30th Aug 2005 07:01
Bunzl PLC30 August 2005 Tuesday 30 August 2005 INTERIM RESULTS FOR SIX MONTHS TO 30 JUNE 2005 AND CLEARANCE TO COMPLETE SOFCO Bunzl plc, the international distribution and outsourcing Group, today announcesits interim results for the six months ended 30 June 2005. It also announces that it has received competition authority clearance for the proposed acquisition of SOFCO announced on 3 August and expects the deal to complete on 3 September. The results from continuing operations were: • Revenue up 22% to £1,366.3 million • Operating profit before intangible amortisation up 28% to £91.8 million • Profit before tax and intangible amortisation up 23% to £87.8 million • Profit before tax up 15% to £80.0 million • Earnings per share up 19% to 16.0p • Adjusted earnings per share* up 29% to 17.8p • Dividend up 18% to 4.9p Other highlights include: • Filtrona demerged in June • All regions increased sales and profits • Acquisitions help Continental Europe and Australasia to double revenue and treble operating profit* Commenting on today's results, Anthony Habgood, Chairman of Bunzl, said: "These are our first results following the successful demerger of Filtrona fromthe Group and they clearly demonstrate the underlying strength of our business.Our international scale and our ability to integrate acquisitions position uswell for the future." Commenting on the acquisition of SOFCO, he said: "I am delighted that the acquisition of SOFCO will complete shortly. Along withGelpa, Sanicare and Tecep, it underlines our continuing acquisition momentumaround the world. It provides us with interesting opportunities in ourtraditional grocery and redistribution markets in the northeast US and alsoexpands our position in the healthcare and industrial sectors". * before intangible amortisation Enquiries: Bunzl plc FinsburyAnthony Habgood Roland RuddDavid Williams Morgan BoneTel: 020 7495 4950 Tel: 020 7251 3801 CHAIRMAN'S STATEMENT In early June, shareholders of Bunzl received shares in Filtrona plc as ourmanufacturing operations were successfully demerged into a separate quotedentity. As a result Bunzl is now a focused, international, value-addeddistribution and outsourcing Group with operations in North America, Europe andAustralasia. The results are stated under IFRS and are, therefore, forcontinuing operations with Filtrona's contribution to profits included as asingle line net of interest, tax and the costs of effecting the demerger.Earnings per share under IFRS are also on a continuing operations basis and thedividend represents a dividend on continuing operations. Filtrona plc is todayannouncing that it will be paying its shareholders a full interim dividendcovering the whole six month period including the five months under Bunzl'sownership. Results from continuing operations Revenue rose 22% to £1,366.3 million (2004: £1,121.3 million) as the regionsbenefited from the combination of organic growth and significant acquisitionactivity. The effect of the weaker dollar ($1.86: £1 compared to $1.81 in 2004) was partially offset by the euro being stronger by 3 cents resulting in an overall adverse currency translation effect of 1-11/2 % on revenue and profit growth. Operating profit before intangible amortisation was up 28% to £91.8 million (2004: £72.0 million) reflecting improved margins across Europe and Australasia. Profit before tax and intangible amortisation was up 23% to £87.8 million (2004: £71.6 million) while profit before tax was up 15% to £80.0 million(2004: £69.8 million). Earnings per share rose 19% to 16.0p (2004: 13.4p) whileadjusted earnings per share, after eliminating intangible amortisation, rose 29%to 17.8p (2004: 13.8p). Cash inflow from the operating activities of continuing operations fundedacquisition activity and marginally reduced borrowings. Net debt was alsosignificantly reduced as a result of the demerger and was £285.6 million at theend of the period. While shareholders' equity also reduced as a result of thedemerger, gearing fell from 83.8% at the year end to 73.6%. Results from discontinued operations While underlying trading in Filtrona was good in the five months under Bunzl'sownership, after deducting the costs of the demerger the operating profit afterintangible amortisation, interest and tax was £4.2 million compared to £18.6million for the six months in 2004. Dividend The Board has decided to increase the interim dividend by 18% to 4.9p (2004:4.15p). Shareholders will again be able to participate in our dividendreinvestment plan. Board As announced in February, the demerger of Filtrona resulted in Mark Harper andPaul Heiden resigning from the Board to take up the positions of Chief Executiveand non-executive director of Filtrona respectively. Christoph Sander, who wasdue to become Chief Executive of Bunzl with effect from the demerger and whodecided on 2 June not to assume the role for personal reasons, resigned from theBoard on 13 July. We wish Mark, Paul and Christoph all the very best for thefuture. A search is underway for a new Chief Executive. Acquisitions Acquisition activity continued in 2005 with the purchase of Gelpa in lateJanuary. Based in the Netherlands, Gelpa had sales in 2004 of €49 million andprincipally serves the retail and food processor sectors, complementing ourexisting strong position in the Dutch Horeca market. In July we acquired Tecep,which had sales in 2004 of €41 million and operations in Hungary, CzechRepublic, Slovakia, Romania and Poland. Tecep is focused principally on servingthe retail, foodservice, catering and food processing sectors and expands ourposition in the exciting and growing Central European markets. Also in July,Sanicare was purchased in Australia. Based in New South Wales with sales in theyear to April 2005 of A$22 million, Sanicare supplies disposable productsprincipally into the healthcare market and strengthens our position in thatgrowing sector. Early in August we announced our intention to purchase SOFCO.Based in New York State, SOFCO had sales in 2004 of $175 million. It willfurther strengthen our position in the northeast United States in ourtraditional grocery and redistribution markets while also expanding our positionin the healthcare and industrial sectors. 2005 acquisition activity to date will add about £175 million to annualisedrevenue at a total cost of £78 million. Prospects As constituent parts of what is now a focused, international, value-addeddistribution and outsourcing Group, we expect each region will grow bothorganically and by acquisition. Bunzl overall will continue to expand its marketcoverage both geographically and by sector as we consolidate our industryinternationally. In North America we expect organic growth to continue and prices to remain firm.We also expect momentum in acquisition activity to be maintained as we furtherconsolidate the industry and strengthen our position in growing sectors of themarket. Recently acquired businesses have had lower margins than our averageand, while we expect these margins to improve as the businesses are integratedinto Bunzl, there remains some overall margin pressure particularly in thesupermarket sector. In Europe we also expect organic growth to continue as we win new contracts bothin the UK & Ireland and in Continental Europe. While macroeconomic conditionsmay dampen organic prospects in some parts of Europe this should be offset byour increasing presence in the faster growing economies in Central Europe. Weexpect acquisition activity to continue as we further extend our geographiccoverage and deepen our participation in our chosen sectors. Our increased scaleand efficiency across Europe as a whole should continue to benefit our results. In Australasia we expect to continue the successful development of our positionas we grow both organically and by acquisition. We also expect to see benefitsfrom our increasing scale and our position in growing sectors of the market. While the weak dollar has affected the translation of our Group results intosterling compared to 2004, its current rate suggests that this effect will begreatly diminished for 2005 as a whole. With the euro slightly stronger, currentexchange rates would indicate overall currency translation neutrality on ourresults for 2005 for the first time for many years. Our strong competitive position in our international markets and our ability toadd to organic growth with continuing acquisition activity as we expand bothgeographically and by market sector give us confidence that the Group willcontinue to develop successfully. OPERATING REVIEW Revenue rose by 22% due to organic growth supplemented by acquisitions.Operating profit before intangible amortisation was up 28% as our acquisitionactivity and increased scale across Europe as a whole showed through in higherprofits. Margin rose to 6.7% (2004: 6.4%) as increases in Continental Europe &Australasia and in the UK & Ireland more than offset a decrease in NorthAmerica. North America The combination of acquisitions towards the end of 2004 and organic developmentcontributed to a 15% dollar sales growth and a 10% dollar operating profitincrease over last year. Recent acquisitions with lower margins than ouraverage were a major contributor to the net margin reduction. In addition,margins remain under some pressure, particularly in the supermarket sector, asthere continues to be a shift to the larger store format. However, smallerspecialised stores have recently made progress in taking market share from theselarge warehouse stores. This presents great opportunities for us and we arefocusing more of our efforts in this area anticipating growth in this nichesector. In addition, we continue to concentrate on expanding our business in theredistribution, processor and convenience store sectors. These areas are growingand offer good opportunities for implementing our distribution model. Morerecently, we have also committed resources to market and sell jan/san productsand services which impact many of our current sectors as well as being apotential new sector in its own right. Acquisitions continue to help us increase our position in growth sectors,particularly redistribution, non-food retail and jan/san. We are successfullyintegrating the acquisitions that were made last year and they have helped drivebusiness in these areas. Our recently announced intention to acquire SOFCOfurther reinforces our position in both our traditional supermarket andredistribution sectors and our expansion into other sectors. We are alsoreviewing new product lines that increase our penetration into most customers byoffering different items that will be combined with our current shipments,thereby improving our productivity. As a more focused company following thedemerger of Filtrona, we have initiated conversations with strategic globalvendors focused on fulfilling distribution needs not only in North America butalso elsewhere around the world. Our global platform is attractive to many NorthAmerican suppliers who have international distribution needs. As we developthese programs it affords us the opportunity to increase our service to globalcustomers as well. Operating costs have been closely controlled despite significant increases infuel costs and freight expense. By implementing our best practices programthroughout our warehouse system and by increasingly sophisticated management oftruck routes, we have been able to offset these additional costs and even showsome improvements. Programs instituted to maximise use of our warehouse spacehave also contributed to the reduction of costs. At the same time, we continueto improve the service to our customers by offering them a program customised tomeet their needs. UK & Ireland Revenue grew 6% while the benefits of increased scale and ongoing cost controlhave delivered an increase in operating profit of 12%. Our hotel, restaurant and catering supplies business grew partly as a result ofa leading hotel group contract secured in the second half of 2004 and a majorpub group customer expanding their estate through acquisition. Cateringequipment sales increased following the successful implementation of a supplyagreement for one of the leading contract caterers. Our ability to offer bothcatering disposables and catering equipment strengthens our position in theHoreca market and we benefited from a new contract to supply both categories toa national restaurant chain. Within our retail supplies business, key supermarket customers continue torationalise their supply base allowing us to consolidate more products on theirbehalf. Our track record in the sector helped us secure a new goods not forresale consolidation contract for a leading UK retailer starting just before theend of the first half. Sales in our cleaning and safety business were flat following rationalisationwithin the cleaning and hygiene branch network. Reduced costs more than offsetthe reduction in local sales around the closed branches and sales from ournational contracts have continued to grow. We have continued to develop oursales of safety products to national construction companies. Within Ireland, new hotel construction activity driven by available capitalallowances helped us increase catering equipment and disposables sales and ourretail supplies business secured a contract to supply a broad range of productsfor a leading retailer. The vending business has seen the benefits of good cost control combined withnew account wins in the retail and hotel markets. We also secured the renewal ofa number of significant national contracts. Continental Europe & Australasia The business has developed strongly in the first half of 2005 by organic growth,the integration of acquisitions made in 2004 and through continued acquisitionactivity. Revenue rose by 104% and operating profit by 207%. While the majorityof the increase was due to the effect of acquisitions, there was a significantincrease in the profitability of the underlying business as a result of improvedoperating efficiency and scale. The integration of Groupe Pierre Le Goff in France, which was acquired in May2004, has continued during the first half of 2005 and the business has continuedits previous development plans. The operations are focused on the supply ofcleaning and hygiene products and personal protection equipment/safety products.The business continues to develop in line with our expectations, albeitoperating in a challenging economic environment. We are exploiting synergies ina number of areas and at the same time investing in the operationalinfrastructure and IT systems. Our other businesses in Northern Europe have shown a robust performance inrelatively weak economies. This performance has been achieved both through thegrowth in a number of larger accounts and the continuing benefit from ongoingpurchasing initiatives as well as operational improvements achieved throughactions taken during 2004. In January 2005 we completed the acquisition of Gelpain the Netherlands which has provided us with a route into the retail and foodprocessor sectors there. The business has settled in well and, together with our existing Dutch business, is enabling us to achieve synergies. Our first acquisition in Central Europe, Beltex, a leading distributor ofcleaning and safety products in Hungary acquired in 2004, continues to growstrongly. This was followed with the acquisition of Tecep in July 2005. Tecep isa leading distributor of packaging supplies and catering and food processingequipment to the retail, foodservice, catering and food processing markets inHungary, Czech Republic and Slovakia with smaller operations in Poland andRomania. The acquisition is a significant expansion of our presence in thegrowing Central European market. In Australasia we have continued our successful development with the integrationof the acquisitions made in 2004 as well as growth in the underlying business.In July 2005 we completed the acquisition of Sanicare, which expands ourposition and product offering into the growing healthcare sector. CONSOLIDATED INCOME STATEMENT Six months Six months Year to to 30.6.05 to 30.6.04 31.12.04Continuing operations Notes £m £m £m-----------------------------------------------------------------------------------RevenueExisting businesses 1,351.0 1,121.3 2,438.5Acquisitions 15.3----------------------------------------------------------------------------------- 3 1,366.3 1,121.3 2,438.5----------------------------------------------------------------------------------- Operating profit before intangible amortisationExisting businesses 91.1 72.0 168.9Acquisitions 0.7-----------------------------------------------------------------------------------Operating profit before intangible amortisation 91.8 72.0 168.9Intangible amortisation (7.8) (1.8) (8.6)-----------------------------------------------------------------------------------Operating profit before financing and income tax 84.0 70.2 160.3Finance income 4 14.2 6.3 17.0Finance cost 4 (18.2) (6.7) (19.9)-----------------------------------------------------------------------------------Profit before income tax 80.0 69.8 157.4-----------------------------------------------------------------------------------Profit before income tax and intangible amortisation 87.8 71.6 166.0-----------------------------------------------------------------------------------Income tax 5 (26.1) (23.4) (53.0)-----------------------------------------------------------------------------------Profit for the period 53.9 46.4 104.4----------------------------------------------------------------------------------- Discontinued operationsProfit for the period 7 4.2 18.6 35.7-----------------------------------------------------------------------------------Total profit for the period 58.1 65.0 140.1----------------------------------------------------------------------------------- Attributable to:Equity holders of the Company 57.5 64.4 138.9Minority interests 0.6 0.6 1.2-----------------------------------------------------------------------------------Total profit for the period 58.1 65.0 140.1----------------------------------------------------------------------------------- Earnings per share of the profit for theperiod from continuing operations attributable to the Company's equity holders-----------------------------------------------------------------------------------Basic 8 16.0p 13.4p 30.3p-----------------------------------------------------------------------------------Diluted 8 15.9p 13.4p 30.2p----------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEET 30.6.05 30.6.04 31.12.04 £m £m £m--------------------------------------------------------------------------------AssetsProperty, plant and equipment 64.2 200.4 218.4Intangible assets 581.8 552.4 623.7Deferred tax assets 13.6 10.2 14.8--------------------------------------------------------------------------------Total non-current assets 659.6 763.0 856.9 Inventories 218.8 249.9 275.2Income tax receivable 2.8 2.2 3.1Trade and other receivables 424.3 467.7 465.4Derivative assets 0.8 - -Cash and cash equivalents 103.8 77.2 107.7--------------------------------------------------------------------------------Total current assets 750.5 797.0 851.4--------------------------------------------------------------------------------Total assets 1,410.1 1,560.0 1,708.3-------------------------------------------------------------------------------- EquityShare capital 110.0 112.3 112.5Share premium 98.9 86.6 88.3Capital redemption reserve 8.6 5.3 5.3Cash flow hedging reserve 0.8 - -Translation reserve 1.1 (1.2) 0.7Retained earnings 168.9 296.4 276.8--------------------------------------------------------------------------------Capital and reserves attributable to theCompany's equity holders 388.3 499.4 483.6Minority interests - 3.4 3.9--------------------------------------------------------------------------------Total equity 388.3 502.8 487.5 LiabilitiesInterest bearing loans and borrowings 287.8 305.0 290.2Retirement benefit obligations 53.2 53.9 70.5Other payables 4.8 3.3 7.6Provisions 31.9 20.2 30.3Deferred tax liabilities 49.2 53.5 68.7--------------------------------------------------------------------------------Total non-current liabilities 426.9 435.9 467.3 Bank overdrafts 42.6 31.5 43.2Interest bearing loans and borrowings 59.0 46.4 179.5Income tax payable 41.8 51.5 54.4Trade and other payables 364.1 405.5 382.0Provisions 4.1 4.7 7.1Accruals and deferred income 83.3 81.7 87.3--------------------------------------------------------------------------------Total current liabilities 594.9 621.3 753.5--------------------------------------------------------------------------------Total liabilities 1,021.8 1,057.2 1,220.8--------------------------------------------------------------------------------Total equity, minority interests and liabilities 1,410.1 1,560.0 1,708.3-------------------------------------------------------------------------------- CONSOLIDATED CASH FLOW STATEMENT Six months Six months Year to to 30.6.05 to 30.6.04 31.12.04 Notes £m £m £m---------------------------------------------------------------------------------Cash flow from operating activitiesof continuing operations Profit before income tax fromcontinuing operations 80.0 69.8 157.4Adjustments for non-cash items: Depreciation 6.7 6.0 12.9 Intangible amortisation 7.8 1.8 8.6 Share option charge 1.3 1.3 2.8 Other (1.5) (2.5) (0.7)Working capital movement (18.3) 2.5 (11.0)Finance income (14.2) (6.3) (17.0)Finance cost 18.2 6.7 19.9Special pension contribution (3.3) - -Employee trust shares 2.2 (5.8) (9.8)Other cash movements (5.3) (2.2) (7.2)---------------------------------------------------------------------------------Cash inflow from operating activities of continuing operations 73.6 71.3 155.9Cash inflow from operating activities of discontinued operations 7 16.1 28.3 64.1Income tax paid (34.0) (28.1) (65.2)--------------------------------------------------------------------------------- Net cash inflow from operating activities 55.7 71.5 154.8 Investing activitiesInterest received 10.7 2.1 7.9Purchase of property, plant and equipment (17.4) (18.4) (46.2)Sale of property, plant and equipment 1.1 3.0 4.6Purchase of businesses (22.7) (191.4) (256.7)Disposal of businesses - - 8.0Demerger of business 115.4 - -Other investment cash flows (3.4) (0.2) 1.0---------------------------------------------------------------------------------Net cash inflow/(outflow) from investing activities 83.7 (204.9) (281.4) Financing activitiesInterest paid (12.1) (3.1) (12.5)Dividends paid (18.5) (17.4) (54.4)(Decrease)/increase in short term loans (120.3) 30.8 150.0(Decrease)/increase in long term loans (2.4) 28.8 24.5Decrease in finance leases (0.2) - (0.2)Shares issued for cash 11.4 3.0 4.9Purchase of own shares - - (58.6)---------------------------------------------------------------------------------Net cash (outflow)/inflow fromfinancing activities (142.1) 42.1 53.7 Exchange losses on cash and cash equivalents (0.6) (1.3) (0.9) Decrease in cash and cash equivalents (3.3) (92.6) (73.8)--------------------------------------------------------------------------------- Cash and cash equivalents at startof period 64.5 138.3 138.3---------------------------------------------------------------------------------Increase/(decrease) in cash and cashequivalents from continuing operations 30.5 (92.9) (79.3)(Decrease)/increase in cash and cashequivalents from discontinued operations 7 (33.8) 0.3 5.5---------------------------------------------------------------------------------Cash and cash equivalents at end ofperiod 9 61.2 45.7 64.5--------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Capital Cash flow Share Share redemption hedging Translation Retained Minority Total capital premium reserve reserve reserve earnings interests equity £m £m £m £m £m £m £m £m------------------------------------------------------------------------------------------------------As at 1January 2005 112.5 88.3 5.3 0.7 276.8 3.9 487.5Adoption ofIAS 32 and39 (see note 2d) (1.3) (1.3)-------------------------------------------------------------------------------------------------------As at 1January 2005 112.5 88.3 5.3 (1.3) 0.7 276.8 3.9 486.2 Currencytranslationdifferences 0.4 0.3 0.7Movement ofcash flowhedgingposition 2.1 2.1Actuariallosson pension schemes (19.2) (19.2)Deferredtaxation onactuarial loss 6.2 6.22004 finaldividend (39.3) (39.3)Net profitfor the period 57.5 0.6 58.1Issue ofshare capital 0.8 10.6 11.4Cancellationof own shares (3.3) 3.3 -Sale ofemployeetrust shares 2.2 2.2Amortisationof employeetrust shares 0.5 0.5Share optioncharge 1.8 1.8Demerger ofbusiness (117.6) (4.8) (122.4)------------------------------------------------------------------------------------------------------As at 30June 2005 110.0 98.9 8.6 0.8 1.1 168.9 - 388.3------------------------------------------------------------------------------------------------------ As at 1January 2004 112.1 83.8 5.3 266.9 3.0 471.1Currencytranslationdifferences (1.2) (0.2) (1.4)Actuarialgainon pension schemes 8.0 8.0Deferredtaxation onactuarial gain (2.4) (2.4)2003 finaldividend (37.0) (37.0)Net profitfor the period 64.4 0.6 65.0Issue ofshare capital 0.2 2.8 3.0Purchase ofemployeetrust shares (5.8) (5.8)Amortisationof employeetrust shares 0.4 0.4Share optioncharge 1.9 1.9-------------------------------------------------------------------------------------------------------As at 30June 2004 112.3 86.6 5.3 (1.2) 296.4 3.4 502.8------------------------------------------------------------------------------------------------------- As at 1January 2004 112.1 83.8 5.3 266.9 3.0 471.1Currencytranslationdifferences 0.7 (0.3) 0.4Actuariallosson pension schemes (13.3) (13.3)Deferredtaxation onactuarial loss 4.0 4.0Movement inpension assetrevaluation (0.1) (0.1)2003 finaldividend (37.0) (37.0)2004 interimdividend (18.9) (18.9)Net profitfor the year 138.9 1.2 140.1Issue ofshare capital 0.4 4.5 4.9Purchase ofown shares (58.6) (58.6)Purchase ofemployeetrust shares (9.8) (9.8)Amortisationof employeetrust shares 0.8 0.8Share optioncharge 3.9 3.9--------------------------------------------------------------------------------------------------------As at 31December 2004 112.5 88.3 5.3 0.7 276.8 3.9 487.5-------------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE Six months Six months Year to to 30.6.05 to 30.6.04 31.12.04 £m £m £m--------------------------------------------------------------------------------Profit for the period 58.1 65.0 140.1 Actuarial (loss)/gain on pension schemes (19.2) 8.0 (13.3)Deferred taxation on actuarial loss/(gain) 6.2 (2.4) 4.0Currency translation differencesarising in period 0.7 (1.4) 0.4Movement of cash flow hedging position 2.1--------------------------------------------------------------------------------(Expenses)/income not recognised inincome statement (10.2) 4.2 (8.9)--------------------------------------------------------------------------------Adoption of IAS 32 and 39 (see note 2d) (1.3)--------------------------------------------------------------------------------Total recognised income for the period 46.6 69.2 131.2-------------------------------------------------------------------------------- Attributable to: Equity holders of the Company 45.7 68.8 130.3Minority Interests 0.9 0.4 0.9--------------------------------------------------------------------------------Total recognised income for period 46.6 69.2 131.2-------------------------------------------------------------------------------- Notes 1. Basis of preparation EU law (IAS Regulation EC 1606/2002) requires that the next annual consolidatedfinancial statements of the Company, for the year ending 31 December 2005, beprepared in accordance with International Financial Reporting Standards (IFRS)adopted for use in the EU ('adopted IFRS'). This interim financial information has been prepared on the basis of therecognition and measurement requirements of IFRS in issue that either areendorsed by the EU and effective (or available for early adoption) at 31December 2005 or are expected to be endorsed and effective (or available forearly adoption) at 31 December 2005, the Group's first annual reporting date atwhich it is required to use adopted IFRS. Based on the adopted and unadoptedIFRS, the directors have made assumptions about the accounting policies expectedto be applied, which are as set out in note 2, when the first annual IFRSfinancial statements are prepared for the year ending 31 December 2005. In particular, the directors have assumed that the following IFRS issued by theInternational Accounting Standards Board will be adopted by the EU in sufficienttime that it will be available for use in the annual IFRS financial statementsfor the year ending 31 December 2005: IAS 19 'Employee benefits - Actuarial Gains and Losses, Group Plans and Disclosures'. The impact on the Group of this not being endorsed would be to record a portion of actuarial gains and losses in the income statement rather than directly to the statement of recognised income and expenses. 1. Basis of preparation (continued)In addition, the adopted IFRS that will be effective (or available for earlyadoption) in the annual financial statements for the year ending 31 December2005 are still subject to change and to additional interpretations and thereforecannot be determined with certainty. Accordingly, the accounting policies forthat annual period will be determined finally only when the annual financialstatements are prepared for the year ending 31 December 2005. The comparative figures for the financial year ended 31 December 2004 are notthe Company's statutory accounts for the financial year. Those accounts, whichwere prepared under UK Generally Accepted Accounting Practices ('UK GAAP'), havebeen reported on by the Company's auditors and delivered to the Registrar ofCompanies. The report of the auditors was unqualified and did not containstatements under Section 237(2) or (3) of the Companies Act 1985. The figuresfor the six months ended 30 June 2004 and year ended 31 December 2004 areextracted from the '2004 Preliminary IFRS Financial Statements' (as adjusted pernote 12) which were issued in a press release on 29 April 2005, a copy of whichcan be found on the Company's website. 2. Accounting policies a) IFRS 1The following exemptions, as set out in the '2004 Preliminary IFRS FinancialStatements' have been adopted: a) Business combinations: no retrospective application of IFRS 3 'BusinessCombinations' to business combinations that occurred prior to the transition toIFRS on 1 January 2004.b) IAS 32 'Financial Instruments: Disclosure and Presentation' and IAS 39'Financial Instruments: Recognition and Measurement' came into effect on 1January 2005. The Company took the exemption under IFRS 1 'First Full-timeAdoption of International Financial Reporting Standards' not to restatecomparative information in respect of these standards. As a consequencefinancial instruments included in the 2004 comparative information are stillaccounted for in accordance with UK GAAP, whereas they are accounted for inaccordance with IFRS in the 2005 results. In accordance with the transitionalprovisions of IFRS, this has been treated as a change in accounting policy. Theaccounting policy for financial instruments under IFRS is detailed in note 2 (d)of this report. The adjustments made to reserves as a result of adopting IAS 32and IAS 39 on 1 January 2005 are detailed in the consolidated statement ofrecognised income and expense and the consolidated statement of changes inshareholder's equity.c) Cumulative translation differences: cumulative translation differences havebeen reset to zero as at 1 January 2004, the date of transition to IFRS.d) Fair value or revaluation at deemed cost: adoption of the exemption to treatrevalued property, plant and equipment at deemed cost. b) Basis of consolidation(i) SubsidiariesSubsidiaries are entities controlled by the Group. Control exists when the Grouphas the power, directly or indirectly, to govern the financial and operatingpolicies of an entity so as to obtain benefits from its activities. Subsidiariesare included in the financial statements from the date that control commencesuntil the date that control ceases. (ii) Transactions eliminated on consolidationIntragroup balances and any unrealised gains and losses or income and expensearising from intragroup transactions are eliminated in preparing the financialstatements. c) Foreign currency(i) Foreign currency transactionsTransactions in foreign currencies are recorded at the rate of exchange at thedate of the transaction. Monetary assets and liabilities denominated in foreigncurrencies at the balance sheet date are translated at the exchange rateprevailing at that date. (ii) Financial statements of foreign operationsAssets and liabilities of foreign operations, including goodwill, intangiblesand fair value adjustments arising on consolidation, are translated at theexchange rate prevailing at the balance sheet date. Revenues and expenses offoreign operations are translated at average exchange rates. Exchangedifferences arising on retranslation are recognised in the translation reserve. (iii) Net investment in foreign operationsExchange differences arising from the translation of the net investment inforeign operations and related hedges are taken to the translation reserve andreleased to the income statement on disposal. d) Financial instrumentsThe financial statements for the year ended 31 December 2004 have been preparedusing the accounting policies previously applied under UK GAAP for financialinstruments as the Group has adopted the IFRS 1 exemption not to apply IAS 32and IAS 39 to the comparative period. The accounting policies described belowfor financial instruments are applicable from 1 January 2005. The effect ofadopting these standards was to recognise a net derivative liability of £1.3m inthe opening balance sheet. Under IAS 39, financial instruments are initially measured at fair value withsubsequent measurement depending upon the classification of the instrument.Financial assets classified as 'available for sale' and financial assets orliabilities classified as 'at fair value through profit or loss' (includingderivatives) are held at fair value. Other financial assets and liabilities areheld at amortised cost, unless they are in a fair value hedging relationship.Derivative financial instruments are used to hedge exposures to foreign exchangeand interest rate risks. (i) Fair value hedgeChanges in the fair value of derivatives designated as hedges are recorded inthe income statement together with any changes in the fair value of theassociated hedged item with respect to the risk being hedged. (ii) Cash flow hedgeWhere derivatives that are designated and quality as a hedge are used to hedgeforecast transactions any effective portion of the change in fair value isrecognised in equity. The gain or loss relating to the ineffective portion isrecognised immediately in the income statement. Amounts accumulated in equityare recycled to the income statement in the period when the hedged item willaffect profit. (iii) Hedge of net investment in foreign operationsGains or losses on instruments used to hedge net investment in foreignoperations that are effective hedges are recognised in equity. Ineffectivehedges or portions thereof are recognised in the income statement. e) Property, plant and equipmentProperty, plant and equipment are stated at historical cost less accumulateddepreciation and impairment losses. Previously revalued properties were treatedas deemed cost upon transition to IFRS. f) DepreciationProperty, plant and equipment are depreciated over their estimated remaininguseful lives at the following annual rates applied to book value less estimatedresidual value: Buildings 2% or life of lease if shorterPlant and machinery 10 - 20%Fixtures, fittings and equipment 10 - 33%Freehold land Not depreciated g) Intangible assets(i) GoodwillAcquisitions are accounted for using the purchase method. For acquisitions thathave occurred on or after 1 January 2004, goodwill represents the differencebetween the cost and fair value of net identifiable assets. For acquisitionsmade before 1 January 2004, goodwill is included on the basis of deemed cost,which represents the amount previously recorded under UK GAAP. Goodwill isstated at cost less any impairment losses. Goodwill is not amortised but testedannually for impairment. (ii) Other intangible assetsIntangible assets acquired in a business combination are recognised onacquisition and recorded at fair value. Amortisation is charged to the incomestatement on a straight line basis over the estimated useful economic life.Other intangible assets are stated at cost less accumulated amortisation andimpairment losses. h) LeasesOperating lease rentals and any incentives receivable are recognised in theincome statement on a straight line basis over the term of the lease. i) ImpairmentAssets are reviewed at each balance sheet date for impairment. Impairment lossesare recognised when the carrying amount of an asset or its cash generating unitexceeds its recoverable amount, with impairment losses being recognised in theincome statement. j) InventoriesInventories are valued at the lower of cost (on a first in, first out basis) andnet realisable value. k) Cash and cash equivalentsCash and cash equivalents comprise cash balances and fixed term investments withmaturities of three months or less from the date of acquisition. Bank overdraftsrepayable on demand are included in cash and cash equivalents. l) Trade and other receivablesTrade and other receivables are stated at cost less any impairment losses. m) Income taxIncome tax in the income statement comprises current and deferred tax. Incometax is recognised in the income statement except when it relates to itemsreflected in equity which are recognised in equity. Current tax reflects tax payable on taxable income for the year and anyadjustments in respect of prior years. Deferred tax is provided using the balance sheet liability method, providing fortemporary differences arising between tax bases and carrying amounts in thefinancial statements. Deferred tax assets are recognised to the extent that itis probable that future taxable profit will be available against which any assetcan be utilised. Deferred tax assets are reduced to the extent that it is nolonger probable that the related tax benefit will be realised. n) RevenueRevenue from the sale of goods is recognised in the income statement when anysignificant risks and rewards of ownership have been transferred to the buyer.Revenue is not recognised if there is significant uncertainty regarding recoveryof the consideration due or return of goods. o) Employee benefits(i) Defined contribution plansObligations for contributions to defined contribution pension schemes arecharged to the income statement as incurred. (ii) Defined benefit plansThe principal pension schemes in Europe and the US have been accounted for on adefined benefit basis under IAS 19 (revised) as if the standard had beenendorsed for use in the EU. Accordingly all actuarial gains and losses as at 1January 2004, the date of transition to IFRS, were recognised due to the prioradoption of FRS 17 'Retirement Benefits'. Actuarial gains and losses arisingafter 1 January 2004 are recognised in the consolidated statement of changes inshareholders' equity. Pension liabilities are recognised in the consolidated balance sheet andrepresent the difference between the market value of scheme assets and thepresent value of scheme liabilities. Scheme liabiltiies are determined on anactuarial basis using the projected unit method and discounted using a rate ofAA rated bonds that have a similar maturity to the scheme liabilties. Current service cost, past service cost and gains and losses on any settlementand curtailments are charged to the income statement. The expected increase inthe present value of scheme liabilities is included within finance cost and theexpected return on scheme assets is included within finance income. p) Share based paymentsThe Group operates equity settled, share based compensation plans. A charge ismade in the income statement based on the fair value of option and other sharebased incentives using the Black Scholes model. q) ProvisionsProvisions are recognised when there is a present legal or constructiveobligation as a result of a past event and it is probable that an outflow ofeconomic benefits will be required to settle the obligation. r) Net DebtNet debt is defined by the Company as cash and cash equivalents, net of interestbearing loans and borrowings. 3. Segment analysis Sales Operating profit ---------------------------------------------------------------------------- Six months Six months Year to Six months Six months Year to to 30.6.05 to 30.6.04 31.12.04 to 30.6.05 to 30.6.04 31.12.04 £m £m £m £m £m £m-------------------------------------------------------------------------------------------North America 753.2 673.7 1,412.9 52.5 49.3 105.1UK & Ireland 326.1 307.1 638.9 24.8 22.1 51.2ContinentalEurope& Australasia 287.0 140.5 386.7 22.1 7.2 26.5------------------------------------------------------------------------------------------- 1,366.3 1,121.3 2,438.5 99.4 78.6 182.8 Corporate (7.6) (6.6) (13.9)Intangibleamortisation* (7.8) (1.8) (8.6)--------------------------------------------------------------------------------------------Continuingoperations 1,366.3 1,121.3 2,438.5 84.0 70.2 160.3 Discontinuedoperations+ 209.9 237.6 477.5 25.8 28.0 54.5Intangibleamortisation (0.4) (0.3) (0.7)-------------------------------------------------------------------------------------------- 1,576.2 1,358.9 2,916.0 109.4 97.9 214.1-------------------------------------------------------------------------------------------- *For the six months to 30 June 2005 intangible amortisation for continuingoperations comprised North America £1.1m, UK & Ireland £0.1m and ContinentalEurope & Australasia £6.6m. For the six months to 30 June 2004 all of theintangible amortisation for continuing operations related to Continental Europe& Australasia. For the year to 31 December 2004 intangible amortisation forcontinuing operations comprised North America £0.5m, UK & Ireland £0.2m andContinental Europe & Australasia £7.9m. +Operating profit from discontinued operations for the six months to 30 June2005 is stated before demerger costs of £17.3m. 4. Finance income/(cost) Six months Six months Year to to 30.6.05 to 30.6.04 31.12.04Continuing operations £m £m £m Bank deposits 9.3 1.6 8.2Expected return on pension scheme assets 4.9 4.7 8.8--------------------------------------------------------------------------------Finance income 14.2 6.3 17.0-------------------------------------------------------------------------------- Bank loans and overdrafts (13.2) (1.7) (10.4)Interest on pension scheme liabilities (5.0) (5.0) (9.5)--------------------------------------------------------------------------------Finance cost (18.2) (6.7) (19.9)-------------------------------------------------------------------------------- 5. Income tax for continuing operations A taxation charge of 32.0% (2004: 33.4%) on the profit on underlying operationsexcluding the impact of intangible amortisation of £7.8m (2004: £1.8m) andrelated deferred tax of £2.0m (2004: £0.5m) has been provided based on theestimated effective rate of taxation for the year. Including the impact ofintangible amortisation and related deferred tax, the overall tax rate is 32.6%(2004: 33.5%). The income tax charge includes UK tax of £3.8m, £5.9m and £8.7mfor the six months to 30 June 2005 and 2004, and the year to 31 December 2004respectively. 6. Dividends Per share Total ---------------------------------------------------------------------------- Six months Six months Year to Six months Six months Year to to 30.6.05 to 30.6.04 31.12.04 to 30.6.05 to 30.6.04 31.12.04 £m £m £m--------------- --------- --------- --------- --------- --------- -------2003 final 8.25p 8.25p 37.0 37.02004 interim 4.15p 18.52004 final 9.15p 39.3---------------------------------------------------------------------------------------------- 9.15p 8.25p 12.4p 39.3 37.0 55.5---------------------------------------------------------------------------------------------- The 2004 interim dividend paid was £18.5m, £0.4m lower than the amount proposedof £18.9m due to the impact of the Company purchasing its own shares. The 2004final dividend of 9.15p was declared on 28 February 2005 and totalled £39.3mwhen paid on 1 July 2005. The 2005 interim dividend of 4.9p will be paid on 3January 2006 to shareholders on the register on 18 November 2005. 7. Discontinued operations Following the demerger of Filtrona on 6 June 2005, this business has beenpresented as 'discontinued operations' in accordance with IFRS 5 'Non-currentAssets Held for Sale and Discontinued Operations'. There is no impact on theprior period financial statements other than a change in the presentation ofFiltrona's results and cash flows as discontinued operations. Income statement Six months Six months Year to to 30.6.05* to 30.6.04 31.12.04 £m £m £m-----------------------------------------------------------------------------------Revenue 209.9 237.6 477.5-----------------------------------------------------------------------------------Operating profit before intangible amortisationand demerger costs 25.8 28.0 54.5Intangible amortisation (0.4) (0.3) (0.7)Demerger costs (17.3) - ------------------------------------------------------------------------------------Operating profit before financing and tax 8.1 27.7 53.8Finance income 3.4 3.8 8.0Finance cost (4.8) (4.6) (9.9)-----------------------------------------------------------------------------------Profit before income tax 6.7 26.9 51.9Income tax (2.5) (8.3) (16.2)-----------------------------------------------------------------------------------Profit for the period 4.2 18.6 35.7----------------------------------------------------------------------------------- * The results for the period represent the five months trading under theCompany's ownership. 7. Discontinued operations (continued) Cash flow statement Six months Six months Year to to 30.6.05 to 30.6.04 31.12.04 £m £m £m----------------------------------------------------------------------------------Profit before income tax 6.7 26.9 51.9 Adjustments for non-cash items: Depreciation 8.9 10.2 20.1 Intangible amortisation 0.4 0.3 0.7 Share option charge 0.5 0.6 1.1 Other (0.5) 2.1 4.8Working capital movement (11.7) (12.2) (14.2)Demerger accrual 13.9 - -Finance income (3.4) (3.8) (8.0)Finance cost 4.8 4.6 9.9Related Shares:
Bunzl