Interim Results
Bunzl PLC
26 August 2003
Tuesday 26 August 2003
INTERIM RESULTS FOR SIX MONTHS TO 30 JUNE 2003
Bunzl plc, the international distribution and outsourcing Group, today announces
its interim results for the six months ended 30 June 2003.
• Sales of continuing operations were £1,331.4 million (2002: £1,328.6 million),
up 7% at constant exchange rates
• Operating profit from continuing operations before goodwill was £101.0 million
(2002: £98.1 million), up 11% at constant exchange rates
• Profit before tax and goodwill was £100.8 million (2002: £102.1 million), up 6%
at constant exchange rates
• Profit before tax was £92.0 million (2002: £94.2 million), up 5% at constant exchange
rates
• Adjusted earnings per share were 14.6p (2002: 14.7p), up 6% at constant exchange
rates
• Dividend up 5% to 3.85p
• Outsourcing Services sales up 7% and operating profit up 11% at constant exchange
rates
Commenting on today's results, Anthony Habgood, Chairman of Bunzl, said:
'Double digit increases in operating profits at constant exchange rates show the
strength of our businesses and their continued underlying ability to grow even
in difficult times.
'Underlying volume growth, our continued opportunities to make acquisitions and
the cash generative nature of the Group give us confidence that the business
will continue to develop satisfactorily.'
Enquiries:
Bunzl plc Finsbury
Anthony Habgood, Chairman Roland Rudd
David Williams, Finance Director Morgan Bone
Tel: 020 7495 4950 Tel: 020 7251 3801
CHAIRMAN'S STATEMENT
Results
Against the backdrop of ongoing difficult economic conditions around the world,
the Group again produced strong results in its continuing operations due to good
operating performance, underlying volume growth and the successful integration
of acquisitions. The movement of the dollar was unfavourable and, although the
euro strengthened, overall currency movements significantly reduced the reported
growth rates of continuing operations' sales and operating profits. Year-on-year
deflation also had a negative impact on the growth of both sales and profits,
although many prices rose during the second quarter. Sales of continuing
operations were £1,331.4 million (2002: £1,328.6 million), up 7% at constant
exchange rates and operating profit of continuing operations was £92.2 million
(2002: £90.5 million), up 10% at constant exchange rates. Including discontinued
operations, total sales were £1,331.4 million (2002: £1,490.3 million), down 6%
at constant exchange rates, while total operating profit before goodwill
amortisation was £101.0 million (2002: £105.8 million), up 2% at constant
exchange rates. Profit before tax and goodwill amortisation was £100.8 million
(2002: £102.1 million), up 6% at constant exchange rates, while profit before
tax was £92.0 million (2002: £94.2 million), up 5% at constant exchange rates.
Earnings per share were 12.7p (2002: 13.0p), up 5% at constant exchange rates,
while adjusted earnings per share, after eliminating goodwill amortisation, were
14.6p (2002: 14.7p), up 6% at constant exchange rates.
The proceeds from strong cash generation were principally spent on the share buy
back programme and also on acquisitions during the period. Net debt was £106.9
million at the end of the period, comparable to that at the year end. With
shareholders' funds reduced as a result of the share buy back and a small
increase in the pension liability under FRS17, gearing rose marginally to 22.8%
from 22.3% at the year end.
Dividend
The Board has decided to increase the interim dividend by 5% to 3.85p (2002:3.65p).
Eligible shareholders will again be able to participate in our dividend reinvestment
plan.
Board
Bunzl's strong independent Board was further enhanced with the appointment of
Michael Roney as a non-executive director in June. Michael is President of
Goodyear's operations in Europe and brings great experience of distribution,
retail and manufacturing throughout Europe, Asia and South America. We welcome
him to the Board.
Lawrence McQuade retired as a non-executive director at the Annual General
Meeting in May. We thank him for his service. His sound independent advice and
wise counsel were greatly appreciated.
Acquisitions
With four acquisitions successfully completed in the final two months of 2002,
the early months of 2003 have been spent largely on integrating these into our
existing businesses in North America, Europe and Australasia. During the period
we also acquired Enterprise from ConAgra Foods. Headquartered in Dallas,
Enterprise distributes supplies to the food processor industry and had sales in
the year ended May 2002 of $24 million. It broadens the geographic coverage of
our expanding food processor supplies business in North America and strengthens
our position with major customers. Total spend on acquisitions during the period
was £4 million.
Share Buy Back
In late February the Board instituted a share buy back programme. Shares have
been bought on the market and have then been cancelled thus reducing the overall
number of shares in issue. In the first half the cost of the buy back was £44.4
million resulting in the cancellation of 10.7 million shares at an average price
of £4.15 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. It is our current intention to continue
the share buy back programme.
Prospects
As the world goes through another year of slower economic expansion, our major
businesses have again shown their resilience producing good underlying volume
growth which was supplemented by incremental acquisition activity. The disposal
of Paper Distribution, adverse currency movements, especially the US dollar, and
year-on-year price deflation all lowered reported growth during the period.
Looking forward, we see volume growth continuing while these negative forces
appear likely to be substantially reduced. The dilutionary impact of the sale of
Paper Distribution will not be present in the second half. The dollar, which was
16c weaker relative to sterling in the first half, will be 5c weaker in the
second half if the year to date average ($1.61) is sustained for the balance of
the year. Year-on-year price deflation, which was still at a relatively high
average level in the first half, has been coming down as the year has progressed
especially following the resin cost driven price rises in the second quarter.
Currently there are no clear overall trends in price levels.
The underlying volume growth of our major businesses, our continued
opportunities to make acquisitions and the cash generative nature of the Group
give us confidence that the business will continue to develop satisfactorily.
OPERATING REVIEW
The Group operates in many currency zones and, in this period of unusual
currency volatility, the operations are reviewed below at constant exchange
rates to remove the distortionary impact of these significant currency swings.
The following table reconciles the half year growth rates of sales and operating
profit before goodwill amortisation as reported in sterling with those at
constant exchange rates:
Actual Exchange Rates Constant Exchange Rates
Sales Operating Profit Sales Operating Profit
% Growth % Growth % Growth % Growth
Outsourcing 0 +3 +7 +11
Services
Filtrona 0 +3 +6 +10
Continuing 0 +3 +7 +11
Operations
Sales of continuing operations at constant exchange rates rose 7% as we
continued to grow despite the economic conditions around the world. Operating
profit before goodwill amortisation at constant exchange rates rose 11%. For the
Group as a whole, margins rose from 7.1% to 7.6% and return on capital employed
from 38.5% to 44.0%. These increases were principally due to mix change,
particularly the sale of the lower margin Paper Distribution business in July
2002, and as a result of the successful integration of acquisitions and
continued cost reduction.
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.
Sales at constant exchange rates rose by 7%. Robust volume growth and the
successful integration of acquisitions both contributed to this growth. While we
saw some increases during the period, prices were on average lower than in the
same period last year resulting in year-on-year deflation which reduced this
sales growth from double figures to 7%.
Profits rose by 11% at constant exchange rates as the profitability of the
business was improved by the successful integration of acquisitions and
operating cost reductions.
With many of our customers and suppliers now operating internationally, we are
well placed to serve them. We have also increased our international sourcing
activities. Much of this imported product is sold under our own label which has
itself been an expanding part of our product offering.
North America
While general economic conditions in the US remained difficult, we again
experienced good volume growth. In particular, the food processor business grew
strongly both in plant supplies and packaging and our expansion in non-food
retail is also increasingly significant. Our supermarket supply business
continued to show some volume growth despite a number of customers being under
pressure in difficult economic times. The shift towards outsourcing and the
continued trend to differentiate through offering value added fresh and freshly
prepared product fuelled the growth in usage of our store supplies.
The acquisitions of Kenco and Saxton in 2002 strengthened our position in
redistribution and increased our penetration of the cleaning/jansan market.
Enterprise, which we bought in February this year, further expanded our position
in the food processor segment.
Our Canadian business showed excellent growth as the integration of the
acquisitions made in 2001 enabled us to offer a truly national service to our
customers. We are now strongly positioned to service our target customer groups
across the country.
Cost reduction remains a focus of our business as we seek to increase our
efficiency so that we can provide our customers with the service they require.
Europe
Although Europe also experienced difficult economic conditions, our business
showed strong overall growth as we continued to increase the penetration of our
chosen markets.
Of particular note during the period were areas where our successful existing
operations were supplemented by the integration of acquisitions made during
2002. Our excellent UK cleaning and safety business was further strengthened by
the integration of Darenas which we purchased from Ecolab late last year. The
addition of Lockhart and McLaughlin, which we acquired in May and December 2002
respectively, gave added impetus to our operations supplying the catering and
related trades as the provision of catering equipment extended our capability to
provide one stop shop supplies programmes to our customers. Finally our strong
and growing Australasian business was complemented by the integration of Lesnies
which we acquired in November and which took that business further into food
processing supplies and established a broader platform for future growth.
Filtrona
Filtrona 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.
In a tough manufacturing environment, sales at constant exchange rates were up
6% as we continued to achieve underlying volume growth. Profits at constant
exchange rates rose 10% as a result of reduced costs, largely due to the
reorganisation of the business in August 2002, and of a change in mix with the
higher margin operations generally showing faster growth. Growth of both sales
and profits was achieved at constant exchange rates in both the tobacco and
non-tobacco related parts of the business.
For the business area as a whole, internationalisation continues to be a theme
as most of the operations are developing on a worldwide basis. China, in
particular, is increasing both as a market and as a source for our products.
In the tobacco related side of the business, sales of both filters and tear
tapes were ahead as the result of growth of higher value added products. Special
filters continued to expand and growth resumed in North America. Both South
America, despite political and economic difficulties in Venezuela, and Asia were
well ahead and, while some self-manufacture of large volume specials is expected
in Russia, outsourcing continues to be a growing trend among the majority of our
customers. Security products drove the growth of tear tapes as brand protection,
brand promotion and product traceability are in increasing demand.
Within non-tobacco related markets, both the bonded fibres and the caps and
plugs businesses grew internationally with China becoming an increasing market
for the former's ink reservoir business and a supply source for the latter.
Sales of extrusions were slightly softer although they picked up towards the end
of the period. Globalpack, our Brazilian plastic packaging business, was
strongly ahead in local currency and even progressed in sterling terms. Security
products also benefited in these markets.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Six months to Growth Year to
Six months to 30.6.02 Actual Constant 31.12.02
Exchange Rates Exchange Rates
30.6.03 *Restated *Restated
£m £m £m
Sales
Existing businesses 1,326.7 1,328.6 2,673.6
Acquisitions 4.7
Continuing operations 1,331.4 1,328.6 0% +7% 2,673.6
Discontinued operations - 161.7 161.7
Total sales 1,331.4 1,490.3 2,835.3
Operating profit
Existing businesses 92.0 90.5 189.0
Acquisitions 0.2
Continuing operations 92.2 90.5 +2% +10% 189.0
Discontinued operations - 7.4 7.4
Total operating profit 92.2 97.9 196.4
Profit on sale of
discontinued
operations - - 4.1
Profit on ordinary
activities before
interest 92.2 97.9 200.5
Net interest payable (0.2) (3.7) (5.2)
Profit on ordinary
activities
before taxation 92.0 94.2 -2% +5% 195.3
Profit before
taxation, goodwill
amortisation and
exceptional items 100.8 102.1 -1% +6% 207.3
Taxation on profit
on ordinary activities (33.3) (34.2) (70.0)
Profit on ordinary
activities after
taxation 58.7 60.0 125.3
Profit attributable
to minorities (0.5) (0.2) (0.5)
Profit for the period 58.2 59.8 124.8
Dividends paid and
proposed (17.6) (17.0) (52.3)
Retained profit for
the period 40.6 42.8 72.5
Basic earnings per share 12.7p 13.0p -2% +5% 27.1p
Adjusted earnings per share
per share 14.6p 14.7p -1% +6% 29.7p
Diluted earnings per share 12.6p 12.8p 26.8p
Dividends per share 3.85p 3.65p +5% 11.2p
*Restated on adoption of FRS17 'Retirement Benefits'
CONSOLIDATED BALANCE SHEET
30.6.02 31.12.02
30.6.03 *Restated *Restated
£m £m £m
Fixed assets
Intangible assets - goodwill 283.6 292.6 289.5
Tangible fixed assets 201.3 220.8 199.6
Investments 28.5 32.2 34.3
513.4 545.6 523.4
Current assets
Stocks 217.8 245.8 217.5
Debtors: amounts receivable within one year 379.3 452.7 357.5
Debtors: amounts receivable after more than
one year 10.2 4.9 10.4
Investments 134.4 34.6 140.7
Cash at bank and in hand 43.7 52.8 51.5
785.4 790.8 777.6
Creditors: amounts falling due within one
year (478.6) (544.0) (471.4)
Net current assets 306.8 246.8 306.2
Total assets less current liabilities 820.2 792.4 829.6
Creditors: amounts falling due after more
than one year (256.1) (243.5) (265.3)
Provisions for liabilities and charges (40.1) (54.2) (43.1)
Net assets excluding pensions 524.0 494.7 521.2
Net pension liabilities (53.1) (42.5) (43.7)
Net assets 470.9 452.2 477.5
Capital and reserves
Called up share capital 114.3 116.3 116.8
Share premium account 79.4 71.4 77.3
Revaluation reserve 1.5 1.6 1.5
Profit and loss account 273.0 260.7 279.6
Shareholders' funds: equity interests 468.2 450.0 475.2
Minority equity interests 2.7 2.2 2.3
470.9 452.2 477.5
Net debt 106.9 230.5 106.0
Gearing 22.8% 51.2% 22.3%
*Restated on adoption of FRS17 'Retirement Benefits'
CONSOLIDATED CASH FLOW STATEMENT
Six months to Year to
Reconciliation of total operating Six months to 30.6.02 31.12.02
profit to net cash inflow from 30.6.03 *Restated *Restated
operating activities £m £m £m
Total operating profit 92.2 97.9 196.4
Adjustments for non-cash items 24.5 26.6 48.1
Working capital movements (10.4) (7.9) 0.8
Other cash movements (2.5) (4.8) (8.9)
Special pension contribution - - (20.0)
Net cash inflow from operating
activities 103.8 111.8 216.4
Consolidated cash flow statement
Net cash inflow from operating
activities 103.8 111.8 216.4
Net cash outflow for returns on
investments and servicing of finance (1.4) (6.2) (9.0)
Tax paid (25.3) (25.8) (64.3)
Net cash outflow for capital
expenditure (15.0) (18.4) (31.0)
Acquisition of businesses (4.2) (51.1) (77.0)
Disposal of businesses - - 111.3
Other acquisition and disposal
cash flows (0.1) (0.2) (0.7)
Equity dividends paid (17.0) (15.6) (48.0)
Net cash inflow/(outflow) before
use of liquid resources and financing 40.8 (5.5) 97.7
Management of liquid resources 39.4 (17.7) (128.7)
Net cash (outflow)/inflow from
financing (7.2) (3.0) 8.0
Purchase of own shares (41.4) - -
Increase/(decrease) in cash in
the period 31.6 (26.2) (23.0)
Reconciliation of net cash flow to movement
in net debt
Increase/(decrease) in cash in
the period 31.6 (26.2) (23.0)
Decrease in debt due within one
year 8.7 8.8 37.0
Decrease/(increase) in debt due
after one year 0.5 (3.2) (37.4)
(Decrease)/increase in current
asset investments (39.4) 17.7 128.7
Exchange and other movements (2.3) 6.9 23.2
Movement in net debt in the
period (0.9) 4.0 128.5
Opening net debt (106.0) (234.5) (234.5)
Closing net debt (106.9) (230.5) (106.0)
*Restated on adoption of FRS17 'Retirement Benefits'
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Six months to Year to
Six months to 30.6.02 31.12.02
30.6.03 *Restated *Restated
£m £m £m
Profit for the period 58.2 59.8 124.8
Actuarial losses (8.1) (23.6) (44.3)
Currency translation differences
on foreign currency net
investments 3.0 (2.6) (10.9)
Total recognised gains and losses 53.1 33.6 69.6
for the period
Prior year adjustment
(adoption of FRS17) (68.8)
Total recognised gains and losses
since last directors' report and accounts (15.7)
CONSOLIDATED RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
Six months to Year to
Six months to 30.6.02 31.12.02
30.6.03 *Restated *Restated
£m £m £m
Opening shareholders' funds as
previously reported 544.0 456.5 456.5
Prior year adjustment
(adoption of FRS17) (68.8) (25.9) (25.9)
Opening shareholders' funds
restated 475.2 430.6 430.6
Profit for the period 58.2 59.8 124.8
Dividends paid and proposed (17.6) (17.0) (52.3)
Transfer of goodwill on
disposals - - 19.4
Issue of share capital 2.2 2.8 7.9
Actuarial losses (8.1) (23.6) (44.3)
Purchase of own shares (44.7) - -
Currency translation 3.0 (2.6) (10.9)
Closing shareholders' funds 468.2 450.0 475.2
ANALYSIS OF SALES AND OPERATING PROFIT
Sales Operating profit
Six months to Year to
Six months to Six months to Year to Six months to 30.6.02 31.12.02
30.6.03 30.6.02 31.12.02 30.6.03 *Restated *Restated
£m £m £m £m £m £m
Continuing operations
Outsourcing
Services 1,102.7 1,099.1 2,231.2 79.9 77.6 168.1
Filtrona 228.7 229.5 442.4 28.9 28.1 52.7
Goodwill (8.8) (7.6) (15.8)
Corporate activities (7.8) (7.6) (16.0)
1,331.4 1,328.6 2,673.6 92.2 90.5 189.0
Discontinued
operations - 161.7 161.7 - 7.7 7.7
Goodwill - (0.3) (0.3)
Total 1,331.4 1,490.3 2,835.3 92.2 97.9 196.4
*Restated on adoption of FRS17 'Retirement Benefits'
Notes
Basis of preparation
The interim financial information has been prepared on the basis of the
accounting policies set out in the Group's 2002 statutory accounts, with the
exception of the accounting for retirement benefits, and was approved by the
Board on 26 August 2003.
During the period the Group fully adopted FRS17 'Retirement Benefits'. As a
result, comparative figures have been restated. The impact on the consolidated
profit for the six months to 30 June 2002 and the year to 31 December 2002 was a
reduction of £1.4m and £0.4m respectively and the impact on the consolidated
shareholders' funds as at 30 June 2002 and 31 December 2002 was a reduction of
£50.9m and £68.8m respectively.
The figures for the six months to 30 June 2003 and 30 June 2002 are unaudited
and do not constitute statutory accounts. However, the auditors have carried out
a review of the figures to 30 June 2003 and their report is set out in the
Independent review report. The figures for the year to 31 December 2002 are
taken from the statutory accounts which have been filed with the Registrar of
Companies, as restated for FRS17 referred to above.
The auditors' report on those accounts was unqualified and did not contain any
statement under Section 237(2) or (3) of the Companies Act 1985.
Profits for each of the business areas and their percentage change from 2002 are
stated before the effect of goodwill amortisation. In the Chairman's statement
and Operating review, references to changes in the level of sales and profits at
constant exchange rates have been calculated by retranslating the relevant
results for the six months to 30 June 2002 at the average exchange rates used
for the six months to 30 June 2003.
Adjusted earnings per share
Basic and diluted earnings per share are calculated using a weighted average
number of shares of 459.4m and 461.7m respectively (2002: 460.8m and 466.4m).
Adjusted earnings per share is based on earnings of £67.0m (2002: £67.7m), being
the earnings for the six months to 30 June 2003 excluding the goodwill
amortisation charge of £8.8m (2002: £7.9m).
Taxation
A taxation charge of 33.0% (2002: 33.5%) on the profit on underlying operations
excluding goodwill amortisation has been provided based on the estimated
effective rate of taxation for the year, the UK taxation charge being £3.5m
(2002: £5.0m).
Dividends
An interim dividend of 3.85p per share has been declared and will be paid on 2
January 2004 to shareholders on the register on 21 November 2003.
Independent review report by KPMG Audit Plc to Bunzl plc
Introduction
We have been engaged by the Company to review the financial information set out
in the Consolidated profit and loss account, Consolidated balance sheet,
Consolidated cash flow statement, Consolidated statement of total recognised
gains and losses, Consolidated reconciliation of movements in shareholders'
funds, Analysis of sales and operating profit and Notes. We have read the other
information contained in the interim report and considered whether it contains
any apparent misstatements or material inconsistencies with the financial
information.
This report is made solely to the Company in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the Listing
Rules of the Financial Services Authority. Our review has been undertaken so
that we might state to the Company those matters we are required to state to it
in this report and for no other purpose. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the Company for
our review work, for this report, or for the conclusions we have reached.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules which require that the accounting policies and presentation applied to the
interim figures should be consistent with those applied in preparing the
preceding annual accounts except where they are to be changed in the next annual
accounts in which case any changes, and the reasons for them, are to be
disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/
4: 'Review of interim financial information' issued by the Auditing Practices
Board for use in the United Kingdom. A review consists principally of making
enquiries of Group management and applying analytical procedures to the
financial information and underlying financial data and, based thereon,
assessing whether the accounting policies and presentation have been
consistently applied unless otherwise disclosed. A review is substantially less
in scope than an audit performed in accordance with Auditing Standards and
therefore provides a lower level of assurance than an audit. Accordingly we do
not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2003.
KPMG Audit Plc
Chartered Accountants
London
26 August 2003
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