on the Group's revenue but reduced the growth rates for profits and earnings at actual exchange rates by between 1% and 2%.
Group revenue increased to £6,489.7 million (2014: £6,156.5 million) and adjusted operating profit before intangible amortisation and acquisition related costs was £455.0 million (2014: £429.8 million). Adjusted earnings per share were 91.0p (2014: 86.2p).
At constant exchange rates revenue increased by 5% and adjusted operating profit rose by 7%. The Group operating margin improved from 6.9% to 7.0% at constant exchange rates with adjusted earnings per share up 7% on the same basis.
Dividend
The Board is recommending a final dividend of 26.25p. This brings the total dividend for the year to 38.0p, up 7% compared to 2014. Shareholders will again have the opportunity to participate in our dividend reinvestment plan.
Strategy
We have continued to pursue our long-established and successful strategy of developing the business through organic growth, consolidating our markets through focused acquisitions and continuously improving the efficiency of our operations.
We seek to achieve organic growth by applying our resources and expertise to enable customers to reduce or eliminate the hidden costs of sourcing and distributing a broad range of goods not for resale. As a result they are able to focus on their core business and run their operations more cost-effectively by achieving purchasing efficiencies and savings, while at the same time freeing up working capital, improving their distribution capabilities, reducing carbon emissions and simplifying their internal administration.
Acquisition activity continued at a record pace throughout 2015. We acquired 22 businesses during the year with a total committed spend of £327 million, thereby adding annualised revenue of £324 million. These figures exclude Tillman which we agreed to acquire in December 2014 and completed at the beginning of January 2015. The acquisitions made in 2015 have helped to strengthen our position in many of the markets that we serve and have also taken us into two new countries, Turkey and Austria. We now have operations in 29 countries.
Investment
Both organic growth and acquisitions require investment in the business to expand and enhance its asset base. During the year we have continued to extend and improve our warehouses and open new ones, both as a result of acquisitions and by consolidating our existing warehouse footprint. Systems are an important part of our ability to serve our customers in the most efficient and appropriate manner. By continuously upgrading our IT systems we are able to increase the functionality of our operations, thereby enhancing our customer offering. Together this investment enables us to retain a competitive advantage and thereby maintain our leading position in the marketplace.
Corporate Responsibility
We continue to refine our sustainable business processes and operations to ensure improvements in this area. However, we also strive to assist both our customers and suppliers to improve the sustainability of their businesses. The nature of our business proposition, which allows our customers to consolidate both their purchasing requirements and product deliveries, is environmentally friendly and, in addition, we offer a full range of environmentally friendly products. During 2015, we once again contacted our key suppliers to encourage them to adopt corporate responsibility policies similar to ours. Our Quality Assurance/Quality Control team based in Shanghai continues to refine our supplier audit process, undertaking audits of our key Asian suppliers to assist them in meeting our required standards. Integrity is imperative in running our business and building appropriate relationships and we have recently refreshed our whistle blowing programme and renewed the corporate responsibility training for all relevant employees.
Employees
Bunzl's decentralised organisation structure encourages fast decision making at the local level. This allows us to understand our customers' needs and provide great service. Many new people have joined Bunzl through acquisitions during the past year and this provides us with a stream of new ideas to improve our business and strengthens our talent pipeline. As a service oriented company we continue to rely on the quality and efficiency of our employees across the world. We very much appreciate their hard work and loyalty which are key to the ongoing growth and success of Bunzl.
Board
As reported in the 2014 Annual Report, Peter Johnson, who had served as a non-executive director since 2006 and was both Chairman of the Remuneration Committee and senior independent director, retired from the Board in April 2015. David Sleath, who was appointed as a non-executive director in September 2007 and is Chairman of the Audit Committee, assumed the role of senior independent director and Vanda Murray, who joined the Board as a non-executive director in February 2015, succeeded Peter as Chairman of the Remuneration Committee.
As reported on 14 January 2016, after more than 10 years in the role, Michael Roney has decided to retire as Chief Executive of the Company. He will stand down from his position and the Board following the conclusion of the Annual General Meeting to be held on 20 April 2016. I would like to thank Mike for his outstanding contribution to Bunzl. Under his careful stewardship the Group has gone from strength to strength and grown significantly with sustained increases in the Company's earnings, dividends and share price. Mike will leave the Board with our very best wishes and our sincere thanks and appreciation for everything he has achieved.
Mike will be succeeded by Frank van Zanten who is currently the Managing Director of the Continental Europe business area. Frank joined the Board at the beginning of February and will assume his new role upon Mike's retirement. He has extensive knowledge and experience of our business gained over many years and has a successful track record of implementing the Company's strategy to develop and expand the Group. His appointment will provide continuity for the business as well as its customers and employees going forward.
Chief Executive's REVIEW
Operating Performance
The overall translation effect of currency movements has once again affected the reported Group growth rates with the average US dollar stronger against sterling than in 2014 but the average Canadian dollar, euro, Brazilian real and Australian dollar all weaker than the prior year. As in previous years, the operations, including the relevant growth rates and changes in operating margins, are therefore 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 2014 at the average rates used for 2015. Unless otherwise stated, all references in this review to operating profit are to adjusted operating profit (being operating profit before intangible amortisation and acquisition related costs).
Revenue increased 5% (5% at actual exchange rates) to £6,489.7 million principally due to the positive impact of acquisitions together with some organic growth, which continues to be affected by price declines on plastic resin-based products, particularly in North America. Operating profit was £455.0 million, an increase of 7% (6% at actual exchange rates). The percentage growth in operating profit was greater than that of revenue due to the impact of higher margin acquisitions, resulting in an improvement in the Group operating margin by 10 basis points to 7.0% (unchanged at actual exchange rates).
In North America revenue rose 5% (11% at actual exchange rates) principally due to the impact of acquisitions completed in both 2014 and 2015, while operating profit increased 9% (16% at actual exchange rates) as the operating margin improved 30 basis points to 6.5% (20 basis points at actual exchange rates). Revenue in Continental Europe rose 7% (down 2% at actual exchange rates) as a result of organic revenue growth and the impact of acquisitions, with operating profit up 10% (1% at actual exchange rates) and the operating margin up 20 basis points to 9.3% (30 basis points at actual exchange rates). In UK & Ireland revenue was up 3% (2% at actual exchange rates) due to the impact of both organic revenue growth and acquisitions, and operating profit rose 6% at both constant and actual exchange rates as the operating margin improved by a further 30 basis points during the year to 7.7%. In Rest of the World revenue increased 6% (down 8% at actual exchange rates) but operating profit was down 11% (24% at actual exchange rates). Margins came under pressure due to the challenging macroeconomic conditions and some negative foreign exchange transaction impact of weaker local currencies in the relevant markets in both Latin America and Australasia, with the business area operating margin down 160 basis points (170 basis points at actual exchange rates) to 8.2%.
Basic earnings per share were 10% higher (at both constant and actual exchange rates) at 71.0p. Adjusted earnings per share, after eliminating the effect of intangible amortisation and acquisition related costs, were 91.0p, an increase of 7% (6% at actual exchange rates). The return on average operating capital decreased from 57.7% to 55.5% principally due to reduced returns in the underlying business and the mix impact of recent, lower return acquisitions. The return on invested capital was 17.1%, down from 17.6% in 2014.
The operating cash flow continued to be strong with the ratio of operating cash flow before acquisition related costs to operating profit at 97%. The ratio of net debt to EBITDA calculated at average exchange rates increased to 2.1 times, which is at the lower end of our target range, compared to 1.8 times as at the end of 2014. The increase is principally due to the significant acquisition spend during the year.
Corporate responsibility remains intrinsic to the effective running of our business. We are continually seeking ways to ensure the sustainability of our business by developing our processes in this area. During the year we have focused further on our supply chain and its impact on our business. As a result, we are disclosing for the first time information on our Scope 3 carbon emissions comprising emissions from third party carriers, business flights, waste disposal and electricity transmission losses. In addition, we are completing a further risk assessment of our supply chain with regard to social issues and we are also undertaking a pilot project for closed loop recycling in conjunction with one of our existing suppliers.
Acquisitions
Acquisitions are a key component of the Group's growth strategy. Our committed spend in 2015 was a record £327 million as we completed 22 transactions in total, excluding Tillman which we agreed to acquire in December 2014 and completed at the beginning of January 2015.
In addition to Tillman, we completed the acquisition of two further businesses in January. Quirumed, which had revenue of £15 million in 2015, represents our first move into the healthcare sector in Spain, while Jan-Mar, based in Toronto with revenue of £6 million in 2015, has further extended our cleaning & hygiene supplies business in Canada.
Three acquisitions were completed in March. Janssen Packaging is engaged in the distribution of specialist packaging materials for the e-commerce, fashion and fulfilment sectors in the Netherlands. It complements and expands our retail supplies business thereby providing access to an extended range of innovative packaging solutions to both new and existing customers in this market. Revenue in 2015 was £6 million. In Canada we purchased two separate businesses at the end of the month. Emballages Maska is engaged in the sale of cleaning and hygiene supplies to distributors throughout Quebec and eastern Ontario. Revenue in 2015 was £16 million. Prescott distributes cleaning and hygiene products to a variety of end users in the construction, property management and healthcare sectors, as well as to some distributors, throughout the Montreal area of Quebec. Revenue in 2015 was £9 million.
Ligne T, a distributor of personal protection equipment, principally workwear, based in Montauban, France, was purchased at the end of May. The business supplies a variety of end user customers throughout the south-west region of France and had revenue of £4 million in 2015. Also at the end of May we completed the acquisition of Istanbul Ticaret, a business engaged in the sale of a variety of personal protection equipment to both end users and other distributors throughout Turkey. Revenue in 2015 was £24 million. This is an exciting development for us as it represents our first acquisition in Turkey which is an important G20 economy that has grown steadily over recent years. The business has a broad range of both branded and own brand products and an excellent reputation for quality and service. It will provide a good platform from which to develop a significant business in Turkey.
GF, a distributor of industrial packaging, warehouse supplies and equipment which is based in Calgary, Canada, was acquired at the beginning of June. The business has a large and diverse base of end user customers in western Canada and had revenue in 2015 of £42 million.
At the end of June we added two further businesses to the Group's portfolio. Solmaq, based in Bogota, supplies a complete range of head-to-toe personal protection equipment and other welding and industrial consumables to distributors, retailers and end users throughout Colombia. Revenue was £14 million in 2015. It further extends our safety business in Colombia, being a market that we entered with the purchase of Vicsa at the end of 2012. Cordova Safety Products, based in Memphis, Tennessee, is engaged in the sale of a variety of personal protection equipment, principally gloves, to distributors throughout the US. Most products supplied are own label. Revenue in 2015 was £55 million.
We acquired three businesses in July. Steiner, which had revenue of £12 million in 2015, has further expanded our safety business in the US while Bidvest Hospitality Supplies and Delta Hospitality Supplies, each with revenue of £5 million in 2015, have added additional scale to our catering consumables and equipment business in Australia.
The acquisition of Meier Verpackungen, which distributes customer specific packaging products to food processors and had revenue of £29 million in 2015, was completed in September and represents our first step into Austria, complementing our existing business in Switzerland. Planet Clean, which is based in Vancouver and is principally engaged in the sale and distribution of cleaning and hygiene supplies and equipment to a variety of customer markets throughout western Canada, was also acquired in September and had revenue in 2015 of £13 million. It is the seventh acquisition we have made in Canada since November 2013, as a result of which we have developed a national business there with annual revenue in excess of £340 million.
ICB Cleaning Supplies in New Zealand, with revenue of £2 million in 2015, and Cemelin in Spain, with revenue of £3 million in 2015, are both distributors of cleaning and hygiene supplies and were acquired at the end of October and early November respectively. Casa do Epi, an important acquisition for our safety business in Brazil, was also purchased in November. The business is principally engaged in the sale of a wide range of personal protection equipment to end user customers in the mining, construction and manufacturing sectors. Revenue in 2015 was £16 million. At the end of November we acquired DPS, a distributor of catering disposables and a variety of cleaning, safety and packaging products based in Santiago with a number of other locations throughout Chile. Revenue in 2015 was £25 million. The Company's business in Spain was expanded at the end of November with the purchase of Faru. Based in Zaragoza, the business is engaged in the sale of personal protection equipment, including fall arrest and head protection products and safety shoes, to distributors throughout Spain. Revenue in 2015 was £3 million.
At the beginning of December we purchased Comatec, which is engaged in the distribution of high-end, innovative single-use tableware to restaurants and hotels throughout France but also exports products to a large number of distributors in a number of countries worldwide. Revenue in 2015 was £14 million. We also acquired Dental Sorria in December. Based in Belo Horizonte in the State of Minas Gerais and with revenue of £6 million in 2015, the business has expanded our operations in Brazil into the dental supplies sector.
Since the year end we have agreed to acquire two further businesses. At the beginning of February 2016 we purchased Earthwise Bag Company, a distributor of reusable bags to supermarkets and other retailers in the US, which has expanded our offering of environmentally friendly products to the grocery and retail sectors. Revenue in 2015 was £12 million. We also entered into an agreement in February relating to the proposed acquisition of Bursa Pazari which had revenue of £31 million in 2015. It represents our second step in Turkey and extends our operations there into the foodservice and healthcare sectors. Completion of the acquisition is subject to clearance of the transaction by the Turkish competition authority.
North America
|
|
2015 £m |
2014 £m |
Growth at constant exchange |
|
Revenue |
3,751.8 |
3,372.1 |
5% |
|
Adjusted operating profit* |
244.0 |
211.1 |
9% |
|
|
|
|
|
|
Operating margin* |
6.5% |
6.3% |
|
* Before intangible amortisation and acquisition related costs
In North America, revenue increased by 5% to £3,751.8 million principally due to the impact of the three acquisitions made in 2014 and the seven further businesses acquired during 2015. These acquisitions have enabled us to extend our product and service offerings and further consolidate the markets we serve. Although sales volumes increased, organic revenue growth was held back primarily due to deflationary pressures caused by price declines of plastic resin-based products and the net impact of some lost business. As a result of recent acquisitions having higher operating margins than the underlying businesses, operating profit increased 9% to £244.0 million with the business area operating margin at 6.5%, an increase of 30 basis points at constant exchange rates.
Our largest business serving the grocery sector was adversely affected by deflationary pressures and some lost business but we gained some new accounts and renewed some large contracts with existing customers. We have taken steps to reduce operating costs further and improve efficiencies by continuing to invest in new high-tech distribution facilities. We continued to use our 'Think Big' marketing campaign to promote our ability to help food retailers improve their profitability in the fresh food areas of their stores using our category management techniques. By employing our flexible store delivery programmes, retailers are able to provide exceptional customer service with new, innovative packaging while reducing their expenses, improving their asset utilisation and ensuring that they have an optimal supply of the products they require.
In the retail sector, we gained several major new accounts and expanded our business with existing customers. We have continued to seek opportunities to grow our materials consolidation and custom fulfilment business in this sector and to expand this concept into the grocery and convenience store sectors. These services, combined with our expertise in store supplies, décor and branded packaging, further enhance the capabilities we are able to offer to retailers. We also continue to target the growing online retailing market with our efficient and cost-effective packaging solutions. We believe that the depth and breadth of our operational and merchandising offering for our customers enables us to provide an end-to-end solution that is unmatched in the retail sector. The recent purchase of Earthwise Bag Company has further extended our product offering to grocers and retailers.
Although we have also experienced the impact of deflationary pressures and some lost accounts in our redistribution business, we have continued to expand our category management programme with our foodservice distributor customers who increasingly see the value of partnering with us to fulfil their janitorial, sanitation and food packaging requirements. The ongoing investment in digital capabilities benefits our businesses serving all sectors but particularly in redistribution where customers use our digital tools to sell to their own customers. Our central warehouse network enables us to purchase inventory and supply janitorial and sanitation products more efficiently to our local branches and customers. This enhances our ability to provide our redistribution customers with access to a wider range of products, which in turn allows them to use us as their 'virtual warehouse' to improve their sales and profitability without having to invest in additional space and inventory.
In our business serving the safety sector, in addition to Tillman which we agreed to acquire in December 2014 and completed at the beginning of January 2015, we purchased two further companies during the year, being Cordova Safety Products and Steiner. All three businesses are based in the US and supply industrial distributors with a range of personal protection equipment, including safety gloves and workwear, with Tillman and Steiner specialising in products for the welding industry. Their combined expertise in imports and product development will help us to enhance our growing portfolio of own brand safety products.
Customer consolidation in the food processor sector continues to present challenges as well as potential opportunities for business growth. We have experienced both revenue and profit growth in the sector as a result of our national account strategy and investment in additional resources which together have enabled us to improve our account penetration. Additionally we have expanded our own label product offering including our new line of Clarity vacuum pouches, shrink bags and bin liners.
We have seen strong sales and profit growth in our business that supplies the agriculture sector and we have expanded our presence and capabilities in Mexico in order to meet demand in the region. To improve both collaboration and efficiency, all of our businesses serving in this sector are operating on a new IT system. We continue to develop innovative products to meet the demands of our customers. For example, Destiny Packaging has introduced the 'grab & steam' product, a retail version of a zippered microwavable cooking bag featuring steam valve technology.
In other product developments, FoodHandler has expanded its marketing of the 'oneSAFE' single-use glove dispensing system for the foodservice and healthcare sectors that significantly reduces cross-contamination and thereby improves food safety standards. A dedicated 'oneSAFE' website has been developed featuring educational materials designed to position the system as a leading product in food and health safety.
Despite the challenges presented as a result of continued customer consolidation in the convenience store sector, we have achieved steady profit growth as we have worked with our key wholesale partners to execute a pull-through strategy with key convenience store retailers. With our supplier managed inventory services, our wholesale partners are able to reduce their working capital and warehouse space needs while benefiting from excellent fill rates and just-in-time delivery.
Finally, we have acquired five businesses in Canada during the year, four of which operate in the cleaning & hygiene sector, that have enabled us to establish a truly national distribution platform in this important market. Our most recent acquisition, Planet Clean in September, specialises in offering environmentally friendly and sustainable cleaning and hygiene products. With our purchase of GF in June, we have entered into the industrial packaging sector and further expanded our offering of products and services for our customers. Additionally, we have combined several of our businesses in Winnipeg into one large facility to drive greater efficiencies and productivity. We will continue to use this method of consolidation throughout the North America business area where we have multiple business units operating stand-alone facilities in the same market area.
Continental Europe
|
|
2015 £m |
2014 £m |
Growth at constant exchange |
|
Revenue |
1,121.0 |
1,146.3 |
7% |
|
Adjusted operating profit* |
104.5 |
103.2 |
10% |
|
|
|
|
|
|
Operating margin* |
9.3% |
9.0% |
|
* Before intangible amortisation and acquisition related costs
Continental Europe developed strongly with revenue rising by 7% to £1,121.0 million and operating profit up 10% to £104.5 million despite the slow macroeconomic recovery in many of the countries in which we operate. Gross margins came under pressure from the strength of the US dollar against the euro, thereby increasing the cost of our imports, but careful management of the cost base enabled the underlying business to maintain its profitability. This has been supplemented by the full year impact of the four 2014 acquisitions and the part year contribution of the eight acquisitions completed in 2015, with the operating margin rising by 20 basis points at constant exchange rates to 9.3%. In a significant development, we entered two new countries during the year with the acquisition of Istanbul Ticaret, a personal protection equipment distribution business, in Turkey at the end of May and Meier Verpackungen, which distributes packaging products for food processors, in Austria at the beginning of September. Both businesses are integrating well into the Group. Today we have announced our second step into the Turkish market with the proposed acquisition of Bursa Pazari which will extend our operations there into the foodservice and healthcare sectors.
In France, sales at our cleaning & hygiene business declined slightly due to continuing pressure in the contract cleaning sector in particular. However cost reduction measures mitigated this decline with profits improving in the year. Our personal protection equipment business also recorded lower sales, the impact of which could only partly be offset by lower costs. Ligne T, the specialist safety business acquired in May 2015, has traded in line with expectations and is integrating well. At the beginning of December we acquired Comatec which specialises in the distribution of high-end, innovative single-use tableware to hotel, restaurant and catering ('horeca') customers. This is a significant addition to our operations in France and expands our business there in the foodservice sector.
In the Netherlands, sales grew well in the healthcare, food processor and retail sectors, more than offsetting lower sales in the horeca, grocery, cleaning & hygiene and government sectors. Although gross margins are under pressure, costs remain tightly managed. Allshoes and De Ridder have both integrated successfully into the Group and performed ahead of our initial expectations. Janssen Packaging, the distributor of specialist packaging for the e-commerce, fashion and fulfilment sectors which was acquired in March 2015, had a very successful year due in particular to its exposure to the e-commerce sector. It has now been fully integrated into our existing retail business. The Majestic personal protection equipment business generated good sales growth overall and margins improved despite the strength of the US dollar as sales of own brand products continued to grow.
In Belgium, strong sales growth in the cleaning & hygiene sector came both from significant volume increases with a number of larger customers as well as from winning new customers, which more than offset slightly lower sales in the grocery and food processor sectors. Margins were down due to the impact of new, lower margin business while costs remained carefully controlled.
In Germany, sales grew well with regional accounts and also in the hotel sector although margins were lower than the prior year. The main business has successfully implemented our Microsoft Dynamics AX ERP system. Our safety business reported good sales growth and the cleaning & hygiene business grew significantly, having won a large new customer during the year.
In Switzerland, revenue was up in the industrial sector which offset a decline in the retail sector. Sales were broadly flat in the medical and horeca sectors. The local economy continues to suffer from the strength of the Swiss franc which has adversely affected both tourism and exports. Profits were also at a similar level to last year.
In Denmark, revenue increased strongly with a particularly good performance in sales to the public sector and to redistributors. Growth in sales to the retail sector remained low but significant gains were made in selling personal protection equipment. Together with careful margin and cost management, this led to a significant rise in profit.
In Spain, sales grew well, especially of personal protection equipment, as the local economy has continued to improve. Although margins remained under pressure, in particular due to the strength of the US dollar, profits increased strongly. Quirumed, the healthcare products business acquired in January 2015, was particularly affected by the weak euro, which increased the costs of imports, but the business is integrating well. The integration process is also under way at Cemelim and Faru, both acquired in the last quarter of the year.
In Israel, sales increased in the bakery sector and were flat in the horeca sector. Margin pressure due to the weakening shekel was offset by tight cost control with profits ahead of last year.
In central Europe, revenue rose strongly in Hungary, Romania and the Czech Republic with increased sales in both the retail and industrial sectors. Margins were lower given the high levels of growth with larger customers but overall profits in the region increased significantly.
UK & Ireland
|
|
2015 £m |
2014 £m |
Growth at constant exchange |
|
Revenue |
1,102.4 |
1,078.5 |
3% |
|
Adjusted operating profit* |
84.9 |
80.1 |
6% |
|
|
|
|
|
|
Operating margin* |
7.7% |
7.4% |
|
* Before intangible amortisation and acquisition related costs
In UK & Ireland revenue increased 3% to £1,102.4 million and operating profit rose 6% to £84.9 million. Our constant focus on reducing operating costs and managing margins led to our operating margin improving to 7.7%, up 30 basis points on the previous year. This is a very creditable performance in a market with noticeably increased competition and also an unprecedented level of tender activity from many of our customers.
Our safety business has performed well, with revenue and profits both up, having successfully integrated the two acquisitions from 2014 and continued to build the own label programme with new products and ranges being introduced in footwear, gloves and clothing. To optimise the cost base, the branch network has been consolidated further, resulting in the closure and integration of three locations. Our cleaning & hygiene supplies business continues to provide a very good service to the major facilities management companies in the UK and profits increased as we continued to help our customers mobilise new projects both rapidly and effectively.
In retail supplies, a recent account loss has given rise to a reorganisation of the business which we believe is now well positioned for the future and this has been supported by the successful retention of our largest customer just before the year end. Although the government-imposed tax on single-use plastic carrier bags introduced in early October has reduced sales of those products, we anticipated this change and have continued to develop our offering of Bags for Life which has offset some of this lost revenue. While also in a very competitive trading environment, Keenpac, our branded retail packaging business, has had a very successful year with some good account wins and has achieved good growth.
Our marketing services business has proven to be a valuable addition to the Group. In 2015 we had good success in renewing customer contracts and winning new business. This, together with the synergy benefits of merging our three businesses into one, has made us the clear market leader in this area.
Our hospitality businesses have performed well and benefited from a year of increased consumer activity and investment by many of our customers. The catering disposables business increased both revenue and profits as a consequence of the continued focus on account management, service, tailored solutions, product category management and a comprehensive own label programme. All of this is supported by an operational platform which continues to improve its efficiency and quality of service. Our catering equipment business has also had a very successful year. Investment by customers has resulted in growth in activity of kitchen design services and the increased supply of heavy catering equipment. Concentrated efforts to build a direct marketing offering has successfully targeted and grown new and smaller customers. The own brand programme has had ongoing investment and the development during the year included new ranges of crystal glassware, plastic glassware, cutlery and porcelain. At the end of the year we opened an innovation centre in London to showcase our ranges of branded and own brand products and the project to relaunch our website will be completed in the first half of 2016. We continue to invest in the growth of this business and will shortly be commissioning a new warehouse facility to consolidate our imported own label products.
The healthcare business has had a successful year, especially in an environment where there have been customer spending constraints and an exchange rate impact on imports. Sales growth has come from acute hospitals looking to save money on the cost of goods and services who see the advantage in utilising our efficient, high-service platform. As there is ongoing pressure on prices, we are concentrating our efforts on the overseas sourcing of items and looking to consolidate supply from fewer suppliers in the Far East.
In Ireland, the domestic economy has improved and the renewed consumer confidence has had an impact on retail activity and tourism, both of which are drivers of activity in our businesses there. Despite the adverse impact of the weakening euro, a number of initiatives undertaken with both suppliers and customers have helped to produce a very good result in this progressively improving area of our business.
During the year we continued to invest in our digital capabilities. Converting more customers onto electronic ordering platforms has been a priority which has delivered positive results. We have three new websites in cleaning and safety with a new one being launched in catering equipment shortly. One of our coffee shop chain customers now utilises our bespoke smartphone app to place orders. This offers significant benefits to the customer and will provide a strong platform for other high street customers to transition to the app in due course. Electronic proof of delivery systems are now in place in a number of our businesses and will be rolled out further. We also hold significant volumes of transaction data in our businesses which record the ordering behaviour of our customers and our service delivery. Our ability to analyse this data and share it with our customers and suppliers is of great benefit to them and is serving to enhance our reputation and the value of what we can offer.
Rest of the World
|
|
2015 £m |
2014 £m |
Growth at constant exchange |
|
Revenue |
514.5 |
559.6 |
6% |
|
Adjusted operating profit* |
42.1 |
55.5 |
(11)% |
|
|
|
|
|
|
Operating margin* |
8.2% |
9.9% |
|
* Before intangible amortisation and acquisition related costs
In Rest of the World revenue increased 6% to £514.5 million but operating profit fell 11% to £42.1 million as margins came under pressure due to the challenging macroeconomic conditions and the impact of significant currency weakness in both Latin America and Australasia which have particularly affected those businesses that import large volumes of products.
The economies in Latin America have suffered a number of strong headwinds during the year. In particular a very depressed commodity market, combined with significant exchange rate depreciation and intense economic pressure and political volatility in Brazil, have created challenging market conditions across the region.
In Brazil, our largest market in Latin America, the political uncertainty regarding the current government administration, combined with steep interest rate increases to curb inflationary pressures, created a deep recession with a consequential adverse impact on industrial production. Our safety business was particularly affected by this decline in output and increased levels of unemployment leading to a significant fall in profitability. The acquisition in November of Casa do EPI, which is based in the State of Minas Gerais and has a good reputation and an excellent customer portfolio, will help strengthen our position in a region where we were previously under-represented. We have been able to pass on some of the exchange rate impact through price increases and changes in the product mix and will continue to focus on this going forward in order to mitigate the impact of these market pressures. However, due to the continued weakness in the Brazilian real, combined with a long lead time for imported products, it will take some time before we begin to see a recovery in operating margins. Nonetheless, this disruption in the supply chain is providing some opportunities in the marketplace as a result of our well-established infrastructure and extensive product portfolio.
Our cleaning & hygiene business in Brazil has expanded following the successful integration of JPLUS, acquired in 2014, and we have been able to increase revenue in our healthcare business although margins in both businesses also came under pressure. We acquired Dental Sorria, a market leader in the supply of dental products in the State of Minas Gerais, in December 2015 which has further enhanced our product offering in the healthcare sector in Brazil.
In the rest of Latin America, the picture is mixed with softer demand and pressure on margins in almost all of our markets. Despite this, our businesses are trading broadly in line with our expectations. We have also been able to acquire some excellent businesses across different sectors and geographies which will further strengthen our market position in Latin America and provide a solid platform for future growth as trading conditions improve.
In Chile we acquired DPS at the end of November. The business provides catering disposables and a variety of cleaning, safety and packaging products to wholesalers and distributors as well as to restaurants, supermarkets and other end users. This is our third acquisition in Chile and has bolstered our position in the market there. Vicsa and Tecno Boga faced challenging conditions, caused primarily by the reduction in mining investment as a result of the weak Chilean economy and the continuing pressure on commodity prices, but despite this both businesses held up well.
In Colombia our business has been enhanced significantly by the acquisition of Solmaq at the end of June which has further consolidated our product and service offering there. The business supplies a complete range of personal protection equipment and welding and other consumables to customers throughout the country.
In Mexico, our safety business, which incorporates both Espomega and Vicsa Mexico, had a good year with revenue and profits both improving strongly despite the pressures caused by currency fluctuations.
In Australasia, the business environment continued to be challenging with ongoing contraction and slowdown in the resources sector and declining commodity prices impacting market conditions. Compounding this, the weakening of the Australian dollar has increased the cost of imports thereby increasing margin pressures at a time when businesses were looking for cost reductions to offset the softer market conditions.
Although adversely impacted by the market downturn and margin pressures, our largest business, Outsourcing Services, which supplies the healthcare, cleaning, catering and retail sectors, nevertheless delivered a solid performance. The business strategy to develop a strong and sustainable position in the more resilient market sectors places the business well for future growth and should result in an improved performance as the market recovers. To support this strategy the business made three acquisitions during the year, Bidvest Hospitality Supplies in Adelaide, Delta Hospitality Supplies in Brisbane and ICB Cleaning Supplies in Auckland, New Zealand. The purchase of the two catering businesses creates additional scale and capability as we continue to build our national footprint in this sector and ICB Cleaning Supplies brings further knowledge and expertise into our New Zealand business as we continue to develop our position in this market.
Our food processor business continued to build momentum with another improved performance. The business is developing its position as a leading supplier to the Australian and New Zealand food industries. Our strategy to diversify into non-meat food processors, supported by specialist and technical resources, also continues to develop well. This is creating a solid foundation which should deliver strong growth prospects for the future. Our investment, continued focus and development of our specialist resources has helped to build creditability and scale in this market. This strategy will continue as we look for additional opportunities to develop and enhance our position further in this sector.
Our industrial and safety supplies business has been the most affected by the slowdown in the resources sector. We have endeavoured to offset the impact of the downturn by consolidating facilities and making structural changes to reorganise the business to fit the current market environment. In order to reposition the business for future growth, we have invested in technology, processes and operational initiatives to enhance our competitive position and create efficiencies. We are also focused on developing new product innovations and redesigning our current product range to create a point of difference with improved safety, comfort and performance characteristics. A number of these initiatives will be launched in the first half of 2016 which should create additional business opportunities going forward. Although trading conditions have been challenging, the business has been successful in winning a number of new customers which has strengthened our market position and enabled us to diversify into more resilient market sectors and regions.
Prospects
Against the background of variable economic conditions, Bunzl's strong competitive position, the impact of the significant acquisition spend in 2015 and the opportunities to consolidate our fragmented markets further are together expected to lead to continued growth in 2016.
In North America, the combination of recent acquisitions and underlying volume growth should result in a good performance despite the impact of price declines in plastic resin-based products. In Continental Europe, we expect to see a further strong performance due to both organic growth and the effect of recent acquisitions. In UK & Ireland, progress in 2016 will be held back principally due to pressure in the business serving the grocery and retail sectors. Rest of the World will see a strong benefit from recent acquisitions, although the outlook for both economic growth in the relevant markets and for exchange rates, particularly in Brazil, remains uncertain.
The pipeline of potential acquisitions remains promising. Discussions are continuing with a number of potential targets and we expect to complete further transactions as the year progresses.
The Board believes that the prospects of the Group are positive due to its strong market position and our ability to grow the business both organically and through acquisition.
FINANCIAL REVIEW
Group Performance
Overall currency translation movements had a small positive impact on the Group's revenue but had a 1% to 2% adverse impact on profits and earnings due to the weakening of sterling against the US dollar and the strengthening of sterling against the euro, the Australian dollar, the Canadian dollar and the Brazilian real.
Revenue increased to £6,489.7 million (2014: £6,156.5 million), up 5% at both constant exchange and actual exchange rates, reflecting the benefit of acquisitions and some growth in the underlying businesses. Adjusted operating profit (being operating profit before intangible amortisation and acquisition related costs) increased to £455.0 million (2014: £429.8 million), an increase of 7% at constant exchange rates and 6% at actual exchange rates. At constant exchange rates, the adjusted operating profit margin increased from 6.9% to 7.0% due to the impact of higher margin acquisitions.
Intangible amortisation and acquisition related costs were up £0.5 million to £88.5 million due to a £4.9 million increase in intangible amortisation, partly offset by a £4.4 million decrease in acquisition related costs. The net interest charge of £43.8 million was £1.8 million higher than in 2014 at actual exchange rates but up only £0.1 million at constant exchange rates with the impact of a higher average net debt from the funding of acquisitions offset by the effect of lower average interest rates. Adjusted profit before income tax (being profit before income tax, intangible amortisation and acquisition related costs) was £411.2 million (2014: £387.8 million), up 8% at constant exchange rates and 6% at actual exchange rates, principally due to the growth in adjusted operating profit.
Tax
A tax charge at a rate of 27.5% (2014: 27.4%) has been provided on the adjusted profit before income tax. Including the impact of intangible amortisation of £66.8 million, acquisition related costs of £21.7 million and the associated deferred and current tax of £23.1 million, the overall tax rate is 27.9% (2014: 29.7%). The underlying tax rate of 27.5% is higher than the nominal UK rate of 20.25% for 2015, principally because many of the Group's operations are in countries with higher tax rates.
Profit for the year
Profit after tax of £232.7 million was up £22.0 million, primarily due to a £24.7 million increase in operating profit offset by a £1.8 million increase in the net interest charge and a £0.9 million increase in the tax charge.
Earnings
The weighted average number of shares increased to 327.6 million from 326.6 million due to employee share option exercises, partly offset by shares being purchased from the market for the Group's employee benefit trust. Earnings per share were 71.0p, up 10% on 2014 at constant exchange rates and 10% at actual exchange rates. After adjusting for intangible amortisation, acquisition related costs and the associated tax, adjusted earnings per share were 91.0p, an increase on 2014 of 7% at constant exchange rates and 6% at actual exchange rates.
Intangible amortisation, acquisition related costs and associated tax are items which are not taken into account by management when assessing the results of the business as they do not relate to the underlying operating performance. 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:
|
|
2015 |
2014 |
Growth |
|
Interim dividend (p) |
11.75 |
11.0 |
7% |
|
Final dividend (p) |
26.25 |
24.5 |
7% |
|
Total dividend (p) |
38.00 |
35.5 |
7% |
|
Dividend cover (times)* |
2.4 |
2.4 |
|
* Based on adjusted earnings per share
The Company's practice has been to pay a progressive dividend with the aim of delivering year-on-year increases in dividends, growing at approximately the same rate as the growth in adjusted earnings per share. The 2015 dividend is 7% higher than the 2014 dividend, comparable to the adjusted earnings per share which have grown by 7% at constant exchange rates and 6% at actual exchange rates. Bunzl has sustained a growing dividend to shareholders over the past 23 years.
Before approving any dividends, the Board considers the level of borrowings of the Group by reference to the ratio of net debt to operating profit before depreciation, intangible amortisation and acquisition related costs ('EBITDA'), the ability of the Group to continue to generate cash and the amount required to invest in the business, in particular into future acquisitions. The Company's long term track record of strong cash generation, coupled with the Group's substantial borrowing facilities, provides the Company with the financial flexibility to enable dividends to be funded.
The risks and constraints to maintaining a growing dividend are principally those linked to the Company's trading performance and liquidity as described in the Principal risks and uncertainties in Note 11. The Group has substantial distributable reserves within Bunzl plc and there is a robust process of distributing profits generated by subsidiary undertakings up through the Group to Bunzl plc. At 31 December 2015 Bunzl plc had sufficient distributable reserves to cover more than three years of dividends at the cost of the 2015 dividends, which is expected to be approximately £125 million.
Acquisitions
We completed 22 acquisitions in total in the year ended 31 December 2015, excluding Tillman which we agreed to acquire in December 2014 but completed at the beginning of January 2015. Including Tillman, the estimated annualised revenue and adjusted operating profit of the businesses acquired were £389.5 million and £49.1 million respectively. A summary of the effect of acquisitions is as follows:
|
|
£m |
|
Fair value of assets acquired |
243.7 |
|
Goodwill |
109.0 |
|
Consideration |
352.7 |
|
Satisfied by: |
|
|
cash consideration |
311.5 |
|
deferred consideration |
41.2 |
|
|
352.7 |
|
Contingent payments relating to the retention of former owners |
36.2 |
|
Net bank overdrafts acquired |
0.6 |
|
Transaction costs and expenses |
7.9 |
|
Total committed spend in respect of acquisitions completed in the current year |
397.4 |
|
Spend on acquisition committed as at 31 December 2014 but completed in January 2015 |
(70.2) |
|
Total committed spend in respect of acquisitions agreed in the current year |
327.2 |
The net cash outflow in the year in respect of acquisitions comprised:
|
|
£m |
|
Cash consideration |
311.5 |
|
Net bank overdrafts acquired |
0.6 |
|
Deferred consideration in respect of prior year acquisitions |
16.4 |
|
Net cash outflow in respect of acquisitions |
328.5 |
|
Acquisition related costs* |
42.7 |
|
Total cash outflow in respect of acquisitions |
371.2 |
* Cash flow on acquisition related costs relates to £8.5 million of transaction costs paid and £34.2 million from payments relating to the retention of former owners.
Cash flow
Cash generated from operations before acquisition related costs was £465.0 million, a £33.4 million increase from 2014, primarily due to a £25.2 million increase in adjusted operating profit. The Group's free cash flow of £310.2 million was up £33.7 million from 2014, primarily due to the £33.4 million increase in cash generated from operations, partly offset by a £2.7 million increase in the cash outflow relating to tax. After payment of dividends of £116.1 million in respect of 2014 (2014: £105.6 million in respect of 2013), an acquisition cash outflow of £371.2 million (2014: £168.1 million) and a £29.5 million outflow on employee share schemes (2014: £21.8 million), the net cash outflow was £206.6 million (2014: £19.0 million outflow). The summary cash flow for the year was as follows:
|
|
£m |
|
Cash generated from operations* |
465.0 |
|
Net capital expenditure |
(22.4) |
|
Operating cash flow* |
442.6 |
|
|
|
|
Operating cash flow* to adjusted operating profit† |
97% |
|
|
|
|
Net interest |
(39.9) |
|
Tax |
(92.5) |
|
Free cash flow |
310.2 |
|
Dividends |
(116.1) |
|
Acquisitions |
(371.2) |
|
Employee share schemes |
(29.5) |
|
Net cash outflow |
(206.6) |
* Before acquisition related costs
† Before intangible amortisation and acquisition related costs
Balance sheet
Return on average operating capital decreased to 55.5% from 57.7% in 2014, driven by the impact of the lower return on operating capital from acquisitions and also a decrease in the return on operating capital in the underlying business. Return on invested capital of 17.1% was down from 17.6% in 2014 due to lower returns on recent acquisitions and in the underlying business, partly offset by favourable exchange rate movements. Intangible assets increased by £153.2 million to £1,632.0 million, reflecting goodwill and customer relationships arising on acquisitions in the year of £281.2 million, partly offset by an amortisation charge of £66.8 million and a reduction of £61.2 million due to exchange. The Group's net pension deficit of £40.0 million at 31 December 2015 was £30.3 million lower than at 31 December 2014, largely due to an actuarial gain of £27.0 million. The actuarial gain arose as a result of the impact of a £33.3 million decrease in the present value of scheme liabilities from changes in assumptions, principally higher discount rates, partly offset by the actual return on scheme assets being £6.3 million lower than expected.
Net debt to EBITDA calculated at average exchange rates, increased to 2.1 times (2014: 1.8 times), principally as a result of the significant acquisition spend during the year. The movements in shareholders' equity and net debt during the year were as follows:
|
Shareholders' equity |
£m |
|
At 1 January 2015 |
983.9 |
|
Profit for the year |
232.7 |
|
Dividends |
(116.1) |
|
Currency |
(92.7) |
|
Actuarial gain on pension schemes (net of tax) |
20.3 |
|
Share based payments |
14.7 |
|
Employee share options |
(26.5) |
|
At 31 December 2015 |
1,016.3 |
|
Net debt |
£m |
|
At 1 January 2015 |
(877.4) |
|
Net cash outflow |
(206.6) |
|
Currency |
(23.2) |
|
At 31 December 2015 |
(1,107.2) |
|
|
|
|
Net debt to EBITDA (times) |
2.1 |
Consolidated income statement
for the year ended 31 December 2015
|
|
|
|
Growth |
|||
|
|
|
|
|
|
Actual |
Constant |
|
|
|
|
2015 |
2014 |
exchange |
exchange |
|
|
|
Notes |
£m |
£m |
rates |
rates |
|
Revenue |
|
2 |
6,489.7 |
6,156.5 |
5% |
5% |
|
|
|
|
|
|
|
|
|
Operating profit |
|
2 |
366.5 |
341.8 |
7% |
7% |
|
Finance income |
|
3 |
4.8 |
4.0 |
|
|
|
Finance cost |
|
3 |
(48.6) |
(46.0) |
|
|
|
Profit before income tax |
|
|
322.7 |
299.8 |
8% |
8% |
|
Income tax |
|
4 |
(90.0) |
(89.1) |
|
|
|
Profit for the year attributable to the Company's equity holders |
|
|
232.7 |
210.7 |
10% |
11% |
|
|
|
|
|
|
|
|
|
Earnings per share attributable to the Company's equity holders |
|
|
|
|
|
|
|
Basic |
|
6 |
71.0p |
64.5p |
10% |
10% |
|
Diluted |
|
6 |
70.2p |
63.7p |
10% |
10% |
|
|
|
|
|
|
|
|
|
Dividend per share |
|
5 |
38.0p |
35.5p |
7% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP measures |
|
|
|
|
|
|
|
Operating profit |
|
2 |
366.5 |
341.8 |
7% |
7% |
|
Adjusted for: |
|
|
|
|
|
|
|
Intangible amortisation |
|
2 |
66.8 |
61.9 |
|
|
|
Acquisition related costs |
|
2 |
21.7 |
26.1 |
|
|
|
Adjusted operating profit |
|
|
455.0 |
429.8 |
6% |
7% |
|
Finance income |
|
3 |
4.8 |
4.0 |
|
|
|
Finance cost |
|
3 |
(48.6) |
(46.0) |
|
|
|
Adjusted profit before income tax |
|
|
411.2 |
387.8 |
6% |
8% |
|
Tax on adjusted profit |
|
4 |
(113.1) |
(106.2) |
|
|
|
Adjusted profit for the year |
|
|
298.1 |
281.6 |
6% |
8% |
|
Adjusted earnings per share |
|
6 |
91.0p |
86.2p |
6% |
7% |
Consolidated statement of comprehensive income
for the year ended 31 December 2015
|
|
2015 |
2014 |
|
|
£m |
£m |
|
Profit for the year |
232.7 |
210.7 |
|
|
|
|
|
Other comprehensive income/(expense) |
|
|
|
Items that will not be reclassified to profit or loss: |
|
|
|
Actuarial gain/(loss) on defined benefit pension schemes |
27.0 |
(30.1) |
|
Tax on items that will not be reclassified to profit or loss |
(6.7) |
8.0 |
|
Total items that will not be reclassified to profit or loss |
20.3 |
(22.1) |
|
Items that may be reclassified to profit or loss: |
|
|
|
Foreign currency translation differences for foreign operations |
(77.8) |
(26.1) |
|
Loss taken to equity as a result of effective net investment hedges |
(13.5) |
(17.1) |
|
Gain recognised in cash flow hedge reserve |
9.6 |
3.9 |
|
Movement from cash flow hedge reserve to income statement |
(10.6) |
0.1 |
|
Tax on items that may be reclassified to profit or loss |
(0.4) |
0.6 |
|
Total items that may be reclassified subsequently to profit or loss |
(92.7) |
(38.6) |
|
Other comprehensive expense for the year |
(72.4) |
(60.7) |
|
Total comprehensive income attributable to the Company's equity holders |
160.3 |
150.0 |
Consolidated balance sheet
at 31 December 2015
|
|
|
|
2015 |
2014 |
|
|
|
Notes |
£m |
£m |
|
Assets |
|
|
|
|
|
Property, plant and equipment |
|
|
126.7 |
119.2 |
|
Intangible assets |
|
7 |
1,632.0 |
1,478.8 |
|
Defined benefit pension assets |
|
|
5.4 |
- |
|
Derivative financial assets |
|
|
16.5 |
16.3 |
|
Deferred tax assets |
|
|
- |
3.9 |
|
Total non-current assets |
|
|
1,780.6 |
1,618.2 |
|
|
|
|
|
|
|
Inventories |
|
|
794.2 |
705.3 |
|
Income tax receivable |
|
|
0.7 |
0.7 |
|
Trade and other receivables |
|
|
947.5 |
869.8 |
|
Derivative financial assets |
|
|
17.2 |
12.6 |
|
Cash at bank and in hand |
|
8 |
79.2 |
82.4 |
|
Total current assets |
|
|
1,838.8 |
1,670.8 |
|
Total assets |
|
|
3,619.4 |
3,289.0 |
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
Share capital |
|
|
107.7 |
107.6 |
|
Share premium |
|
|
163.9 |
160.3 |
|
Translation reserve |
|
|
(179.1) |
(87.2) |
|
Other reserves |
|
|
20.2 |
21.0 |
|
Retained earnings |
|
|
903.6 |
782.2 |
|
Total equity attributable to the Company's equity holders |
|
|
1,016.3 |
983.9 |
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
Interest bearing loans and borrowings |
|
8 |
1,058.8 |
913.3 |
|
Defined benefit pension liabilities |
|
|
45.4 |
70.3 |
|
Other payables |
|
|
20.8 |
18.5 |
|
Provisions |
|
|
25.3 |
20.9 |
|
Deferred tax liabilities |
|
|
112.8 |
116.0 |
|
Total non-current liabilities |
|
|
1,263.1 |
1,139.0 |
|
|
|
|
|
|
|
Bank overdrafts |
|
8 |
28.5 |
28.1 |
|
Interest bearing loans and borrowings |
|
8 |
120.8 |
35.8 |
|
Income tax payable |
|
|
74.8 |
64.6 |
|
Trade and other payables |
|
|
1,096.4 |
1,018.4 |
|
Derivative financial liabilities |
|
|
10.0 |
8.5 |
|
Provisions |
|
|
9.5 |
10.7 |
|
Total current liabilities |
|
|
1,340.0 |
1,166.1 |
|
Total liabilities |
|
|
2,603.1 |
2,305.1 |
|
Total equity and liabilities |
|
|
3,619.4 |
3,289.0 |
Consolidated statement of changes in equity
for the year ended 31 December 2015
|
|
Share capital |
Share premium |
Translation reserve £m |
Other reserves◊ £m |
Retained earnings† £m |
Total equity £m |
|
At 1 January 2015 |
107.6 |
160.3 |
(87.2) |
21.0 |
782.2 |
983.9 |
|
Profit for the year |
|
|
|
|
232.7 |
232.7 |
|
Actuarial gain on defined benefit pension schemes |
|
|
|
|
27.0 |
27.0 |
|
Foreign currency translation differences for foreign operations |
|
|
(77.8) |
|
|
(77.8) |
|
Loss taken to equity as a result of effective net investment hedges |
|
|
(13.5) |
|
|
(13.5) |
|
Gain recognised in cash flow hedge reserve |
|
|
|
9.6 |
|
9.6 |
|
Movement from cash flow hedge reserve to income statement |
|
|
|
(10.6) |
|
(10.6) |
|
Income tax (charge)/credit on other comprehensive income |
|
|
(0.6) |
0.2 |
(6.7) |
(7.1) |
|
Total comprehensive (expense)/income |
|
|
(91.9) |
(0.8) |
253.0 |
160.3 |
|
2014 interim dividend |
|
|
|
|
(36.0) |
(36.0) |
|
2014 final dividend |
|
|
|
|
(80.1) |
(80.1) |
|
Issue of share capital |
0.1 |
3.6 |
|
|
|
3.7 |
|
Employee trust shares |
|
|
|
|
(30.2) |
(30.2) |
|
Share based payments |
|
|
|
|
14.7 |
14.7 |
|
At 31 December 2015 |
107.7 |
163.9 |
(179.1) |
20.2 |
903.6 |
1,016.3 |
|
|
Share capital |
Share premium |
Translation reserve £m |
Other reserves◊ £m |
Retained earnings† £m |
Total equity £m |
|
At 1 January 2014 |
107.2 |
153.0 |
(45.4) |
17.8 |
707.3 |
939.9 |
|
Profit for the year |
|
|
|
|
210.7 |
210.7 |
|
Actuarial loss on defined benefit pension schemes |
|
|
|
|
(30.1) |
(30.1) |
|
Foreign currency translation differences for foreign operations |
|
|
(26.1) |
|
|
(26.1) |
|
Loss taken to equity as a result of effective net investment hedges |
|
|
(17.1) |
|
|
(17.1) |
|
Gain recognised in cash flow hedge reserve |
|
|
|
3.9 |
|
3.9 |
|
Movement from cash flow hedge reserve to income statement |
|
|
|
0.1 |
|
0.1 |
|
Income tax credit/(charge) on other comprehensive income |
|
|
1.4 |
(0.8) |
8.0 |
8.6 |
|
Total comprehensive (expense)/income |
|
|
(41.8) |
3.2 |
188.6 |
150.0 |
|
2013 interim dividend |
|
|
|
|
(32.6) |
(32.6) |
|
2013 final dividend |
|
|
|
|
(73.0) |
(73.0) |
|
Issue of share capital |
0.4 |
7.3 |
|
|
|
7.7 |
|
Employee trust shares |
|
|
|
|
(26.7) |
(26.7) |
|
Share based payments |
|
|
|
|
18.6 |
18.6 |
|
At 31 December 2014 |
107.6 |
160.3 |
(87.2) |
21.0 |
782.2 |
983.9 |
◊ Other reserves comprise merger reserve of £2.5m (2014: £2.5m), capital redemption reserve of £16.1m (2014: £16.1m) and cash flow hedge reserve of £1.6m (2014: £2.4m).
† Retained earnings comprise earnings of £1,022.5m (2014: £897.3m) and own shares of £(118.9)m (2014: £(115.1)m).
Consolidated cash flow statement
for the year ended 31 December 2015
|
|
|
|
2015 |
2014 |
|
|
|
Notes |
£m |
£m |
|
Cash flow from operating activities |
|
|
|
|
|
Profit before income tax |
|
|
322.7 |
299.8 |
|
Adjustments: |
|
|
|
|
|
depreciation |
|
|
24.1 |
24.4 |
|
intangible amortisation |
|
7 |
66.8 |
61.9 |
|
acquisition related costs |
|
2 |
21.7 |
26.1 |
|
share based payments |
|
|
9.1 |
7.9 |
|
finance income |
|
|
(4.8) |
(4.0) |
|
finance cost |
|
|
48.6 |
46.0 |
|
provisions |
|
|
(3.9) |
(5.0) |
|
retirement benefits |
|
|
(7.4) |
(8.0) |
|
other |
|
|
(2.1) |
(1.9) |
|
Working capital movement |
|
|
(9.8) |
(15.6) |
|
Cash generated from operations before acquisition related costs |
|
|
465.0 |
431.6 |
|
Cash outflow from acquisition related costs |
|
9 |
(42.7) |
(14.0) |
|
Income tax paid |
|
|
(92.5) |
(89.8) |
|
Cash inflow from operating activities |
|
|
329.8 |
327.8 |
|
|
|
|
|
|
|
Cash flow from investing activities |
|
|
|
|
|
Interest received |
|
|
2.8 |
2.3 |
|
Purchase of property, plant and equipment |
|
|
(24.8) |
(25.1) |
|
Sale of property, plant and equipment |
|
|
2.4 |
1.2 |
|
Purchase of businesses |
|
9 |
(328.5) |
(154.1) |
|
Cash outflow from investing activities |
|
|
(348.1) |
(175.7) |
|
|
|
|
|
|
|
Cash flow from financing activities |
|
|
|
|
|
Interest paid |
|
|
(42.7) |
(43.7) |
|
Dividends paid |
|
|
(116.1) |
(105.6) |
|
Increase in borrowings |
|
|
256.4 |
181.0 |
|
Repayment of borrowings |
|
|
(73.8) |
(170.3) |
|
Realised gains on foreign exchange contracts |
|
|
27.5 |
17.4 |
|
Proceeds from issue of ordinary shares to settle share options |
|
|
3.7 |
7.7 |
|
Proceeds from exercise of market purchase share options |
|
|
23.1 |
18.5 |
|
Purchase of employee trust shares |
|
|
(56.3) |
(48.0) |
|
Cash inflow/(outflow) from financing activities |
|
|
21.8 |
(143.0) |
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
3.5 |
9.1 |
|
|
|
|
|
|
|
Cash and cash equivalents at start of year |
|
|
54.3 |
46.8 |
|
Increase in cash and cash equivalents |
|
|
3.5 |
9.1 |
|
Currency translation |
|
|
(7.1) |
(1.6) |
|
Cash and cash equivalents at end of year |
|
8 |
50.7 |
54.3 |
Notes
1. Basis of preparation
The consolidated financial statements for the year ended 31 December 2015 have been approved by the directors. They are prepared in accordance with (i) EU endorsed International Financial Reporting Standards ('IFRS') and interpretations of the International Financial Reporting Standards Interpretations Committee and those parts of the Companies Act 2006 as applicable to companies using IFRS and (ii) International Financial Reporting Standards as issued by International Accounting Standards Board ('IASB'). They are prepared under the historical cost convention with the exception of certain items which are measured at fair value. The directors consider that it is appropriate to adopt the going concern basis of accounting in preparing the financial statements.
Bunzl plc's 2015 Annual Report will be published during March 2016. The financial information set out herein does not constitute the Company's statutory accounts for the year ended 31 December 2015 but is derived from those accounts and the accompanying directors' report. Statutory accounts for 2015 will be delivered to the Registrar of Companies following the Company's Annual General Meeting which will be held on 20 April 2016. 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 2014 are not the Company's statutory accounts for the financial year but are derived from those accounts which have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the auditors was unqualified and did not contain statements under Section 495 (4)(b) of the Companies Act 2006.
2. Segment analysis
|
|
North America |
Continental Europe |
UK & Ireland |
Rest of the World |
Corporate |
Total |
|
Year ended 31 December 2015 |
£m |
£m |
£m |
£m |
£m |
£m |
|
Revenue |
3,751.8 |
1,121.0 |
1,102.4 |
514.5 |
|
6,489.7 |
|
Adjusted operating profit/(loss) |
244.0 |
104.5 |
84.9 |
42.1 |
(20.5) |
455.0 |
|
Intangible amortisation |
(18.3) |
(27.9) |
(8.0) |
(12.6) |
- |
(66.8) |
|
Acquisition related costs |
(9.5) |
(5.3) |
(0.8) |
(6.1) |
- |
(21.7) |
|
Operating profit/(loss) |
216.2 |
71.3 |
76.1 |
23.4 |
(20.5) |
366.5 |
|
Finance income |
|
|
|
|
|
4.8 |
|
Finance cost |
|
|
|
|
|
(48.6) |
|
Profit before income tax |
|
|
|
|
|
322.7 |
|
Adjusted profit before income tax |
|
|
|
|
|
411.2 |
|
Income tax |
|
|
|
|
|
(90.0) |
|
Profit for the year |
|
|
|
|
|
232.7 |
|
Capital expenditure |
8.9 |
6.8 |
4.3 |
4.1 |
0.7 |
24.8 |
|
Depreciation |
8.5 |
8.3 |
4.3 |
2.9 |
0.1 |
24.1 |
|
|
North America |
Continental Europe |
UK & Ireland |
Rest of the World |
Corporate |
Total |
|
Year ended 31 December 2014 |
£m |
£m |
£m |
£m |
£m |
£m |
|
Revenue |
3,372.1 |
1,146.3 |
1,078.5 |
559.6 |
|
6,156.5 |
|
Adjusted operating profit/(loss) |
211.1 |
103.2 |
80.1 |
55.5 |
(20.1) |
429.8 |
|
Intangible amortisation |
(13.4) |
(28.4) |
(7.6) |
(12.5) |
- |
(61.9) |
|
Acquisition related costs |
(5.6) |
(4.9) |
(1.9) |
(13.7) |
- |
(26.1) |
|
Operating profit/(loss) |
192.1 |
69.9 |
70.6 |
29.3 |
(20.1) |
341.8 |
|
Finance income |
|
|
|
|
|
4.0 |
|
Finance cost |
|
|
|
|
|
(46.0) |
|
Profit before income tax |
|
|
|
|
|
299.8 |
|
Adjusted profit before income tax |
|
|
|
|
|
387.8 |
|
Income tax |
|
|
|
|
|
(89.1) |
|
Profit for the year |
|
|
|
|
|
210.7 |
|
Capital expenditure |
8.1 |
7.7 |
5.3 |
3.7 |
0.3 |
25.1 |
|
Depreciation |
7.5 |
9.4 |
4.0 |
3.3 |
0.2 |
24.4 |
Acquisition related costs for the year ended 31 December 2015 include transaction costs and expenses of £7.9m (2014: £4.1m), deferred consideration payments of £24.3m (2014: £21.0m) relating to the retention of former owners of businesses acquired and a credit of £10.5m (2014: £1.0m charge) from adjustments to previously estimated earn outs.
3. Finance income/(cost)
|
|
|
|
2015 |
2014 |
|
|
|
|
£m |
£m |
|
Interest on cash and cash equivalents |
|
|
1.9 |
1.6 |
|
Interest income from foreign exchange contracts |
|
|
1.9 |
1.4 |
|
Other finance income |
|
|
1.0 |
1.0 |
Finance income |
|
|
4.8 |
4.0 |
|
|
|
|
|
|
|
Interest on loans and overdrafts |
|
|
(43.3) |
(41.4) |
|
Interest expense from foreign exchange contracts |
|
|
(1.7) |
(2.0) |
|
Interest charge on defined benefit pension schemes |
|
|
(2.4) |
(1.6) |
|
Fair value loss on US private placement notes in a hedge relationship |
|
|
(2.9) |
(12.1) |
|
Fair value gain on interest rate swaps in a hedge relationship |
|
|
2.9 |
12.1 |
|
Foreign exchange gain/(loss) on intercompany funding |
|
|
2.0 |
(10.4) |
|
Foreign exchange (loss)/gain on external debt not in a hedge relationship |
|
|
(3.0) |
9.8 |
|
Other finance expense |
|
|
(0.2) |
(0.4) |
Finance cost |
|
|
(48.6) |
(46.0) |
The foreign exchange gain or loss on intercompany funding arises as a result of the retranslation of foreign currency intercompany loans. The gain or loss on intercompany funding is substantially matched by the foreign exchange loss or gain on external debt not in a hedge relationship which minimises the 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 and acquisition related costs. 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:
|
|
|
2015 |
2014 |
|
|
|
£m |
£m |
|
Income tax on profit |
|
90.0 |
89.1 |
|
Tax associated with intangible amortisation and acquisition related costs |
|
23.1 |
17.1 |
|
Tax on adjusted profit |
|
113.1 |
106.2 |
|
|
|
|
|
|
Profit before income tax |
|
322.7 |
299.8 |
|
Intangible amortisation and acquisition related costs |
|
88.5 |
88.0 |
|
Adjusted profit before income tax |
|
411.2 |
387.8 |
|
|
|
|
|
|
Reported tax rate |
|
27.9% |
29.7% |
|
Tax rate on adjusted profit |
|
27.5% |
27.4% |
5. Dividends
|
|
|
|
|
2015 |
2014 |
|
|
|
|
|
£m |
£m |
|
2013 interim |
|
|
|
|
32.6 |
|
2013 final |
|
|
|
|
73.0 |
|
2014 interim |
|
|
|
36.0 |
|
|
2014 final |
|
|
|
80.1 |
|
|
Total |
|
|
|
116.1 |
105.6 |
Total dividends per share for the year to which they relate are:
|
|
|
|
|
Per share |
|
|
|
|
2015 |
2014 |
|
Interim |
|
|
11.75p |
11.0p |
|
Final |
|
|
26.25p |
24.5p |
|
Total |
|
|
38.00p |
35.5p |
The 2015 interim dividend of 11.75p per share was paid on 4 January 2016 and comprised £38.6m of cash. The 2015 final dividend of 26.25p per share will be paid on 1 July 2016 to shareholders on the register at the close of business on 20 May 2016.
6. Earnings per share
|
|
|
|
2015 |
2014 |
|
|
|
|
£m |
£m |
|
Profit for the year |
|
|
232.7 |
210.7 |
|
Adjustment* |
|
|
65.4 |
70.9 |
|
Adjusted profit for the year |
|
|
298.1 |
281.6 |
|
|
|
|
|
|
|
Basic weighted average ordinary shares in issue (million) |
|
327.6 |
326.6 |
|
|
Dilutive effect of employee share plans (million) |
|
|
4.1 |
3.9 |
|
Diluted weighted average ordinary shares (million) |
|
|
331.7 |
330.5 |
|
|
|
|
|
|
|
Basic earnings per share |
|
|
71.0p |
64.5p |
|
Adjustment |
|
|
20.0p |
21.7p |
|
Adjusted earnings per share |
|
|
91.0p |
86.2p |
|
|
|
|
|
|
|
Diluted basic earnings per share |
|
|
70.2p |
63.7p |
|
Adjustment |
|
|
19.7p |
21.5p |
|
Adjusted diluted earnings per share |
|
|
89.9p |
85.2p |
* Adjustment comprises intangible amortisation of £66.8m (2014: £61.9m), acquisition related costs of £21.7m (2014: £26.1m) and the associated tax credit of £23.1m (2014: credit of £17.1m).
7. Intangible assets
|
|
|
2015 |
2014 |
|
Goodwill |
|
£m |
£m |
|
Beginning of year |
|
922.3 |
901.0 |
|
Acquisitions |
|
109.0 |
36.2 |
|
Currency translation |
|
(32.0) |
(14.9) |
|
End of year |
|
999.3 |
922.3 |
|
|
|
|
|
|
Customer relationships |
|
|
|
|
Cost |
|
|
|
|
Beginning of year |
|
938.9 |
887.2 |
|
Acquisitions |
|
172.2 |
76.0 |
|
Currency translation |
|
(41.9) |
(24.3) |
|
End of year |
|
1,069.2 |
938.9 |
|
Accumulated amortisation |
|
|
|
|
Beginning of year |
|
382.4 |
331.3 |
|
Charge in year |
|
66.8 |
61.9 |
|
Currency translation |
|
(12.7) |
(10.8) |
|
End of year |
|
436.5 |
382.4 |
|
|
|
|
|
|
Net book value at 31 December |
|
632.7 |
556.5 |
|
|
|
|
|
|
Total net book value of intangible assets at 31 December |
|
1,632.0 |
1,478.8 |
Both goodwill and customer relationships have been acquired as part of business combinations. Customer relationships are amortised over their estimated useful lives which range from 10 to 19 years.
8. Cash and cash equivalents and net debt
|
|
2015 |
2014 |
|
|
|
£m |
£m |
|
|
Cash at bank and in hand |
79.2 |
82.4 |
|
|
Bank overdrafts |
(28.5) |
(28.1) |
|
|
Cash and cash equivalents |
50.7 |
54.3 |
|
|
Interest bearing loans and borrowings - current liabilities |
(120.8) |
(35.8) |
|
|
Interest bearing loans and borrowings - non-current liabilities |
(1,058.8) |
(913.3) |
|
|
Derivatives managing the interest rate risk and currency profile |
21.7 |
17.4 |
|
|
Net debt |
(1,107.2) |
(877.4) |
|
|
|
|
|
|
|
|
2015 |
2014 |
|
|
Movement in net debt |
£m |
£m |
|
|
Beginning of year |
(877.4) |
(849.5) |
|
|
Net cash outflow |
(206.6) |
(19.0) |
|
|
Realised gain on foreign exchange contracts |
27.5 |
17.4 |
|
|
Currency translation |
(50.7) |
(26.3) |
|
|
End of year |
(1,107.2) |
(877.4) |
|
9. Acquisitions
2015
The acquisitions completed in the year ended 31 December 2015 were Tillman, Quirumed, Jan-Mar, Janssen Packaging, Prescott, Emballages Maska, Istanbul Ticaret, Ligne T, GF, Solmaq, Cordova Safety Products, Steiner Industries, Bidvest Hospitality Supplies, Delta Hospitality, Meier Verpackungen, Planet Clean, ICB, Cemelim, Casa do EPI, DPS, Faru, Comatec and Dental Sorria.
Tillman, the proposed acquisition of which was agreed on 30 December 2014, was acquired on 2 January 2015. The business supplies a variety of personal protection equipment, principally gloves to distributors throughout the US. Quirumed, a business principally engaged in the supply of healthcare related products and equipment to a customer base consisting of medical centres, doctors' surgeries and other end users throughout Spain and in other countries in Europe, was acquired on 30 January 2015. Jan-Mar, which is principally engaged in the sale of cleaning and hygiene supplies to distributors in Toronto, Canada, was also acquired on 30 January 2015. Janssen Packaging, a business engaged in the distribution of specialist packaging materials for the e-commerce, fashion and fulfilment sectors in the Netherlands, was acquired on 10 March 2015. Prescott, acquired on 31 March 2015, distributes cleaning and hygiene products to a variety of end users in the construction, property management and healthcare sectors, as well as to some distributors, throughout the Montreal area of Quebec, Canada. Emballages Maska, a business engaged in the sale of cleaning and hygiene supplies to other distributors throughout Quebec and eastern Ontario, was also acquired on 31 March 2015.
Istanbul Ticaret, a business based in Turkey and engaged in the sale of a variety of personal protection equipment to both end users and other distributors throughout Turkey, was acquired on 29 May 2015. Ligne T, a distributor of personal protection equipment, principally workwear, to a variety of end user customers throughout the south-west region of France, was acquired on 29 May 2015. GF, a distributor of industrial packaging, warehouse supplies and equipment to end user customers in western Canada, was acquired on 1 June 2015. Solmaq, which supplies a complete range of head-to-toe personal protection equipment and other welding and industrial consumables to distributors, retailers and end users throughout Colombia, was acquired on 30 June 2015. Cordova Safety Products, a business engaged in the sale of a variety of personal protection equipment, principally gloves, to distributors throughout the US, was also acquired on 30 June 2015.
Steiner Industries, acquired on 1 July 2015, distributes personal protection equipment, principally safety gloves and workwear, to distributors in the US. Bidvest Hospitality Supplies and Delta Hospitality, acquired on 1 July 2015 and 17 July 2015 respectively, are businesses principally engaged in the supply of catering consumables and equipment to a variety of end user customers including restaurants, bars, contract caterers, hotels and hospitals throughout Australia. Meier Verpackungen, a distributor of customer specific packaging products to food processors throughout Austria, was acquired on 1 September 2015. Planet Clean, a business principally engaged in the sale and distribution of cleaning and hygiene supplies and equipment to a variety of customer markets throughout western Canada, was acquired on 16 September 2015.
ICB, a business principally engaged in the sale of cleaning and hygiene supplies and based in Auckland, New Zealand, was acquired on 30 October 2015. Cemelim, a business based in Barcelona and also engaged in the sale
of cleaning and hygiene supplies, was acquired on 2 November 2015. Casa do Epi, a business engaged in the sale of a wide range of personal protection equipment to end user customers in the mining, construction and manufacturing sectors in Brazil was acquired on 3 November 2015. DPS, which supplies catering disposables and a variety of cleaning, safety and packaging products to wholesalers and distributors as well as end users in Chile, was acquired on 30 November 2015. Faru, a business engaged in the sale of personal protection equipment to distributors throughout Spain, was also acquired on 30 November 2015. Comatec, a distributor of high-end innovative single-use tableware to restaurants and hotels throughout France which also exports products to a large number of distributors in a number of countries worldwide, was acquired on 1 December 2015. Dental Sorria, a business engaged in the distribution of dental healthcare supplies and equipment to medical centres, dental clinics and other end users in Brazil was acquired on 18 December 2015.
Acquisitions involving the purchase of the acquiree's share capital or, as the case may be, 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 IFRS 3 'Business Combinations'. This formal process is applied to each acquisition and involves an assessment of the assets acquired and liabilities assumed with assistance provided by external valuation specialists where appropriate. Until this assessment is complete, the allocation period remains open up to a maximum of 12 months from the relevant acquisition date. At 31 December 2015 the allocation period for all acquisitions completed since 1 January 2015 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 retention of former owners of businesses acquired. IFRS 3 requires that any payments that are contingent on future employment, including payments which are contingent on the retention of former owners of businesses acquired, 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 2015 and 2014 is detailed below:
|
Provisional fair value of assets acquired |
|
2015 £m |
2014 £m |
|||||
|
Intangible assets |
|
172.2 |
76.0 |
|||||
|
Property, plant and equipment |
|
8.7 |
1.9 |
|||||
|
Inventories |
|
73.6 |
13.9 |
|||||
|
Trade and other receivables |
|
57.2 |
25.8 |
|||||
|
Trade and other payables |
|
(40.7) |
(15.2) |
|||||
|
Net bank overdrafts |
|
(0.6) |
(8.9) |
|||||
|
Provisions for liabilities and charges |
|
(9.4) |
(2.2) |
|||||
|
Tax and deferred tax |
|
(17.3) |
(14.4) |
|||||
|
|
|
243.7 |
76.9 |
|||||
|
Goodwill |
|
109.0 |
36.2 |
|||||
|
Consideration |
|
352.7 |
113.1 |
|||||
|
|
|
|
|
|||||
|
Satisfied by: |
|
|
|
|||||
|
cash consideration |
|
311.5 |
107.1 |
|||||
|
deferred consideration |
|
41.2 |
6.0 |
|||||
|
|
|
352.7 |
113.1 |
|||||
|
Contingent payments relating to retention of former owners |
|
36.2 |
19.1 |
|||||
|
Net bank overdrafts acquired |
|
0.6 |
8.9 |
|||||
|
Transaction costs and expenses |
|
7.9 |
4.1 |
|||||
|
Total committed spend in respect of acquisitions completed in the current year |
|
397.4 |
145.2 |
|||||
|
Spend on acquisition committed as at 31 December 2014 but completed in January 2015* |
|
(70.2) |
65.8 |
|||||
|
Total committed spend in respect of acquisitions agreed in the current year |
|
327.2 |
211.0 |
|||||
* being the acquisition of Tillman. The difference between 2015 and 2014 spend is due to exchange translation.
|
The net cash outflow in the year in respect of acquisitions comprised:
|
|
|
|
|
|
Cash consideration |
|
311.5 |
107.1 |
|
|
Net bank overdrafts acquired |
|
0.6 |
8.9 |
|
|
Deferred consideration in respect of prior year acquisitions |
|
16.4 |
38.1 |
|
|
Net cash outflow in respect of acquisitions |
|
328.5 |
154.1 |
|
|
Acquisition related costs |
|
42.7 |
14.0 |
|
|
Total cash outflow in respect of acquisitions |
|
371.2 |
168.1 |
|
Cash flow on acquisition related costs relates to £8.5m (2014: £3.5m) of transaction costs and expenses paid and £34.2m (2014: £10.5m) of payments relating to retention of former owners.
Acquisitions completed in the year ended 31 December 2015 contributed £217.1m (2014: £90.6m) to the Group's revenue and £26.9m (2014: £10.2m) to the Group's adjusted operating profit for the year ended 31 December 2015.
The estimated contributions from acquisitions completed during the year to the results of the Group for the year ended 31 December if such acquisitions had been made at the beginning of the year, are as follows:
|
|
2015 £m |
2014 £m |
|
Revenue |
389.5 |
162.7 |
|
Adjusted operating profit |
49.1 |
20.6 |
The estimated revenue which would have been contributed by the businesses acquired during the year to the results for the year ended 31 December 2015, excluding Tillman, if such acquisitions had been made at the beginning of the year is £324.1m (2014: £223.3m, including Tillman).
2014
The acquisitions made in the year ended 31 December 2014 were Bäumer and its related company Protemo, Oskar Plast, Lamedid, Nelson Packaging, Plast Techs, Tecno Boga, Allshoes, JPLUS, 365 Healthcare, Lee Brothers, Premiere Products, Guardsman, De Ridder, Victoria Healthcare Products, Acme Supplies and POS Direct.
Bäumer, a business principally engaged in the distribution of cleaning and hygiene and healthcare supplies to end users in various market sectors in Germany, together with its related company Protemo, a business focusing on the sale of healthcare related product to the healthcare sector, were acquired on 31 January 2014. Oskar Plast, a business selling a variety of disposable packaging products to customers throughout the Czech Republic, including retail chains, food processors and other distributors, was acquired on 20 February 2014. Lamedid, a business principally engaged in the supply and distribution throughout Brazil of medical and healthcare consumable products to hospitals, clinics and laboratories as well as to distributors, was acquired on 13 March 2014. Nelson Packaging, a business principally engaged in the distribution of packaging and cleaning and hygiene supplies to end users in the commercial and industrial market sectors in New Zealand, was acquired on 27 March 2014. Plast Techs, a business engaged in the sale of a variety of foodservice and cleaning and hygiene supplies to distributors throughout Southern California, was acquired on 31 March 2014. Tecno Boga, a leading supplier in Chile of protective footwear, principally to distributors, was acquired on 31 March 2014.
Allshoes, a distributor of both branded and own brand safety and work shoes to a variety of wholesalers as well as to retailers, principally in the Netherlands but also in Belgium, was acquired on 30 May 2014. JPLUS, a Brazilian business principally engaged in the distribution of cleaning and hygiene supplies and disposable products to a variety of end user customers, particularly in the contract cleaning and healthcare sectors, was acquired on 30 May 2014. 365 Healthcare, a UK business principally engaged in the distribution of healthcare products to distributors and hospitals, was acquired on 30 June 2014.
Lee Brothers, a business engaged in the distribution of personal protection equipment and workplace consumables to customers largely in the construction and engineering sectors in the UK, was acquired on 30 July 2014. Premiere Products, a business engaged in the distribution of cleaning and hygiene products to customers throughout the UK, particularly serving the facilities management and education sectors, was acquired on 31 July 2014. Guardsman, a company engaged in the sale of a variety of safety equipment and workwear to customers in various manufacturing industries as well as the construction and engineering sectors throughout the UK, was also acquired on 31 July 2014. De Ridder, a specialist distribution business engaged in the supply of a wide range of products principally to prisons, police stations and other detention centres and based in Amsterdam, was acquired on 30 September 2014.
Victoria Healthcare Products, a business engaged in supplying a variety of healthcare consumable products for people in the community and to residential care facilities in Australia, was acquired on 26 November 2014. Acme Supplies, a cleaning and hygiene supplies business based in Vancouver Island, Canada, was acquired on 1 December 2014. POS Direct, a UK business which manages and supplies a variety of point of sale and marketing materials, was acquired on 19 December 2014.
10. Related party disclosures
The Group has identified the directors of the Company, their close family members, the Group defined benefit 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 2015 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 2014 Annual Report remain those of most concern to the business at the end of 2015. In addition, this year the Company has determined that there is an additional financial risk relating to taxation, details of which are set out below.
The principal risks and uncertainties faced by the Group and the steps taken to mitigate such risks and uncertainties are summarised below. The risks identified do not comprise all of the risks that the Group may face and accordingly 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. This could result from: customer pressure on sales volumes or margins; the loss of customers due to service or pricing issues; increased price competition; customers and suppliers dealing directly with one another; or unforeseen changes in the competitive landscape due to the introduction of disruptive technologies or changes in 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, including own brand products. 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. Potential causes could include changes in the input costs of products purchased through commodity price inflation. In addition, a period of commodity price deflation may lead to reductions in the price and value of the Group's products where sales prices are indexed or if competitors reduced their selling prices. If this was 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 also 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.
The Group uses its considerable experience in sourcing and selling products to manage prices during periods of both inflation and deflation in order to minimise the impact on operating margins.
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 is also subject to transaction exposures where products are purchased in one currency and sold in another. As a result, movements in exchange rates may also adversely impact both operating margins and 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, to make acquisitions when appropriate opportunities arise, and to pay dividends to shareholders. 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 from a significant and rapid deterioration in the business's performance, foreign exchange rate fluctuations or the failure to manage working capital levels. Ultimately this 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.
Taxation - In an increasingly complex corporate tax environment, it is possible that changes in tax law, including those that might arise from the OECD's current Base Erosion and Profit Shifting project, may lead to higher effective tax rates for many international businesses, thereby adversely affecting the Group's future cash flows.
Oversight of the Group's tax strategy is within the remit of the Board. The Group seeks to plan and manage its tax affairs efficiently but also responsibly with a view to ensuring that it complies fully with the relevant legal obligations in the countries in which the Group operates while endeavouring to manage its tax affairs to protect value for the Company's shareholders in line with the Board's broader fiduciary duties.
The Group manages and controls these risks through an internal tax department made up of experienced tax professionals who exercise judgement and seek appropriate advice from specialist professional firms. At the same time the Group monitors international developments in tax law and practice, adapting its approach where necessary to do so. Tax risks are assessed by the Audit Committee and are also incorporated within the Group risk assessment reviewed by the Board as part of the formal governance process relating to risk management.
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, deterioration in the economic environment of the acquired business or the failure to perform adequate pre-acquisition due diligence or appropriately manage the post-acquisition integration of the 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 and appropriately incentivised 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 adversely affected if any of its major distribution facilities was destroyed or damaged or there was a significant failure of its information systems resulting from either hardware failure or a cybersecurity breach.
The Group seeks to reduce the impact of destruction of, or damage to, facilities through the use of multi-site facilities with products stocked in more than one location. The impact of information systems' failure is mitigated through regular renewal of hardware, layered security measures and disaster recovery 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
29 February 2016
This information is provided by RNS
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