28th Feb 2005 07:02
Bunzl PLC28 February 2005 Monday 28 February 2005 RESULTS FOR YEAR ENDED 31 DECEMBER 2004 Bunzl plc, the international distribution and outsourcing Group, today announcesits annual results for the year ended 31 December 2004, its intention to demergeFiltrona from the Group and the decision to appoint Christoph Sander as ChiefExecutive. • 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 reflectingincreasing momentum during the fourth quarter and a higher level of acquisitionspend. They provide an excellent backdrop to the proposed demerger of Filtronafrom the Group. "I am delighted that we have a first rate internal candidate to become ChiefExecutive of Bunzl following the demerger of Filtrona. Christoph has built ourEuropean business from inception in 1993 to a highly successful business withsales in excess of £1 billion." Enquiries: Bunzl plc FinsburyAnthony Habgood, Chairman Roland RuddDavid Williams, Finance Director Morgan BoneTel: 020 7495 4950 Tel: 020 7251 3801 After an excellent year for the Group as a whole and with good underlyingmomentum, the Board has decided that it is the right time to demerge oursuccessful Filtrona organisation from our growing and highly profitableOutsourcing Services business. Filtrona, which represents 16% of Group sales and24% of Group operating profit before corporate costs and goodwill amortisation,will become a stand alone supplier of fibre and plastic technology products withstrong positions in international niche markets. Bunzl will become a focusedinternational distribution and outsourcing Group. Simultaneous with the demergerwhich is planned for June 2005, the Board will appoint Christoph Sander as ChiefExecutive of Bunzl and Mark Harper will become Chief Executive of the demergedFiltrona. I will remain Chairman of Bunzl and Jeff Harris will become Chairmanof Filtrona. RESULTS The Group once again had a successful year in 2004 as good results were enhancedby 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 £200.9million (2003: £194.6 million), 11% ahead at constant exchange rates. Earningsper share were 28.7p (2003: 27.4p), up 13% at constant exchange rates andadjusted earnings per share, after eliminating goodwill amortisation, were34.4p (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 £58.2million buying back shares on the market, net debt at the end of the period roseto £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), anincrease of 10%. Shareholders will again have the opportunity to participate inour dividend reinvestment plan. BOARD CHANGES IN 2004 Bunzl strengthened its independent Board with the appointment of Dr UlrichWolters as a non-executive director in July. Ulrich is Chairman of the AldiFamily Trust which holds the majority of the Aldi Sud shares, having beenManaging Director of Aldi Sud for many years and built the business into one ofthe world's leading international retailers with over 2,800 outlets. Also inJuly Christoph Sander was appointed to the Board with responsibility for Bunzl'sOutsourcing Services business in Europe and Australasia, having led it from itsinception in 1993 to a business with sales in excess of £1 billion. In Decemberthe Board was further strengthened by the appointment of Patrick Larmon and MarkHarper. Pat is responsible for our North American Outsourcing Services businessin which he has held various senior positions over 15 years. Mark assumedresponsibility for Filtrona in 1996 after holding general management positionsin both Europe and the US. Paul Lorenzini retired from the Board in July after 21 years with the Group. Hewas appointed to the honorary position of Chairman Emeritus of Bunzl USA inrecognition of his past service to the Group. Stephen Williams retired as anon-executive director in August. His independent advice and contribution to oursuccess were greatly valued. We welcome Ulrich, Christoph, Pat and Mark to the Board and thank Paul andStephen for their valuable service over many years. PLANNED DEMERGER Since 1991 the structure of Bunzl has been simplified by selling businesses withweaker returns and relatively poor competitive positions and reinvesting theproceeds from these disposals to grow businesses where we have superior returns,good international competitive positions and the potential to grow. The pursuitof this strategy has resulted in Bunzl having two business streams, OutsourcingServices and Filtrona, both of which have these features but which have littleor no commercial overlap between them. The Board has therefore decided toseparate these two fundamentally different component parts by demerging Filtronafrom the Group. It is planned to achieve this by paying existing shareholders ofBunzl a dividend in specie. Filtrona will be an independent public company whileBunzl will become a simpler organisation concentrating on the OutsourcingServices business stream. We believe that shareholder value will be created through the demerger processand that Filtrona and Bunzl will be strong businesses in their own right withgood returns and good international competitive positions which will prosper asindividual listed entities. It is hoped that the process of demerger, which willbe 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 oncompletion of the demerger. I will remain as Chairman. The role of DeputyChairman will cease to exist as of the demerger and Pat Dyer, currently DeputyChairman, will retire from the Board at the end of the year. Mark Harper andPaul Heiden will resign from the Board as of the demerger. The Board of Bunzlwill then constitute a Chairman, a Chief Executive and two other executivedirectors, four existing independent non-executive directors of which JeffHarris 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 yearend. It is proposed that the Board of the prospective demerged entity will constituteJeff Harris as Chairman, Mark Harper as Chief Executive, Steve Dryden as FinanceDirector, Paul Heiden as an independent non-executive director plus at least onefurther independent non-executive director. An additional independentnon-executive director will be appointed to replace Paul Heiden who would notexpect to serve beyond a transitional period of around six months. ACQUISITIONS The Group spent £324 million on acquisitions during 2004 as a major expansioninto France was achieved and the momentum in North America was regained after aperiod of relatively low activity. In addition we added businesses in theNetherlands, Australia and Eastern Europe. In May we acquired Groupe Pierre Le Goff. This significant acquisition with proforma sales in 2003 of €422 million took Outsourcing Services into France with aleading position in both the cleaning and safety markets in that country. Astrong position in France complements our existing European positions in the UK,Benelux, Germany, Denmark and Ireland and provides us with a strong platform todevelop further in France and Southern Europe while reinforcing our position asthe logical partner for international customers and suppliers. During the fourth quarter we regained momentum in North America with theaddition of over $200 million of annualised sales through the acquisitions ofthree significant companies. In October we reinforced our position in thegrowing convenience store segment through the acquisition of TSN. Headquarteredin Denver, Colorado, TSN had sales in 2003 of $130 million and is a leadingdistributor of goods not for resale to that sector across the US. In November wepurchased Joseph Weil & Sons. Based in Chicago and with sales in the year ended30 June 2004 of $53 million, Weil supplies jan/san, disposable food service andnon-food retail products in the Midwest, complements our position there andprovides us with an opportunity to develop further into these markets. InDecember 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-establishedredistribution business in the Northeast distributing food service and jan/sanproducts. Elsewhere we also continued to expand through acquisitions. In March we expandedFiltrona with the acquisition of Skiffy in Amsterdam. With sales in the yearended March 2004 of €13 million, Skiffy has particular expertise in the supplyof small nylon parts for protection and finishing applications and enhances ourexisting operations in Europe and North America. In October we acquired thedisposable consumables and packaging distribution business of Cospak inAustralia. 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 ourexisting successful Australian business and deepens our penetration there. InNovember we made our first acquisition in Eastern Europe with the purchase ofBeltex, a leading national distributor in Hungary with additional branches inneighbouring Romania and Slovakia with sales in 2003 of €12 million. Its productrange encompasses cleaning and hygiene supplies and has recently expanded intosafety supplies and personal protection equipment. It establishes a platform forus in a key region of growth. In January 2005, we completed the acquisition of Gelpa. Based in Arnhem, Gelpahad sales of €43 million in 2003 and is a distributor principally supplying theretail and food processor sectors with packaging and consumables in theNetherlands. SHARE BUYBACK In October the Board reinstated a share buy back programme following thepurchase and cancellation of 21.3 million shares in 2003. A total of 13.0million shares were purchased into treasury at a cost of £58.2 million and anaverage price of £4.48 per share. These purchases were consistent with theBoard's continuing overall capital management strategy. This strategy seeks tomaintain an appropriate balance sheet structure taking into account completedand prospective acquisitions and disposals. INVESTMENT We continued to invest in the capital base of the Group. New facilities in lowercost countries are coming on stream in 2005 and both equipment and warehouseshave been expanded and upgraded during the year. Computer systems continue to beimproved and installed into acquired facilities. These systems remain criticalto 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 competitiveadvantage 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 UKGAAP. 2004 results restated under IFRS for comparative purposes will be suppliedin the second quarter of 2005. PROSPECTS Against a background of an improved world economy in 2004, albeit with a weak USdollar, both Outsourcing Services and Filtrona again showed their strengths asinternational businesses with excellent increases in sales and operating profitat constant exchange rates. The increases in the second half in each case weregreater than those in the first half. Renewed momentum in the US during thefourth quarter and the impact of achieving scale advantage across Europe andAustralasia have carried forward into the early weeks of 2005 as has the strongperformance of Filtrona in both fibre and plastic technologies. We see the proposed demerger as being positive to the prospects of both sides ofthe business as the management of each of the demerged entities concentrates ondeveloping its strengths internationally in its distinct fields of operation.Outsourcing Services will focus on value added distribution, often to majorinternational customers, from growing preferred vendors and internationalsources. Filtrona will focus on serving well defined international niche marketsin fibre and plastic technologies from efficient, effective, low cost sources. We expect Outsourcing Services in North America to grow as a result of renewedmomentum in acquisition activity and increased sales to higher growth areas suchas redistribution, food processors, convenience stores and the jan/san market.Generally firm product prices, as a result of higher commodity input prices toour suppliers, should prevent growth being eroded by deflation, certainly in theimmediate future. In Europe and Australasia we expect sales growth to continue particularly asrecent acquisitions are integrated into the business. We also expect futureacquisition activity to expand our geographic coverage and deepen ourparticipation in existing markets. The cost savings and efficiency gainsassociated with our increased scale should continue to deliver benefits. In Filtrona, the underlying growth of our markets is continuing in improvingeconomic conditions and each of our businesses is performing well. In additionwe expect to show continued growth from acquisitions and as we supplement ourexisting supply bases with product from sourced or owned production from lowercost facilities in Mexico, China and other appropriate sources. Our strong focused competitive position in our international markets and ourability to enhance growth through acquisitions give us confidence that bothparts of the Group will maintain their momentum and continue their positivedevelopment. OPERATING PERFORMANCE The Group operates in many currency zones and, in this period of substantialdollar weakness, the operations are reviewed at constant exchange rates or inlocal currency to remove the distortionary impact of significant currencyswings. The overall impact of currency movements was to reduce the growth rateof sales by about 7% and profits and earnings by about 8%. The following tablesets out the growth rates of sales and operating profit before goodwillamortisation 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 +44Filtrona +5 +5 +12 +13Total +7 +8 +14 +16-------------------------------------------------------------------------------- Group margin before goodwill amortisation rose from 7.8% to 7.9% and Groupreturn on operating capital rose from 45.1% to 46.8%. OUTSOURCING SERVICES Operating across North America, Europe and Australasia, Bunzl is the leadingsupplier of a range of products including outsourced food packaging, disposablesupplies 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 constantexchange rates to £2,438.5 million (2003: £2,275.6 million) and operating profitbefore 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 operatingprofit was up 2% to $193.1 million. The mix of our business continued to change as the proportion of our total salesin redistribution, processors, convenience stores, non-food retail and jan/sancontinued to expand while grocery, which is still the largest of our customercategories, again decreased as a percentage of total sales. This reorientationof the business was speeded up by the renewed level of acquisition activity inthe fourth quarter. In October through our acquisition of TSN, headquartered in Denver, we increasedour presence in convenience stores. TSN is a leading distributor of disposablepackaging supplies, jan/san products and foodservice items to the conveniencestore chains and wholesalers. The convenience store industry has shown goodgrowth over the last several years and is forecast to continue this growth goingforward. TSN puts us in position to take advantage of these opportunities. Laterin the year we purchased Joseph Weil & Sons, a supplier to redistribution andnon-food retail based in Chicago. It also has business in jan/san and increasesour presence in areas targeted for future growth. In December we purchased TEMO,a New York redistribution company servicing a customer base that fitsstrategically with our other locations in the area. It is a well managed companythat will solidify our position as a leading redistribution company in theNortheast.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 aswell as warehouse grocery stores. As the largest distributor in this area, weprovide disposable packaging, jan/san supplies and carryout items. Consolidationcontinued and, although this has resulted in larger customers, it has alsocreated an opportunity for smaller specialised stores to provide an array ofproducts and services not found in the larger retailer. This area will providean opportunity for us in the future. Our redistribution customers include smalldistributors that use us to reduce their capital investment and increase theirinventory turns without giving up the availability of the many items they needto drive more sales. As transportation costs increase due to fuel costs anddriver regulations, our platform has become more attractive to our vendors andcustomers. This continues to be a solid growth area for us. Besides disposablepackaging and carryout items, we also provide these customers with jan/sanproducts which are a focus for us moving forward. Our business with processors,which also grew in 2004, was hampered by restrictions imposed by variousinternational governments on North American sourced product. However it appearsthese are changing and the situation should improve. Our customers process andpackage meat, produce, seafood, bakery and other items. We continue to be theonly national supplier of packaging products, plant operating supplies, safetysupplies and jan/san supplies. Our customers can order all these items andreceive them through one order and delivery rather than receiving them frommultiple vendors that have to be managed. We have developed a group ofspecialists in this area to help our customers with this part of their business. Our focus continues to be to provide plastic and paper disposable packagingitems, janitorial supplies, carryout bags and containers and plant operatingsupplies. We make available to our customers one of the largest selections ofproducts thereby allowing them to choose appropriately for their needs and thoseof 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 moreefficiently or safely, maintain cleanliness and hygiene and/or reduce their costof packaging. Our private label program, Prime Source, continues to grow as weadd more items and offers our customers a less costly alternative withoutsacrificing quality. In addition we continue to source internationallyinnovative and economic products for our customers. Our import program hasexpanded significantly again this year providing us with alternative highquality products at very competitive prices. To handle the increased volume wehave opened a consolidation warehouse in Shanghai that allows our warehouselocations, no matter how small, the ability to order many of these products inthe most efficient manner. We are considering more locations in this area of theworld as the number of items we import continues to grow. Several of ourcustomers look to us as their partner in the importing area. Besides providing our customers quality products at a competitive price, we alsoprovide them solutions for managing this part of their business. Our programsallow the customers to use valuable space in their warehouses for moreprofitable, lower volume, higher dollar resale items. With 83 locations in NorthAmerica serving all 50 states, Canada and Mexico, we are able to deliver theright products in the right quantities on the day they are needed. With a fleetof over 370 trucks, our customers are confident the product will be deliveredwhen required. Due to our number of locations, our common IT platform and ourlogistics capabilities, we are able to service the needs of national accountsacross the business. Customers are assured of a consistent, dependable andcontrolled program that will contribute to a more efficient supply chain. Ourability to provide these services has allowed us to develop long termrelationships with many large customers resulting in multi-year contracts tosupply our products. We believe there is a significant opportunity foradditional national contracts and have committed resources to our NationalAccounts 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 oninternational sales and purchasing programs. Global negotiations have startedwith customers and vendors who have expanded to markets in all areas of theworld. We are one of the few companies that will be able to deliver a controlledand consistent program to the customer similar to our national programs in placenow. Also, by combining our worldwide purchasing power, we are able to lowercosts on various product lines on a global basis. We have already demonstratedthis on several import items. This is an advantage that we are confident willlead to increased sales in the future. Despite productivity gains in several areas of the business, operating costsremained consistent with last year due to rising fuel costs and health andbenefit costs. However we believe we have managed these increases effectivelyand 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, includingwarehousing and customer service, will contribute to long term efficiency gains.We continue to improve our complete supply chain costs and improve our overalloperations. Europe and Australasia Our business in Europe and Australasia exceeded £1 billion in sales for thefirst time. The acquisition of Groupe Pierre Le Goff in France in May 2004increased the scale of the business by approximately one third. The effect ofthis in the year, combined with continued organic growth and further in-fillacquisitions, has enabled our business to achieve record sales and profits withthe former increasing by 33% to £1,025.6 million and the latter by 44% to £78.7million. From our first acquisition in the UK in 1993, just over 11 years ago, we havenow developed a European and Australasian business in 11 countries with realsubstance and scale in the UK and Ireland, Continental Europe (principallyFrance, Germany, the Netherlands, Denmark) and Australasia (Australia, NewZealand). 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 alltheir purchasing, warehousing & distribution and servicing needs. By providingcustomers with management information to improve the control of theirexpenditures on a broad range of largely non-food consumable products, we areable to demonstrate savings throughout the supply chain. This allows ourcustomers to reduce their internal costs of operation and achieve efficienciesby concentrating on their own core businesses. Growth in 2004 has come mainly from acquisitions but also from significant newcontract 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 examplein 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 customersdue to lower throughput in their own businesses. Our Lockhart business, whichspecialises in light catering equipment, was able to secure a long term contractwith a major international contract caterer and was also successful in winningnew contracts with hotel and restaurant groups increasing the critical mass ofour business. During the year we opened a new purpose-built NationalDistribution Centre based in Kettering, which supplies a broad range ofslower-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 andnon-food retailers with goods not for resale, was able to continue to makeprogress in supplying key retailers in the UK. New long term contracts wereagreed with two major supermarket groups and we are confident of futuresuccesses going forward. During the year we also integrated the supply chain ofour healthcare supplies business, Shermond, with the retail business as many ofthe supply chain characteristics are common. Shermond had another strong yearand posted good organic growth as it increased its share into the healthcare andnursing home markets in the UK. In Ireland our hotel and catering suppliesbusiness also performed well and was able to increase penetration into itstarget markets. The challenging market conditions in Horeca also impacted our Vending Servicesbusiness, whose customers faced reduced consumption due to staff cutbacks andoutsourcing of labour to lower cost countries. Nevertheless we succeeded inincreasing our sales overall and positioning ourselves as the clear leadingindependent vending operator in the UK market. In cleaning and safety supplies, Greenham continues to perform strongly withgood organic growth coming from new contract wins in public transportation,building and construction and local government. Increasingly personal protectionequipment is imported from global sources and, to capture this opportunity, wemore than doubled the capacity of our importing and National DistributionCentre. We also continued the development of our own-label range of brands withgreat success. Cleaning & Hygiene Supplies completed the full integration ofDarenas and is now running on a single IT system with an integrated branchstructure. In Continental Europe our main initiative was the acquisition of Groupe PierreLe Goff which provided an entry point of scale into one of the leading marketsin Europe. Groupe Pierre Le Goff's activities lie mainly in the supply ofcleaning and hygiene products to French caterers, hotels and industry in generalas well as the supply of personal protection equipment/safety products to Frenchindustry, food processors and transportation sectors. These businesses are bothcomplementary to our activities in the UK and elsewhere and we have alreadybegun to see the benefits of synergies in purchasing, IT systems and keyaccounts. The acquisition has been well received by employees, customers andsuppliers, and the business has performed ahead of expectations. Our businesses in Denmark are set for increased activity in 2005. Last year wasthe first full year of the MultiLine acquisition which came in ahead ofexpectations. Our business supplying retailers had a more difficult year as wefocused our distribution activities around a new purpose-built warehouse outsideCopenhagen combining three locations into one, successfully implemented our ITsystems and created a stronger platform for 2005. In Germany our business supplies mainly caterers and high street butchers andbakers with packaging products. Against a challenging market we had a strongyear in terms of sales and profits growth, winning a number of prestigiousaccounts. In the Netherlands our business is focused mainly on hotels andcaterers and consequently suffered from the downturn in the Dutch economy.However, following a move to a purpose-built facility outside Amsterdam, we arewell 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 thesupermarket and food processor sectors. We believe that this will provideexciting 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 distributorof cleaning and safety products in Hungary with two smaller branches inneighbouring Slovakia and Romania. We are developing the opportunities withinternational suppliers and customers there and believe that this is an area ofpotential for the future. In Australasia our business continues to perform well and achieved anotherrecord year in 2004. In addition to contract wins in the hotel, catering andhealthcare sectors, we strengthened our regional position in Melbourne and alsoin Tasmania, which is a new geography for us. Towards the end of the year weacquired the disposables distribution business of Cospak with branches in Perth,Newcastle and a number of other locations. These have already been integratedinto the existing Bunzl infrastructure. This acquisition has increased our sizesignificantly in Australia and has given us further reach into areas where wehave been under represented. During the year we have also been able to continuethe development of our food processor supply business and we have successfullyextended our business in New Zealand. FILTRONA Filtrona is a supplier of fibre and plastic technology products to internationalniche markets. Within these two business segments it is a world leading supplierof outsourced cigarette filters, ink reservoirs and other bonded fibre products,protective caps and plugs, self-adhesive tear tapes and certain securityproducts. 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 bothsegments supplemented by the sales impact from the acquisitions of the filtersand fibres division of Baumgartner and Skiffy. Profits at constant exchangerates grew by 13% to £59.1 million (2003: £56.1 million) despite a challengingmanufacturing 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 inflexible light manufacture and service oriented supply of low unit value itemsto customers throughout the world. These customers range from small localisedproducers and distributors to large, complex multinational manufacturingorganisations. Filtrona occupies technological and market leadership positionsin small focused international niches, where the development of quality,differentiated positions is achievable through consistent investment anddedication 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 andproducts to meet the changing requirements of the international fibre technologymarkets. Our outsourced cigarette filters business grew in all regions, with Asiacontinuing to perform particularly well, although headline results were againimpacted by currency translation. Important new special filter outsourcingagreements were secured during the year which more than offset any increase inself manufacture. A new special filter facility was opened in Mexico during thesecond half and volumes through this operation will build during 2005. Inaddition new warehousing arrangements were made in Korea and Russia to improvesupply chain performance. The filters business continues to benefit fromincreased consumer demand for brands with low tar and special filters, oftenincluding charcoal, driven by changing consumer tastes, ever stricterlegislative requirements and the growing industry interest in filters which canreduce particular constituents within cigarette smoke. Fibertec, based in Richmond, Virginia and Reinbek, Germany, sells reservoirs andwicking devices using bonded fibre technology for products including pens andprinters, medical device components and household items. The business continuedits good growth, assisted by the product volumes from the acquired facility inSwitzerland. The construction of a new facility in Ningbo, China will come onstream in 2005 and product volumes are expected to grow progressively driven byenhanced penetration of the Asian market. Focus on the development of newtechnologies, applications and geographic coverage continues to support theexcellent growth of this business. The rapid escalation of raw material prices was a key issue facing plastictechnology businesses during the year. In spite of the challenge posed by thistrend, our businesses developed successfully and we are well positioned for thefuture. Our self-adhesive tear tape business is the world's leading supplier and madegood progress in all regions in spite of adverse currency conditions. OurRichmond facility was further expanded with the installation of a new sixstation printing press such that it now has full process capability forservicing the increasingly important market in the Americas. Volumes of bothstandard and value added tear tape continued their strong growth. The use ofprinted tear tape for brand promotion and security purposes continues todevelop. The application of extrusion coated films for security and industrialuses is showing encouraging results and further investment in extrusion coatedfilm process and handling techniques has generated significant improvements inquality and service. We have formed a technology based joint venture to developan item level track and trace system for high volume consumer goods and documentsecurity. Initial results are encouraging. Our protection and finishing products business continued its positivedevelopment. Robust organic growth in both Europe and America was supplementedby a strong contribution from the newly acquired Skiffy which has enhanced ourEuropean market position. Whilst rapid price escalation in raw materials waspotentially a drag on performance, this was more than offset by improvedunderlying market demand, better manufacturing efficiencies, further additionsto the range, increased global sourcing and greater market penetration. The oilsector end-market continues to deliver good results and a new contract forsupply into the Caspian sea region will enhance performance in 2005. Improved trading conditions were sustained in our US and European extrusionbusinesses. In Europe we continued to win new export business and substantialgrowth 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 SouthAmerican toiletries and cosmetics industries, had another good year. The companycontinued to build its expertise in roll-on deodorant packaging and strongdemand for its tube product range has generated the need for an additional linefor 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--------------------------------------------------------------------------------SalesExisting businesses 2,695.6 2,728.2Acquisitions 220.4 ---------------------------------------------------Total sales 2 2,916.0 2,728.2 7% 14% --------------------------------------------------- Operating profitExisting businesses 193.4 196.4Acquisitions 12.3 ---------------------------------------------------Profit on ordinary activitiesbefore 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 andgoodwill amortisation 226.0 212.3 6% 14%--------------------------------------------------------------------------------Taxation on profit on ordinary activities 4 (72.3) (69.0) ---------------------------------------------------Profit on ordinary activities after taxation 128.6 125.6Profit 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 pershare 6 34.4p 31.3p 10% 18% ---------------------------------------------------Diluted basic earnings pershare 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 assetsIntangible assets - goodwill 541.3 290.9Tangible fixed assets 218.4 196.5 ----------------------- 759.7 487.4Current assetsStocks 275.2 215.6Debtors 468.5 374.7Investments 29.3 111.3Cash at bank and in hand 78.4 47.5 ----------------------- 851.4 749.1Current liabilitiesCreditors: 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 reservesCalled up share capital 112.5 112.1Share premium account 88.3 83.8Capital redemption reserve 5.3 5.3Revaluation reserve - 1.3Profit and loss account 222.0 229.5 -----------------------Shareholders' funds: equity interests 428.1 432.0Minority equity interests 3.7 2.8 ----------------------- 431.8 434.8 ----------------------- Net debt 405.2 96.5Gearing 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 7 220.0 250.4Net cash outflow for returns on investments (3.6) (4.7)and servicing of financeTax 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 10.0Equity dividends paid (54.4) (51.8) ----------------------Net cash (outflow)/inflow before use of liquidresources and financing (193.5) 79.9Management of liquid resources 57.6 57.4Net 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) 39.2Increase in debt due within one year (150.0) (8.3)(Increase)/decrease in debt due after one year (24.5) 21.1Decrease 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) 9.5Opening 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 127.4 124.6Actuarial (loss)/gain on pension schemes (13.3) 0.9Deferred taxation on actuarial loss/(gain)on 4.0 (0.4)pension schemesRevaluation 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 459.2 475.2Prior year adjustment (adoption of UITF38) (27.2) (19.2) --------------------------Opening shareholders' funds restated 432.0 456.0Profit for the financial year 127.4 124.6Dividends (58.4) (54.4)Issue of share capital 4.9 7.0Employee trust shares (9.0) (8.0)Actuarial (loss)/gain net of deferred taxation onpension schemes (9.3) 0.5Purchase 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 aresult, comparative figures have been restated. There was no impact on theconsolidated profit for the year to 31 December 2003. The impact on consolidatedshareholders' 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 ofMarch 2005. The financial information set out does not constitute the company'sstatutory accounts for the years ended 31 December 2004 or 2003 but is derivedfrom those accounts. Statutory accounts for 2003 have been delivered to theRegistrar of Companies and those for 2004 will be delivered following thecompany's Annual General Meeting which will be held on 18 May 2005. The auditorshave reported on those accounts; their reports were unqualified and did notcontain statements under Section 237 (2) or (3) of the Companies Act 1985. The Group will be required to adopt International Accounting Standards andInternational Financial Reporting Standards endorsed by the EU (together 'IFRS')from 1 January 2005 with the interim results for 2005 being the first resultsreported under the new Standards. The main areas of impact on the consolidatedprofit and loss account will be in respect of goodwill amortisation and sharebased payments. Under IFRS, goodwill will no longer be amortised but will besubject to impairment testing at least annually, and intangible assets will beamortised, resulting in an expected overall reduction to the amortisationcharge. The impact on operating profit in 2004 would have been a benefit ofapproximately £18 million. The Group operates equity-settled, share-basedcompensation plans. Under IFRS, the fair value of share based compensation isrecognised as an expense, and will be spread evenly over the vesting period. Theimpact on operating profit in 2004 would have been a reduction of approximately£4 million. Some other one-off items relating predominately to fixed assetcarrying values would have resulted in a one-off £3 million reduction inoperating profit in 2004. There is expected to be a small favourable impact ofIFRS on the consolidated balance sheet. During 2003 the Group adopted FRS17'Retirement Benefits'. The difference in treatment of this Standard and IFRS isnegligible. 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 2,275.6 184.8 170.5 280.0 224.3Filtrona 477.5 452.6 59.1 56.1 213.5 197.2Corporate (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 originNorth America 1,570.8 1,698.3 128.7 140.1 216.7 200.4Europe 1,150.4 886.4 93.0 68.0 216.2 178.0Rest of world 194.8 143.5 22.2 18.5 60.6 43.1Corporate (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 andOutsourcing Services North America has been incorporated in this analysis. 3. Net interest payable 2004 2003 £m £m--------------------------------------------------------------------------------Interest receivableBank deposits 9.0 7.7 -----------------------------Total interest receivable 9.0 7.7 ----------------------------- Interest payableBank loans and overdrafts (9.1) (3.2)Other loans (4.1) (4.2) -----------------------------Total interest payable (13.2) (7.4) ----------------------------- Other finance costsExpected return on pension scheme assets 16.0 12.7Interest 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 operationsexcluding goodwill amortisation has been provided based on the estimatedeffective rate of taxation for the year. Including goodwill amortisation, onwhich 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 17.4Final 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 theregister 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 127.4 124.6Adjustment* 25.1 17.7 --------------------------Adjusted profit for the financial year 152.5 142.3 -------------------------- Basic weighted average ordinary shares in issue (million) 443.0 455.2Dilutive 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 earningsperformance of the Group.*Adjustment relates to goodwill amortisation. 7. Reconciliation of operating profit to net cash inflow from operatingactivitiesRelated Shares:
Bunzl