Final Results
Bunzl PLC
28 February 2005
Monday 28 February 2005
RESULTS FOR YEAR ENDED 31 DECEMBER 2004
Bunzl plc, the international distribution and outsourcing Group, today announces
its annual results for the year ended 31 December 2004, its intention to demerge
Filtrona from the Group and the decision to appoint Christoph Sander as Chief
Executive.
• Sales were £2,916.0 million (2003: £2,728.2 million), up 14% at
constant exchange rates
• Operating profit before goodwill was £230.8 million (2003: £214.1million),
up 16% at constant exchange rates
• Profit before tax and goodwill was £226.0 million (2003: £212.3 million),
up 14% at constant exchange rates
• Profit before tax was £200.9 million (2003: £194.6 million), up 11% at
constant exchange rates
• Adjusted earnings per share were 34.4p (2003: 31.3p), up 18% at
constant exchange rates
• Dividend up 10% to 13.3p
• £324 million spent on acquisitions, £58 million on buying back shares
• Proposed demerger of Filtrona in June 2005 with Mark Harper as Chief
Executive
• Christoph Sander to become Chief Executive of Bunzl when the demerger
is complete
Commenting on today's announcement, Anthony Habgood, Chairman of Bunzl, said:
'These are strong results from both Outsourcing Services and Filtrona reflecting
increasing momentum during the fourth quarter and a higher level of acquisition
spend. They provide an excellent backdrop to the proposed demerger of Filtrona
from the Group.
'I am delighted that we have a first rate internal candidate to become Chief
Executive of Bunzl following the demerger of Filtrona. Christoph has built our
European business from inception in 1993 to a highly successful business with
sales in excess of £1 billion.'
Enquiries:
Bunzl plc Finsbury
Anthony Habgood, Chairman Roland Rudd
David Williams, Finance Director Morgan Bone
Tel: 020 7495 4950 Tel: 020 7251 3801
After an excellent year for the Group as a whole and with good underlying
momentum, the Board has decided that it is the right time to demerge our
successful Filtrona organisation from our growing and highly profitable
Outsourcing Services business. Filtrona, which represents 16% of Group sales and
24% of Group operating profit before corporate costs and goodwill amortisation,
will become a stand alone supplier of fibre and plastic technology products with
strong positions in international niche markets. Bunzl will become a focused
international distribution and outsourcing Group. Simultaneous with the demerger
which is planned for June 2005, the Board will appoint Christoph Sander as Chief
Executive of Bunzl and Mark Harper will become Chief Executive of the demerged
Filtrona. I will remain Chairman of Bunzl and Jeff Harris will become Chairman
of Filtrona.
RESULTS
The Group once again had a successful year in 2004 as good results were enhanced
by renewed momentum in acquisition activity. Sales were £2,916.0 million (2003:
£2,728.2 million), up 14% at constant exchange rates, and operating profit was
£205.7 million (2003: £196.4 million),a rise of 13% at constant exchange rates.
Profit before tax and goodwill amortisation was £226.0 million (2003: £212.3
million), up 14% at constant exchange rates. Profit before tax was £200.9
million (2003: £194.6 million), 11% ahead at constant exchange rates. Earnings
per share were 28.7p (2003: 27.4p), up 13% at constant exchange rates and
adjusted earnings per share, after eliminating goodwill amortisation, were
34.4p (2003: 31.3p), a rise of 18% at constant exchange rates.
After a cash outflow of £323.6 million on acquisitions and a spend of £58.2
million buying back shares on the market, net debt at the end of the period rose
to £405.2 million (2003: £96.5 million). Gearing rose to 94.6% from 22.3%.
DIVIDEND
The Board is recommending an increase in the final dividend to 9.15p (2003:
8.25p). This brings the total dividend for the year to 13.3p (2003: 12.1p), an
increase of 10%. Shareholders will again have the opportunity to participate in
our dividend reinvestment plan.
BOARD CHANGES IN 2004
Bunzl strengthened its independent Board with the appointment of Dr Ulrich
Wolters as a non-executive director in July. Ulrich is Chairman of the Aldi
Family Trust which holds the majority of the Aldi Sud shares, having been
Managing Director of Aldi Sud for many years and built the business into one of
the world's leading international retailers with over 2,800 outlets. Also in
July Christoph Sander was appointed to the Board with responsibility for Bunzl's
Outsourcing Services business in Europe and Australasia, having led it from its
inception in 1993 to a business with sales in excess of £1 billion. In December
the Board was further strengthened by the appointment of Patrick Larmon and Mark
Harper. Pat is responsible for our North American Outsourcing Services business
in which he has held various senior positions over 15 years. Mark assumed
responsibility for Filtrona in 1996 after holding general management positions
in both Europe and the US.
Paul Lorenzini retired from the Board in July after 21 years with the Group. He
was appointed to the honorary position of Chairman Emeritus of Bunzl USA in
recognition of his past service to the Group. Stephen Williams retired as a
non-executive director in August. His independent advice and contribution to our
success were greatly valued.
We welcome Ulrich, Christoph, Pat and Mark to the Board and thank Paul and
Stephen for their valuable service over many years.
PLANNED DEMERGER
Since 1991 the structure of Bunzl has been simplified by selling businesses with
weaker returns and relatively poor competitive positions and reinvesting the
proceeds from these disposals to grow businesses where we have superior returns,
good international competitive positions and the potential to grow. The pursuit
of this strategy has resulted in Bunzl having two business streams, Outsourcing
Services and Filtrona, both of which have these features but which have little
or no commercial overlap between them. The Board has therefore decided to
separate these two fundamentally different component parts by demerging Filtrona
from the Group. It is planned to achieve this by paying existing shareholders of
Bunzl a dividend in specie. Filtrona will be an independent public company while
Bunzl will become a simpler organisation concentrating on the Outsourcing
Services business stream.
We believe that shareholder value will be created through the demerger process
and that Filtrona and Bunzl will be strong businesses in their own right with
good returns and good international competitive positions which will prosper as
individual listed entities. It is hoped that the process of demerger, which will
be subject to shareholder approval, will be completed by June 2005. JPMorgan
Cazenove has been appointed to advise Bunzl on the demerger.
BOARDS OF THE DEMERGED ENTITIES
The Board will appoint Christoph Sander as Chief Executive of Bunzl on
completion of the demerger. I will remain as Chairman. The role of Deputy
Chairman will cease to exist as of the demerger and Pat Dyer, currently Deputy
Chairman, will retire from the Board at the end of the year. Mark Harper and
Paul Heiden will resign from the Board as of the demerger. The Board of Bunzl
will then constitute a Chairman, a Chief Executive and two other executive
directors, four existing independent non-executive directors of which Jeff
Harris will continue to act as the senior independent director and, in addition,
Pat Dyer who will continue to serve as a non-executive director until the year
end.
It is proposed that the Board of the prospective demerged entity will constitute
Jeff Harris as Chairman, Mark Harper as Chief Executive, Steve Dryden as Finance
Director, Paul Heiden as an independent non-executive director plus at least one
further independent non-executive director. An additional independent
non-executive director will be appointed to replace Paul Heiden who would not
expect to serve beyond a transitional period of around six months.
ACQUISITIONS
The Group spent £324 million on acquisitions during 2004 as a major expansion
into France was achieved and the momentum in North America was regained after a
period of relatively low activity. In addition we added businesses in the
Netherlands, Australia and Eastern Europe.
In May we acquired Groupe Pierre Le Goff. This significant acquisition with pro
forma sales in 2003 of €422 million took Outsourcing Services into France with a
leading position in both the cleaning and safety markets in that country. A
strong position in France complements our existing European positions in the UK,
Benelux, Germany, Denmark and Ireland and provides us with a strong platform to
develop further in France and Southern Europe while reinforcing our position as
the logical partner for international customers and suppliers.
During the fourth quarter we regained momentum in North America with the
addition of over $200 million of annualised sales through the acquisitions of
three significant companies. In October we reinforced our position in the
growing convenience store segment through the acquisition of TSN. Headquartered
in Denver, Colorado, TSN had sales in 2003 of $130 million and is a leading
distributor of goods not for resale to that sector across the US. In November we
purchased Joseph Weil & Sons. Based in Chicago and with sales in the year ended
30 June 2004 of $53 million, Weil supplies jan/san, disposable food service and
non-food retail products in the Midwest, complements our position there and
provides us with an opportunity to develop further into these markets. In
December we further expanded with the acquisition of TEMO. Located in Maspeth,
New York and with sales in 2003 of $28 million, TEMO is a well-established
redistribution business in the Northeast distributing food service and jan/san
products.
Elsewhere we also continued to expand through acquisitions. In March we expanded
Filtrona with the acquisition of Skiffy in Amsterdam. With sales in the year
ended March 2004 of €13 million, Skiffy has particular expertise in the supply
of small nylon parts for protection and finishing applications and enhances our
existing operations in Europe and North America. In October we acquired the
disposable consumables and packaging distribution business of Cospak in
Australia. Based in Newcastle, New South Wales and Perth, the Cospak business,
which had sales in the year ended 30 June 2004 of A$35 million, complements our
existing successful Australian business and deepens our penetration there. In
November we made our first acquisition in Eastern Europe with the purchase of
Beltex, a leading national distributor in Hungary with additional branches in
neighbouring Romania and Slovakia with sales in 2003 of €12 million. Its product
range encompasses cleaning and hygiene supplies and has recently expanded into
safety supplies and personal protection equipment. It establishes a platform for
us in a key region of growth.
In January 2005, we completed the acquisition of Gelpa. Based in Arnhem, Gelpa
had sales of €43 million in 2003 and is a distributor principally supplying the
retail and food processor sectors with packaging and consumables in the
Netherlands.
SHARE BUYBACK
In October the Board reinstated a share buy back programme following the
purchase and cancellation of 21.3 million shares in 2003. A total of 13.0
million shares were purchased into treasury at a cost of £58.2 million and an
average price of £4.48 per share. These purchases were consistent with the
Board's continuing overall capital management strategy. This strategy seeks to
maintain an appropriate balance sheet structure taking into account completed
and prospective acquisitions and disposals.
INVESTMENT
We continued to invest in the capital base of the Group. New facilities in lower
cost countries are coming on stream in 2005 and both equipment and warehouses
have been expanded and upgraded during the year. Computer systems continue to be
improved and installed into acquired facilities. These systems remain critical
to our ability to serve our customers in the most efficient and appropriate way.
We believe that up to date assets are an important source of our competitive
advantage and investing in them remains a priority.
INTERNATIONAL FINANCIAL REPORTING STANDARDS
The Group will be reporting 2005 results on the basis of IFRS rather than UK
GAAP. 2004 results restated under IFRS for comparative purposes will be supplied
in the second quarter of 2005.
PROSPECTS
Against a background of an improved world economy in 2004, albeit with a weak US
dollar, both Outsourcing Services and Filtrona again showed their strengths as
international businesses with excellent increases in sales and operating profit
at constant exchange rates. The increases in the second half in each case were
greater than those in the first half. Renewed momentum in the US during the
fourth quarter and the impact of achieving scale advantage across Europe and
Australasia have carried forward into the early weeks of 2005 as has the strong
performance of Filtrona in both fibre and plastic technologies.
We see the proposed demerger as being positive to the prospects of both sides of
the business as the management of each of the demerged entities concentrates on
developing its strengths internationally in its distinct fields of operation.
Outsourcing Services will focus on value added distribution, often to major
international customers, from growing preferred vendors and international
sources. Filtrona will focus on serving well defined international niche markets
in fibre and plastic technologies from efficient, effective, low cost sources.
We expect Outsourcing Services in North America to grow as a result of renewed
momentum in acquisition activity and increased sales to higher growth areas such
as redistribution, food processors, convenience stores and the jan/san market.
Generally firm product prices, as a result of higher commodity input prices to
our suppliers, should prevent growth being eroded by deflation, certainly in the
immediate future.
In Europe and Australasia we expect sales growth to continue particularly as
recent acquisitions are integrated into the business. We also expect future
acquisition activity to expand our geographic coverage and deepen our
participation in existing markets. The cost savings and efficiency gains
associated with our increased scale should continue to deliver benefits.
In Filtrona, the underlying growth of our markets is continuing in improving
economic conditions and each of our businesses is performing well. In addition
we expect to show continued growth from acquisitions and as we supplement our
existing supply bases with product from sourced or owned production from lower
cost facilities in Mexico, China and other appropriate sources.
Our strong focused competitive position in our international markets and our
ability to enhance growth through acquisitions give us confidence that both
parts of the Group will maintain their momentum and continue their positive
development.
OPERATING PERFORMANCE
The Group operates in many currency zones and, in this period of substantial
dollar weakness, the operations are reviewed at constant exchange rates or in
local currency to remove the distortionary impact of significant currency
swings. The overall impact of currency movements was to reduce the growth rate
of sales by about 7% and profits and earnings by about 8%. The following table
sets out the growth rates of sales and operating profit before goodwill
amortisation as reported in sterling alongside those at constant exchange rates:
Actual exchange rates Constant exchange rates
Sales Operating Sales Operating
% Growth Profit % Growth Profit
% Growth % Growth
--------------------------------------------------------------------------------
Outsourcing Services +7 +8 +14 +16
North America -6 -8 +4 +1
Europe & Australasia +33 +44 +33 +44
Filtrona +5 +5 +12 +13
Total +7 +8 +14 +16
--------------------------------------------------------------------------------
Group margin before goodwill amortisation rose from 7.8% to 7.9% and Group
return on operating capital rose from 45.1% to 46.8%.
OUTSOURCING SERVICES
Operating across North America, Europe and Australasia, Bunzl is the leading
supplier of a range of products including outsourced food packaging, disposable
supplies and cleaning and safety products for supermarkets, redistributors,
caterers, food processors, hotels, contract cleaners,
non-food retail and other users.
Outsourcing Services overall had an excellent year with sales up 14% at constant
exchange rates to £2,438.5 million (2003: £2,275.6 million) and operating profit
before goodwill amortisation up 16% at constant exchange rates to £184.8 million
(2003: £170.5 million).
North America
In North America, dollar sales grew at 4% to $2,571.4 million while operating
profit was up 2% to $193.1 million.
The mix of our business continued to change as the proportion of our total sales
in redistribution, processors, convenience stores, non-food retail and jan/san
continued to expand while grocery, which is still the largest of our customer
categories, again decreased as a percentage of total sales. This reorientation
of the business was speeded up by the renewed level of acquisition activity in
the fourth quarter.
In October through our acquisition of TSN, headquartered in Denver, we increased
our presence in convenience stores. TSN is a leading distributor of disposable
packaging supplies, jan/san products and foodservice items to the convenience
store chains and wholesalers. The convenience store industry has shown good
growth over the last several years and is forecast to continue this growth going
forward. TSN puts us in position to take advantage of these opportunities. Later
in the year we purchased Joseph Weil & Sons, a supplier to redistribution and
non-food retail based in Chicago. It also has business in jan/san and increases
our presence in areas targeted for future growth. In December we purchased TEMO,
a New York redistribution company servicing a customer base that fits
strategically with our other locations in the area. It is a well managed company
that will solidify our position as a leading redistribution company in the
Northeast.These three significant transactions have accelerated the reorientation
of our business and we will continue to look for acquisitions that fit our
distribution model and create opportunities for us to grow.
Our grocery customers include small, regional and national supermarket chains as
well as warehouse grocery stores. As the largest distributor in this area, we
provide disposable packaging, jan/san supplies and carryout items. Consolidation
continued and, although this has resulted in larger customers, it has also
created an opportunity for smaller specialised stores to provide an array of
products and services not found in the larger retailer. This area will provide
an opportunity for us in the future. Our redistribution customers include small
distributors that use us to reduce their capital investment and increase their
inventory turns without giving up the availability of the many items they need
to drive more sales. As transportation costs increase due to fuel costs and
driver regulations, our platform has become more attractive to our vendors and
customers. This continues to be a solid growth area for us. Besides disposable
packaging and carryout items, we also provide these customers with jan/san
products which are a focus for us moving forward. Our business with processors,
which also grew in 2004, was hampered by restrictions imposed by various
international governments on North American sourced product. However it appears
these are changing and the situation should improve. Our customers process and
package meat, produce, seafood, bakery and other items. We continue to be the
only national supplier of packaging products, plant operating supplies, safety
supplies and jan/san supplies. Our customers can order all these items and
receive them through one order and delivery rather than receiving them from
multiple vendors that have to be managed. We have developed a group of
specialists in this area to help our customers with this part of their business.
Our focus continues to be to provide plastic and paper disposable packaging
items, janitorial supplies, carryout bags and containers and plant operating
supplies. We make available to our customers one of the largest selections of
products thereby allowing them to choose appropriately for their needs and those
of their customers. With over 60,000 items, the customer will find every style,
type and price range needed to increase their sales, run their plants more
efficiently or safely, maintain cleanliness and hygiene and/or reduce their cost
of packaging. Our private label program, Prime Source, continues to grow as we
add more items and offers our customers a less costly alternative without
sacrificing quality. In addition we continue to source internationally
innovative and economic products for our customers. Our import program has
expanded significantly again this year providing us with alternative high
quality products at very competitive prices. To handle the increased volume we
have opened a consolidation warehouse in Shanghai that allows our warehouse
locations, no matter how small, the ability to order many of these products in
the most efficient manner. We are considering more locations in this area of the
world as the number of items we import continues to grow. Several of our
customers look to us as their partner in the importing area.
Besides providing our customers quality products at a competitive price, we also
provide them solutions for managing this part of their business. Our programs
allow the customers to use valuable space in their warehouses for more
profitable, lower volume, higher dollar resale items. With 83 locations in North
America serving all 50 states, Canada and Mexico, we are able to deliver the
right products in the right quantities on the day they are needed. With a fleet
of over 370 trucks, our customers are confident the product will be delivered
when required. Due to our number of locations, our common IT platform and our
logistics capabilities, we are able to service the needs of national accounts
across the business. Customers are assured of a consistent, dependable and
controlled program that will contribute to a more efficient supply chain. Our
ability to provide these services has allowed us to develop long term
relationships with many large customers resulting in multi-year contracts to
supply our products. We believe there is a significant opportunity for
additional national contracts and have committed resources to our National
Accounts department in an effort to pursue these customers.
We have always been successful with small, regional and national customers.
However, many of our customers have grown not just nationally but globally.
During 2004, we have worked with our European and Australian counterparts on
international sales and purchasing programs. Global negotiations have started
with customers and vendors who have expanded to markets in all areas of the
world. We are one of the few companies that will be able to deliver a controlled
and consistent program to the customer similar to our national programs in place
now. Also, by combining our worldwide purchasing power, we are able to lower
costs on various product lines on a global basis. We have already demonstrated
this on several import items. This is an advantage that we are confident will
lead to increased sales in the future.
Despite productivity gains in several areas of the business, operating costs
remained consistent with last year due to rising fuel costs and health and
benefit costs. However we believe we have managed these increases effectively
and are confident that with improvements to our IT capabilities, facilities,
logistics platform and delivery routes, we will see improvement in the future.
Our standardized procedures in all facets of the operation, including
warehousing and customer service, will contribute to long term efficiency gains.
We continue to improve our complete supply chain costs and improve our overall
operations.
Europe and Australasia
Our business in Europe and Australasia exceeded £1 billion in sales for the
first time. The acquisition of Groupe Pierre Le Goff in France in May 2004
increased the scale of the business by approximately one third. The effect of
this in the year, combined with continued organic growth and further in-fill
acquisitions, has enabled our business to achieve record sales and profits with
the former increasing by 33% to £1,025.6 million and the latter by 44% to £78.7
million.
From our first acquisition in the UK in 1993, just over 11 years ago, we have
now developed a European and Australasian business in 11 countries with real
substance and scale in the UK and Ireland, Continental Europe (principally
France, Germany, the Netherlands, Denmark) and Australasia (Australia, New
Zealand). Moreover we are expanding into new areas, such as Eastern Europe,
which provide added growth potential.
In each country we aim to provide our customers with a 'one stop shop' for all
their purchasing, warehousing & distribution and servicing needs. By providing
customers with management information to improve the control of their
expenditures on a broad range of largely non-food consumable products, we are
able to demonstrate savings throughout the supply chain. This allows our
customers to reduce their internal costs of operation and achieve efficiencies
by concentrating on their own core businesses.
Growth in 2004 has come mainly from acquisitions but also from significant new
contract wins and a broadening of our product range with existing customers.
These effects have more than offset any impact of deflationary price pressure,
lower consumption and substitution for lower specification products, for example
in the retail and catering sectors.
In the UK and Ireland, our businesses supplying Horeca (hotels, restaurants,
caterers) performed well despite lower spending by a number of our key customers
due to lower throughput in their own businesses. Our Lockhart business, which
specialises in light catering equipment, was able to secure a long term contract
with a major international contract caterer and was also successful in winning
new contracts with hotel and restaurant groups increasing the critical mass of
our business. During the year we opened a new purpose-built National
Distribution Centre based in Kettering, which supplies a broad range of
slower-moving items on a cross-dock basis to our branch network. By enabling us
to supply a broader range of catering disposables, as well as light catering
equipment, we can now offer a 'one stop shop' with the broadest range of products
available in the UK market.
Our retail supplies business, which focuses on supplying supermarkets and
non-food retailers with goods not for resale, was able to continue to make
progress in supplying key retailers in the UK. New long term contracts were
agreed with two major supermarket groups and we are confident of future
successes going forward. During the year we also integrated the supply chain of
our healthcare supplies business, Shermond, with the retail business as many of
the supply chain characteristics are common. Shermond had another strong year
and posted good organic growth as it increased its share into the healthcare and
nursing home markets in the UK. In Ireland our hotel and catering supplies
business also performed well and was able to increase penetration into its
target markets.
The challenging market conditions in Horeca also impacted our Vending Services
business, whose customers faced reduced consumption due to staff cutbacks and
outsourcing of labour to lower cost countries. Nevertheless we succeeded in
increasing our sales overall and positioning ourselves as the clear leading
independent vending operator in the UK market.
In cleaning and safety supplies, Greenham continues to perform strongly with
good organic growth coming from new contract wins in public transportation,
building and construction and local government. Increasingly personal protection
equipment is imported from global sources and, to capture this opportunity, we
more than doubled the capacity of our importing and National Distribution
Centre. We also continued the development of our own-label range of brands with
great success. Cleaning & Hygiene Supplies completed the full integration of
Darenas and is now running on a single IT system with an integrated branch
structure.
In Continental Europe our main initiative was the acquisition of Groupe Pierre
Le Goff which provided an entry point of scale into one of the leading markets
in Europe. Groupe Pierre Le Goff's activities lie mainly in the supply of
cleaning and hygiene products to French caterers, hotels and industry in general
as well as the supply of personal protection equipment/safety products to French
industry, food processors and transportation sectors. These businesses are both
complementary to our activities in the UK and elsewhere and we have already
begun to see the benefits of synergies in purchasing, IT systems and key
accounts. The acquisition has been well received by employees, customers and
suppliers, and the business has performed ahead of expectations.
Our businesses in Denmark are set for increased activity in 2005. Last year was
the first full year of the MultiLine acquisition which came in ahead of
expectations. Our business supplying retailers had a more difficult year as we
focused our distribution activities around a new purpose-built warehouse outside
Copenhagen combining three locations into one, successfully implemented our IT
systems and created a stronger platform for 2005.
In Germany our business supplies mainly caterers and high street butchers and
bakers with packaging products. Against a challenging market we had a strong
year in terms of sales and profits growth, winning a number of prestigious
accounts. In the Netherlands our business is focused mainly on hotels and
caterers and consequently suffered from the downturn in the Dutch economy.
However, following a move to a purpose-built facility outside Amsterdam, we are
well placed to capitalise on any recovery and have added to our customer base.
Gelpa, which we purchased in January 2005 provides us with a route into the
supermarket and food processor sectors. We believe that this will provide
exciting opportunities for Bunzl in the Benelux region as a whole.
2004 also saw the first acquisition by Bunzl of a business in Eastern Europe,
when we acquired Beltex based in Hungary. This business is a leading distributor
of cleaning and safety products in Hungary with two smaller branches in
neighbouring Slovakia and Romania. We are developing the opportunities with
international suppliers and customers there and believe that this is an area of
potential for the future.
In Australasia our business continues to perform well and achieved another
record year in 2004. In addition to contract wins in the hotel, catering and
healthcare sectors, we strengthened our regional position in Melbourne and also
in Tasmania, which is a new geography for us. Towards the end of the year we
acquired the disposables distribution business of Cospak with branches in Perth,
Newcastle and a number of other locations. These have already been integrated
into the existing Bunzl infrastructure. This acquisition has increased our size
significantly in Australia and has given us further reach into areas where we
have been under represented. During the year we have also been able to continue
the development of our food processor supply business and we have successfully
extended our business in New Zealand.
FILTRONA
Filtrona is a supplier of fibre and plastic technology products to international
niche markets. Within these two business segments it is a world leading supplier
of outsourced cigarette filters, ink reservoirs and other bonded fibre products,
protective caps and plugs, self-adhesive tear tapes and certain security
products. It is also a leading extruder of custom plastic profiles.
At constant exchange rates, sales in Filtrona rose by 12% to £477.5 million
(2003: £452.6 million) driven by robust underlying organic growth in both
segments supplemented by the sales impact from the acquisitions of the filters
and fibres division of Baumgartner and Skiffy. Profits at constant exchange
rates grew by 13% to £59.1 million (2003: £56.1 million) despite a challenging
manufacturing environment characterised by rapid raw material cost increases,
particularly in the second half of the year.
Filtrona now operates from 38 production facilities in 14 countries engaged in
flexible light manufacture and service oriented supply of low unit value items
to customers throughout the world. These customers range from small localised
producers and distributors to large, complex multinational manufacturing
organisations. Filtrona occupies technological and market leadership positions
in small focused international niches, where the development of quality,
differentiated positions is achievable through consistent investment and
dedication to the delivery of innovation, superior customer value and service.
Within fibre technologies, both filters and Fibertec continued to progress well.
We are now well placed to offer more complex and innovative technologies and
products to meet the changing requirements of the international fibre technology
markets.
Our outsourced cigarette filters business grew in all regions, with Asia
continuing to perform particularly well, although headline results were again
impacted by currency translation. Important new special filter outsourcing
agreements were secured during the year which more than offset any increase in
self manufacture. A new special filter facility was opened in Mexico during the
second half and volumes through this operation will build during 2005. In
addition new warehousing arrangements were made in Korea and Russia to improve
supply chain performance. The filters business continues to benefit from
increased consumer demand for brands with low tar and special filters, often
including charcoal, driven by changing consumer tastes, ever stricter
legislative requirements and the growing industry interest in filters which can
reduce particular constituents within cigarette smoke.
Fibertec, based in Richmond, Virginia and Reinbek, Germany, sells reservoirs and
wicking devices using bonded fibre technology for products including pens and
printers, medical device components and household items. The business continued
its good growth, assisted by the product volumes from the acquired facility in
Switzerland. The construction of a new facility in Ningbo, China will come on
stream in 2005 and product volumes are expected to grow progressively driven by
enhanced penetration of the Asian market. Focus on the development of new
technologies, applications and geographic coverage continues to support the
excellent growth of this business.
The rapid escalation of raw material prices was a key issue facing plastic
technology businesses during the year. In spite of the challenge posed by this
trend, our businesses developed successfully and we are well positioned for the
future.
Our self-adhesive tear tape business is the world's leading supplier and made
good progress in all regions in spite of adverse currency conditions. Our
Richmond facility was further expanded with the installation of a new six
station printing press such that it now has full process capability for
servicing the increasingly important market in the Americas. Volumes of both
standard and value added tear tape continued their strong growth. The use of
printed tear tape for brand promotion and security purposes continues to
develop. The application of extrusion coated films for security and industrial
uses is showing encouraging results and further investment in extrusion coated
film process and handling techniques has generated significant improvements in
quality and service. We have formed a technology based joint venture to develop
an item level track and trace system for high volume consumer goods and document
security. Initial results are encouraging.
Our protection and finishing products business continued its positive
development. Robust organic growth in both Europe and America was supplemented
by a strong contribution from the newly acquired Skiffy which has enhanced our
European market position. Whilst rapid price escalation in raw materials was
potentially a drag on performance, this was more than offset by improved
underlying market demand, better manufacturing efficiencies, further additions
to the range, increased global sourcing and greater market penetration. The oil
sector end-market continues to deliver good results and a new contract for
supply into the Caspian sea region will enhance performance in 2005.
Improved trading conditions were sustained in our US and European extrusion
businesses. In Europe we continued to win new export business and substantial
growth opportunities remain. In the US important new business was secured in
retail and we achieved good growth in lighting, transportation, medical and
recreational products. The business continued to focus on unit cost reduction,
proprietary products and differentiated process technologies. Our geographic
spread was of benefit once again with further good business growth in Mexico.
Globalpack, our Brazilian operation which produces packaging for the South
American toiletries and cosmetics industries, had another good year. The company
continued to build its expertise in roll-on deodorant packaging and strong
demand for its tube product range has generated the need for an additional line
for installation early in 2005.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 2004
Growth
Actual Constant
2004 2003 Exchange Exchange
Notes £m £m Rates Rates
--------------------------------------------------------------------------------
Sales
Existing businesses 2,695.6 2,728.2
Acquisitions 220.4
---------------------------------------------------
Total sales 2 2,916.0 2,728.2 7% 14%
---------------------------------------------------
Operating profit
Existing businesses 193.4 196.4
Acquisitions 12.3
---------------------------------------------------
Profit on ordinary activities
before interest 2 205.7 196.4 5% 13%
Net interest payable 3 (4.8) (1.8)
---------------------------------------------------
Profit on ordinary activities
before taxation 200.9 194.6 3% 11%
--------------------------------------------------------------------------------
Profit before taxation and
goodwill amortisation 226.0 212.3 6% 14%
--------------------------------------------------------------------------------
Taxation on profit on ordinary
activities 4 (72.3) (69.0)
---------------------------------------------------
Profit on ordinary activities after
taxation 128.6 125.6
Profit attributable to
minorities (1.2) (1.0)
---------------------------------------------------
Profit for the financial year 127.4 124.6
Dividends 5 (58.4) (54.4)
---------------------------------------------------
Retained profit for the
financial year 69.0 70.2
---------------------------------------------------
Basic earnings per share 6 28.7p 27.4p 5% 13%
---------------------------------------------------
Adjusted earnings per
share 6 34.4p 31.3p 10% 18%
---------------------------------------------------
Diluted basic earnings per
share 6 28.6p 27.2p
---------------------------------------------------
Dividends per share 5 13.3p 12.1p 10%
---------------------------------------------------
CONSOLIDATED BALANCE SHEET
AT 31 DECEMBER 2004
2004 2003
£m Restated
£m
--------------------------------------------------------------------------------
Fixed assets
Intangible assets - goodwill 541.3 290.9
Tangible fixed assets 218.4 196.5
-----------------------
759.7 487.4
Current assets
Stocks 275.2 215.6
Debtors 468.5 374.7
Investments 29.3 111.3
Cash at bank and in hand 78.4 47.5
-----------------------
851.4 749.1
Current liabilities
Creditors: amounts falling due within one year (786.3) (499.1)
-----------------------
Net current assets 65.1 250.0
-----------------------
Total assets less current liabilities 824.8 737.4
-----------------------
Creditors: amounts falling due after more than one year (297.8) (220.2)
Provisions for liabilities and charges (46.9) (41.6)
-----------------------
Net assets excluding pension liabilities 480.1 475.6
Pension liabilities (48.3) (40.8)
-----------------------
Net assets including pension liabilities 431.8 434.8
-----------------------
Capital and reserves
Called up share capital 112.5 112.1
Share premium account 88.3 83.8
Capital redemption reserve 5.3 5.3
Revaluation reserve - 1.3
Profit and loss account 222.0 229.5
-----------------------
Shareholders' funds: equity interests 428.1 432.0
Minority equity interests 3.7 2.8
-----------------------
431.8 434.8
-----------------------
Net debt 405.2 96.5
Gearing 94.6% 22.3%
*Restated on adoption of UITF38 'Accounting for ESOP trusts'.
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2004
2004 2003
Notes £m £m
--------------------------------------------------------------------------------
Net cash inflow from operating activities 7 220.0 250.4
Net cash outflow for returns on investments (3.6) (4.7)
and servicing of finance
Tax paid (65.2) (56.6)
Net cash outflow for capital expenditure (41.6) (31.3)
Acquisition of businesses (256.7) (36.1)
Disposal of businesses 8.0 10.0
Equity dividends paid (54.4) (51.8)
----------------------
Net cash (outflow)/inflow before use of liquid
resources and financing (193.5) 79.9
Management of liquid resources 57.6 57.4
Net cash inflow/(outflow) from financing 120.6 (98.1)
----------------------
(Decrease)/increase in cash in the financial year (15.3) 39.2
----------------------
Reconciliation of net cash flow to movement in net debt
(Decrease)/increase in cash in the financial year (15.3) 39.2
Increase in debt due within one year (150.0) (8.3)
(Increase)/decrease in debt due after one year (24.5) 21.1
Decrease in current asset investments (57.6) (57.4)
Borrowings acquired (66.9) -
Exchange and other movements 5.6 14.9
----------------------
Movement in net debt in the financial year (308.7) 9.5
Opening net debt (96.5) (106.0)
----------------------
Closing net debt 8 (405.2) (96.5)
----------------------
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE YEAR ENDED 31 DECEMBER 2004
2004 2003
£m £m
--------------------------------------------------------------------------------
Profit for the financial year 127.4 124.6
Actuarial (loss)/gain on pension schemes (13.3) 0.9
Deferred taxation on actuarial loss/(gain)on 4.0 (0.4)
pension schemes
Revaluation reserve movement (1.3) -
Currency translation differences on foreign currency
net investments 0.4 (1.5)
--------------------------
Total recognised gains and losses for the year 117.2 123.6
--------------------------
CONSOLIDATED RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
FOR THE YEAR ENDED 31 DECEMBER 2004
2003
2004 *Restated
£m £m
--------------------------------------------------------------------------------
Opening shareholders' funds as previously reported 459.2 475.2
Prior year adjustment (adoption of UITF38) (27.2) (19.2)
--------------------------
Opening shareholders' funds restated 432.0 456.0
Profit for the financial year 127.4 124.6
Dividends (58.4) (54.4)
Issue of share capital 4.9 7.0
Employee trust shares (9.0) (8.0)
Actuarial (loss)/gain net of deferred taxation on
pension schemes (9.3) 0.5
Purchase of own shares (58.6) (92.2)
Revaluation reserve movement (1.3) -
Currency translation 0.4 (1.5)
--------------------------
Closing shareholders' funds 428.1 432.0
--------------------------
*Restated on adoption of UITF38 'Accounting for ESOP trusts'.
Notes
1. Basis of preparation
During the year the Group adopted UITF38 'Accounting for ESOP trusts'. As a
result, comparative figures have been restated. There was no impact on the
consolidated profit for the year to 31 December 2003. The impact on consolidated
shareholders' funds as at 31 December 2003 was a reduction of £27.2m.
Bunzl plc's 2004 Annual Report will be despatched to shareholders at the end of
March 2005. The financial information set out does not constitute the company's
statutory accounts for the years ended 31 December 2004 or 2003 but is derived
from those accounts. Statutory accounts for 2003 have been delivered to the
Registrar of Companies and those for 2004 will be delivered following the
company's Annual General Meeting which will be held on 18 May 2005. The auditors
have reported on those accounts; their reports were unqualified and did not
contain statements under Section 237 (2) or (3) of the Companies Act 1985.
The Group will be required to adopt International Accounting Standards and
International Financial Reporting Standards endorsed by the EU (together 'IFRS')
from 1 January 2005 with the interim results for 2005 being the first results
reported under the new Standards. The main areas of impact on the consolidated
profit and loss account will be in respect of goodwill amortisation and share
based payments. Under IFRS, goodwill will no longer be amortised but will be
subject to impairment testing at least annually, and intangible assets will be
amortised, resulting in an expected overall reduction to the amortisation
charge. The impact on operating profit in 2004 would have been a benefit of
approximately £18 million. The Group operates equity-settled, share-based
compensation plans. Under IFRS, the fair value of share based compensation is
recognised as an expense, and will be spread evenly over the vesting period. The
impact on operating profit in 2004 would have been a reduction of approximately
£4 million. Some other one-off items relating predominately to fixed asset
carrying values would have resulted in a one-off £3 million reduction in
operating profit in 2004. There is expected to be a small favourable impact of
IFRS on the consolidated balance sheet. During 2003 the Group adopted FRS17
'Retirement Benefits'. The difference in treatment of this Standard and IFRS is
negligible.
2. Segmental analysis
Sales Operating profit Net operating assets
--------------- ----------------- --------------------
2004 2003 2004 2003 2004 2003
£m £m £m £m £m £m
--------------------------------------------------------------------------------
Outsourcing Services
North America 1,412.9 1,505.1 106.1 115.8 130.5 116.3
Europe &
Australasia 1,025.6 770.5 78.7 54.7 149.5 108.0
-------------------------------------------------------------
2,438.5 2,275.6 184.8 170.5 280.0 224.3
Filtrona 477.5 452.6 59.1 56.1 213.5 197.2
Corporate (13.1) (12.5) (9.8) (5.2)
Goodwill (25.1) (17.7) 541.3 290.9
-------------------------------------------------------------
2,916.0 2,728.2 205.7 196.4 1,025.0 707.2
-------------------------------------------------------------
--------------------------------------------------------------------------------
Geographical origin
North America 1,570.8 1,698.3 128.7 140.1 216.7 200.4
Europe 1,150.4 886.4 93.0 68.0 216.2 178.0
Rest of world 194.8 143.5 22.2 18.5 60.6 43.1
Corporate (13.1) (12.5) (9.8) (5.2)
Goodwill (25.1) (17.7) 541.3 290.9
-------------------------------------------------------------
2,916.0 2,728.2 205.7 196.4 1,025.0 707.2
-------------------------------------------------------------
A reallocation of costs and net operating assets between Corporate and
Outsourcing Services North America has been incorporated in this analysis.
3. Net interest payable
2004 2003
£m £m
--------------------------------------------------------------------------------
Interest receivable
Bank deposits 9.0 7.7
-----------------------------
Total interest receivable 9.0 7.7
-----------------------------
Interest payable
Bank loans and overdrafts (9.1) (3.2)
Other loans (4.1) (4.2)
-----------------------------
Total interest payable (13.2) (7.4)
-----------------------------
Other finance costs
Expected return on pension scheme assets 16.0 12.7
Interest on pension scheme liabilities (16.6) (14.8)
-----------------------------
Total other finance costs (0.6) (2.1)
-----------------------------
Total net interest payable (4.8) (1.8)
-----------------------------
4. Taxation on profit on ordinary activities
A taxation charge of 32.0% (2003: 32.5%) on the profit on underlying operations
excluding goodwill amortisation has been provided based on the estimated
effective rate of taxation for the year. Including goodwill amortisation, on
which there is no tax relief, the overall tax rate is 36.0% (2003: 35.5%).
5. Dividends
Per share Total
-------------------------------------------------------
2004 2003 2004 2003
£m £m
--------------------------------------------------------------------------------
Interim dividend 4.15p 3.85p 18.5 17.4
Final dividend 9.15p 8.25p 39.9 37.0
------------------------------------------------------
13.3p 12.1p 58.4 54.4
------------------------------------------------------
The final dividend of 9.15p will be paid on 1 July 2005 to shareholders on the
register on 6 May 2004. The 2004 interim dividend paid was £18.5m, £0.4m lower
than the amount proposed of £18.9m due to the impact of the Company purchasing
its own shares.
6. Earnings per share
2004 2003
£m £m
--------------------------------------------------------------------------------
Profit for the financial year 127.4 124.6
Adjustment* 25.1 17.7
--------------------------
Adjusted profit for the financial year 152.5 142.3
--------------------------
Basic weighted average ordinary shares in issue (million) 443.0 455.2
Dilutive effect of employee share plans (million) 1.7 2.2
--------------------------
Diluted weighted average ordinary shares (million) 444.7 457.4
--------------------------
Basic earnings per share 28.7p 27.4p
--------------------------
Adjustment* 5.7p 3.9p
--------------------------
Adjusted earnings per share 34.4p 31.3p
--------------------------
Diluted basic earnings per share 28.6p 27.2p
--------------------------
Adjusted earnings per share is provided to reflect the underlying earnings
performance of the Group.
*Adjustment relates to goodwill amortisation.
7. Reconciliation of operating profit to net cash inflow from operating
activities
2004 2003
£m £m
--------------------------------------------------------------------------------
Operating profit 205.7 196.4
Adjustments for non-cash items:
depreciation 33.0 32.5
goodwill amortisation 25.1 17.7
other 0.6 1.0
Working capital movement (25.2) 17.9
Employee trust shares (9.8) (8.8)
Other cash movements (9.4) (6.3)
-----------------------------
Net cash inflow from operating activities 220.0 250.4
-----------------------------
8. Analysis of net debt
2004 2003
£m £m
--------------------------------------------------------------------------------
Cash at bank and in hand 78.4 47.5
Short term deposits repayable on demand 8.8 32.0
Overdrafts (43.2) (20.5)
-----------------------------
Cash 44.0 59.0
-----------------------------
Debt due within one year (179.0) (17.4)
Debt due after one year (289.0) (217.2)
Finance leases (1.7) (0.2)
-----------------------------
(469.7) (234.8)
-----------------------------
Short term deposits not repayable on demand 20.5 79.3
-----------------------------
Net debt (405.2) (96.5)
-----------------------------
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