Final Results

RNS Number : 5261F
Bunzl PLC
23 February 2015
 



 

Monday 23 February 2015

 

ANNUAL RESULTS ANNOUNCEMENT

 

Bunzl plc, the international distribution and outsourcing Group, today publishes its annual results for the year ended 31 December 2014.

 

 

 

Financial results



2014



2013


Growth

as reported

Growth

at constant exchange

Revenue

£6,156.5m

£6,097.7m

1%

7%

Adjusted operating profit*

£429.8m

£414.4m

4%

10%

Adjusted profit before income tax*

£387.8m

£372.2m

4%

11%

Adjusted earnings per share*

86.2p

82.4p

5%

11%

Dividend for the year

35.5p

32.4p

10%







Statutory results





Operating profit

£341.8m

£332.1m

3%


Profit before income tax

£299.8m

£289.9m

3%


Basic earnings per share

64.5p

63.5p

2%


 

Highlights include:

 

·      Strong, double digit percentage increases at constant exchange rates in adjusted operating profit* and adjusted earnings per share*

 

·      Acquisition spend of £211 million on 17 acquisitions across all business areas; two further acquisitions announced today

 

·      Group operating margin* up 20 basis points to 7.0%, with significant increases in Continental Europe and UK & Ireland

 

·      Return on average operating capital up 80 basis points to 57.7%

 

·      Another year of strong cash flow with operating cash flow† to adjusted operating profit* of 95%

 

·      22 year track record of strong dividend growth continues with an increase of 10%

 

*  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 once again we have demonstrated the strength, resilience and reliability of our business model and strategy which together have delivered another excellent set of results at constant exchange rates.

 

We are announcing two acquisitions today and with a promising pipeline we expect to complete further transactions as the year progresses.  This acquisition activity, together with the ongoing development of the underlying business, should lead to further growth in 2015."

 

Business area highlights:

 

 

North America

 

·      Good growth at constant exchange rates from existing and new customers, as well as acquisitions made in 2013 and 2014 

·      Existing and new customers drive growth in grocery

·      Strong organic growth in retail

 

Continental Europe

 

·      Excellent increase in operating margin*, up 60bp to 9.0%

·      France

o     Significant increased profit in cleaning and hygiene due to improved margins and cost management

o     Strong profit growth in safety business

·      Substantial profit growth in the Netherlands, particularly in safety

 

UK & Ireland

 

·      Organic revenue growth at highest level since 2007 with operating margin* up 40bp to 7.4%

·      Safety and cleaning & hygiene benefited from recovery in construction sector and acquisitions

·      Strong growth in hospitality as markets recovered and substantially improved results in healthcare and Ireland

 

Rest of the World

 

·      Overall strong growth with substantial acquisition impact despite exchange rate volatility

·      Latin America

o     Good performance despite weaker economies

o     Significant impact from acquisitions 

·      Australasia

o     Industrial and safety adversely impacted by mining and resources slowdown

o     Growth in Outsourcing Services and food processor businesses

 

*  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

Despite mixed macroeconomic conditions persisting throughout the year in many of the countries where we operate and challenging market conditions continuing to affect some of our sectors, I am pleased to report another excellent set of results at constant exchange rates.  Significant currency translation movements, principally in the US dollar and euro, reduced the constant exchange Group growth rates by between 6% and 7%.

 

Group revenue increased to £6,156.5 million (2013: £6,097.7 million), and adjusted operating profit before intangible amortisation and acquisition related costs was £429.8 million (2013: £414.4 million).  Adjusted earnings per share before intangible amortisation and acquisition related costs were 86.2p (2013: 82.4p).

 

At constant exchange rates revenue increased by 7%, due to organic growth of 3% combined with the impact of acquisitions, and adjusted operating profit rose by 10% as the Group operating margin improved from 6.8% to 7.0%.  Adjusted earnings per share were up 11%.

 

Dividend

The Board is recommending a final dividend of 24.5p.  This brings the total dividend for the year to 35.5p, up 10% compared to 2013.  Shareholders will again have the opportunity to participate in our dividend reinvestment plan.

 

Strategy

Our consistent and proven strategy of developing the business through organic growth, consolidating our markets through focused acquisitions and continuously improving the efficiency of our operations has delivered another successful year of growth for the Group with all four business areas ahead of 2013 in both revenue and profits at constant exchange rates. 

 

Organic growth is achieved by continually redefining and deepening our commitment to our customers.  By enabling our customers to outsource to Bunzl the purchasing, consolidation and distribution of a broad range of goods not for resale, they are able to benefit 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 good pace throughout 2014.  Including Tillman, which we agreed to acquire in December 2014 and completed at the beginning of January 2015, we made 17 acquisitions with a total committed spend of £211 million, thereby adding annualised revenue of over £220 million.  These acquisitions have helped to strengthen our position in many of the market sectors that we serve.

 

Investment

Over time we have steadily invested in the business to support our growth strategy and to expand and enhance our asset base.  During the year we have extended and improved our warehouses and opened new ones, both as a result of acquisitions and by consolidating our existing warehouse footprint.  Our ability to serve our customers in the most efficient and appropriate manner is critical to our success and, as a result, we continuously upgrade our IT systems as we integrate new businesses into the Group and increase the functionality of our existing operations, thereby enhancing our customer offering.

 

Corporate responsibility

Sustainable business practice is important to Bunzl and refining our processes and operations to ensure improvements in this area is ongoing.  Our ability to measure the improvement in our performance relies on the availability of high quality data for our key indicators and in this regard our environmental and accident data are now both subject to external assurance.  We continue to engage with our suppliers to encourage them to adopt appropriate sustainable practices and ensure compliance with regulations.  In this connection, our quality assurance/quality control team based in Shanghai regularly undertakes supplier audits to assist our suppliers in meeting our required standards.

 

Employees

Although we are a large group, we strive to preserve the advantages and style of a small business, maintaining a flat organisation structure with decentralised decision making and clear lines of responsibility.  In this way we are able to provide a responsive and tailored service offering to our customers.  Bunzl is a service business and accordingly our employees across the world are our ambassadors.  We are therefore very grateful for the knowledge, experience and continued enthusiasm shown by our employees who have played an important part in our strong performance.  Further, we have welcomed a number of new employees through acquisitions we have made.  In our view, the retention of employees post acquisition is key to the successful integration of newly acquired businesses and to bring in new ideas and improved processes that can then be applied elsewhere in the Group. 

 

Board

Peter Johnson, who has served as a non-executive director since 2006, will be retiring after the Company's Annual General Meeting in April 2015.  During his time he has also served as Chairman of the Remuneration Committee and senior independent director.  We thank Peter for his guidance and wise counsel over many years and he will leave the Board with our gratitude and best wishes for the future. 

 

Vanda Murray was appointed as a non-executive director with effect from February 2015.  Based in the UK, Vanda is presently a non-executive director of Exova Group plc, Manchester Airports Holdings Limited, Microgen plc, where she is Chair of the Remuneration Committee, and Fenner PLC, where she is the senior independent director.  She was previously Chief Executive Officer of Blick plc from 2001 to 2004 and subsequently the UK Managing Director of Ultraframe PLC from 2004 to 2006.  She was appointed OBE in 2002 for Services to Industry and to Export and has over 20 years of senior management experience across a range of industrial, manufacturing and support services sectors in Europe, the US and Asia which will be of great value to Bunzl as we continue to expand and develop.  Upon Peter's retirement in April, Vanda will become Chair of the Remuneration Committee and David Sleath, who was appointed as a non-executive director in September 2007 and is Chairman of the Audit Committee, will assume the role of senior independent director.

 

Philip Rogerson

Chairman
23 February 2015

 

Chief Executive's Review

Operating performance

2014 has proved to be another successful year for the Group due to a combination of good organic growth and the impact from acquisitions made in 2013 as well as those businesses purchased during the year.

 

The overall negative translation effect of currency movements has significantly decreased the reported Group growth rates of both revenue and profit.  As in previous years, the operations, including the relevant growth rates, are reviewed below at constant exchange rates to remove the distorting impact of these currency movements.  Changes in the level of revenue and profits at constant exchange rates have been calculated by retranslating the results for 2013 at the average rates used for 2014.  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 7% (1% at actual exchange rates) to £6,156.5 million and operating profit was £429.8 million, an increase of 10% (4% at actual exchange rates).  The percentage growth in operating profit was greater than that of revenue due to the improvement in Group operating margin by 20 basis points to 7.0% as a result of increases in the operating margin in Continental Europe, UK & Ireland and Rest of the World.

 

In North America revenue rose 5% (down 1% at actual exchange rates) due to good organic revenue growth and the impact of acquisitions completed in both 2013 and 2014, while operating profit also increased 5% (down 1% at actual exchange rates).  Revenue in Continental Europe rose 5% (unchanged at actual exchange rates) as a result of improved organic revenue growth and the impact of acquisitions, with operating profit up 12% (6% at actual exchange rates) as margins improved by 60 basis points to 9.0%.  In UK & Ireland revenue was up 6% (6% at actual exchange rates) due to the impact of strong organic growth and acquisitions, but operating profit rose 12% at both constant and actual exchange rates as margins improved by a further 40 basis points during the year to 7.4%.  In Rest of the World revenue increased 21% (6% at actual exchange rates) and operating profit was up 24% (8% at actual exchange rates), principally due to strong organic revenue growth and the substantial impact of acquisitions in Latin America.

 

Basic earnings per share were 8% higher (2% at actual exchange rates) at 64.5p.  Adjusted earnings per share, after eliminating the effect of intangible amortisation and acquisition related costs, were 86.2p, an increase of 11% (5% at actual exchange rates).  The return on average operating capital increased from 56.9% to 57.7% and return on invested capital was 17.6%, a slight decrease from 2013 as improved returns in the underlying business were offset by the adverse impact of recent acquisitions and exchange rates.

 

Our operating cash flow continued to be strong with the ratio of operating cash flow before acquisition related costs to operating profit at 95%.  The net debt to EBITDA ratio increased marginally to 1.9 times compared to 1.8 times as at the previous year end.

 

Sustainable business practice is emphasised through our ongoing corporate responsibility ('CR') programmes.  During the year we undertook a detailed employee survey and were pleased that over 70% of our employees responded and that 93% of respondents 'enjoy working for Bunzl'.  Our continued focus on operational excellence allows us to reduce our environmental impact by consolidating our warehouse footprint and, where necessary, introducing more sustainable practices to the businesses we acquire.

 

Acquisitions

Acquisitions are a key component of the Group's growth strategy.  Our committed spend in 2014 was £211 million as we made 17 transactions in total, including Tillman which we agreed to acquire in December 2014 and completed at the beginning of January 2015.

 

At the end of January we acquired Bäumer and its related company Protemo in Germany.  The businesses had aggregated revenue of £10 million in 2014 and represent our first step into the cleaning and hygiene and healthcare sectors in Germany.  Oskar Plast, which sells a variety of disposable packaging products to customers throughout the Czech Republic, including retail food chains, food processors and other distributors, was acquired in February and has expanded our operations in the Czech Republic.  Revenue was £12 million in 2014.

 

In March we completed four acquisitions.  Lamedid, a business principally engaged in the supply and distribution throughout Brazil of own label medical and healthcare consumable products to hospitals, clinics and laboratories as well as to distributors, had revenue in 2014 of £13 million.  It has significantly increased the size of our healthcare business in Brazil, the Group having entered the healthcare sector there with the acquisition of Labor Import in 2013.  Although relatively small, the purchase of 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, has provided additional scale to our business in New Zealand.  Revenue was £3 million in 2014.  Plast Techs, which is engaged in the sale of a variety of foodservice and cleaning and hygiene supplies to distributors throughout Southern California and had revenue of £14 million in 2014, complements our existing business in the region and has provided access to additional product lines.  The purchase of Tecno Boga represents a significant expansion of our operations in Chile, being a country that we entered with the acquisition of Vicsa Safety at the end of 2012.  The business is a leading supplier of own label protective footwear, principally to distributors, and had revenue of £23 million in 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 in May.  It represents an important development for our safety business in the Netherlands as it extends our product range in the safety shoes sector and provides cross-selling opportunities with Majestic, our existing personal protection equipment business in the Benelux region which specialises in the supply of gloves and workwear.  Revenue in 2014 was £18 million.  Also in May we acquired JPLUS, a Brazilian business with revenue of £12 million in 2014 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.  This acquisition expands the geographical coverage of our cleaning and hygiene supplies business in Brazil.

 

365 Healthcare, which had revenue of £12 million in 2014, was acquired at the end of June.  The business is engaged in the distribution of own brand healthcare products to a variety of customers in the UK and Ireland and has expanded our product offering of medical consumables to the healthcare sector.  At the end of July we purchased Premiere Products, a cleaning and hygiene supplies distributor in the UK principally servicing customers in the facilities management and education sectors.  The business has extended the breadth of our own brand product offering and has further strengthened our cleaning and hygiene supplies business in the UK.  Revenue was £4 million in 2014.  We acquired two safety businesses in the UK also at the end of July.  Lee Brothers, which had revenue of £11 million in 2014, supplies a variety of personal protection equipment and workplace consumables to customers largely in the construction and engineering sectors.  Guardsman, which had revenue of £9 million in 2014, is engaged in the sale of safety equipment and workwear to customers in various manufacturing industries as well as the construction and engineering sectors.  Together these businesses have further extended our safety business in the UK.

 

At the end of September we completed the acquisition of De Ridder, a specialist distribution business based in the Netherlands and engaged in the supply of a wide range of products principally to prisons, police stations and other detention centres.  Revenue in 2014 was £6 million.  We acquired the business of Victoria Healthcare Products in November.  Based near Melbourne, Australia, the business had revenue of £2 million in 2014 and supplies a variety of healthcare consumable products for people in the community and to residential care facilities. 

 

In North America our operations in Canada were further expanded with the purchase of Acme Supplies, a cleaning and hygiene supplies business based in Vancouver Island, at the beginning of December.  Revenue in 2014 was £9 million.  Our marketing services business in the UK was expanded in December with the purchase of POS Direct.  Based in Leicester and with revenue of £4 million in 2014, the business manages and supplies a variety of point of sale and marketing materials.  At the end of December we entered into an agreement to acquire Tillman, which supplies a variety of personal protection equipment, principally gloves, to distributors throughout the US who supply customers operating in the welding and industrial sectors.  The acquisition was completed at the beginning of January 2015.  With revenue of £61 million in 2014, the purchase of Tillman represents another important development for the Group's safety business in the US.

 

Today we are announcing two more acquisitions.  Quirumed, which had revenue of £15 million in 2014, represents our first move into the healthcare sector in Spain while Jan-Mar, based in Toronto with revenue of £6 million in 2014, has further extended our cleaning and hygiene supplies business in Canada. 

 

North America


 

2014

£m

 

2013

£m

Growth at

constant

exchange

Revenue

3,372.1

3,401.7

5%

Adjusted operating profit*

211.1

213.6

5%





Operating margin*

6.3%

6.3%


* Before intangible amortisation and acquisition related costs

 

In North America revenue increased by 5% to £3,372.1 million due to organic revenue growth with new and existing customers and additional sales provided by acquisitions made in both 2013 and 2014.  Each of these acquisitions has allowed us to expand our product and service offerings through their unique capabilities and strong market presence.  With the operating margin stable, the operating profit also increased 5% to £211.1 million.

 

Our largest business, which serves the grocery sector, was impacted by the severe winter weather which affected much of the US in the first quarter of the year but continued to experience sales growth in an environment of mergers and acquisitions, expansion and channel diversification amongst our customer base.  During 2014 we renewed several supply agreements with national and regional grocery wholesalers and retailers.  At the same time we maintained strong business relationships with many long term customers, including some of the largest supermarket chains and discount supercentres in the US and Canada, although margins came under pressure.  To promote our capabilities within the grocery sector, we launched our 'Think Big' branding campaign targeting executive leadership.  The campaign's message emphasises our ability to help our customers' decision makers decrease costs and reduce the levels of inventories while increasing revenues through better merchandising and category management.

 

Our business serving the retail sector continued to drive strong organic growth.  We secured a substantial new agreement with a leading North American home improvement retailer and expanded business with existing customers.  Our unique ability to deliver a combination of custom store supply programmes, branded packaging, display solutions and fixture consolidation services has allowed us to solidify our position as a preferred business partner for retailers seeking a one-stop-shop to serve all of their locations.  Both our grocery and retail sector customers value the advantages we provide through our customised distribution platform, including our product and sourcing expertise, high fill rates and bespoke reporting capabilities as well as the reliable delivery service provided by our own large transport fleet which together give us a real competitive advantage.

 

Our redistribution business, which serves distributors in the foodservice, cleaning and hygiene and safety sectors, was also affected by the unfavourable weather conditions early in the year.  In a competitive and challenging market, the business experienced a slight increase in revenue as a result of the impact of recent acquisitions.  We are working to stimulate sales growth by increasing our marketing activities, expanding our category management initiatives and adding complementary businesses to extend our product range and market reach.  With our 'R3 Factor' branding campaign, we engaged with our foodservice and cleaning and hygiene distribution customers about the advantages of using our coast-to-coast branch network as their 'virtual warehouse'.  This provides our customers with access to an unmatched range of products and supply chain services they can leverage to increase their sales and profitability while managing their working capital more efficiently.  In addition, our expanded category management practice positions us well to use our distribution expertise to help customers rationalise their inventories, manage their warehouse space more effectively and gain a competitive advantage.  The acquisition in March of Plast Techs, a supplier of foodservice and cleaning and hygiene products to distributors in Southern California, has augmented our redistribution business in the region while providing access to additional product lines.

 

SAS Safety, which we acquired in December 2013, and Tillman, which was purchased at the beginning of 2015, have significantly broadened our range of own brand personal protection equipment solutions and allowed us to expand into the industrial, automotive and welding distribution markets.  FoodHandler expanded its food safety product line with several exclusive innovative products and has become a one-stop-shop for foodservice operators.  Additionally, our expertise in creating and distributing imported and domestic own brand products allows us to provide our customers across all sectors with a range of value solutions that meet their particular specifications and budgets.

 

Our business supplying the food processor sector experienced revenue growth by increasing sales to existing customers and acquiring new customers.  Our national accounts team provided greater focus on selling our value to key customers while offering centralised management for our customers' extensive operations.  We also introduced a range of technical packaging that helps food processors preserve product freshness and taste.  We continue to serve all sectors of the food processing industry, including meat and home meal processors, bakeries, fresh produce providers and speciality food purveyors.

 

In the agriculture sector, our business grew as a result of our ability to provide a wider range of products to produce growers, packers and shippers across North America.  With our expertise in customised flexible and rigid packaging design and distribution, we are able to help our agriculture customers meet the rising demand from health-conscious consumers who are increasing their consumption of fresh produce.

 

In the convenience store sector, we experienced strong organic growth, primarily due to new programmes distributing consumable products through our largest convenience store wholesale customer.

 

In Canada the acquisition of Wesclean in 2013 has helped us to increase our sales in the cleaning and hygiene sector during the year and our acquisition of Acme Supplies in December 2014 has further increased our presence in this sector.  In Mexico, ProEpta, which we also acquired in 2013, has expanded our reach in the hospitality sector and has increased revenue by providing products for prominent national and international customers.

 

Continental Europe

 

2014

£m

 

2013

£m

Growth at

constant

exchange

Revenue

1,146.3

1,151.5

5%

Adjusted operating profit*

103.2

97.0

12%





Operating margin*

9.0%

8.4%


* Before intangible amortisation and acquisition related costs

 

Revenue in Continental Europe rose by 5% to £1,146.3 million and operating profit improved 12% to £103.2 million with the operating margin increasing from 8.4% to 9.0%.  Organic revenue growth for the year was relatively low as macroeconomic conditions continued to be difficult throughout the region, but further improvements to gross margins and careful operating cost management contributed to a strong increase in underlying profitability.  This has been supplemented by the full year impact of the acquisition in November 2013 of pka Klöcker and by the acquisitions in 2014 of Bäumer, Oskar Plast, Allshoes and De Ridder.

 

In France, our cleaning and hygiene business saw a slight decline in sales as good performances in the healthcare, food processor and industrial sectors were offset by lower sales to contract cleaners who continue to struggle in the difficult economic environment.  However a combination of an improvement in gross margins and a reduction in operating costs resulted in a significant improvement in operating profit.  Our personal protection equipment business both increased sales and reduced costs such that it also delivered strong operating profit growth.

 

In the Netherlands, sales improved in the food processor, retail, healthcare and cleaning and hygiene sectors but sales declined in the grocery sector, due to customer consolidation, and in the hotel, restaurant and catering ('horeca') sector, which continues to be under pressure in the local market.  Gross margins improved, operating costs were tightly managed and a further two businesses successfully migrated to our IT system.  Sales continued to grow strongly at our safety products business as it gained new customers and market share and also benefited from growth with new products.  Together with improved margins due to an increasing share of own brand products, this led to substantially higher operating profits.  Both Allshoes and De Ridder, which were acquired during the year, have traded as expected and are integrating well into the Group.

 

In Belgium, sales grew well in the cleaning and hygiene sector due to growth with both existing and new customers, and also increased in the grocery sector despite our customers facing continued competition from a number of lower cost grocery chains.  Although margins were under pressure, costs were stable and the sales growth therefore led to an improved level of overall profits.

 

In Germany, sales in our main business have grown significantly in the hotel sector and with smaller regional accounts leading to a healthy increase in operating profit and our workwear business, pka Klöcker, which was acquired in 2013, has traded well.  A number of significant synergies have been realised in Bäumer, the cleaning and hygiene business that was purchased in January 2014.

 

In Switzerland, sales have increased with a good performance in particular in the retail sector.  Gross margins were stable and costs were well controlled which resulted in operating profit being ahead of the previous year.

 

In Denmark, sales declined slightly as disappointing performances in the retail and redistribution sectors could not be completely offset by good sales growth of horeca products, personal protection equipment and packaging.  Sales to the public sector were stable.  However, gross margins improved and costs were further reduced such that operating profit increased.

 

In Spain, trading conditions continued to improve and we recorded good growth in our cleaning and hygiene business.  Gross margins were stable and operating profit progressed well.  We also generated excellent growth in our personal protection equipment businesses due to exports and better domestic sales.  Gross margins were also slightly better and operating profit improved significantly.

 

In Central Europe, sales grew strongly, particularly in Hungary where both our retail and cleaning and hygiene/personal protection equipment businesses performed well.  Gross margins were stable despite ongoing margin pressure and cost increases were kept to a minimum such that operating profit rose.  Oskar Plast, which we acquired in February 2014, and our existing Czech retail business are in the process of being fully integrated which will lead to a number of synergies going forward.

 

In Israel, both of our businesses saw lower sales and profits due to difficult market conditions, particularly in our business supplying the bakery sector.  Our business supplying the horeca sector successfully relocated to a new purpose-built facility.

 

UK & Ireland

 

2014

£m

 

2013

£m

Growth at

constant

exchange

Revenue

1,078.5

1,018.5

6%

Adjusted operating profit*

80.1

71.6

12%





Operating margin*

7.4%

7.0%


* Before intangible amortisation and acquisition related costs

 

In UK & Ireland revenue increased 6% to £1,078.5 million and operating profit rose 12% to £80.1 million.  Whilst our markets are highly competitive and customers are discerning and looking at all items of spend in great detail seeking to reduce cost, underlying demand has grown which has helped us to deliver strong growth.  The detailed work that has been undertaken since the economic downturn to reduce our overhead cost base and also to manage margins closely has helped to increase the operating margin over recent years and the margin improved further in 2014 rising from 7.0% to 7.4%.

 

In a number of our businesses we have continued to build actively on our private label programme as we seek to reduce costs for customers, enhance our own margins and maintain a quality offering.  As a consequence we have seen the sales of our private label products grow well.  During the year we launched a complete range of glassware and crockery as well as new ranges of medical consumables, cleaning chemical dispensers and compostable and recyclable paper cups.

 

In safety supplies, we have seen a pick-up in construction activity during the year and have been successful in winning new business with a number of major companies.  The acquisition of both Lee Brothers and Guardsman has given us access to a number of new key customers and both businesses have integrated into the Group well.  In cleaning and hygiene supplies, the market has continued to be resilient although there has been further consolidation amongst our customer base.  The acquisition of Premiere Products in July has proved to be a very good fit with our existing operations in this sector.

 

As has been widely reported, there has been a fair degree of market turmoil in the grocery sector.  In this environment we are pleased to have maintained our levels of sales and profitability by continuing to assist our customers as their models evolve.  This means that we are now offering more flexible supply solutions to help our customers move to omni-channel retailing in the form of direct deliveries to smaller retail outlets and also to support their online offerings.  As our customers constantly seek to reduce their costs, we have focused on our procurement competence and successfully reduced our input costs during the year.  Scotland introduced a minimum 5p tax on single use carrier bags in 2014 and England will follow in October 2015.  This has to date, and will in future, reduce the demand for such carrier bags but we are anticipating that this will be largely offset by increased use of reusable 'bags for life' which we also supply.  Our specialist retail packaging business has performed well through winning business with a number of new customers and continuing to develop our offering to enhance the presentation of customers' brands.  Our sales offices in Hong Kong and Shenzhen, China have proved to be very attractive to global branded customers and have helped to strengthen existing relationships and bring good opportunities for the future development of our business.

 

In our marketing services businesses, point of sale activity was strong, particularly in the consumer goods and grocery retail sectors, and also due to the FIFA World Cup.  During the year we consolidated the number of facilities from six down to three with new warehouses in Blackburn and Rugby.  These new facilities are of good quality and, in addition to being more efficient to service our customers, also provide a much improved working environment for our employees.  In December 2014 we extended our offering in this area with the acquisition of POS Direct. 

 

There has been strong growth in our hospitality supplies business.  As markets have recovered, a number of customers have commenced investment and refurbishment programmes.  We also achieved good sales of catering equipment supplied in response to the government initiative of Universal Infant Free School Meals and a broader range of foodservice products provided during the Commonwealth Games in Glasgow.  We continued to focus on the high street coffee and quick service restaurant market and have experienced good growth with existing customers and also added a number of new customers to our portfolio.  Part of our strategy in this high volume and low margin market is to reduce the size of our operating platform.  In 2014 we have consolidated our national distribution centre and two branches into a single 165,000 square foot facility in the West Midlands.

 

Our healthcare supplies businesses have continued to operate in a market with ongoing hospital spending constraints and reduced subsidies for care homes.  Despite this, we have enjoyed good growth through securing increased supply to private hospitals and gaining business with four additional hospital trusts.  The acquisition in June of 365 Healthcare, which specialises in drapes and gowns used in operating theatres, has proved to be a strong addition to our private label medical consumables offering.  In our existing private label business, there have been good results from resourcing and subsequently launching new products in response to customers' needs to reduce costs.  We have continued to raise our profile in the care home sector with increased marketing activity and product range development, while also actively seeking to assist customers in complying with care quality regulations.

 

In Ireland the economy has continued to improve and we have benefited particularly from growth in the Dublin hotel market and the investment and refurbishment programmes that have started once again.  Having taken the measures to reduce our cost base in previous years, we now have a much stronger foundation to operate from in Ireland which has produced substantially improved results in a well managed and controlled business.

 

Rest of the World

 

2014

£m

 

2013

£m

Growth at

constant

exchange

Revenue

559.6

526.0

21%

Adjusted operating profit*

55.5

51.2

24%





Operating margin*

9.9%

9.7%


* Before intangible amortisation and acquisition related costs

 

In Rest of the World revenue increased 21% to £559.6 million and operating profit rose 24% to £55.5 million with the results being impacted significantly by the effect of recent acquisitions, particularly in Latin America.

 

Our operations in Latin America have performed well despite weaker macroeconomic conditions and considerable volatility in the foreign exchange markets in several countries which has caused some margin pressure within our businesses.  All of our businesses have strong market positions focused on creating value added solutions for our customers and we continue to be well positioned to expand our operations further, both organically and through acquisition.

 

In Brazil our safety businesses had another successful year.  Our new state-of-the-art distribution centre for Protcap in the metropolitan area of São Paulo has started operating and will be a critical platform for our future growth for many years to come.  Protcap experienced weaker demand from the end user sector during the last quarter of the year as many customers postponed investment decisions in anticipation of economic adjustments to be implemented following the recent Presidential elections in Brazil.  Protcap's new Manaus branch has opened as scheduled in an important location.  Based in a free trade zone, the new branch is strategically placed for a number of local manufacturing customers in the region.  Danny and Vicsa Brasil both had a very strong year with significant synergies achieved as a result of streamlining our portfolio of brands across both businesses.

 

In our cleaning and hygiene supplies business there was pressure on margins due to the highly competitive environment in this sector.  However the acquisition of JPLUS in May has increased our market presence and enabled us to realise a number of synergies.  The new business has integrated well and is performing above our initial expectations.

 

The businesses serving the healthcare sector in Brazil produced good results despite the uncertainty caused by the Presidential elections and new legislation which affected the import of certain product lines.  Labor Import performed strongly and Lamedid, which we acquired in March, also had a very good year.  The business is integrating as planned and is starting to develop synergies with Labor Import.

 

In the rest of Latin America, Vicsa Safety, our safety business with operations in Chile, Argentina, Colombia, Peru and Mexico, had an excellent year despite a very soft trading environment in its main market in Chile which put margins under pressure.  New customers and continuous product development were key to the overall strong performance.

 

Our ability to service the safety sector in Chile was enhanced with the acquisition of Tecno Boga in March.  The business is a market leader in the supply of safety shoes.  Although faced with difficult market conditions as a result of a decline in the mining sector, the business performed well and has been successfully integrated into the Group.

 

In Mexico, our glove safety business Espomega, which we acquired in 2013, has also been able to maintain its margins despite much volatility in the local market and very soft demand in the short term caused by a slowdown in the construction sector.  The business is however well placed for when the economy starts to recover.

 

In Australia, the economy continues to be adversely affected by the slowdown following the mining investment boom and the fall in global commodity prices.  This resources slowdown has had a direct impact on a number of our major customers supplying into these sectors which in turn has reduced demand for the products we supply.

 

Our largest business, Outsourcing Services, which supplies the healthcare, cleaning, catering and retail sectors, while impacted by market conditions, performed well with an improvement in revenue and operating profit as it continued to develop its position as a consolidator and supplier of disposable consumables throughout Australia and New Zealand.  Whilst facing challenging trading conditions, the business has been able to offset some of the effects of the downturn across its customer base with a number of large customer wins.  The business has continued to develop a good position in the healthcare sector, in particular to the aged care and private hospital markets, where we supply a wide range of disposable and medical consumables.  In November we acquired a small business, Victoria Healthcare Products, which is a niche supplier of medical consumables and wound care products into the community and residential care markets.  This has created an opportunity for our business in a section of our existing market where we previously did not have a strong presence.

 

Our food processor business, which is a major national supplier into the Australian and New Zealand food industry, delivered another improved performance with higher revenue and operating profit.  We made good progress expanding the business into non-meat and other food processors and have invested in additional specialist resources to help drive these opportunities.  This has benefited the business which has won a number of major customers in this market.  Our ongoing focus will be to continue to develop this strategy and further consolidate our position as a leading national supplier into this sector.  In March, we acquired Nelson Packaging, a packaging and cleaning and hygiene supplies company based in the South Island of New Zealand.  This business has a strong presence in the processor and industrial markets in this region and has been a good addition to our business, providing further scale, expertise and distribution capabilities as we develop in the New Zealand market.

 

Our industrial and safety supplies business has been impacted the most by the slowdown in the mining and other resource sectors with its performance adversely affected as a result, leading to a lower level of operating profit at a reduced profit margin.  To help offset this, we have taken a proactive approach to consolidate a number of facilities and made a number of structural changes to support the business performance in the current environment and reposition it for growth.  We have also benefited from having access to and working with the wider Bunzl businesses.  We have adopted a number of better purchasing, operational and technology initiatives, which is helping to improve our competitive position and efficiency.  Although the market conditions have impacted volumes, the business has been successful in winning a number of major new customers.  This has created potential to build on our strong product range offering and our market position as we continue to develop opportunities in the more resilient market sectors and regions.

 

Prospects

Bunzl's strong market position and the ongoing benefit from acquisitions is expected to lead to further growth at constant exchange rates in each of our business areas in 2015 despite variable macroeconomic conditions across the countries in which we operate.

 

In North America the impact of organic growth and recent acquisitions should result in a good performance.  Even though the economic outlook remains challenging in Continental Europe, we expect to see continued growth this year.  UK & Ireland should progress as a result of further organic growth and the contribution from acquisitions made in 2014.  Although Rest of the World is likely to experience more difficult trading conditions due to exchange rate volatility and the slowdown in the resource sectors, it should continue to grow.

 

The pipeline of potential acquisitions remains promising.  Discussions are ongoing with various targets and we expect to complete further transactions as the year progresses.

 

The Board is confident that Bunzl's well positioned businesses will develop further and that the prospects for the Group are positive.

 

Michael Roney

Chief Executive

23 February 2015

 

FINANCIAL REVIEW

Group Performance

Revenue increased to £6,156.5 million (2013: £6,097.7 million), up 7% at constant exchange rates and up 1% at actual exchange rates, reflecting organic growth of 2.7% and the benefit of acquisitions.  Adjusted operating profit (being operating profit before intangible amortisation and acquisition related costs) increased to £429.8 million (2013: £414.4 million), an increase of 10% at constant exchange rates and 4% at actual exchange rates, as a result of the revenue growth and the adjusted operating profit margin increasing from 6.8% to 7.0% due to the impact of higher margin acquisitions.  Currency translation had a negative impact of between 6% and 7% on the results for the year, principally due to the strengthening of sterling against all of our major currencies.

Intangible amortisation and acquisition related costs were up £5.7 million to £88.0 million due to a £3.6 million increase in intangible amortisation and a £2.1 million increase in acquisition related costs.

The net interest charge of £42.0 million was £0.2 million lower than 2013 at actual exchange rates but up £1.5 million at constant exchange rates due to higher average net debt from the funding of acquisitions, partly offset by a lower interest charge on the Group's pension deficit.

Adjusted profit before income tax (being profit before income tax, intangible amortisation and acquisition related costs) was £387.8 million (2013: £372.2 million), up 11% at constant exchange rates and 4% at actual exchange rates, principally due to the growth in adjusted operating profit.

Tax

A tax charge at a rate of 27.4% (2013: 27.9%) has been provided on the adjusted profit before income tax.  Including the impact of intangible amortisation of £61.9 million, acquisition related costs of £26.1 million and the associated deferred and current tax of £17.1 million, the overall tax rate is 29.7% (2013: 28.7%).  The underlying tax rate of 27.4% is higher than the nominal UK rate of 21.5% for 2014 principally because many of the Group's operations are in countries with higher tax rates.

 

Profit for the year

Profit after tax of £210.7 million was up £3.9 million, primarily due to the £9.7 million increase in operating profit, partly offset by a £6.0 million increase in the tax charge.

 

Earnings

The weighted average number of shares increased to 326.6 million from 325.8 million due to employee share option exercises partly offset by shares being purchased from the market into the Group's employee benefit trust.  Earnings per share were 64.5p, up 8% on 2013 at constant exchange rates and 2% at actual exchange rates.  After adjusting for intangible amortisation, acquisition related costs and the associated tax, adjusted earnings per share were 86.2p, an increase on 2013 of 11% at constant exchange rates and 5% 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 charges are removed in calculating the adjusted earnings per share on which management assesses the performance of the Group. 

 

Dividends

An analysis of dividends per share for the years to which they relate is shown below:

 

2014

2013

Growth

Interim dividend (p)

11.0

10.0

10%

Final dividend (p)

24.5

22.4

9%

Total dividend (p)

35.5

32.4

10%

Dividend cover (times)*

2.4

2.5


* Based on adjusted earnings per share

 

Acquisitions

The acquisitions made or agreed to be made in 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, POS Direct and Tillman.  The acquisition of Tillman was agreed on 30 December 2014 and completed on 2 January 2015.  Annualised revenue and adjusted operating profit of the businesses acquired (excluding Tillman) were £162.7million and £20.6 million respectively.  The estimated annualised revenue including Tillman is £223.3 million.  A summary of the effect of acquisitions is as follows:

 

£m

Fair value of assets acquired

76.9

Goodwill

36.2

Consideration

113.1

Satisfied by:


   cash consideration

107.1

   deferred consideration

6.0


113.1

Contingent payments relating to the retention of former owners

19.1

Net bank overdrafts acquired

8.9

Transaction costs and expenses

4.1

Total committed spend in respect of acquisitions completed in the current year

145.2

Spend on acquisition committed as at 31 December 2014

65.8

Total committed spend in respect of acquisitions agreed in the current year

211.0

 

The net cash outflow in the year in respect of acquisitions comprised:

 

£m

Cash consideration

107.1

Net bank overdrafts acquired

8.9

Deferred consideration in respect of prior year acquisitions

38.1

Net cash outflow in respect of acquisitions

154.1

Acquisition related costs*

14.0

Total cash outflow in respect of acquisitions

168.1

* Cash flow on acquisition related costs relates to £3.5 million of transaction costs paid and £10.5 million from payments relating to the retention of former owners.

 

Cash flow

Cash generated from operations before acquisition related costs was £431.6 million, a £14.8 million decrease from 2013, primarily due to a working capital outflow in 2014 of £15.6 million compared to a £16.8 million inflow in 2013 partly offset by a £15.4 million increase in adjusted operating profit.  The working capital outflow in 2014 is due to an increase in inventories offset by favourable movements in receivables and payables, with underlying working capital excluding acquisitions and exchange increasing by 3% in line with organic sales growth.  The Group's free cash flow of £276.5 million was down £25.3 million from 2013, primarily due to the £14.8 million decrease in cash generated from operations and a £9.5 million increase in the cash outflow relating to tax.  After payment of dividends of £105.6 million in respect of 2013 (2013: £91.8 million in respect of 2012), an acquisition cash outflow of £168.1 million (2013: £279.9 million) and a £21.8 million outflow on employee share schemes (2013: £43.3 million), the net cash outflow was £19.0 million (2013: £113.2 million outflow).  The summary cash flow for the year was as follows: 

£m

Cash generated from operations*

431.6

Net capital expenditure

(23.9)

Operating cash flow*

407.7



Operating cash flow* to adjusted operating profit†

95%



Net interest

(41.4)

Tax

(89.8)

Free cash flow

276.5

Dividends

(105.6)

Acquisitions

(168.1)

Employee share schemes

(21.8)

Net cash outflow

(19.0)

* Before acquisition related costs

† Before intangible amortisation and acquisition related costs

 

Balance sheet

Return on average operating capital increased to 57.7% from 56.9% in 2013, with the impact of the lower return on operating capital from acquisitions being more than offset by improvements in the return on operating capital in the rest of the Group.  Return on invested capital of 17.6% was slightly down from 17.9% in 2013 as improved returns in the underlying business were offset by the lower return on recent acquisitions and exchange rate movements.  Intangible assets increased by £21.9 million to £1,478.8 million, reflecting goodwill and customer relationships arising on acquisitions in the year of £112.2 million, partly offset by an amortisation charge of £61.9 million and a reduction of £28.4 million due to exchange.  The Group's pension deficit of £70.3 million at 31 December 2014 was £25.3 million higher than at 31 December 2013, largely due to an actuarial loss of £30.1 million.  The actuarial loss arose as a result of the impact of a £61.4 million increase in the present value of scheme liabilities from changes in assumptions, principally lower discount rates, partly offset by the actual return on scheme assets being £31.3 million higher than expected.

The net debt to EBITDA ratio was 1.9 times (2013: 1.8 times).  The movements in shareholders' equity and net debt during the year were as follows:

Shareholders' equity

£m

At 1 January 2014

939.9

Profit for the year

210.7

Dividends

(105.6)

Currency

(38.6)

Actuarial loss on pension schemes (net of tax)

(22.1)

Share based payments

18.6

Employee share options

(19.0)

At 31 December 2014

983.9

 

Net debt

£m

At 1 January 2014

(849.5)

Net cash outflow

(19.0)

Currency

(8.9)

At 31 December 2014

(877.4)



Net debt to EBITDA (times)

1.9

 

Going Concern

The Group has significant financial resources, a well established and fragmented customer base, strong supplier relationships and a diverse geographic presence.  As a consequence, the directors believe that the Group is well placed to manage its business risks successfully.  Based on the expected future profit generation, cash conversion and current facilities' headroom over the 12 months to March 2016, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.  For this reason the directors believe it is appropriate to continue to adopt the going concern basis in preparing the financial statements.

 

Consolidated income statement

for the year ended 31 December 2014

 



Growth






Actual

Constant




2014

2013

exchange

exchange



Notes

£m

£m

rates

rates

Revenue


2

6,156.5

6,097.7

1%

7%








Operating profit


2

341.8

332.1

3%

9%

Finance income


3

4.0

2.6



Finance cost


3

(46.0)

(44.8)



Profit before income tax



299.8

289.9

3%

10%

Income tax


4

(89.1)

(83.1)



Profit for the year attributable to the Company's equity holders



 

210.7

 

206.8

 

2%

 

8%








Earnings per share attributable to the Company's equity holders







Basic


6

64.5p

63.5p

2%

8%

Diluted


6

63.7p

62.7p

2%

8%








Dividend per share


5

35.5p

32.4p

10%
















Non-GAAP measures







Operating profit


2

341.8

332.1

3%

9%

Adjusted for:







Intangible amortisation


2

61.9

58.3



Acquisition related costs


2

26.1

24.0



Adjusted operating profit



429.8

414.4

4%

10%

Finance income


3

4.0

2.6



Finance cost


3

(46.0)

(44.8)



Adjusted profit before income tax



387.8

372.2

4%

11%

Tax on adjusted profit


4

(106.2)

(103.8)



Adjusted profit for the year



281.6

268.4

5%

12%

Adjusted earnings per share


6

86.2p

82.4p

5%

11%

 

Consolidated statement of comprehensive income

for the year ended 31 December 2014

 

2014

2013


£m

£m

Profit for the year

210.7

206.8




Other comprehensive income/(expense)



Items that will not be reclassified to profit or loss:



Actuarial (loss)/gain on pension schemes

(30.1)

26.9

Tax on items that will not be reclassified to profit or loss

8.0

(10.1)

Total items that will not be reclassified to profit or loss

(22.1)

16.8

Items that may be reclassified to profit or loss:



Foreign currency translation differences for foreign operations

(26.1)

(68.6)

(Loss)/gain taken to equity as a result of designated effective net investment hedges

 

(17.1)

 

14.4

Gain recognised in cash flow hedge reserve

3.9

0.5

Movement from cash flow hedge reserve to income statement

0.1

0.3

Tax on items that may be reclassified to profit or loss

0.6

1.3

Total items that may be reclassified subsequently to profit or loss

(38.6)

(52.1)

Other comprehensive expense for the year

(60.7)

(35.3)

Total comprehensive income attributable to the Company's equity holders

 

150.0

 

171.5

 

Consolidated balance sheet

at 31 December 2014

 



2014

2013



Notes

£m

£m

Assets





Property, plant and equipment



119.2

118.8

Intangible assets


7

1,478.8

1,456.9

Derivative financial assets



16.3

6.2

Deferred tax assets



3.9

7.5

Total non-current assets



1,618.2

1,589.4






Inventories



705.3

645.1

Income tax receivable



0.7

0.7

Trade and other receivables



869.8

863.0

Derivative financial assets



12.6

4.4

Cash and deposits


8

82.4

73.1

Total current assets



1,670.8

1,586.3

Total assets



3,289.0

3,175.7






Equity





Share capital



107.6

107.2

Share premium



160.3

153.0

Translation reserve



(87.2)

(45.4)

Other reserves



21.0

17.8

Retained earnings



782.2

707.3

Total equity attributable to the Company's equity holders



983.9

939.9






Liabilities





Interest bearing loans and borrowings


8

913.3

851.8

Retirement benefit obligations



70.3

45.0

Other payables



18.5

24.8

Derivative financial liabilities



-

4.5

Provisions



20.9

23.8

Deferred tax liabilities



116.0

129.5

Total non-current liabilities



1,139.0

1,079.4






Bank overdrafts


8

28.1

26.3

Interest bearing loans and borrowings


8

35.8

42.0

Income tax payable



64.6

62.2

Trade and other payables



1,018.4

1,004.4

Derivative financial liabilities



8.5

9.5

Provisions



10.7

12.0

Total current liabilities



1,166.1

1,156.4

Total liabilities



2,305.1

2,235.8

Total equity and liabilities



3,289.0

3,175.7

 

Consolidated statement of changes in equity

for the year ended 31 December 2014

 

Share capital
£m

Share premium
£m

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 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 designated 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)

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

 

Share capital
£m

Share premium
£m

Translation

reserve

£m

Other

reserves◊

£m

Retained

earnings†

£m

Total

equity

£m

At 1 January 2013

114.2

143.9

7.3

9.7

610.4

885.5

Profit for the year




206.8

206.8

Actuarial gain on pension schemes





26.9

26.9

Foreign currency translation differences for foreign operations



 

(68.6)



 

(68.6)

Gain taken to equity as a result of designated effective net investment hedges



 

14.4



 

14.4

Gain recognised in cash flow hedge reserve




0.5


0.5

Movement from cash flow hedge reserve to income statement




 

0.3


 

0.3

Income tax credit/(charge) on other comprehensive income



 

1.5

 

(0.2)

 

(10.1)

 

(8.8)

Total comprehensive (expense)/income



(52.7)

223.6

171.5

2012 interim dividend





(28.8)

(28.8)

2012 final dividend





(63.0)

(63.0)

Issue of share capital

0.5

9.1




9.6

Cancellation of treasury shares

(7.5)



7.5


-

Employee trust shares





(50.1)

(50.1)

Share based payments





15.2

15.2

At 31 December 2013

107.2

153.0

(45.4)

17.8

707.3

939.9

 

◊ Other reserves comprise merger reserve of £2.5m (2013: £2.5m), capital redemption reserve of £16.1m (2013: £16.1m) and cash flow hedge reserve of £2.4m (2013: £(0.8)m).

 

† Retained earnings comprise earnings of £897.3m (2013: £807.3m) and own shares of £(115.1)m (2013: £(100.0)m).

 

Consolidated cash flow statement

for the year ended 31 December 2014

 



2014

2013



Notes

£m

£m

Cash flow from operating activities





Profit before income tax



299.8

289.9

Adjustments:





   depreciation



24.4

25.9

   intangible amortisation



61.9

58.3

   acquisition related costs



26.1

24.0

   share based payments



7.9

6.2

   finance income



(4.0)

(2.6)

   finance cost



46.0

44.8

   provisions



(5.0)

(7.8)

   retirement benefit obligations



(8.0)

(7.3)

   other



(1.9)

(1.8)

Working capital movement



(15.6)

16.8

Cash generated from operations before acquisition related costs



 

431.6

 

446.4

Cash outflow from acquisition related costs


9

(14.0)

(26.1)

Income tax paid



(89.8)

(80.3)

Cash inflow from operating activities



327.8

340.0






Cash flow from investing activities





Interest received



2.3

1.5

Purchase of property, plant and equipment



(25.1)

(26.5)

Sale of property, plant and equipment



1.2

1.2

Purchase of businesses


9

(154.1)

(253.8)

Cash outflow from investing activities



(175.7)

(277.6)






Cash flow from financing activities





Interest paid



(43.7)

(40.5)

Dividends paid



(105.6)

(91.8)

Increase in borrowings



181.0

361.4

Repayment of borrowings



(170.3)

(245.1)

Realised gains/(losses) on foreign exchange contracts



17.4

(9.7)

Proceeds from issue of ordinary shares to settle share options



7.7

9.6

Proceeds from exercise of market purchase share options



18.5

12.0

Purchase of employee trust shares



(48.0)

(64.9)

Cash outflow from financing activities



(143.0)

(69.0)






Increase/(decrease) in cash and cash equivalents



9.1

(6.6)






Cash and cash equivalents at start of year



46.8

55.8

Increase/(decrease) in cash and cash equivalents



9.1

(6.6)

Exchange loss on cash and cash equivalents



(1.6)

(2.4)

Cash and cash equivalents at end of year


8

54.3

46.8

 

Notes

 

1. Basis of preparation

 

The consolidated financial statements for the year ended 31 December 2014 have been approved by the directors and prepared in accordance with EU endorsed International Financial Reporting Standards ('IFRS') and interpretations of the International Financial Reporting Standards Interpretations Committee ('IFRS IC').  The consolidated financial statements have been prepared on a going concern basis and under the historical cost convention with the exception of certain items which are measured at fair value.

 

Bunzl plc's 2014 Annual Report will be published during March 2015.  The financial information set out herein does not constitute the Company's statutory accounts for the year ended 31 December 2014 but is derived from those accounts and the accompanying directors' report.  Statutory accounts for 2014 will be delivered to the Registrar of Companies following the Company's Annual General Meeting which will be held on 15 April 2015.  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 2013 are not the Company's statutory accounts for the financial year but are derived from those accounts which have been reported on by the Company's auditors and delivered to the Registrar of Companies.  The report of the auditors was unqualified and did not contain statements under Section 495 (4)(b) of the Companies Act 2006. 

 

Some of the prior year numbers that were presented on a net basis in the Consolidated balance sheet and Consolidated cash flow statement and the relevant Notes have been re-presented on a gross basis to more accurately reflect the underlying transactions and to be consistent with the current year presentation.

 

2. Segment analysis

 

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

 

North America

Continental Europe

UK & Ireland

Rest of the World

 

Corporate

 

Total

Year ended 31 December 2013

£m

£m

£m

£m

£m

£m

Revenue

3,401.7

1,151.5

1,018.5

526.0


6,097.7

Adjusted operating profit/(loss)

213.6

97.0

71.6

51.2

(19.0)

414.4

Intangible amortisation

(12.6)

(29.1)

(7.1)

(9.5)

-

(58.3)

Acquisition related costs

(6.8)

(3.5)

(1.6)

(12.1)

-

(24.0)

Operating profit/(loss)

194.2

64.4

62.9

29.6

(19.0)

332.1

Finance income






2.6

Finance cost






(44.8)

Profit before income tax






289.9

Adjusted profit before income tax






372.2

Income tax






(83.1)

Profit for the year






206.8

 

Acquisition related costs for the year ended 31 December 2014 include transaction costs and expenses of £4.1m (2013: £8.4m), deferred consideration payments of £21.0m (2013: £22.0m) relating to the retention of former owners of businesses acquired and a charge of £1.0m (2013: £6.4m credit) from adjustments to previously estimated earn outs.

 

3. Finance income/(cost)

 

 



2014

2013
 



£m

£m

Interest on deposits



1.6

0.8

Interest income from foreign exchange contracts



1.4

1.4

Other finance income



1.0

0.4

Finance income



4.0

2.6






Interest on loans and overdrafts



(41.4)

(39.9)

Interest expense from foreign exchange contracts



(2.0)

(1.5)

Interest charge on retirement benefit obligations



(1.6)

(2.8)

Fair value (loss)/gain on US private placement notes in a hedge relationship



(12.1)

2.0

Fair value gain/(loss) on interest rate swaps in a hedge relationship



12.1

(2.0)

Foreign exchange (loss)/gain on intercompany funding



(10.4)

10.9

Foreign exchange gain/(loss) on external debt not in a hedge relationship



9.8

(11.0)

Other finance expense



(0.4)

(0.5)

Finance cost



(46.0)

(44.8)

 

The foreign exchange (loss)/gain on intercompany funding arises as a result of foreign currency intercompany loans and deposits. This is substantially matched by external debt to minimise this foreign currency exposure in the income statement.

 

4. Income tax

 

In assessing the underlying performance of the Group, management uses adjusted profit which excludes intangible amortisation 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:

 


2014

2013



£m

£m

Income tax on profit


89.1

83.1

Tax associated with intangible amortisation and acquisition related costs


17.1

20.7

Tax on adjusted profit


106.2

103.8





Profit before income tax


299.8

289.9

Intangible amortisation and acquisition related costs


88.0

82.3

Adjusted profit before income tax


387.8

372.2





Reported tax rate


29.7%

28.7%

Tax rate on adjusted profit


27.4%

27.9%

 

5. Dividends

 




2014

2013





£m

£m

2012 interim





28.8

2012 final





63.0

2013 interim




32.6


2013 final




73.0


Total




105.6

91.8

 

Total dividends per share for the year to which they relate are:

 




Per share




2014

2013

Interim



11.0p

10.0p

Final



24.5p

22.4p

Total



35.5p

32.4p

 

The 2014 interim dividend of 11.0p per share was paid on 2 January 2015 and comprised £36.0m of cash.  The 2014 final dividend of 24.5p per share will be paid on 1 July 2015 to shareholders on the register at the close of business on 22 May 2015.

 

6. Earnings per share

 



2014

2013




£m

£m

Profit for the year



210.7

206.8

Adjustment*



70.9

61.6

Adjusted profit



281.6

268.4






Basic weighted average ordinary shares in issue (million)


326.6

325.8

Dilutive effect of employee share plans (million)



3.9

4.0

Diluted weighted average ordinary shares (million)



330.5

329.8






Basic earnings per share



64.5p

63.5p

Adjustment



21.7p

18.9p

Adjusted earnings per share



86.2p

82.4p






Diluted basic earnings per share



63.7p

62.7p

Adjustment



21.5p

18.7p

Adjusted diluted earnings per share



85.2p

81.4p

 

* Adjustment comprises intangible amortisation of £61.9m (2013: £58.3m), acquisition related costs of £26.1m (2013: £24.0m) and associated tax credit of £17.1m (2013: £20.7m).

 

7. Intangible assets

 


2014

2013

Goodwill


£m

£m

Beginning of year


901.0

823.2

Acquisitions


36.2

97.4

Currency translation


(14.9)

(19.6)

End of year


922.3

901.0







2014

2013

Customer relationships


£m

£m

Cost




Beginning of year


887.2

793.1

Acquisitions


76.0

111.1

Currency translation


(24.3)

(17.0)

End of year


938.9

887.2

Amortisation




Beginning of year


331.3

275.7

Charge in year


61.9

58.3

Currency translation


(10.8)

(2.7)

End of year


382.4

331.3





Net book value at 31 December


556.5

555.9





Total net book value of intangible assets at 31 December


1,478.8

1,456.9

 

Both goodwill and customer relationships have been acquired as part of business combinations.  Customer relationships are amortised over their estimated useful lives which range from 10 to 19 years.

 

8. Cash and cash equivalents and net debt

 

2014

2013

 


£m

£m

 

Cash at bank and in hand

82.4

73.1

 

Bank overdrafts

(28.1)

(26.3)

 

Cash and cash equivalents

54.3

46.8

 

Interest bearing loans and borrowings - current liabilities

(35.8)

(42.0)

 

Interest bearing loans and borrowings - non-current liabilities

(913.3)

(851.8)

 

Derivative assets

25.7

9.5

 

Derivative liabilities

(8.3)

(12.0)

 

Net debt

(877.4)

(849.5)

 




 


2014

2013

 

Movement in net debt

£m

£m

 

Beginning of year

(849.5)

(738.1)

 

Net cash outflow

(19.0)

(113.2)

 

Realised gain/(losses) on foreign exchange contracts

17.4

(9.7)

 

Currency translation

(26.3)

11.5

 

End of year

(877.4)

(849.5)

 

9. Acquisitions

 

2014

 

The acquisitions made or agreed to be 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, POS Direct and Tillman.

 

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 products 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.  The Company also entered into an agreement on 30 December 2014 to acquire Tillman, which supplies a variety of personal protection equipment, principally gloves, to distributors throughout the US who supply customers operating in the welding and industrial sectors.  The acquisition was completed on 2 January 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 2014 the allocation period for all acquisitions completed since 1 January 2014 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 2014 is detailed below:

 

Provisional fair value of assets acquired



£m

Intangible assets



76.0

Property, plant and equipment



1.9

Inventories



13.9

Trade and other receivables



25.8

Trade and other payables



(15.2)

Net bank overdrafts



(8.9)

Provisions for liabilities and charges



(2.2)

Tax and deferred tax



(14.4)




76.9

Goodwill



36.2

Consideration



113.1





Satisfied by:




      cash consideration



107.1

      deferred consideration



6.0




113.1

Contingent payments relating to retention of former owners



19.1

Net bank overdrafts acquired



8.9

Transaction costs and expenses



4.1

Total committed spend in respect of acquisitions completed in the current year



145.2

Spend on acquisition committed as at 31 December 2014



65.8

Total committed spend in respect of acquisitions agreed in the current year



211.0





The net cash outflow in the year in respect of acquisitions comprised:




Cash consideration



107.1

Net bank overdrafts acquired



8.9

Deferred consideration in respect of prior year acquisitions



38.1

Net cash outflow in respect of acquisitions



154.1

Acquisition related costs



14.0

Total cash outflow in respect of acquisitions



168.1

 

Cash flow on acquisition related costs relates to £3.5m (2013: £9.6m) of transaction costs paid and £10.5m (2013: £16.5m) of payments relating to retention of former owners. 

 

Acquisitions made in the year ended 31 December 2014 contributed £90.6m to the Group's revenue and £10.2m to the Group's adjusted operating profit for the year ended 31 December 2014.

 

The estimated contributions of businesses acquired during the year to the results of the Group, as if the acquisitions had been made at the beginning of the year, are as follows:

 

£m

Revenue

162.7

Adjusted operating profit

20.6

 

The estimated revenue of businesses acquired or agreed to be acquired during the year, as if the acquisition had been made at the beginning of the year is £223.3m.

 

2013

The acquisitions completed in the year ended 31 December 2013 were McNeil Surgical, Vicsa Brasil, Labor Import, MDA, most of the Industrial & Safety division of Jeminex, TFS, Espomega, ProEpta, Wesclean Equipment & Cleaning Supplies, pka Klöcker, De Santis and SAS Safety.

 

McNeil Surgical, a business principally engaged in the sale of healthcare consumables and equipment to aged care facilities, hospitals and medical centres as well as to redistributors throughout South Australia, was acquired on 31 January 2013.  Vicsa Brasil, the proposed acquisition of which was agreed in December 2012, was acquired on 19 February 2013.  The business is engaged in the sale of personal protection equipment throughout Brazil.  Labor Import, which is principally engaged in the supply and distribution of own label medical and healthcare consumable products to distributors as well as to hospitals, clinics, laboratories and care homes throughout Brazil, was acquired on 1 March 2013.  MDA, which is engaged in the procurement and fulfilment of promotional products and marketing point of sale materials for a variety of customers in the UK, principally in the food and drinks industries, was acquired on 15 March 2013.  Three businesses which formed part of the Industrial & Safety division of Jeminex in Australia were acquired on 30 April 2013.  The workwear and personal safety business distributes an extensive range of specialist personal protection equipment and workwear to the mining, resources, construction and general industrial sectors.  The lifting, rigging and height safety business is principally engaged in the supply of lifting chains and ropes, slings and load restraints as well as the provision of accredited testing and repair services.  The third business is involved in the supply of industrial packaging products to a variety of customers in different market sectors.  TFS, a business engaged in the procurement and fulfilment of promotional products and marketing point of sale materials for customers in the UK across various market sectors, was acquired on 31 July 2013.  Espomega, a business supplying a variety of safety products, including gloves and protective clothing, to distributors throughout Mexico, was acquired on 30 August 2013.  ProEpta, a leading distributor of catering equipment throughout Mexico, principally to luxury hotels and restaurants, was acquired on 27 September 2013.  Wesclean, a business principally engaged in the distribution of cleaning and hygiene equipment and supplies to a variety of customer markets throughout Western Canada, was acquired on 1 November 2013.  pka Klöcker, a business based in Germany engaged in the sale to distributors of personal protection equipment, principally own label workwear, was acquired on 29 November 2013.  De Santis, a business based in Brazil and principally engaged in the sale of personal protection equipment to end user customers in a number of different market sectors, was acquired on 20 December 2013.  SAS Safety, a business specialising in the sourcing and sale of a variety of own label personal protection equipment, principally safety gloves, to distributors in the US was acquired on 23 December 2013.

 

10. Related party disclosures

 

The Group has identified the directors of the Company, the Group pension schemes and its key management as related parties for the purpose of IAS 24 'Related Party Disclosures'.  There have been no transactions with those related parties during the year ended 31 December 2014 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 2013 Annual Report remain those of most concern to the business at the end of 2014.  The principal risks and uncertainties faced by the Group and the steps taken to mitigate such risks and uncertainties are detailed below.  This summary is not intended to be exhaustive and is not presented in order of potential probability or impact.


Competitive pressures - The Group operates in highly competitive markets and faces competition from international companies as well as national, regional and local companies in the countries in which it operates.  Increased competition and unanticipated actions by competitors or customers could lead to an adverse effect on results and hinder the Group's growth potential.  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 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.

 

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

23 February 2015

 


This information is provided by RNS
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