Bunzl plc (LON:BNZL), the specialist international distribution and services Group, has published its half yearly financial report for the six months ended 30 June 2023.
| Financial results | H1 23 | H1 22 | Growth as reported | Growth at constant exchange◊ |
| Revenue | £5,906.8m | £5,650.8m | 4.5% | 0.6% |
| Adjusted operating profit* | £438.3m | £411.4m | 6.5% | 2.5% |
| Adjusted profit before income tax* | £395.6m | £380.5m | 4.0% | (0.8)% |
| Adjusted earnings per share* | 88.3p | 85.7p | 3.0% | (1.7)% |
| Interim dividend | 18.2p | 17.3p | 5.2% | |
| Statutory results | ||||
| Operating profit | £359.8m | £327.5m | 9.9% | |
| Profit before income tax | £317.1m | £296.6m | 6.9% | |
| Basic earnings per share | 70.8p | 66.2p | 6.9% |
Highlights include:
| ● | Revenue grew by 0.6% at constant exchange rates, and grew by 2.4% excluding the UK healthcare disposal≠ |
| ● | Adjusted operating profit* increased by 2.5% at constant exchange rates, with growth of 4.1% excluding the UK healthcare disposal≠; reported operating profit increased by 9.9% |
| ● | Operating margin increased from 7.3% to 7.4% |
| ● | Adjusted earnings per share* declined by 1.7% at constant exchange rates, and grew by 0.2% excluding the UK healthcare disposal≠, due to an expected increase in net finance expense and tax rate; reported basic earnings per share rose 6.9% |
| ● | Free cash flow* grew by 21% at actual exchange rates to £286.3 million; supported by a substantial reduction in inventory |
| ● | Interim dividend per share grew by 5.2%, extending 30 consecutive years of annual dividend growth |
| ● | 12 acquisitions announced August year-to-date, including two announced today, with a total committed spend of more than £350 million; our pipeline remains active |
| ● | Net debt to EBITDA*† of 1.1 times providing substantial headroom for acquisitions; resilient return on invested capital* of 14.9% compared to 13.6% at the end of 2019, prior to the pandemic |
| ● | 2023 outlook: adjusted operating profit guidance upgraded, driven by a meaningful increase in operating margin expectations |
Commenting on today’s results, Frank van Zanten, Chief Executive Officer of Bunzl, said:
“I am pleased with our first half performance, with good adjusted operating profit growth and an operating margin significantly ahead of that achieved prior to the comparable period of 2019. The Group’s performance continues to be supported by the strength of our customer focused value proposition, including our sustainability expertise and range of innovative products and solutions, and the continued success of our acquisition strategy. We have an active pipeline of attractive opportunities, and I am delighted to announce two additional acquisitions today, including our first acquisition in Poland, meaning Bunzl will operate from 32 countries upon completion. As a result of our successes over the period, we are upgrading our 2023 adjusted operating profit guidance, supported by a meaningful increase in our operating margin expectations. I remain confident in Bunzl’s medium-term growth opportunities which are underpinned by our differentiated value-added proposition and a strong balance sheet to support significant consolidation opportunities.”
* Alternative performance measure (see Note 2).
◊ Growth at constant exchange rates is calculated by comparing the H1 23 results to the H1 22 results retranslated at the average exchange rates used for H1 23.
† At average exchange rates and based on historical accounting standards, in accordance with the Group’s external debt covenants.
≠ The Group disposed of its UK healthcare business in December 2022.
H1 23 performance highlights:
| Underlying revenue growth*ⱡ contribution | H1 23 | Underlying revenue growth*ⱡ by sector | H1 23 | |
| Base business♯ | 1.6% | Foodservice and Retail | (4)% | |
| Covid-19 related orders | (2.0)% | Cleaning & Hygiene, Safety and Healthcare | 2% | |
| Group total | (0.4)% | Grocery and other | 2% |
| ● | Group underlying revenue*ⱡ declined by 0.4% with growth in the base business, which benefited underlying revenue growth by 1.6%, offset by a 2.0% negative impact from the expected decline in Covid-19 related sales, with much of this occurring in the first quarter of the year |
| ● | Base business growth was impacted by a reducing benefit from inflation, as well as wider post-pandemic related normalisation trends which drove some volume weakness in the North American foodservice sector |
| ● | Operating margin increased as a result of margin management initiatives, inclusive of an increase in own brands. Furthermore, the impact of operating cost inflation reduced and was moderate over the period |
| ● | Group revenues were supported by 2.8% growth from the incremental impact of acquisitions, partially offset by the 1.8% negative impact to revenue from the UK healthcare disposal in December 2022 |
Business area highlights:
| Revenue (£m)H1 23 H1 22 | Growth at constant | Underlying revenue | Operating profit*(£m) | Growth at constant | Operating margin* | ||||
| exchange*◊ | growth*ⱡ | H1 23 | H1 22 | exchange*◊ | H1 23 | H1 22 | |||
| North America | 3,514.4 | 3,435.9 | (2.9)% | (3.1)% | 245.6 | 231.5 | 0.4% | 7.0% | 6.7% |
| Continental Europe | 1,179.1 | 1,026.1 | 12.4% | 3.7% | 106.8 | 97.7 | 7.8% | 9.1% | 9.5% |
| UK & Ireland | 663.8 | 687.1 | (3.7)% | 11.6% | 44.7 | 40.6 | 9.6% | 6.7% | 5.9% |
| Rest of the World | 549.5 | 501.7 | 7.6% | (4.1)% | 57.1 | 53.9 | 2.7% | 10.4% | 10.7% |
North America (60% of revenue and 54% of adjusted operating profit*†)
| ● | Underlying revenue decline driven by wider post-pandemic related normalisation trends, which resulted in some volume weakness in the foodservice sector, and moderating product cost inflation benefit over the period |
| ● | Strong operating margin increase supported by margin management, including further expansion of own brands |
| ● | Limited operating cost inflation driven by a meaningful reduction in freight costs and wage growth that was closer to more typical historical levels |
Continental Europe (20% of revenue and 23% of adjusted operating profit*†)
| ● | Good underlying revenue growth driven by the benefit of product cost inflation, and despite the impact of the reduction in Covid-19 related sales, particularly in Q1 |
| ● | Weakening volumes in Continental Europe with trading impacted in France by reduced public sector activity |
| ● | Operating margin decline driven by hyperinflation accounting in the Turkish businesses, the decline in Covid-19 related orders and an impact from the sector mix |
UK & Ireland (11% of revenue and 10% of adjusted operating profit*†)
| ● | Strong underlying revenue growth driven by product cost inflation, alongside continued recovery in certain markets, in particular foodservice, cleaning & hygiene and safety |
| ● | Very strong operating margin increase supported by underlying sales growth and increased own brand penetration |
| ● | Excluding the impact of the UK healthcare disposal, adjusted operating profit increased by 31% |
Rest of the World (9% of revenue and 13% of adjusted operating profit*†)
| ● | Underlying revenue decline driven by further Covid-19 related product sales normalisation, largely in Asia Pacific, due to the non-repeat of some larger orders that were fulfilled in the prior year |
| ● | Latin America business impacted by lower selling prices resulting from reduced inbound freight costs and currency movements |
| ● | Overall, operating margin decrease reflective of the reduction in Covid-19 related sales; operating margin remains well ahead of pre-pandemic levels in 2019 |
Strategic progress:
| ● | First half operating margin growth supported by margin management initiatives, including increasing penetration of own brand |
| ● | 12 acquisitions signed August year-to-date, including our first entry into Poland, highlighting the breadth of Bunzl’s opportunity; Bunzl will operate, upon completion, in 32 countries globally |
| ● | A continued focus on warehouse optimisation, with 12 warehouse relocations and consolidations in the first half of the year. In addition, further investments into digital solutions and automation continue to improve the efficiency of our operations |
| ● | Processed 71% of orders digitally compared to 68% in the first half of 2022, supporting customer retention and enhancing operational efficiency |
* Alternative performance measure that excludes charges for customer relationships, brands and technology amortisation, acquisition related items, non-recurring pension scheme charges and the profit or loss on disposal of businesses and any associated tax, where relevant. None of these items relate to the underlying operating performance of the business and, as a result, they distort comparability between businesses and reporting periods. Accordingly, these items are not taken into account by management when assessing the results of the business and are removed in calculating the profitability measures by which management assesses the performance of the Group. Further details of these alternative performance measures are set out in Note 2. Unless otherwise stated operating margin in this review refers to adjusted operating profit as a percentage of revenue.
◊ Growth at constant exchange rates is calculated by comparing the H1 23 results to the results for H1 22 retranslated at the average exchange rates used for H1 23.
ⱡ Underlying revenue is a measure of revenue over comparative periods at constant exchange rates, excluding the incremental impact of acquisitions and disposals and adjusted for differences in trading days between periods as well as for growth delivered in excess of 26% per annum in hyperinflationary economies.
♯ Base business defined as underlying revenue excluding the top Covid-19 related products.
† Based on adjusted operating profit and before corporate costs (see Note 3).
CHAIRMAN’S STATEMENT
Bunzl has had another successful first half, delivering resilient financial results and making strong strategic progress. At constant exchange rates, Bunzl delivered revenue growth in the first half of 2023 of 0.6% (4.5% at actual exchange rates) and growth of 2.4% excluding the strategic disposal of the UK healthcare business. Over the period, adjusted operating profit grew by 2.5% at constant exchange rates, with 4.1% growth excluding the disposal. Operating margins remain strong at 7.4%, with the substantial increase since the comparable pre-pandemic period in 2019 partially supported by acquisitions made over the period. At constant exchange rates, adjusted operating profit was 45% higher than the comparable period in 2019, and is equivalent to a c.10% Compound Annual Growth Rate (CAGR) over that period. The continued resilience of the Group’s performance and strategic progress, despite varying external factors over this period, demonstrates the strength of the business model and gives me confidence that the agility of our people, the diversification of our portfolio, the strength of our culture and our dedication to customer service will continue to drive success for the Group over the long-term.
Strategic priorities
We continue to pursue a strategy of targeting organic growth and operational improvements while developing the business through acquisitions. The Group has announced 12 acquisitions August year-to-date, including the two announced today, with committed spend of more than £350 million and inclusive of our entry into Poland with the anchor acquisition of Safety First. The Group has achieved the significant milestone of completing more than 200 acquisitions since 2004. Bunzl’s depth of opportunity is significant and further consolidation of its fragmented end markets is a key driver of growth for the Group. The Group also continued to pursue operational efficiencies, including further warehouse relocations and consolidations to partially offset property cost inflation, and investments into digital technologies over the period. Bunzl ended the half year with a net debt to EBITDA ratio of 1.1 times, affording Bunzl the balance sheet strength to allocate substantial capital to our active pipeline of acquisition opportunities.
Bunzl’s operating companies continue to focus on providing value-added services to customers and helping them to achieve their own strategic goals. The North America team demonstrated this during their Insight Event for investors, hosted in June 2023, which showcased how the value proposition continues to support organic growth and enhance profitability in the business area, providing exciting medium-term growth opportunities and margin upside. Our own brand ranges and sustainability capabilities are two areas that increasingly strengthen Bunzl’s competitive advantage and the Group continues to focus on pursuing these strategic opportunities to further enhance our proposition.
The Group’s focus on helping customers transition to packaging and products made from alternative materials that are better suited to a circular economy, as well as reducing carbon emissions associated with our deliveries, remains important to our customers. Over the period, the Group has continued to make progress with further implementation of data tools to support customer visibility of their packaging exposures and opportunities for transition, as well as making further progress with our climate change objectives within our supply chains.
Shareholder returns
The Board is recommending an interim dividend of 18.2p, 5.2% higher than the prior year, following on from the Group’s 30th consecutive year of annual dividend growth in 2022. The Group remains committed to ensuring sustainable dividend growth, with dividend cover starting to normalise towards the pre-pandemic level. Between 2004 and 30 June 2023, Bunzl has returned £2.1 billion to shareholders through dividends and has committed £4.9 billion in acquisitions to support a growth strategy that has delivered an annual adjusted earnings per share CAGR between 2004 and 2022 of c.10%.
CHIEF EXECUTIVE OFFICER’S REVIEW
Overview
The resilient results we have achieved once again demonstrate Bunzl’s operational and financial strength. We have again demonstrated good adjusted operating profit growth with margin improvement, building on the strong performance we have already delivered over the last few years. I remain impressed with our people who continue to react to the constantly evolving external environment to effectively support both our customers and the business. Whilst, as expected, the benefit of inflation reduced over the period, our teams have been effective in pursuing margin management initiatives, such as increasing the penetration of our own brand products, which have supported our operating margin, and we have achieved a good outcome from the elevated number of customer tenders we have seen following a period of reduced activity. Acquisitions have also helped us to deliver higher margins over recent years, supporting a sustainably higher operating margin compared to pre-pandemic levels. Furthermore, whilst the Group’s financial strength had enabled our teams to invest in inventory during the supply chain disruption over the last few years, as this has eased, a number of teams have demonstrated very strong operational discipline, achieving a meaningful reduction in our inventory towards pre-pandemic levels over the first half, supporting a 21% rise in free cash flow over the period. I am also very pleased that our acquisition strategy continues to complement the organic growth of the business, with 12 deals already announced August year-to-date, including our first acquisition in Poland which has been a target market for expansion, and taking the Group to 207 acquisitions announced since 2004. With a net debt to EBITDA of 1.1 times at the end of the period we maintain substantial headroom to allocate significant capital to our active pipeline of acquisition opportunities.
Operating performance
With approximately 90% of adjusted operating profit generated outside the UK, profits and earnings were positively impacted between c.4% and c.6% by currency translation over the period. The commentary below is stated at constant exchange rates unless otherwise highlighted.
In the first half of 2023, revenue increased by 0.6% (4.5% at actual exchange rates) to £5,906.8 million. Within this, underlying revenue declined by 0.4%, while acquisitions contributed revenue growth of 2.8%. The disposal of our UK healthcare business in December 2022 impacted revenue by 1.8%. Within the underlying revenue decline of 0.4%, growth in the base business benefited underlying revenue growth by 1.6%, offset by a 2.0% impact to underlying growth from the expected decline in Covid-19 related sales, with much of this occurring in the first quarter of the year with limited impact in the second quarter. The base business growth was impacted by the reducing benefit from inflation, as expected, as well as wider post-pandemic related normalisation trends which have resulted in volume weakness in the North America foodservice sector. Covid-19 related sales have reduced significantly since their peak in 2020 and are now at a more typical level, although remain ahead of 2019 levels which represents a small benefit to Group revenue.
The Group has managed inflation on plastics, paper and chemicals well and successfully implemented product cost driven selling price increases. During the first half of 2023, the year-on-year benefit of prior year product cost increases continued to reduce, with North America seeing only a small year-on-year benefit by the second quarter. Other regions, in which inflation had lagged North America, also started to see some annualisation towards the end of 2022, however Continental Europe growth continued to see good support from inflation, and inflation remained strong in the UK & Ireland. Over the period we saw good outcomes from the elevated number of customer tenders, following reduced activity during the pandemic. Alongside these product cost trends, we saw limited operating cost growth in North America as freight cost reductions partially offset wage growth, which was closer to typical historical levels, and continued property cost inflation linked to renewals. Wage inflation in Continental Europe over the period increased but was significantly less than the inflation we had previously experienced in North America. Overall, Group operating costs grew only moderately despite the backdrop. Combined with the positive contribution that product cost inflation has made to revenue, inflation dynamics have remained somewhat supportive to margins.
The foodservice and retail sectors combined, saw underlying revenue decline by 4% compared to the prior year. Foodservice was impacted by the decline of Covid-19 related products, but also some wider post-pandemic related volume weakness in North America, driven by the decline in takeaway packaging sales, as dining habits have continued to shift following the pandemic, as well as customer destocking activity earlier in the period. We expect the sales of takeaway packaging to normalise during the first half of 2024. Strong growth across Continental Europe’s retail base businesses was more than offset by a reduction in Covid-19 related sales and actions taken to focus on more profitable customers in North America. Total underlying revenue in the grocery and other sectors grew by 2%, driven by further year-on-year inflation benefit. Overall, total underlying revenue in the cleaning & hygiene, safety and healthcare sectors also grew by 2% year-on-year despite an impact from lower Covid-19 related sales which partly offset base business growth across all these sectors. Our healthcare base businesses are performing well, with the backlog of elective surgeries remaining a tailwind. Our safety base businesses have seen improvement as the supply chain disruption and labour shortages that impacted 2022 have eased for customers; we expect the safety business in North America to benefit from increased infrastructure spend in the medium term. The cleaning & hygiene sector saw very strong base business growth over the period, with continued inflation.
Adjusted operating profit was £438.3 million, an increase of 2.5% (6.5% at actual exchange rates), and operating margin increased to 7.4% compared to 7.3% in the prior period. The Group’s operating margin was supported by successful margin management initiatives, including the increase in own brand penetration. Operating margins remain substantially higher compared with the 6.6% achieved in the first half of 2019, at constant exchange rates, driven by margins attributable to acquisitions made over that period, as well as an underlying margin increase. Excluding the UK healthcare disposal, adjusted operating profit grew by 4.1%. Reported operating profit was £359.8 million, an increase of 5.5% (9.9% at actual exchange rates), reflecting the 2.5% increase in adjusted operating profit and a reduction in customer relationships, brands and technology amortisation and acquisition related items compared to the prior year period.
Adjusted profit before income tax was £395.6 million, a decrease of 0.8% (4.0% increase at actual exchange rates) and an increase of 0.9% excluding the UK healthcare disposal. Adjusted profit before income tax was impacted by a £13.7 million increase in net finance expense, at constant exchange rates, to £42.7 million, driven by increases in interest rates on floating debt and increases in interest rates on refinancing long-term debt, fair value losses on interest rate derivatives partly offset by lower average debt during the period. The Group continues to expect a net finance expense in 2023 of £90 million to £95 million, predominantly reflecting the non-repeat of financial derivative benefit seen in 2022 and higher interest rates on the floating portion of Bunzl’s Group debt. Reported profit before income tax was £317.1 million, an increase of 1.6% (6.9% at actual exchange rates).
The effective tax rate of 25.2% was higher than the 24.6% in the prior period, reflecting the UK corporate tax increase. Adjusted earnings per share were 88.3p, a decline of 1.7% (3.0% increase at actual exchange rates) and an increase of 0.2% excluding the UK healthcare disposal. Basic earnings per share were 70.8p, an increase of 1.6% (6.9% at actual exchange rates).
The Group’s cash generation continues to be strong, with £286.3 million of free cash flow generated, representing 21% growth at actual exchange rates compared to the comparable period in 2022. The improved level of cash generation reflects good underlying cash generation, including an improvement in working capital in the first half of the year, enabled by easing supply chain constraints particularly in comparison to the first half of 2022, as well as actions taken by the Group to meaningfully reduce inventory towards pre-pandemic levels. Cash conversion (operating cash flow as a percentage of lease adjusted operating profit) over the period was 93% compared to 86% last year. The Group ended the period with net debt, excluding lease liabilities, of £1,020.4 million compared to £1,160.1 million in December 2022. Net debt to EBITDA, calculated at average exchange rates and in accordance with the Group’s external debt covenants, which are based on historical accounting standards, was 1.1 times compared to 1.2 times at the end of 2022. This provides substantial headroom to allocate significant capital to our active pipeline of acquisitions and to consider other potential capital allocation options. The structure of recent acquisitions, with increasing earn-outs and options to be exercised to buy out minorities in future years, gives rise to both deferred consideration payable, which is held on the balance sheet, and future contingent consideration which, in accordance with accounting standards, is not held on the balance sheet. Deferred consideration, based on the expected earnings to be achieved by these businesses over the respective earn out and option terms, was £140.2 million at the end of the period, compared to £139.9 million at the end of 2022, and was not included within the Group’s external debt covenant definition. At the end of the period, total deferred and contingent consideration relating to acquisitions was £224.1 million compared to £216.2 million at the end of 2022.
Return on average operating capital increased slightly to 43.2% compared to 43.0% at 31 December 2022, whilst return on invested capital was 14.9% compared to 15.0% at 31 December 2022. Return on average operating capital and return on invested capital both remain significantly higher than in December 2019, when these metrics were 36.9% and 13.6% respectively.
Organic growth and operational efficiency
We remain committed to delivering growth through our consistent compounding strategy which focuses on organic growth, operational efficiency and acquisitions. Our colleagues around the world continue to provide our customers with innovative products and services, including those within our strong sustainability offering, which enhances our competitive advantage as evidenced by the good outcome of recent tenders. Furthermore, digital sales accounted for 71% of orders over the period compared to 68% in the first half of 2022. Our continued focus on warehouse optimisation included the consolidation of six warehouses and the relocation of a further six. In addition, we continued to implement new technologies and automation to drive more efficient processes.
Acquisitions
Over the first six months of the year, Bunzl announced and completed six acquisitions and signed one additional acquisition, with a total committed spend of £211.5 million. Bunzl has continued to see strong momentum since the end of June, with 12 acquisitions now announced August year-to-date, with a total committed spend of more than £350 million. This includes the acquisitions we have announced today of EcoTools.nl and Safety First. The 12 acquisitions announced August year-to-date are across seven countries and four sector verticals, highlighting the breadth of consolidation opportunity. The combined revenue of these businesses was c.£237 million in 2022. We are particularly pleased to be entering the Polish market with the acquisition of Safety First, meaning Bunzl will, upon completion, operate from 32 countries globally.
| Acquisition | Completion | Description |
| Capital Paper | January 2023 | Distributor of foodservice packaging and consumables, cleaning & hygiene supplies, and industrial packaging products in Canada, with revenue of CAD 26 million (c.£16 million) in 2022 |
| Arbeitsschutz-Express | April 2023 | A fast-growing online distributor of workwear and Personal Protective Equipment (PPE) in Germany, which generated EUR 41 million (c.£35 million) of revenue in 2022 |
| Dimasa | April 2023 | Distributor of cleaning and hygiene products in the Andalusia region of Spain with revenue of EUR 4 million (c.£3 million) in 2022 |
| Irudek | April 2023 | Distributor of safety and PPE in Spain, specialising in fall protection equipment, with revenue of EUR 17 million (c.£15 million) in 2022 |
| EHM | June 2023 | Distributor of a wide range of PPE products in the UK with revenue in 2022 of £18 million |
| La Cartuja Complementos Hosteleria | June 2023 | Foodservice and hospitality equipment provider in Spain with revenue of EUR 5 million (c.£4 million) in 2022 |
| EcoTools.nl | July 2023 | High growth Netherlands specialist online distributor of tool accessories and industrial consumables to customers across the Benelux region. In 2022, the business generated revenue of EUR 20 million (c.£17 million) with very high double digit margins |
| Leal Equipamentos de Proteção | August 2023 | A specialised high margin safety distributor in Brazil with a strong own brand portfolio which generated revenue of BRL 216 million (c.£34 million) in 2022 |
| Groveko | August 2023 | Distributor of cleaning and hygiene products in the Netherlands with both a traditional cleaning and hygiene product offering, as well as robotic and smart cleaning solutions. The business generated revenue of EUR 23 million (c.£20 million) in 2022 |
| PackPro | August 2023 | Distributor of packaging solutions to a diverse customer base, including food processor and industrial customers in Canada. In 2022 the business generated revenue of CAD 33 million (c.£20 million) |
| Safety First | Signed July 2023 | One of the largest distributors of PPE in Poland to a range of end markets. This is Bunzl’s anchor acquisition into Poland, with revenue generated in 2022 of PLN 121 million (c.£22 million). Completion of the acquisition is subject to competition authority clearance |
| Grupo Lanlimp | Signed July 2023 | A market leading distributor of cleaning and hygiene products in Brazil with revenue of BRL 210 million (c.£33 million) in 2022. Completion of the acquisition is subject to competition authority clearance |
The strength of the Group’s cash conversion and balance sheet continues to enable the Group to fund further acquisitions, largely through cash generated in the year. Bunzl ended the first half of 2023 with net debt to EBITDA of 1.1 times, providing the Group with substantial capacity to fund further acquisitions and to consider other potential capital allocation options. Our pipeline is active, and we see significant opportunities for continued acquisition growth in our existing markets where we have opportunity to increase our presence, as well as potential to expand into new markets.
Our capital allocation priorities are to: reinvest our cash into the business to support organic growth and operational efficiencies; pay a progressive dividend; self-fund value accretive acquisitions; and distribute excess cash. Our framework favours the first three methods of investment, with £2.1 billion of cash distributed to shareholders through dividends and £4.9 billion committed acquisition spend between 2004 and the first half of 2023, alongside a return on invested capital of 14.9%. Whilst the Board is committed to an efficient balance sheet which supports organic investment and value-accretive acquisitions, it also continually assesses the appropriateness of the return of excess capital to shareholders.
Prospects
Given performance year to date, we upgrade our 2023 adjusted operating profit guidance, driven by a meaningful increase in operating margin expectations. We now expect adjusted operating profit to be moderately higher than in 2022 at constant exchange rates, with operating margin remaining strong and moderately higher than that achieved in the prior year. At constant exchange rates we expect Group revenue in 2023 to be slightly higher than in 2022, driven by announced acquisitions, partially offset by a slight organic decline, following strong organic growth in recent years, and a small impact from the UK healthcare disposal.
BUSINESS AREA REVIEW
North America
| H1 23£m | H1 22£m | Growth atconstantexchange* | Underlyinggrowth* | |
| Revenue | 3,514.4 | 3,435.9 | (2.9)% | (3.1)% |
| Adjusted operating profit* | 245.6 | 231.5 | 0.4% | |
| Operating margin* | 7.0% | 6.7% |
* Alternative performance measure (see Note 2)
In North America, revenue declined by 2.9% to £3,514.4 million, with underlying revenue declining by 3.1%. Underlying revenue continues to benefit from prior year product price increases, although this moderated over the period and was only a small benefit by the second quarter. Despite the benefit of a significant new business win in our processor segment at the start of the year, volumes were impacted by weakness in the foodservice sector, driven by a reduction in takeaway packaging and customer destocking activity, as well as a further reduction in Covid-19 related sales. Adjusted operating profit improved by 0.4%, to £245.6 million with an operating margin of 7.0%, up from 6.7% in the prior year. This operating margin improvement was driven by a strong benefit from margin management initiatives, inclusive of an increase in own brands, particularly in our grocery, foodservice and safety segments, and supported by limited operating cost inflation. During the period, wage inflation, which was closer to typical historical levels, and continued property cost inflation linked to renewals were largely offset by freight cost reductions.
Our largest business, which supports the US grocery sector, experienced stable consumer demand, supported by the moderating impact of product cost inflation. Operating margin was supported by good margin management initiatives, including the expansion of own brands, driving an overall improvement in operating margins and operating profits. We agreed new terms with our largest customer by revenue in January 2023 that reduce our sensitivity to product and operating cost movements, and provide opportunities to support them with our own brand range going forward. Our convenience store sector declined moderately.
Our foodservice redistribution business declined, with the moderating impact of prior year product cost inflation offset by the reversal in pandemic-related growth in takeaway packaging, as customers adjusted inventories to take account of a shift back to in-restaurant dining, as well as customer destocking activity. Our food processor sector saw good growth, driven by the favourable impact of a large customer win in Q3 2022 and product cost inflation, although this was partially offset by continued temporary market weakness. Our businesses serving the agriculture sector saw revenues decline significantly owing to the historic flooding in California in H1 2023.
Our cleaning & hygiene redistribution business grew moderately, as base business product cost inflation was offset by volume declines in Covid-19 related sales, and continued high levels of remote working.
Revenue in our retail supplies business was impacted by some lost business following actions taken to focus on more profitable customers. However, adjusted operating profit grew as cost management initiatives more than offset the decline in revenues.
Our safety business revenue declined, driven by a reduction in Covid-19 related sales, although operating margins and operating profit improved as supply chains stabilised.
Lastly, our business in Canada grew modestly, with the underlying business flat and growth driven by the January 2023 acquisition of Capital Paper. Growth in grocery, cleaning & hygiene and redistribution was offset by declines in the safety and industrial sectors, the latter having performed particularly strongly in the last few years.
Continental Europe
| H1 23£m | H1 22£m | Growth at constantexchange* | Underlyinggrowth* | |
| Revenue | 1,179.1 | 1,026.1 | 12.4% | 3.7% |
| Adjusted operating profit* | 106.8 | 97.7 | 7.8% | |
| Operating margin* | 9.1% | 9.5% |
* Alternative performance measure (see Note 2)
Revenue in Continental Europe grew by 12.4% to £1,179.1 million, due to the benefit of acquisitions and the support of product cost inflation offsetting the expected reduction in Covid-19 related sales. Underlying revenue growth was impacted by weakening volumes due to the expected decline in Covid-19 related sales, as well as reduced public sector activity in France. Adjusted operating profit increased by 7.8% to £106.8m with operating margin decreasing from 9.5% to 9.1% driven by hyperinflation accounting in the Turkish businesses, the decline in Covid-19 related orders and an impact from sector mix.
In France, revenue grew moderately in our cleaning & hygiene businesses, driven by product cost inflation and growth from foodservice and healthcare customers offsetting a decline in Covid-19 related sales and reduced activity with public sector customers. Our safety business saw a significant reduction in sales of Covid-19 related products, as well as an impact from reduced public sector activity, but successfully moved to a new IT platform enabling more efficient digital tools to be used to support its operations. The foodservice businesses have grown sales, supported by inflation.
In the Netherlands, there was very strong growth in our foodservice and non-food retail businesses, driven by a number of new business wins at our retail business and good growth with hotel, travel and leisure customers in our foodservice business. Our grocery and e-commerce fulfilment businesses saw more limited growth, with the prior year benefitting very strongly from the reduction in Covid-19 restrictions. In our safety businesses, sales grew moderately despite a significant decline of Covid-19 related items. In Belgium, our cleaning & hygiene businesses have grown strongly with healthcare and contract cleaning customers, and in Germany our foodservice business has grown significantly across all sectors but in particular with hotel customers.
In Denmark, we have seen moderate growth in our foodservice, cleaning and hygiene and grocery businesses as inflation has offset a reduction in Covid-19 related product sales. Revenues in our safety business have grown strongly due to increased activities from customers in the renewable energy and pharmaceutical sectors.
Sales in Spain saw good growth, driven by strong foodservice growth and despite a reduction in Covid-19 related sales, as well as reduced activities and some selling price decreases with industrial and disposable packaging customers. Our safety end-user and redistribution businesses were impacted by the reduction of Covid-19 related sales but still delivered moderate growth overall with increased volumes in the base business.
In Turkey, revenue has declined as we focus on business that can be profitable in a hyperinflationary environment.
In all other countries we have seen growth in foodservice aided by inflation and volume growth but partially offset by lower Covid-19 related sales. We have continued to increase the share of digital orders from customers and have launched a number of new webshops, supporting improved customer retention and enhancing the efficiency of our business. Our digital capabilities have also been enhanced with the recent acquisitions of Hygi.de and Queralto in 2022, and Arbeitsschutz-Express and EcoTools.nl in 2023.
UK & Ireland
| H1 23£m | H1 22£m | Growth at constantexchange* | Underlyinggrowth* | |
| Revenue | 663.8 | 687.1 | (3.7)% | 11.6% |
| Adjusted operating profit* | 44.7 | 40.6 | 9.6% | |
| Operating margin* | 6.7% | 5.9% |
* Alternative performance measure (see Note 2)
In UK & Ireland, revenue declined by 3.7%, however excluding the disposal of our UK healthcare business in December 2022 revenue rose by 13.0%. Excluding the impact of acquisitions and last year’s disposal, underlying revenue increased by 11.6%. This growth was driven by strong product cost inflation, alongside continued recovery in certain markets, in particular foodservice, cleaning & hygiene and safety. This positive sales growth, supported by an increase in own brand penetration, delivered a significant increase in operating margin which improved from 5.9% to 6.7%, with adjusted operating profit increasing by 9.6% to £44.7m, and by 31.1% excluding the UK healthcare disposal.
In our cleaning & hygiene businesses, we delivered strong growth, supported by several new customer wins as well as the benefit of product cost inflation. We have continued to develop attractive sustainable products which allow our customers to achieve their own sustainability goals as well as working jointly to reduce the number of deliveries by consolidating a greater assortment of products into one shipment.
In safety, we have started to see underlying volume growth, enabled by better product availability. More customers continue to utilise our comprehensive range of digital solutions making procurement easier in this technically demanding space. Our recent acquisition of EHM in June this year continues to enhance our presence in the construction market as we look to invest further in sustainable PPE products for our customers as supply chain disruptions ease.
Our grocery and non-food retail businesses saw good growth over the period as we secured some of our larger customers on long term contracts as well as growing the number of product categories provided. Despite a weakening within the online retail marketplace, given the shift to the channel during the pandemic, and some selling price decreases in corrugates, our related packaging businesses grew revenue in the first six months.
Our foodservice businesses witnessed strong growth as hospitality continued to recover following the pandemic and despite food inflation and industry labour shortages. These businesses continue to win new customers with their high service levels, product expertise and well-regarded sustainable solutions. Furthermore, we continue to expand our re-usable ranges to complement existing recyclable and compostable products.
Ireland grew strongly over the period and we have continued to invest in developing our operations with the introduction of new warehouse management systems, which have further enhanced our service following the recent launch of innovative stock management technology. Data provides us with valuable insights into our customers’ purchasing habits which allows us to recommend valuable and sustainable delivery solutions to support a growing need to reduce carbon emissions.
Rest of the World
| H1 23£m | H1 22£m | Growth at constantexchange* | Underlying growth* | |
| Revenue | 549.5 | 501.7 | 7.6% | (4.1)% |
| Adjusted operating profit* | 57.1 | 53.9 | 2.7% | |
| Operating margin* | 10.4% | 10.7% |
* Alternative performance measure (see Note 2)
In Rest of the World, revenue increased 7.6% to £549.5 million, driven by acquisitions, with underlying revenue growth declining by 4.1% as a result of a further reduction in Covid-19 related sales which more than offset growth in both the Asia Pacific and Latin America base businesses. The negative impact of Covid-19 related sales decline was driven largely by Asia Pacific, due to the non-repeat of some larger orders in the prior year. The Latin America businesses were also impacted by lower selling prices resulting from reduced inbound freight costs and currency movements over the period. Overall, the Rest of World’s adjusted operating profit grew by 2.7% to £57.1 million with operating margin decreasing from 10.7% to 10.4%, due to the reduction in higher margin Covid-19 related sales. However, operating margin remains well ahead of 2019 levels.
In Brazil, our safety businesses saw good sales growth and stronger margins despite the impact on selling prices from lower inbound freight costs and currency movements. Our healthcare businesses continued to be impacted by reducing sales of vaccine related products. Our foodservice business similarly saw freight and currency related selling price reductions but was able to improve margins, resulting in operating profit growth.
In Chile, our safety businesses saw good volume-driven sales growth and increased margins, although our catering supplies business was unable to offset the impact on selling prices from lower inbound freight costs and currency movements.
Our largest business in Asia Pacific experienced a temporary decline in revenue in healthcare as both the government and private sectors utilised excess Covid-19 related stock. However, the business experienced solid growth in cleaning and hygiene and overall has continued developing specialisation in its core market sectors which has resulted in a strong pipeline of new business.
Our Australian speciality healthcare business was impacted by reduced government and private spending, as these customers continue to utilise stock procured during the pandemic, but remained focused on delivering improvements in its supply chain and continued exploring potential new opportunities.
Our safety business units delivered a strong base business performance, maintaining good momentum and benefiting from new business wins and a continued focus on developing own brands. Our emergency services business was impacted by the timing of orders, with more orders falling into the second half of the year.
In New Zealand, our MedTech healthcare business continued to experience an extended slowdown, with hospitals initially delaying elective surgeries to allow beds for potential Covid-19 outbreaks and then subsequently impacted by a shortage of clinical staff. USL Medical, a specialist medical consumables business acquired in June 2022 has had good growth in the first half across its portfolio.
FINANCIAL REVIEW
As in previous years this review refers to a number of alternative performance measures which management uses to assess the performance of the Group. Details of the Group’s alternative performance measures are set out in Note 2 to the interim financial statements.
Currency translation
Currency translation had a positive impact on the Group’s reported results, increasing revenue, profits and earnings by between c4% and c6%. The positive exchange rate impact was principally due to the effect on average exchange rates of the weakening of sterling against the US dollar, Euro and Brazilian real, partly offset by the adverse impact of the strengthening of sterling against the Australian dollar and Canadian dollar.
| Average exchange rates | Six months to30.6.23 | Six months to30.6.22 |
| US$ | 1.23 | 1.30 |
| Euro | 1.14 | 1.19 |
| Canadian$ | 1.66 | 1.65 |
| Brazilian real | 6.25 | 6.59 |
| Australian$ | 1.83 | 1.80 |
| Closing exchange rates | 30.6.23 | 30.6.22 |
| US$ | 1.27 | 1.21 |
| Euro | 1.17 | 1.16 |
| Canadian$ | 1.68 | 1.57 |
| Brazilian real | 6.13 | 6.35 |
| Australian$ | 1.91 | 1.77 |
Revenue
Revenue increased to £5,906.8 million (2022 H1: £5,650.8 million), an increase of 0.6% at constant exchange rates (up 4.5% at actual exchange rates), due to acquisitions adding 2.8% partly offset by the impact from the disposal of the UK Healthcare business at the end of 2022 reducing revenue by 1.8% and an underlying decline of 0.4%. The underlying decline was impacted by a reducing benefit from inflation, as well as wider post-pandemic related normalisation trends which drove some volume weakness in the North American foodservice sector, and a negative impact from the expected decline in Covid-19 related sales.
| Movement in revenue | £m |
| 2022 H1 revenue | 5,650.8 |
| Currency translation | 217.9 |
| Excess growth in hyperinflationary economies | 0.6 |
| Underlying revenue decline | (25.5) |
| Acquisitions | 165.0 |
| Disposal of business | (102.0) |
| 2023 H1 revenue | 5,906.8 |
Operating profit
Adjusted operating profit increased to £438.3 million (2022 H1: £411.4 million), an increase of 2.5% at constant exchange rates and 6.5% at actual exchange rates. At both constant and actual exchange rates the operating margin increased to 7.4% from 7.3%.
During the six months to 30 June 2023, the Group has seen a net utilisation of approximately £5 million in slow moving inventory and trade receivables provisions, with usage of these provisions exceeding net charges to increase the provisions. In addition, the Group has seen some utilisation of the additional provisions set up in the prior year as a result of market price movements on certain Covid-19 products.
| Movement in adjusted operating profit | £m |
| 2022 H1 adjusted operating profit | 411.4 |
| Currency translation | 16.3 |
| Increase in hyperinflation accounting adjustments | (1.1) |
| Growth in the period | 11.7 |
| 2023 H1 adjusted operating profit | 438.3 |
Operating profit was £359.8 million (2022 H1: £327.5 million), an increase of 5.5% at constant exchange rates and 9.9% at actual exchange rates.
| Movement in operating profit | £m |
| 2022 H1 operating profit | 327.5 |
| Currency translation | 13.7 |
| Increase in hyperinflation accounting adjustments | (0.7) |
| Growth in adjusted operating profit | 11.7 |
| Decrease in customer relationships, brands and technology amortisation and acquisition related items* | 7.6 |
| 2023 H1 operating profit | 359.8 |
Customer relationships, brands and technology amortisation and acquisition related items are excluded from the calculation of adjusted operating profit as they do not relate to the underlying operating performance and distort comparability between businesses and reporting periods. Accordingly, these items are not taken into account by management when assessing the results of the business and are removed in calculating adjusted operating profit and other alternative performance measures by which management assesses the performance of the Group.
Net finance expense
The net finance expense of £42.7 million increased by £13.7 million at constant exchange rates (up £11.8 million at actual exchange rates), mainly due to increases in interest rates on floating debt, increases in interest rates on refinancing long-term debt, and fair value losses on interest rate derivatives partly offset by lower average debt during the period.
Profit before income tax
Adjusted profit before income tax was £395.6 million (2022 H1: £380.5 million), down 0.8% at constant exchange rates (up 4.0% at actual exchange rates) due to the increase in net finance expense partly offset by growth in adjusted operating profit. Profit before income tax increased to £317.1 million (2022 H1: £296.6 million), an increase of 1.6% at constant exchange rates (up 6.9% at actual exchange rates).
Taxation
The Group’s tax strategy is to comply with tax laws in all countries in which it operates and to balance its responsibilities for controlling the tax costs with its responsibilities to pay the appropriate level of tax where it does business. No companies are established in tax havens or other countries for tax purposes where the Group does not have an operational presence and the Group’s de-centralised operational structure means that the level of intragroup trading transactions is very low. The group does not use intragroup transfer prices to shift profit into low tax jurisdictions. The Group’s tax strategy has been approved by the Board and tax risks are reviewed by the Audit Committee. In accordance with UK legislation, the strategy is published on the Bunzl plc website within the Investors section.
The effective tax rate (being the tax rate on adjusted profit before income tax) for the period was 25.2% (2022 H1: 24.6%) and the reported tax rate on statutory profit was 25.2% (2022 H1: 25.3%). The increase in effective tax rate for the Group is attributable to the increase in UK statutory tax rate from 19% to 25% in April 2023. The effective tax rate for the full year is likely to be similar to the half year.
The Group notes the enactment of UK legislation for a global minimum tax rate of 15% applying to profits from 2024 and is monitoring the progress of similar legislation in other jurisdictions. Profits generated in countries with a tax rate below this level are likely to be an insignificant proportion of the Group as a whole, and the Group does not benefit to any significant extent from any tax incentives. Based on analysis to date the Group does not expect a material impact of the global minimum tax.
Earnings per share
Profit after tax increased to £237.2 million (2022 H1: £221.6 million), up 1.6% and an increase of £3.7 million at constant exchange rates (up 7.0% at actual exchange rates), due to a £4.9 million increase in profit before income tax partly offset by a £1.2 million increase in the tax charge at constant exchange rates. Profit after tax for the year bears a £5.1 million adverse impact from hyperinflation accounting adjustments (2022 H1: £11.3 million adverse impact).
Adjusted profit after tax was £295.9 million (2022 H1: £286.9 million), down 1.6% and a decrease of £4.7 million at constant exchange rates (up 3.1% at actual exchange rates), due to a £3.1 million decrease in adjusted profit before income tax and a £1.6 million increase in the tax on adjusted profit before income tax at constant exchange rates. Adjusted profit after tax for the year bears a £5.0 million adverse impact from hyperinflation accounting adjustments (2022 H1: £10.4 million adverse impact), comprising a £4.7 million adverse impact to adjusted profit before tax (2022 H1: £9.4 million adverse impact) and a £0.3 million increase in the tax charge (2022 H1: £1.0 million increase).
The weighted average number of shares in issue increased from 334.9 million in the period ended 30 June 2022 to 335.1 million due to employee share option exercises partly offset by share purchases into the employee benefit trust.
Basic earnings per share were 70.8p (2022 H1: 66.2p), up 1.6% at constant exchange rates (up 6.9% at actual exchange rates). Adjusted earnings per share were 88.3p (2022 H1: 85.7p), a decrease of 1.7% at constant exchange rates (up 3.0% at actual exchange rates).
| Movement in basic earnings per share | Pence | |
| 2022 H1 basic earnings per share | 66.2 | |
| Currency translation | 3.5 | |
| Decrease in adjusted profit before income tax* | (0.9) | |
| Decrease in adjusting items | 1.8 | |
| Decrease in hyperinflation accounting adjustments | 0.5 | |
| Increase in reported tax rate | (0.3) | |
| Increase in weighted average number of shares | – | |
| 2023 H1 basic earnings per share | 70.8 | |
| Movement in adjusted earnings per share | Pence | |
| 2022 H1 adjusted earnings per share | 85.7 | |
| Currency translation | 4.1 | |
| Decrease in adjusted profit before income tax | (0.9) | |
| Decrease in hyperinflation accounting adjustments | 0.4 | |
| Increase in effective tax rate | (0.9) | |
| Increase in weighted average number of shares | (0.1) | |
| 2023 H1 adjusted earnings per share | 88.3 |
Dividends
The Company’s practice in recent years has been to pay a progressive dividend, delivering year-on-year increases. The Board is proposing a 2023 interim dividend of 18.2p, an increase of 5.2% on the amount paid in relation to the 2022 interim dividend.
Before approving any dividends, the Board considers the level of borrowings of the Group by reference to the ratio of net debt to EBITDA, the ability of the Group to continue to generate cash and the amount required to invest in the business, in particular into future acquisitions. The Group’s long-term track record of strong cash generation provides the Company with the financial flexibility to fund a growing dividend.
Acquisitions
The Group completed seven acquisitions during the period ended 30 June 2023 with a total committed spend of £127.3 million. Including the acquisition of Leal, which was agreed in the first half of 2023 but completed on 31 July 2023, and excluding the acquisition of GRC, which was agreed in 2022 but completed on 1 January 2023, total committed spend on acquisitions agreed during the period was £211.5 million. The estimated annualised revenue and adjusted operating profit of the acquisitions agreed during the period were £136 million and £23 million respectively.
A summary of the effect of acquisitions completed in the period is as follows:
| £m | |
| Fair value of net assets acquired | 61.4 |
| Goodwill | 37.8 |
| Consideration | 99.2 |
| Satisfied by: | |
| cash consideration | 76.5 |
| deferred consideration | 22.7 |
| 99.2 | |
| Contingent payments relating to the retention of former owners | 26.5 |
| Net cash acquired | (10.4) |
| Transaction costs and expenses | 12.0 |
| Total committed spend in respect of acquisitions completed in the current period | 127.3 |
| Spend on acquisitions committed but not completed at the period end | 87.1 |
| Spend on acquisitions committed at prior year end but completed in the current period | (2.9) |
| Total committed spend in respect of acquisitions agreed in the current period | 211.5 |
The net cash outflow in the period in respect of acquisitions comprised:
| £m | |
| Cash consideration | 76.5 |
| Net cash acquired | (10.4) |
| Deferred consideration payments | 6.1 |
| Net cash outflow in respect of acquisitions | 72.2 |
| Acquisition related items* | 23.5 |
| Total cash outflow in respect of acquisitions | 95.7 |
*Acquisition related items comprised £11.8 million of transaction costs and expenses paid and £11.7 million of payments relating to the retention of former owners.
Cash flow
A summary of the cash flow for the period is shown below:
| Six months to30.6.23£m | Six months to30.6.22£m | |
| Cash generated from operations† | 514.6 | 444.6 |
| Payment of lease liabilities | (91.9) | (82.5) |
| Net capital expenditure | (25.4) | (18.9) |
| Operating cash flow† | 397.3 | 343.2 |
| Net interest paid excluding interest on lease liabilities | (29.7) | (24.2) |
| Income tax paid | (81.3) | (82.8) |
| Free cash flow | 286.3 | 236.2 |
| Dividends paid | (57.9) | (54.3) |
| Net payments relating to employee share schemes | (48.8) | (59.8) |
| Net cash inflow before acquisitions | 179.6 | 122.1 |
| Acquisitions◊ | (95.7) | (84.5) |
| Net cash inflow | 83.9 | 37.6 |
† Before acquisition related items.
◊ Including acquisition related items.
The Group’s free cash flow of £286.3 million was £50.1 million higher than in the comparable period, driven primarily by an increase in operating cash flow. The Group’s free cash flow was used to finance dividend payments of £57.9 million in respect of 2022 dividends (2022 H1: £54.3 million in respect of 2021 dividends), an acquisition cash outflow of £95.7 million (2022 H1: £84.5 million) and net payments of £48.8 million (2022 H1: £59.8 million) relating to employee share schemes. Cash conversion (being the ratio of operating cash flow to lease adjusted operating profit) for the six months to 30 June 2022 was 93% (2022 H1: 86%, 2022 YE: 107%).
| Six months to30.6.23£m | Six months to30.6.22£m | |
| Operating cash flow | 397.3 | 343.2 |
| Adjusted operating profit | 438.3 | 411.4 |
| Add back depreciation of right-of-use assets | 80.7 | 70.2 |
| Deduct payment of lease liabilities | (91.9) | (82.5) |
| Lease adjusted operating profit | 427.1 | 399.1 |
| Cash conversion* | 93% | 86% |
* Operating cash flow as a percentage of lease adjusted operating profit.
Net debt
Net debt excluding lease liabilities decreased by £139.7 million during the period to £1,020.4 million (31 December 2022: £1,160.1 million), due to a net cash inflow of £83.9 million, a £56.2 million decrease due to currency translation and a £0.4 million increase due to non-cash movements in debt. Net debt including lease liabilities was £1,638.1 million (31 December 2022: £1,730.0 million).
Net debt to EBITDA calculated at average exchange rates and based on historical accounting standards, in accordance with the Group’s external debt covenants, was 1.1 times (31 December 2022: 1.2 times). Net debt to EBITDA calculated at average exchange rates including lease liabilities was 1.5 times (31 December 2022: 1.5 times).
Balance sheet
| Summary balance sheet | 30.6.23£m | 30.6.22£m | 31.12.22£m |
| Intangible assets | 3,011.6 | 2,938.3 | 3,093.9 |
| Right-of-use assets | 574.9 | 477.0 | 529.6 |
| Property, plant and equipment | 141.1 | 129.9 | 137.2 |
| Working capital | 1,088.8 | 1,204.2 | 1,096.6 |
| Deferred consideration | (140.2) | (79.1) | (139.9) |
| Other net liabilities | (455.0) | (411.1) | (306.4) |
| 4,221.2 | 4,259.2 | 4,411.0 | |
| Net pensions asset | 47.0 | 37.7 | 39.9 |
| Net debt excluding lease liabilities | (1,020.4) | (1,374.6) | (1,160.1) |
| Lease liabilities | (617.7) | (518.0) | (569.9) |
| Equity | 2,630.1 | 2,404.3 | 2,720.9 |
| Return on average operating capital | 43.2% | 43.5% | 43.0% |
| Return on invested capital | 14.9% | 14.9% | 15.0% |
Return on average operating capital increased to 43.2% from 43.0% at 31 December 2022 driven by a positive impact from currency translation. Return on invested capital decreased slightly to 14.9% from 15.0% at 31 December 2022 due to the impact of higher capital employed from acquisitions.
Intangible assets decreased by £82.3 million from 31 December 2022 to £3,011.6 million due to currency translation of £122.1 million and an amortisation charge of £70.3 million, partly offset by £99.9 million of additions to goodwill, customer relationships, brands, technology and software arising on acquisitions in the period.
Right-of-use assets increased by £45.3 million from 31 December 2022 to £574.9 million due to new leases during the period of £52.2 million, an increase from acquisitions of £14.7 million, an increase from remeasurement adjustments of £83.6 million partly offset by a depreciation charge of £80.7 million and a decrease from currency translation of £24.5 million.
Working capital decreased by £7.8 million from 31 December 2022 to £1,088.8 million mainly due to a decrease from currency translation of £43.0 million partly offset by an underlying increase of £27.4 million as shown in the cash flow statement and £7.1 million from acquisitions.
Deferred consideration increased by £0.3 million from 31 December 2022 to £140.2 million due to £22.7m of deferred consideration recognised on acquisitions partly offset by deferred consideration and retention payments of £17.4 million, a decrease from currency translation of £4.8 million and a net credit of £0.2 million relating to adjustments to previously estimated earn outs and the retention of former owners. Including expected future payments which are contingent on the continued retention of former owners of businesses acquired of £83.9m, total deferred and contingent consideration as at 30 June 2023 was £224.1m.
The Group’s net pension asset of £47.0 million at 30 June 2023 was £7.1 million higher than at 31 December 2022, largely due to cash contributions of £6.1 million.
Shareholders’ equity decreased by £90.8 million from £2,720.9 million at 31 December 2022 to £2,630.1 million.
| Movement in shareholders’ equity | £m |
| Shareholders’ equity at 31 December 2022 | 2,720.9 |
| Profit for the period | 237.2 |
| Dividends | (209.7) |
| Currency (net of tax) | (92.3) |
| Hyperinflation accounting adjustment | 8.6 |
| Actuarial gain on pension schemes (net of tax) | 0.4 |
| Share based payments (net of tax) | 11.6 |
| Employee share schemes (net of tax) | (46.6) |
| Shareholders’ equity at 30 June 2023 | 2,630.1 |
Capital management
The Group’s policy is to maintain a strong capital base to maintain investor, creditor and market confidence and to sustain future development of the business. The Group funds its operations through a mixture of shareholders’ equity and bank and capital market borrowings. The Group’s funding strategy is to maintain an investment grade credit rating and the Company’s current credit rating with Standard & Poor’s is BBB+. All borrowings are managed by a central treasury function and funds raised are lent onward to operating subsidiaries as required. The overall objective is to manage the funding to ensure the borrowings have a range of maturities, are competitively priced and meet the demands of the business over time. There were no changes to the Group’s approach to capital management during the period and the Group is not subject to any externally imposed capital requirements.
Treasury policies and controls
The Group has a centralised treasury department to control external borrowings and manage liquidity, interest rate, foreign currency and credit risks. Treasury policies have been approved by the Board and cover the nature of the exposure to be hedged, the types of financial instruments that may be employed and the criteria for investing and borrowing cash. The Group uses derivatives to manage its foreign currency and interest rate risks arising from underlying business activities. No transactions of a speculative nature are undertaken. The treasury department is subject to periodic independent review by the internal audit department. Underlying policy assumptions and activities are periodically reviewed by the executive directors and the Board. Controls over exposure changes and transaction authenticity are in place.
The Group continually monitors net debt and forecast cash flows to ensure that sufficient facilities are in place to meet the Group’s requirements in the short, medium and long term and, in order to do so, arranges borrowings from a variety of sources. Additionally, compliance with the Group’s biannual debt covenants is monitored on a monthly basis and formally tested at 30 June and 31 December. The principal covenant limits are net debt, calculated at average exchange rates, to EBITDA of no more than 3.5 times and interest cover of no less than 3.0 times. Sensitivity analyses using various scenarios are applied to forecasts to assess their impact on covenants and net debt. During the six months ended 30 June 2023 all covenants were complied with and based on current forecasts it is expected that such covenants will continue to be complied with for the foreseeable future. Debt covenants are based on historical accounting standards. The US private placement notes (USPPs) issued in March 2022 contains a clause whereby upon maturity of the previously issued USPPs, the latest maturity being in 2028, the principal financial covenants referred to above will no longer apply.
The Group has substantial funding available comprising multi-currency credit facilities from the Group’s banks, USPPs and senior bonds. At 30 June 2023 the nominal value of USPPs outstanding was £917.5 million (31 December 2022: £1,126.4 million) with maturities ranging from 2024 to 2032. The £700 million senior bonds mature in 2025 and 2030. The Group’s committed bank facilities mature between 2023 and 2028. At 30 June 2023 the available committed bank facilities totalled £947.2 million (31 December 2022: £963.6 million), none of which was drawn down (31 December 2022: none drawn down), providing headroom of £947.2 million (31 December 2022: £963.6 million). During the period £75 million of bank facilities were extended from 2025 to 2028, in addition during July the Group extended an additional £179 million of bank facilities to 2028. The Group expects to make repayments in the 18 month period from the date of these interim financial statements to the end of 31 December 2024 of approximately £130 million relating to maturing USPPs.
Going concern
The directors, having reassessed the principal risks and uncertainties, consider it appropriate to adopt the going concern basis of accounting in the preparation of the financial statements. In reaching this conclusion, the directors noted the Group’s cash performance in the period, the substantial funding available to the Group as described above and the resilience of the Group to a range of severe but plausible downside scenarios. Further details are set out in Note 1 to the interim financial statements.
Risks and uncertainties
The principal risks and uncertainties affecting the business activities of the Group for the remaining six months of the financial year are unchanged from those detailed in the section entitled ‘Principal risks and uncertainties’ on pages 74 to 82 of the Annual Report for the year ended 31 December 2022. These were the risks of competitive pressures in the countries and markets in which the Group operates, financial collapse of either a large customer and/or a significant number of small customers, product cost deflation, cost inflation, the ability of the Group to complete and successfully integrate acquisitions, the risk of sustainability driven market changes, the risk of cyber-attacks on the Group’s operations, the financial risks associated with the availability of funding, the currency translation impact on the Group’s results and debt covenants and risk of business disruption caused by climate change. A copy of the 2022 Annual Report is available on the Company’s website at www.bunzl.com.
