Final Results

27 February 2015

Berendsen plc Full Year Results

Announcement for the Year Ended 31 December 2014

*Before £21.5 million (£25.7 million) amortisation of customer contracts

**Growth at constant exchange rates and excluding acquisitions

Strong financial results

· Underlying revenue up 3%, with revenue in Core Growth up by 3%

o Facility revenue grew 7%, underlying, with operating margin at 25.9% (25.7%)

o 130bps operating margin improvement in Workwear to 21.1%

o UK Flat Linen revenue up 1%: favourable market conditions

· Underlying adjusted operating profit up 6% and operating profit margin up 40 bps

Further progress on delivery of our strategic objectives

· 4% growth in adjusted EPS despite strength of Sterling

· 116% of adjusted profit after tax converted to free cash flow

· Return on invested capital increased by 60bps to 9.9% in line with targets to deliver double-digit ROIC

· Dividend up 7%, ahead of EPS growth and in line with our progressive dividend policy

Significant operational developments

· Cleanroom acquisition in UK extending footprint

· Productivity improvements in UK Workwear enabled plant consolidation: £1.5 million of costs charged to operating profit

· Building our procurement and supply chain strategy

· Workwear in Ireland moved from Manage to Value to Core Growth in 2015

Well positioned to generate further shareholder value

· Strong balance sheet, with long term debt issued at attractive rates, providing flexibility to support investment

· Initiated a review of our markets and targets for a strategy update in Autumn 2015: opportunities re-confirmed

Iain Ferguson, Chairman of Berendsen, commented:

"We delivered a good operational performance in the year, reflecting continued momentum towards achieving our strategic objectives. Our reported results were adversely impacted by currency translation and, although we see this persisting, the Board expects to achieve a further year of good underlying progress in 2015.''

For further information contact

Analyst Meeting

The company will present to analysts at 10:00 am today. A live audiocast of the presentation and questions will be available on the company's website on www.berendsen.com. Questions will only be taken at the meeting.

Results for the year ended 31 December 2014

We are pleased to report another good set of results for the year, which reflected continued momentum consistent with our strategic objectives. Reported revenue for the Group was 2% lower compared to the same period last year after the negative impact of currency translation. On an underlying basis revenue was up 3%, excluding currency translation and acquisitions. Adjusted operating profit (before amortisation of customer contracts) for the Group was similar to last year but on an underlying basis increased 6%, with our underlying adjusted operating margin up 40bps. Adjusted earnings per share for the Group were up 4% to 62.1 pence from 59.8 pence last year. The Board is recommending a final dividend of 20.5 pence (2013: 19.2 pence), bringing the total dividend to 30.0 pence (28.0 pence), an increase of 7%.

We continued to deliver strong free cash flow in line with our strategic objectives. Free cash flow was £122.6 million (£139.4 million), a conversion of 116% of our adjusted profit after tax as a result of our continued focus on capital allocation and our drive for capital efficiency.

Our after-tax return on invested capital improved by 60bps from 9.3% in 2013 to 9.9% in 2014, consistent with our strategic objectives set at the end of 2010 of delivering return towards double-digit, at a time when our return was 7.4%.

In the latter part of 2014, we commenced a review of our strategy. This exercise involves re-analysing our markets and the scope for further outsourcing, re-validating our existing strategy and re-examining our targets. We firmly believe that there is still a great deal of opportunity for the group to continue to grow and drive efficiencies in its existing markets and in its current Business Lines. Continuous improvement is part of the Group's culture and there are several areas where through increased focus, and in some cases targeted investment, we can make further progress on the solid foundations we have built. Extending our successful programme of 'best practice' sharing will help us to continue to improve our margins steadily each year. Our entry into the UK market for Cleanroom through acquisition, building our procurement and supply chain strategy and consolidating our UK Workwear plants following the productivity improvements are all examples of where we have invested in 2014. During 2015 we will finalise our work on reviewing the strategy and we anticipate providing an update in Autumn 2015, establishing a roadmap for future development, which we anticipate will be aligned to the current strategy and our existing business expertise. Our resilient business model and strong competence in implementation of our plans give us confidence to deliver increasing shareholder returns in the years ahead.

Group Overview

Revenue at £1,038.6 million in the period was 2% lower compared to last year (£1,054.2 million). Adjusted operating profit (before amortisation of customer contracts) was £158.7 million (£158.9 million). The negative impact of currency translation decreased revenue and adjusted operating profit by £46.9 million and £9.1 million respectively compared to last year. Excluding currency translation and the contribution from acquisitions, underlying revenue grew 3% and adjusted operating profit grew 6%. The negative impact of currency translation increased in the second half of the year as Sterling strengthened against the currencies in which we operate in Continental Europe and since year end we have seen a further weakening of those currencies against Sterling, with an average Sterling/Euro exchange rate of 1.33 so far in 2015 compared to an average of 1.24 in 2014. If currencies remain at these exchange levels we would expect a further negative currency impact of 7% in 2015 compared to average exchange rates in 2014.

Our net finance expense was £20.2 million, a decrease from £22.6 million last year as a result of our strong cash flow and lower average interest rate. In December, we signed an agreement for £131.0 million equivalent of 10 year Euro and Danish Krone denominated private placement notes at an average coupon of 2.1%. While this will increase slightly our net interest cost in 2015, compared to our short term funding rates, we have taken the opportunity to pre-fund the maturity of our May and December 2016 US private placement notes, which carry an average fixed interest rate of 4.6%.

Adjusted profit before tax was £138.5 million, 2% above last year (£136.3 million) and adjusted earnings per share were up 4% to 62.1 pence (59.8 pence). Our effective tax rate on adjusted profit before taxation was 23.5% down from 25.0% last year primarily as a result of the expected reduction in country rates in Denmark and the UK. We expect the tax rate for 2015 to be at around 24%.

Amortisation of acquired customer contracts was £21.5 million (£25.7 million). Operating profit after exceptional items and amortisation was £137.2 million (£135.0 million) and profit before tax was £117.0 million (£112.4 million). Basic earnings per share were 52.6 pence compared with 49.8 pence in 2013 an increase of 6%.

Our net capital expenditure was up on last year at £179.5 million (£167.0 million) and ahead of depreciation of £174.8 million (£175.2 million). Plant investments amounted to £33.3 million, an increase on the £27.5 million last year with funding to upgrade our UK Workwear plants, capacity upgrades in our Flat Linen plants outside UK to accommodate the significant contract gains, technology investments in Cleanroom and expansion of our plant in the Czech Republic. We remain well invested and have an excellent footprint across the markets we serve. Investment in textiles was £149.9 million (£142.1 million) reflecting a good level of new contract activity. Overall, we expect net capital expenditure to be slightly ahead of depreciation in 2015.

Once again we are pleased with our free cash flow at £122.6 million (£139.4 million), a conversion of 116% of the adjusted profit after tax of the Group. Our management of working capital remains strong having worked on a number of disciplines in our Capital Efficiency programme and was maintained at a similar level notwithstanding the rate of underlying growth in revenue. We have contributed an additional £5 million to the UK pension fund in the year and intend to contribute a similar amount next year. This scheme showed a deficit on a funding basis of approximately £13.0 million following the most recent triennial valuation in 2013. At 31 December 2014, the pension accounting surplus for the group was £1.0 million (£7.1 million surplus at the end of 2013). Net borrowings at 31 December 2014 were £374.4 million (31 December 2013: £389.0 million), reflecting strong cash flow conversion, with dividends paid of £48.8 million and an adverse currency movement of £27.2 million as a result of the retranslation of the US dollar component of our US private placement notes. These have been swapped to Euro, Danish Krone and Swedish Krona, the currencies in which we fund our business and the positive impact of retranslation to these underlying currencies is shown in Derivative Assets on our balance sheet. Acquisitions amounted to £12.4 million in the year, as we entered the UK market for Cleanroom and made a small bolt-on acquisition in Poland. 

Overall the Group retains a strong balance sheet with a ratio of net debt to earnings before exceptional items, interest, tax, depreciation and amortisation (EBITDA) of 1.1 times (2013: 1.2 times), compared with a covenant level of not more than three times. We have total private placement notes of £452.0 million on a pro forma basis including the issue we agreed in December, and funded in February 2015. Two US private placements have maturities in May and December 2016, when £83.7 million equivalent is due to be repaid. The Group's bank facilities extend to July 2016 and amount to £399.1 million, of which £255.7 million was undrawn at the year end. We anticipate replacing these facilities in good time prior to their expiry.

We seek to create value by increasing our return on invested capital in line with our strategic objectives: we aim to increase our returns by growing revenues and margins and managing our invested capital by converting our growth to cash. This year we increased our return on invested capital by 60bps from 9.3% last year to 9.9%. Since the announcement of our strategic review in 2010, our return has increased by 250 bps from 7.4%.

The Board is recommending a final dividend of 20.5 pence, which, together with the interim dividend of 9.5 pence paid in October 2014, gives a total of 30 pence, an increase of 7% on last year's level. The final dividend will be paid on 8 May 2015 to shareholders on the register at the close of business on 10 April 2015.

Business Line Performance

Below we report the results for the year ended 31 December 2014 in our Business Line segmentation.

* before amortisation of customer contracts

CORE GROWTH

Workwear

Revenue was £295.3 million (£305.8 million), with adjusted operating profit 3% ahead at £62.3 million (£60.5 million). Underlying constant currency growth was 2% for revenue and 8% for adjusted operating profit. The adjusted operating margin increased 130bps to 21.1%. Included in this result is the cost of site closures in the UK of £1.5 million, which are discussed below.

We continue to make excellent progress in delivering the benefits of 'best practice' transfer. A key focus in 2014 has been on using systems and technology to embed the key elements of our standard business model in the areas of sales and service. Our international collection of workwear designs, which is presented using tablet devices by our salesforce, has increased its proportion of sales by 25% since last year, leading to efficiencies both in order processing and lead times for delivery. At the same time, we have improved automation of our customer feedback reporting with closed loop procedures to ensure that the feedback we receive is immediately available for action and the key issues are captured. We have been pleased with the improvements in salesforce efficiency, with an average increase of 5% in new contract sales per field sales person and are targeting further improvements in 2015. Having maintained the level of our salesforce over the last three years to focus on efficiency, we plan to increase the size of our salesforce modestly through 2015 in a number of our territories, but most significantly in Germany, where we intend to build on our success in capturing market share and driving revenue growth well above the rate of local GDP growth.

From the start of 2015 our workwear business in Ireland, which was managed previously on a country basis with its Flat Linen business and was reported as part of Manage for Value, will be managed by our Workwear Business Line team. While still with challenges, this market has stabilised over the last 12 months and with revenue of £20 million and margins well below those for the rest of the Workwear Business Line, we see further opportunity to drive best practice improvements and thereby profitability, in a similar way to the progress we have made in the UK and Germany. We have continued to see our teams in Germany and UK deliver on their improvement plans with a double-digit increase in operating profit and strong margin increase.

In Germany, our revenue growth was 5%, with a number of excellent new contract wins, developing our market share and establishing us further as a competitive force in the market. Our share remains modest in a very fragmented market and we believe that the prospects for further market share gain are good: as a result we will invest to increase our sales-force in 2015.

In the UK, we completed the conversion of our third plant to CL2000 at Fakenham in Norfolk and we are already seeing good productivity improvements similar to those resulting from our early investments in CL2000 in Rainhill and Wakefield. In the first half of the year we closed our Ashton plant and transferred the throughput to Rainhill. We also closed our Leeds plant in September consolidating the volume into Wakefield. The productivity improvements at both Rainhill and Wakefield resulting from 'best practice' initiatives have created the capacity to allow consolidation. The costs of closing Ashton and Leeds of £1.5m have been included in the Business Line results in the year.

Economic activity in our 'best practice' countries, Denmark, Sweden and Holland continued to be slower through the second half of the year. However, we grew profit well in Denmark and Sweden through a combination of new contract wins, particularly in Denmark from customers who are new to our rental model (accounting for almost half of the sales increase) and operational efficiency. We held our position in Holland, despite the fact that this was a more challenging market: we currently expect similar macro economic conditions to continue in 2015. Overall, we achieved good margins in these 'best practice' countries, demonstrating the results of our continued focus on operational efficiency. We were also pleased with the level of new sales in 2014 and having increased efficiency, we plan to increase our sales investment in Denmark and Sweden modestly in 2015 to capture further new sales.

Facility

Revenue at actual rates of exchange was £237.7 million (£243.3 million) and adjusted operating profit at £61.6 million (£62.5 million) was down 2%. The adjusted operating profit margin was 20bps higher than last year at 25.9%. On an underlying constant currency basis excluding acquisitions, revenue grew by an encouraging 7% and adjusted operating profit was up 8%.

As we anticipated, Facility was our fastest growing Business Line and we believe the opportunities for further growth are strong as a large proportion of the markets in which we operate are not yet outsourced. In addition, we have a pipeline of developments to our service lines, which we believe will be of value to many of our existing customers.

We have also improved our approach to sales and service in Mats and Washroom. Mats, which is over half of the sales of the Business Line, has the greater scale and density necessary to deliver higher margins. Our sales mix in Mats improved in 2014 with more sales of higher revenue and margin products; sales of premium mats now account for 64% of total sales and generate 20% higher revenue per mat. In Washroom, sales of our proprietary Berendsen products ('Imagine Line') have increased 12% in 2014 and full service products like air fresheners, which add further profitable services to our basic packages, increased 60%. The number of orders per salesperson increased by 16% and we therefore plan to increase modestly the number of sales people through 2015. While the inclusion of this new resource may in the short term reduce the average efficiency of the sales force, we believe that this will continue to drive the degree of sales penetration in our markets which remain relatively underdeveloped.

Overall we saw a good expansion of our contract base with solid growth in Sweden and Norway, both of which improved margins. Progress continues to be slower in Denmark and Holland but performance improved in the second half as a result of the initiatives taken.

In our emerging Central European markets, we saw double-digit revenue growth and margin improvement and are encouraged by the developments we are seeing as these businesses mature in underdeveloped markets. We invested in the region with a small bolt-on acquisition in Poland and in the second half of the year we commenced the expansion of our plant in the Czech Republic at a cost of £2.5 million doubling capacity, which will be completed in March 2015.

Our Cleanroom business delivered excellent double-digit organic revenue growth and margin improvement, with a strong pipeline of contracts and add-on services to existing customers. In September, we extended our country footprint with the acquisition of Micronclean Newbury, taking us for the first time into the UK market. The business had annual revenues of £6 million and we see a significant opportunity to grow our market position, extend the services we offer to our existing customers and increase productivity through the transfer of 'best practice' from our existing territories.

UK Flat Linen

Revenue was 1% ahead of last year at £207.5 million (£204.6 million) and adjusted operating profit slightly lower at £26.5 million (£27.3 million). The adjusted operating margin was 12.8% (13.3%).

As expected, revenue growth was lower in the second half of the year following the contract churn in Hotels we reported at the end of 2013. This impacted profitability in the half with some disruption in transferring the volumes and also in starting-up our new contract wins. However, underlying volume was strong in Hotels up 3% for the year, and we have been pleased with the new contract wins which we delivered, which were well ahead of 2013. We are driving two new key initiatives in Hotels. In January, we launched our collection of differentiated products and services targeted at various points of the market. We believe this will clarify our pricing, product and service differentiation and this has been well received in the market. In addition we are trialling the use of ultra high frequency chip technology (RFID) for improved tracking and identification of linen. This will assist us and our customers in improving linen utilisation.

In Healthcare, we saw little change in underlying volumes with limited new outsourcing activity, although we believe that increased outsourcing will provide the NHS trusts with opportunities to make good savings. We are working actively with our customers to lower the impact of the contractual price rises in the light of the NHS demand for no inflationary increase on existing contracts. However, we have been successful in generating add-on sales to existing contracts and continue to work on developing our offering for our existing and potential customers.

The further integration of the Hotel and Healthcare businesses we undertook in the first half of 2014 is progressing well and the consolidation of our Chesterfield plant into Leicester and Wednesbury is now complete. In the second half, we sold a site we had previously closed in Rubery at a gain of £0.6 million, with which we were able to offset the cost of the Chesterfield closure in the Business Line results.

MANAGE FOR VALUE

Flat Linen Outside the UK

Revenue in our Flat Linen businesses outside the UK was £226.6 million (£231.2 million) and adjusted operating profit was down to £15.7 million (£18.2 million). On an underlying constant currency basis, revenue grew 3% and adjusted operating profit was down 9%. The adjusted operating margin decreased to 6.9%.

Underlying revenue growth was driven by new contract wins, notably in Scandinavian Hotels where our business has benefited from integrating the management of our Danish and Swedish operations and sharing of 'best practice' which has also benefited our customers. Margins improved in the second half as expected as we completed the commencement of service on these new contracts. Our Healthcare markets remain challenging, however, with a reduction in profits in both Germany and Denmark following an unusually high number of contract renewals, which resulted in some price reductions. As indicated above the workwear business in Ireland will be managed by our Workwear Business Line team from January 2015 as part of our Core Growth opportunities.

Clinical Solutions and Decontamination

Revenue was up 3% at £71.5 million (£69.3 million) with adjusted operating profit up 22% at £5.5 million (£4.5 million).

We saw good revenue growth in our decontamination business with new volume from existing contracts and the start-up of a significant new contract. Our service levels are strong and we are discussing our service offering with a number of potential new customers to utilise available capacity at our existing sites. We are pleased to report that, while there is more progress to be made, some parts of the business recorded a small profit for the first time in 2014. We ended the year well with good sales of consumables and steady growth in our reusable textiles.

Summary and Outlook for the Group

We delivered a good operational performance in the year, reflecting continued momentum towards achieving our strategic objectives. Our reported results were impacted adversely by currency translation and, although we see this persisting, the Board expects to achieve a further year of good underlying progress in 2015.

Consolidated income statement

Consolidated statement of comprehensive income

Items in the statement above are disclosed net of tax. The tax relating to each component of other comprehensive income is disclosed in note 5.

Consolidated balance sheet

Consolidated cash flow statement

Consolidated statement of changes in equity

The group has an Employee Benefit Trust to administer share plans and to acquire company shares, using funds contributed by the group, to meet commitments to group employees. At 31 December 2014, the Trust held 1,870,186 (2013: 2,798,134) shares.

Included within retained earnings is an amount of £17.9 million loss (2013: £18.8 million gain) which relates to currency translation.

Notes to the consolidated financial statements

1 Basis of preparation

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU), IFRSIC Interpretations and the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention, as modified by available-for-sale financial assets, and financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.

The Berendsen plc's Report and Accounts 2014 (the "Annual Report") will be posted to shareholders on 16 March 2015. The Annual Report will also be made available on the company's website, www.berendsen.com, from 16 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 financial statements and the accompanying directors' report. The statutory accounts for 2014 will be delivered to the Registrar of Companies following the Company's Annual General Meeting which will be held on 30 April 2015. The auditors have reported on the company's statutory accounts; the report was unqualified and did not contain statements under Section 498 (2) or (3) of the Companies Act 2006.

The comparative figures for the year ended 31st December 2013 are not the financial statements for the financial year but are derived from those accounts which have been reported on by the group's auditors and delivered to the Registrar of Companies. The report was unqualified and did not contain statements under Section 237 (2) or (3) of the Companies Act 1985.

2 Segmental information

The results for the year ended 31 December 2014 under the business line structure are as follows:

Unallocated costs includes group marketing and communication functions.

Capital expenditure comprises additions to property, plant and equipment and intangible assets, including additions resulting from acquisitions through business combinations.

Sales between operating segments are carried out at arms-length. The company is domiciled in the UK.

The results for the year ended 31 December 2013 under the business line structure are as follows:

The segment assets and liabilities at 31 December 2014 under the business line structure are as follows:

The segment assets and liabilities at 31 December 2013 under the business line structure are as follows:

Business line operating assets consist primarily of property, plant and equipment, intangible assets, inventories and trade and other receivables.

Business line operating liabilities consist primarily of trade and other payables and provisions.

Unallocated assets include operating assets relating to corporate segments.

Unallocated liabilities include operating liabilities for corporate segments.

3 Net finance costs

(i) This relates to loan issue costs arising on the 2011 €510 million Revolving Credit Facility and on the 2006 $250 million, 2009 $259 million and £25 million US Private Placements. The costs have been capitalised and are being amortised over the shortest period of the loans being four years, eight years and seven years respectively.

4 Exceptional items

Included within operating profit is the following item which the group considers to be exceptional:

There were no exceptional items in 2014 (2013: income £1.8 million).

5 Taxation

The amount of overseas tax included in the total tax charge is £23.8 million (2013: £22.0 million).

The tax charge for the year is different from the effective UK statutory rate of 21.5% (2013: 23.25%). The difference is explained below:

The main rate of corporation tax as at 31 December 2014 was 21%. Legislation to reduce the main rate of corporation tax to 20% was substantively enacted on 2 July 2013 and is effective from 1 April 2015.

The tax (charge) relating to components of other comprehensive income and equity is as follows:

6 Dividends

The directors recommend a final dividend for the financial year ended 31 December 2014 of 20.5 pence per ordinary share to be paid on 8 May 2015 to shareholders who are on the register at 10 April 2015. This dividend is not reflected in these financial statements as it does not represent a liability at 31 December 2014.

7 Earnings per share

Basic earnings per ordinary share are based on the group profit for the year and a weighted average of 170,250,581 (2013: 170,063,960) ordinary shares in issue during the year.

Diluted earnings per share are based on the group profit for the year and a weighted average of ordinary shares in issue during the year calculated as follows:

7 Earnings per share continued

An adjusted earnings per ordinary share figure has been presented to eliminate the effects of exceptional items, amortisation of customer contracts and non-recurring tax items. This presentation shows the trend in earnings per ordinary share that is attributable to the underlying trading activities of the total group.

The reconciliation between the basic and adjusted figures for the group is as follows:

8 Goodwill

Composition of CGUs

The group's business lines are managed and controlled at the operating segment level and each of the operating segments has their own dedicated management team. The internal group reporting reflects this business line structure. Management monitor goodwill at operating segment level and goodwill has been allocated on this basis. Goodwill that is specific to a particular operating segment has been included in the operating segment directly. All other goodwill has been reallocated to the appropriate operating segments prospectively using the three-year average forecast operating cash flow of the time of the change of composition of CGUs in 2012.

Under the existing business line structure, we have 23 CGUs which represents the smallest identifiable group of assets that generates independent cash flow from other groups of assets. For the purpose of a goodwill impairment review, acquired goodwill has been allocated to nine groups of CGUs being the operating segments. The operating segments are Workwear, Facilities, UK Flat Linen, Scandinavian Flat Linen, Germany & Austria Healthcare, Ireland, Direct Sales, Clinical Solutions and Decontamination.

8 Goodwill continued

For reporting purposes, the goodwill has been allocated to the operating segments as outlined below.

Impairment testing of goodwill

The group reviews at each reporting date whether there is an indication that any of the CGU that contains the operating assets may be impaired in accordance with IAS 36 'Impairment of assets'. An annual goodwill impairment test is then carried out by comparing the carrying amount of the group of CGUs to which the goodwill relates to its recoverable amount. The recoverable amount of each operating segment is based on value-in-use

calculations which management develop from forecast cash flows based on past performance, market data and its expectation of future market development. These calculations require the use of estimates and the pre-tax cash flow projections are based on the group's current three-year strategic plan. Cash flows beyond the three-year period have been extrapolated using an estimated growth rate of 2% (2013: 2%) and are appropriate because these are long-term businesses. The growth rate of 2% (2013: 2%) does not exceed long-term GDP estimates for countries that the group operates within. The main assumptions on which forecast cash flows have been based are revenue, operating margin and cash growth. Projected cash flows have been discounted using pre-tax discount rates of 11% (2013: 11%). The discount rates reflect market assumptions for the Risk Free-rates and Equity Risk Premiums and also take into account the net cost of debt. No reasonably foreseeable change in these assumptions would cause an impairment.

The annual impairment testing carried out in the current year showed that the recoverable amount for all groups of CGUs to which goodwill is allocated exceeded the carrying amount of the groups of CGUs. 

For Germany and Austria Healthcare the recoverable amount calculated based upon value in use exceeded the carrying value of goodwill by 11% (2013: 51%), reflecting the growth and margin pressures that have been faced by this Business Line in 2014 and which are expected to improve only modestly as part of the group's 3 year strategic plan. The key assumptions used for the value in use calculation are:

· Modest revenue growth, on alike for like basis in excess of the long-term growth rate for each of the next 3 years

· Continued margin improvement to higher single digits over the next 3 years

· More than 100% of profit converting to operating cash flow over the 3 year period

If any of the above conditions are not met then impairment of the carrying value of the goodwill within this Business Line may become necessary.

9 Other intangible assets

All amortisation charges have been charged through other operating expenses.

10 Property, plant and equipment

*During the year a revision to the fair value of land and buildings acquired as a result of acquisitions made in 2012 resulted in a reduction in the value of assets acquired by £0.4 million and a related increase in the value of goodwill arising on acquisition.

11 Borrowings

Bank loans are denominated in a number of currencies and bear interest based on LIBOR or foreign equivalents appropriate to the currency in which the borrowing is incurred together with a margin as appropriate.

The effective interest rates (EIR) for the group's bank borrowings (including interest rate swaps) by currency at the balance sheet date were as follows:

11 Borrowings continued

In July 2011, the group refinanced its two existing revolving credit facilities, for £420 million and €200 million to a new revolving credit facility for €535 million. During the year this facility was reduced to €510 million. This facility expires on 15 July 2016.

In December 2009, the group issued private placement notes of US$259 million and £25 million. The US$259 million was immediately swapped into euros.

In May 2006, the group issued private placement notes of US$250 million which were immediately swapped into a basket of Danish krone, Swedish krona and euros. During the year US$50 million private placement notes and the associated Danish krone swap were repaid. For further details of the group's derivative financial instruments against its borrowings see note 12.

The private placement amounts in the table above are stated at the year end exchange rates.

As underlying currencies have been swapped from US dollars via derivative contracts, the group has a gain on financial instruments which is offset by the currency translation loss on the underlying borrowing noted above. The borrowing under the US private placements of £334.2 million reflects the £25 million, the US$459 million translated at the year end sterling to dollar rate and the impact of fair value hedge movement.

As set out in note 21, on 19 February 2015 the group issued further private placement notes to existing US investors.

Fair value of financial assets and liabilities

The fair value of the group's fixed rate loans are based on available market information at the balance sheet date and are calculated by discounting expected future cash flows using the appropriate yield curve. The book values of floating rate borrowings approximate their fair value.

All financial instruments are in level 2 of the IFRS13 fair value hierarchy. Fair value for financial instruments held at amortised cost has been estimated by discounting cash flows at prevailing interest rates and by applying year end exchange rates.

Maturity of financial liabilities

The group has the following undrawn committed borrowing facilities available at 31 December and on which it incurs commitment fees at market rates:

The minimum lease payments under finance leases fall due as follows:

12 Derivative financial instruments

The derivatives we have used qualify for one or more hedge type designations under IAS 39. The fair values of the group's derivatives have been determined based on available market information at the balance sheet date and the following methodologies:

· The fair value of forward foreign exchange contracts are calculated by discounting the contracted forward values and translating at the balance sheet rates; and

· The fair value of both interest rate swaps and cross-currency interest rate swaps are calculated by discounting expected future principal and interest cash flows derived from appropriate yield curves.

The fair value measurements of the derivatives are classified as Level 2 in the fair value hierarchy as defined by 'Amendments to IFRS 13 Financial Instruments: Disclosure'.

The fair value and the notional amounts by designated hedge type are as follows:

The ineffective portion arising from fair value hedges was £nil (2013: profit of £156,526).

13 Financial risk management

13.1 Financial risk factors

The group's activities expose it to a variety of financial risks: market risk (including currency risk; fair value interest rate risk; cash flow interest rate risk and price risk); credit risk and liquidity risk. The group's overall risk management programmes focus on the unpredictability of financial markets and seek to minimise potential adverse effects on the group's financial performance. The group uses derivative financial instruments to hedge certain risk exposures.

13.2 Fair value estimation

The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:

Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1).

Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2).

Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).

The following table presents the group's financial assets and liabilities that are measured at fair value at 31 December 2014: