Good morning, everyone, and welcome to Bunzl's 2020 half year results presentation. In these very unusual circumstances, I'm glad that we have been able to connect virtually to discuss Bunzl's performance over the first half of the year. After a short introduction from me, Richard Howes will present the financial results. I will then review our operations in more detail before providing some further insight into how the group has successfully navigated this challenging period. Firstly, I want to start by saying how proud I am of all our colleagues in the Bunzl family. The teams have worked tirelessly over the last few months. They've been on the front line during the pandemic, supplying essential products to key workers and ensuring crucial businesses could continue to operate.
In order to support customers throughout this period, our distribution centers have remained open, and our sourcing teams have gone above and beyond to source quality products despite the challenges that the pandemic has presented. I want to thank each Bunzl colleague around the world for their outstanding effort. Before we go to the first half performance, let me reiterate that the safety and well-being of people, including our colleagues, customers, and suppliers, are and remain priorities for us. Whilst operating through the pandemic, we have taken all appropriate measures you would expect to keep our colleagues safe. Together, in this very challenging context, our businesses have delivered a very strong set of results. As we've said in the past, there is a real resilience to the Bunzl business model, and diversification is a key component of this.
Over the period, significant weakness in the food service and retail sectors was more than offset by strong growth elsewhere. Another driver of our strong performance has been our position as a reliable and robust supply chain partner. Through the last few months, Bunzl has demonstrated its entrepreneurial flair, resilience, and focus on customer service. Our capabilities in sourcing have enabled us to deliver quickly large quantities of quality assured and in-demand COVID-19 related products. Given the essential products that we source, we have been designated a critical supplier. As a result, we have seen adjusted operating profit grow 13% at constant exchange rates, with operating margins supported by the greater level of sales in higher margin sectors and through the penetration of own brand products.
Our balance sheet remains robust, with strong cash generation resulting in net debt to EBITDA of 1.6 times, down from 1.9 times at the year end. Pleasingly, this overall performance has allowed us to announce both a 2020 interim dividend of GBP 0.158, but also an additional interim dividend of GBP 0.358. This additional dividend is equivalent to the 2019 final dividend, which we prudently decided to withdraw at the start of the pandemic when visibility was particularly low. In addition, our good overall performance has further enabled the repayment of government assistance, and we have also increased our charity donation. Whilst we continue to focus on short-term dynamics, we remain committed to our long-term strategy, which includes continued growth through acquisitions.
Today, I'm pleased to announce the proposed acquisition of MCR Safety, a well-established, high quality and own brand-focused PPE business in the U.S. that further strengthens our highly successful business in the region. It is a large business and generates $250 million of annual sales. The second is a smaller but also complementary business called Abco Kovex, which is a distributor of flexible packaging products in the U.K. and Ireland. These are unique circumstances, but I'm also very proud that Bunzl once again demonstrated the strength, resilience, and reliability of our consistent and successful strategy and business model. I will now hand you over to Richard to take you through the financial results.
Thank you, Frank. Good morning, ladies and gentlemen. As Frank has mentioned, these have been unique circumstances, and I've been incredibly impressed with how our businesses have reacted. This is reflected in the strength of our financial results, including the cash generation of the business. As in previous years, in the following slides, we have presented both actual and constant exchange growth rates. Over the six months to June, foreign exchange was a 0.3% benefit to reported revenue. In reviewing the income statement, I will refer to growth at constant exchange rates. Starting with revenue. Revenue grew by 6.7% to GBP 4.8 billion. Underlying growth, which is organic growth excluding trading days, contributed 2.8% to this growth, with an extra 0.8% relating to the additional leap year related trading day.
Underlying growth was driven by the level of COVID-19 related products that we've been able to procure and sell. The top COVID-related products contributed around GBP 630 million of additional sales or 13.6% underlying growth. These sales included some very large orders placed by customers looking to build up inventory of these products. On the other hand, we have seen businesses serving sectors such as retail and food service being very significantly impacted by the pandemic in Q2. Even businesses selling into safety and clean hygiene have seen parts of their business affected. For example, we have sold considerably less paper products to contract cleaners servicing offices around the world. Given most of the pandemic effect was felt in Q2, the positive and negative trends were more accentuated during the last quarter of the period. Acquisitions, which largely relate to our U.S. business, contributed 3.1% revenue growth.
Turning to the income statement. Adjusted operating profit grew by 13% to £340.8 million. At constant exchange rates, our operating margin grew from 6.6% to 7%. This largely reflects the mix effect of selling considerably more in the higher margin healthcare, safety, and cleaning hygiene sectors, and fewer sales to the retail and food service end markets, which tend to have lower margins. It also reflects the increased mix of own brand products, which tend to have higher margins. Operating profit includes a net charge relating to provisions for expected credit losses on trade receivables and customer-specific inventory, predominantly relating to retail and food service. During the first half of 2020, the group has seen trade receivables more than 60 days overdue, almost double to £60 million. The group has also seen a number of customers either entering insolvency processes or illustrating specific credit stress indicators.
This has resulted in a net charge of approximately £10 million being taken during the period to reflect the risks around recoverability. In addition, the group is concerned that going forward, there is a heightened risk of further recoverability issues with customers predominantly in the food service and retail sectors as government support is withdrawn and the trading uncertainty continues. Consequently, the group has taken an additional net charge of approximately £20 million in the period for those customers identified as high or medium credit risk. The resultant level of receivables and inventory provisions relative to total balances at the end of June are marginally below the level seen in the global financial crisis in 2008 and 2009. Net finance expense decreased by £4.5 million as a result of a lower level of average debt, as well as lower average interest rates.
Adjusted profit before tax or income tax increased by 16.6% to £306.8 million. Continuing down the income statement. The effective tax rate for the period of 23.8% is unchanged from the prior year. The effective tax rate for 2020 is expected to remain around 24%. Adjusted earnings per share increased by 16.4% to GBP 0.701. As Frank mentioned, we'll be paying both a 2020 interim dividend of GBP 0.158, which is 1.9% higher than the prior year, but also an additional dividend of GBP 0.358. This additional dividend, which is equivalent to the 2019 final dividend, will be paid on the 16th of November 2020. Whilst the 2020 interim dividend will be paid in early January 2021 as usual. Now turning to the balance sheet.
Working capital has increased by GBP 33.7 million since the year end, primarily from acquisitions and currency translation, partly offset by a net reduction in underlying working capital as higher inventory levels were more than offset by higher payables, driven by approximately GBP 68 million of advanced payments from customers, net of advanced payments to suppliers for large orders of COVID-related products. An important aspect of the current environment has been the need to pre-pay suppliers for COVID-related products. As an established and financially strong business partner, our customers have been comfortable in making corresponding prepayments to us. Net debt excluding lease liabilities ended the half year at GBP 1.2 billion, GBP 70 million lower than the position in December 2019.
Net debt to EBITDA on a covenant basis was 1.6 times, which is down on the 2019 year-end leverage of 1.9 times, and below our target range of 2 to 2.5 times. This gives us substantial capacity to self-fund acquisitions such as the one we are announcing today. The return on average operating capital, which is now stated on an IFRS 16 basis, is up 280 basis points from December 2019 to 39.7%. This high level of return reflects the strength of the business model and the trading performance in the first six months of 2020. Onto cash flow. It was a strong period for cash generation, with cash conversion of 112% and free cash flow of GBP 268.3 million, up 44% on the prior year. Cash conversion benefited from the net GBP 68 million of favorable advanced payments that I mentioned previously.
During the period, we paid dividends of GBP 51.7 million and invested GBP 75.2 million in three acquisitions. The GBP 2 million in flow on the employee share schemes reflects the income on exercised share options. Given the uncertain outlook, no market share purchases to fund future employee share schemes were undertaken in the first half. As Bunzl has consistently achieved a high level of cash conversion over many years. The average rate of cash conversion since 2004 has been 98%. This half year has been exceptional, but even excluding the net advanced payments I mentioned earlier, cash conversion for the period remained above target at 91%, despite the challenges we have faced with the aging of receivables in the food service and retail sectors in particular. This strong cash flow continues to support our consistent dividend growth over many years and reflects our focus on long-term value creation.
Looking back over the past 27 years, we've been able to increase our dividend consistently every year, broadly in line with our growth in earnings. We are pleased that by deciding to declare an additional dividend that is equivalent to the 2019 final dividend, and by paying it in 2020, we've been able to maintain the track record over this long period. The compound annual growth rate of dividends since 1992 is 10%. Let me summarize the key highlights of our performance in the first half of 2020. Adjusted operating profit increased 13%, with operating margin up 40 basis points at constant exchange. This strong performance was driven by the high demand for COVID-related products and Bunzl's end market sector mix and diversification. Cash conversion has been strong at 112%.
Our interim dividend per share has increased by 1.9%, we will be paying the equivalent of the 2019 final dividend as an additional interim dividend in 2020. Lastly, we ended the period in a strong position with funding headroom that provides substantial capacity for self-funded acquisitions. At this point, I would like to hand over to Frank, who will take you through the business review.
Thank you, Richard. During my presentation today, I will focus on the following topics: An overview of performance over the last six months, I will look forward and consider the prospects for the remainder of the year, I will provide detail on how the Bunzl model has demonstrated resilience through the COVID-19 pandemic so far, and finally, I will remind you of a few key elements we continue to focus on for the longer term. An important theme to understand over the period is how we have really been able to work hard to help customers source in-demand COVID-19 related products. Bunzl was able to source and fulfill this exceptional level of demand, partly through own-brand products imported from Asia. These top eight COVID-related product categories, which you can see pictured on this slide, including masks, gloves, and sanitizers, contributed 22% of first half revenue.
The revenue achieved on these eight product categories is two and a half times higher than in the first half of 2019, and we have sold them into all the sectors we serve. As we have mentioned previously, diversification has been key to Bunzl's success over the first half. To help you better understand an unusual year, I will give you a bit more information on this specific area. Here, you will see the revenue performance broken down across our market sectors. Healthcare, safety, and cleaning and hygiene have seen the strongest growth. Combined, they grew by 29% and rose from a group revenue mix of 32% last year to 37% this year. These sector trends are then reflected in our regional performance. Rest of the world, where around 70% of revenue is generated through these sectors, benefited strongly, whilst North America has more limited exposure.
Grocery was relatively more stable and grew 5%. This growth was supported by the Joshen acquisition in January, but if excluded, was still slightly positive. North America has the greatest weighting to the grocery sector. The most challenged sectors were food service and retail. Revenue declined by 9%, and the contribution to the group mix declined from 39% to 34% this year. Large exposures, particularly in U.K. and Ireland and North America, materially impacted our business area performance. The combination of the change in revenue mix between these sectors and the associated increase in own brand products have contributed to the margin increase over the period. Turning now to the business areas. In North America, revenue at constant exchange was up slightly to £2.7 billion, although underlying revenue declined 3.9% due to the adverse impact from the business areas weighting to retail and food service.
While sales into the food processor sector benefited from COVID-related products, this was more than offset by the meaningful decline to other food service customers. Sales into the convenience store sector were also negatively impacted by the shutdowns. Whilst our grocery business benefited from some product mix shifts to PPE and hygiene products, Bunzl was impacted by the closure of deli and meat counters. In addition, we continue to see sales impacted by price and product specification changes with our largest grocery customer. However, this change has now fully annualized. As if I've just mentioned, it is certain sectors that have really supported the business over the period. Cleaning and hygiene, which is largely serviced by our redistribution business, saw very strong growth in North America. Safety also contributed meaningfully despite the unfavorable impact of declines in the industrial and oil and gas sectors.
Overall, operating profit was GBP 154.2 million, down 3.7%, with the operating margin down 30 basis points to 5.7%. Whilst margin is supported by the favorable COVID-19 related mix and cost savings initiatives, these were more than offset by the negative operational leverage effect of lower revenue in retail and food service, and an increase in provisions relating to our credit exposure from customers in these sectors. Revenue in continental Europe rose by 20% to GBP 1.1 billion due to underlying growth of 18.9%, with some continued benefit from the Coolpack acquisition in April 2019. Adjusted operating profit was GBP 123.9 million, up 36.3%, with the operating margin up 130 basis points at 11.4%, a result of the shift towards higher margin products. As I mentioned earlier, continental Europe benefited the most from COVID-related large orders, with substantial growth in healthcare from procurement of PPE items into government and healthcare providers.
The Netherlands business supported one such large government order, but I will talk more about this later. We saw a good performance in France despite the slowdown in food service, and Turkey was up strongly due to the increased sales of PPE, particularly gloves into hospitals, food processors, and grocery stores. The safety sector was particularly strong across the whole business area. Revenue in the U.K. and Ireland rose by 3.8% to GBP 626 million, with underlying growth of 2.5%, and benefited from the Bodyguard Workwear acquisition made in February 2020. As in North America, the weighting towards the food service and retail sectors impacted U.K. and Ireland's performance over the period. Weakness in food service adversely affected Ireland's performance. Grocery sales were very strong, in part driven by one large supermarket customer we won back in the second half of 2019.
The U.K. saw particular strength in healthcare through supplying hospitals and care homes with a variety of PPE products. Safety and cleaning and hygiene similarly benefited from COVID-19-related product growth, although the underlying cleaning and hygiene business was impacted by the closure of offices and other service sites. Overall, despite the strength of healthcare and as a result of the COVID-19-related shutdowns in food service and non-food retail, and after additional provisions for increased customer credit risk exposure, adjusted operating profit declined 21% and operating margin declined 150 basis points to 4.7%. Revenue in rest of the world rose by 17.6% to GBP 403 million, with underlying growth of 13.2%. Adjusted operating profit rose 90% and operating margin increased 420 basis points to 11.7%. This was a very strong performance and relates to the large weighting to safety and healthcare sectors in the business area.
The safety businesses in Brazil, Mexico, and Chile performed strongly as they managed to satisfy the substantial demand for COVID-related products. In addition, currency devaluation has driven price increases and therefore supported the revenue increase. It should also be noted that the first half of 2019 saw a relatively weak performance in the business area, which partly explains the exceptional increase in adjusted operating profit in the first half of 2020. Before I turn to the prospects for 2020, it is important to remember that the balance of future dynamics remains very uncertain. Although difficult to assess with any certainty, overall, excluding the impact of the acquisitions announced today, we expect group revenues to grow slightly over 2020. We believe that the high volume of large and smaller COVID-related orders seen in Q2 will not be repeated during the remainder of the year.
Given the need of customers to build inventory in these products, there was an element of pull forward in our Q2 sales. As a result, the sectors and business areas that benefited the most from this in the first half will see some meaningful softening in the second half. We expect growth to be limited in the second half of the year in continental Europe and rest of the world in particular. Food service and retail, being those sectors that have been significantly impacted by COVID-19 during Q2, are expected to recover partially, but we expect revenue in these sectors to remain below historic levels. However, it is also important to understand that excluding the substantial COVID-19 related sales, trading conditions were difficult across most sectors in Q2, given the challenging macroeconomic backdrop. This includes weakness in sectors that otherwise appear to have performed well, such as safety.
We expect these underlying challenges to persist. Whilst we have seen margins up strongly in the first half, we expect significant year-on-year margin decline in the second half with lower COVID-19 related sales, reduced own brand sales, which tend to be higher margin, and continued macroeconomic challenges globally. As we look beyond these next six months, it is also important to remember that the strength of our performance in the first half will present a challenging comparative for next year in addition to the underlying market weakness. That said, the fundamental aspects of the business looking forward remain attractive. Our customer proposition and strength of our supply chain have been reinforced during these challenging times, and our business model has proven its resilience in the most difficult of circumstances.
The group's strong cash generation has allowed us to maintain our long track record of dividend growth, and with a promising pipeline, we expect to complete further acquisitions during the remainder of the year, in line with our consistent and proven compounding strategy. Let me now turn to how we have achieved this strong set of results. As I've mentioned earlier, there is an inherent resilience to the business, and we have benefited from the diversified sector and geographic exposure of our businesses. In addition, we have dedicated and hardworking colleagues that on a daily basis go above and beyond for customers. Really, what the last few months have allowed us to demonstrate even more than normal is that we really do much more than just move boxes from A to B.
We provide a compelling value-added service to our customers, and this has been highlighted by our ability to meet their needs for essential products and services during this very challenging period. There are a few key factors that have driven our ability to respond to customers' needs so effectively. Firstly, the strength of our global supply chain has allowed us to urgently source products despite the challenges of doing so. Not only has our Shanghai sourcing office been a key asset over this period, but all our supplier relationships across the world have contributed to this strength. Secondly, our decentralized nature and entrepreneurial DNA has supported local responsiveness and agility. This has enabled the business to navigate through these very unusual times and drives our ability to present quick solutions to customer challenges.
Lastly, given the essential nature of the products we supply and the sectors that we serve, we have been designated a critical supplier. As I've said at the start, our colleagues in the distribution centers and sourcing offices globally have played a key role in supporting the frontline heroes fighting the pandemic. The strength of our response has been further enabled by our overall financial strength and good financial controls. Similarly, with a clear shift to digital ordering over the period, we have benefited from the digital infrastructure investments we've made. 67% of orders were made digitally in June 2020, compared to 61% in June last year. After being tested in extreme circumstances, my confidence in the Bunzl business model is even greater than before.
We will talk more about our focus on the long term shortly, but before I do that, I want to spend a bit more time on the box in the bottom left corner. Let me start by talking a little more about our Shanghai sourcing office. Firstly, it is important to understand that the high demand for COVID-19 related products over the last few months could not be met by branded goods alone. It was therefore the strength, quality, and reliability of our supplier relationships that allowed us to meet this demand with own brand imported products. Normally, just over 10% of supplies are sourced through Asia, but this period saw a COVID-19 product-related stronger increase in supplies from the region. Our office in Shanghai has about 50 people, with some employees in India and Vietnam. This team has created a network of 1,300 audited suppliers in the Asian area.
The Shanghai team are not just responsible for sourcing products, but are also heavily focused on quality assurance and quality control. In fact, the team responsible for quality assurance and control is larger than the sourcing team. Each supplier we work with has to meet strict product quality control thresholds, and as you would expect, we have a zero-tolerance policy to unethical trading practices such as modern slavery. We conduct more than 700 supplier audits a year. It was this team that not only ensured Bunzl was a preferred supplier for many of our customers, but also ensured we could source large quantities of quality products despite the unprecedented demand. We provided customers with assurance around their orders, which was especially important given the need to prepay for many of these items. Our team has always tested products prior to placing orders and inspected the actual orders prior to shipment.
We even sent Bunzl representatives to factories to inspect products as they were coming off the production line to ensure quality and speed of delivery. Over the period March to June, the team sourced around GBP 450 million, mostly medical masks and conducted 223 shipment inspections. We have included this slide to demonstrate some of the products that we are currently sourcing for customers beyond our top eight products, although not all through Shanghai. We are helping customers with everything from social distance signs to return-to-work employee hygiene packs. This is effectively what Bunzl does at its core. It works with customers to source reliably and deliver the essential products when and where they need them. Being designated a critical preferred supplier across our business areas has been important. We supported customers to ensure continued deliveries of essential products, which enables them to continue to operate.
In addition, we sourced new COVID-related products for them. We also supported governments in various regions. For example, we were part of a group of supply chain operators that the U.S. government contacted to discuss how to ensure the continued running of essential businesses. Overall, we have aimed to provide our customers peace of mind throughout this period. We ensured that they received their orders on time and direct to site where required, that the products were of the appropriate quality, that we could be counted on to troubleshoot challenges with them, and we ensured that prepayments, which were often large, were placed through a trusted channel. I think a couple of examples might help to bring to life how the teams have reacted recently. Firstly, two of our Dutch businesses, King and Majestic, seconded employees to the Dutch government through their PPE special task force.
As a result of our supply chain capabilities, including quality assurance, the government sourced significant levels of surgical masks and nitrile gloves through us. We met the order demand through three factories in China, two of which we had previously audited and a third that were able to audit prior to placing our order. Given this was an urgent and large order, we also placed Bunzl representatives in the relevant factories. This gave the Dutch government the extra level of reassurance that they needed. This second case study is a prime example of that. Our U.K. catering business was contacted by a key contract catering client to help equip a conference center that was being converted into an isolation unit for repatriated citizens.
The team received the call at 7:00 P.M. on a Friday, and by 5:00 P.M. on the Saturday, had delivered and installed a large order of heavy catering equipment products. These are not the easiest products to deliver and install in a short space of time, but the team managed it. 24 hours later, the quarantine unit was ready, the plane landed, and the people entered the safe and secure unit with appropriate catering facilities. These are just two select examples of the countless ways our business have navigated the pandemic. Perhaps one other interesting thing for you to appreciate is that whilst we often talk about the decentralized nature of the Bunzl business, we actively work together as one team Bunzl. This period, I've seen a huge level of collaboration between the teams.
We have had employees move between businesses, and we have had a lot of businesses working together to deliver on a large project. It's been absolutely fantastic to see. This is a slide you will have seen before, and as I've said, it is important that we remain focused on developing Bunzl's unique business model for the future. Let me take a moment to talk about sustainability in particular. We believe that sustainability will remain front and center of our customers' minds post-COVID-19, and we intend to be a proactive part of the solution, working with our customers to help them achieve their ambitions whilst improving our own operations. As a non-manufacturer with extensive sourcing capabilities, we hold a unique position in supply chain as a trusted and material agnostic partner.
We can lead the industry towards a more sustainable approach to consumption and help our customers transition towards more sustainable alternatives. In order to do so, we continue to invest in a growing central and regional sustainability team. Over the last year, we have added a further seven regional sustainability leaders and have hired a group head of sustainability. In addition to our formal sustainability teams, we are also appointing sustainability ambassadors across our businesses who will work closely with our regional customers to help them achieve the targets they are setting. Together, these teams are responsible for helping to find alternative materials from consumable products, increasing our range of sustainable solutions, strengthening our own label ranges, and introducing tools to assess the environmental and legislative impact of products. Ultimately, they are a trusted expert advisor in sustainability for our customers.
Within our sustainability ambition, we recognize our responsibility to help the world transition to a circular economy. We have recently introduced a number of initiatives that support this thinking and have two of these pictured here. One of our safety businesses, Allshoes in the Netherlands, has created a closed loop system whereby used work shoes are collected and dismantled before the materials are sorted, crushed, and recycled or reused in new products. We are also funding the development of new waste management infrastructure and improve social services for marginalized waste picker communities in India. This project will prevent 200 tons of plastic reaching the coast, and we are working to see if we can use this collected plastic in new products. Another key priority for the longer term is making further acquisitions. Consolidating our highly fragmented markets remains a key component of our strategy.
Since 2004, we have made 163 acquisitions for a total investment of GBP 3.5 billion without the need to raise any equity. Today, we've announced the proposed acquisition of MCR Safety, another leading PPE business with strong own brands whose customers are redistributors. The business generates approximately $250 million of annualized revenue and is predominantly a North America business. This is a high-quality business that has been on our radar for some time and is a strong strategic fit with Bunzl's existing safety business in North America. Their strong brands are a good addition to our portfolio. We have also entered into an agreement to acquire Abco Kovex, a distributor of flexible packaging products in U.K. and Ireland. The business generates an annual revenue of EUR 23 million. It services end users across a number of market sectors. It will enhance our product offering and present cross-selling opportunities.
Including the acquisitions announced today, we have acquired or agreed to acquire five businesses so far this year with a total committed spend of GBP 335 million, thereby adding annualized revenue of GBP 483 million. To conclude, we have delivered a strong first half performance with good cash conversion and a strong balance sheet that has supported today's dividend decisions. The resilience of the business model has been driven by our diversification, and our value proposition to customers has been reinforced over the period. Whilst we are pleased with the first half performance, we are cautious on the second half given the uncertain outlook and do not expect to see the same level of COVID-related orders. We continue to act prudently for the near term, but also focus on a consistent and successful longer term strategy, which includes maintaining momentum in our digital and sustainability development and driving growth through acquisition.
After having spent more than 20 years with Bunzl, I'm now even more confident in the quality and resilience of the business and believe we are executing our strategy successfully. We have delivered for our customers, we have repaid government assistance, we have reinstated our dividend, and we have announced two acquisitions, one of which is particularly large. Despite more challenging short-term expectations for our business, looking forward, I'm even more excited about the opportunities ahead for Bunzl. Thank you for your attention. We are now very happy to take any questions
Thank you, Mr. Van Zanten. Ladies and gentlemen, if you would like to ask a question, you may do so by pressing star, followed by one on your telephone keypad. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure you are unmuted locally. We have a question from Will Kirkness of Jefferies. Your line is now open. Please go ahead.
Thanks very much. I had two questions, please. Firstly, just on your ability to source and supply customers through this pandemic, do you think that over the medium term, that puts you in a much stronger position to retain existing customers and win new customers? You've spoken to that, but it feels like you should have potentially better visibility now and arguably protected yourself against lower value peers. The second question, just around M&A conversion over the next six to 12 months. It sounds like the pipeline's pretty good. Just wondered if we should expect any more to get over the line. Thanks very much.
Okay. Let me take these questions. Well, you would think actually that, the added value we deliver to our customers has been obviously significant. Certainly, Bunzl, in a way, is in a good position because of our diversified portfolio. If you look longer term and you look, for instance, at our businesses active in the retail space and the food service space, they are sometimes competing with businesses that are 100% focused on these sectors. Think of an easyJet that is focused on airlines only. If we have food service businesses, and that have been significantly impacted in Q2, they obviously had the benefit of being part of a very strong Bunzl business.
I'm hoping to be able to come out of this crisis by managing these businesses in such a way that we will be able, longer term, to benefit from that going forward. Obviously that remains to be seen. Certainly, I think the value we've provided to our customers, the sourcing we have done, has been, I think, a real competitive advantage. In terms of the pipeline of acquisitions, I would say, we've always been very disciplined around acquisitions. I had questions about acquisition activity last year. Why are you not spending more? Your net debt to EBITDA is relatively low. Reflecting on this, we've been very pleased to go into this period, this pandemic period, with a very, very strong balance sheet. At the end of the first half, we were at a 1.6x. That was pre-dividend and pre-acquisitions.
We are restarting discussions with acquisitions. When we feel we have the right opportunity there, we will execute it, and certainly MCR is a good example of that. If I look ahead, maybe three, four, five years from now, firstly, and you probably all know that I sold my business 25 years to Bunzl, so I know some of the emotions that are involved in terms of selling your business. Firstly, I think that a lot of our owners of businesses have experienced in Q2 something very new, where they may have thought their financial future was fully secure, and now suddenly, this pandemic hits and everything becomes fluid. I expect maybe in two, three, four, five years from now, a lot of people very interested to become part of Bunzl.
From that sense, our strong cash flow and future M&A should put us into a very good position. Having said that, Q2 is still very uncertain and it is very difficult to look ahead in the crisis.
Sure. Thanks very much. Cheers.
Thank you. Well, we have a question from Sylvia Barker of JPMorgan. Your line is now open. Please go ahead.
Thank you. Hi, good morning, everyone. A couple of questions on growth. Maybe firstly, could you give us an idea of the pricing impact on revenue in H1 and maybe how that developed in Q1, Q2? Presumably, with the short supply and your ability to source some of these products, maybe you did have a pricing benefit to some extent in Q2. To what extent is that maybe tailing off now? Then just on the incremental GBP 600 million of revenue relating to the top eight products, could you maybe just split it a little bit more or give us an idea, maybe firstly, how much of that was from products which, I guess, people buy once, like signs, barriers, the disinfectant kind of stamp that you've shown on the slide? Then secondly, if you can talk about the large orders versus small orders within that.
Then finally, could you maybe just comment how that split roughly between the customer segments? Obviously, would appreciate that Walmart would have been buying a lot of masks, but likewise, you would have made a lot of sales to your traditional safety clients as well. Thank you.
In terms of pricing, it's very hard to give a very precise answer on the prices in the first half. I would say the items that are more COVID related, like masks, they were in extremely high demand, where demand was much higher than supply in Q2. There has been inflation in these categories. We expect that sort of price levels to be slightly lower in the second half given the supply side has been beefed up. There's more supply right now. I think on the other items, it's probably a slightly deflationary picture there in terms of plastics and paper. It's very hard to say because it's been a crisis period and it's more an art than a science in that context.
Certainly, I think on the COVID-19 related items, we would expect pricing to be slightly higher than in the second half and in the second half of last year. I think prices will be lower than in the first half. I think on the GBP 600 million, a couple of things, I would say, let's say the category masks, sanitizers, and gloves, these are the biggest items, probably represent three quarter of the total amount. I think the masks and the sanitizers, certainly the refill and the gloves tend to be more consumable items. It's not like capital goods or something like that. Maybe Richard, you want to comment on the small versus the large orders and sectors?
Yes, sure. Sylvia, I think the way to think of the split, roughly half on a 50/50 split between large and small orders. As we've said, those large orders, there was an element of panic buying of these products in Q2 for sure, which means that into the second half, we don't expect to see the same level of large orders that we've seen in Q2. The smaller products we do expect to continue to some degree, but again, perhaps not to the same level we saw in the first half. As for customer segments, look, we've actually managed to sell these products into all of our end markets. Into markets that we would never normally sell these products to. We sold masks and sanitizers into the grocery sector, for example.
We're finding ways to sell, in some cases, which have been medical products into all sorts of end markets. I wouldn't say that there's any particular customer segments which are more prevalent other than healthcare, of course. Just think of it as a more widespread across the board level of these products into different end markets.
Thank you both. Maybe for the follow-up, obviously, you've not made any comment around exit rates or what you're seeing into July and August, but Yes, I guess you had a much stronger end of June than you expected at the pre-close. Could you just comment at all in terms of was that driven by the large customer orders, small orders, or the rest of the business maybe being a little bit better and how that potentially carried on into the next couple of months?
I would say exit rates, you've seen our prospect section and our prospect section includes all the available information until last night, effectively. I think it's difficult to comment on July because, especially in an area where you see big ups and downs with smaller orders, bigger orders. There's a lot of uncertainty going forward. We wouldn't add a lot of additional color on this. I think the prospects is the area to focus on.
Sylvia, let me do a little build on that. June was a month where economies were opening up and people were not locked in their homes any longer. Things were starting to move. We're an activity driven business. We saw activity increase in June. In our pre-close in early June, we did see more activity in the last few weeks than we initially expected. I think part of that was set up. I think part of this is businesses getting themselves set up for reopening their businesses. I think there's also an element of higher level of activity as well. Some of that has continued a bit into the second half, but as Frank said, the prospect statement holds.
Okay. Thanks very much.
Thank you, Sylvia. We have a question from Annelies Vermeulen of Morgan Stanley. Your line is now open. Please go ahead.
Hi, good morning. Annelies from Morgan Stanley. Just a couple of questions from me. Just a follow-up to that question about the additional GBP 630 million of COVID-19 product sales for H1. How much of this was own brand products? I'm trying to get a sense of how much of the margin improvement that you reported year on year was related to the sales of the higher margin cleaning hygiene PPE products, and how much was due to own brand products. I'm guessing it's very closely related, but any color you can give on that would be helpful. I guess a similar question to the exit rates. Of the 13.6% and -10.6% that you reported for the H1, for those two segments, can you give us the same numbers, but just for Q2?
Then lastly, you've obviously talked about continuing to be active on the M&A side in the second half and beyond. Should we expect more deals in safety product businesses given the current environment, or are you continuing to look all across the board, across all sectors? Thank you.
Yes. Okay. Well, in terms of the COVID related items, I would say a very large part of that is own brand imported item, very large. I think in terms of the growth and the declines, I think obviously, the half-year results represent two quarters. Then I think we've seen the main impacts in terms of pluses and minuses in Q2. I think, the biggest swings you can probably refer back to or calculate back towards one quarter. In terms of M&A, we have an active pipeline. Are we planning to go very big in terms of the retail and food service sector? Probably not.
Although, it is a challenging period, and if we can find real opportunities that are a very good addition to our current businesses, and we can buy it at the right price with attractive paybacks, we won't hesitate to do it. Certainly, I think the strategic direction is going to be more towards sort of certainly the non-retail area.
Okay. Thank you.
Thank you, Annelies. We have a question from Chirag Vadhia of HSBC. Your line is now open. Please go ahead.
Hi there. Thanks for taking my question. Just one, and that is, what is the nature of your discussions with suppliers for the second half of the year? Does it differ meaningfully in terms of own brands versus other suppliers?
Sorry, I missed the first part of your question. Could you repeat that?
Sure. I was just wondering what the nature of the discussions are ongoing with suppliers for the second half.
In terms of COVID orders?
Yes.
What we can say is that, obviously, you still see around the world local flare-ups. You also see people talking about social distancing and you need to use masks. Having said that, you also see more reusable masks. I think the big difference between thinking about the future in terms of these COVID-19 items and Q2 is the fact that we have areas where some significant stocks have been built. I saw an article in the U.K. where there's stock built, certainly I know in the Netherlands and France and other areas where we've been very active supplying large amounts of products. We know that there's quite a bit of stock available in the system.
In that sense, we just know that although we will sell masks and other items going forward, as long as the crisis goes, it will be at different price levels, and it will be significantly different volumes as we see today. It can be different tomorrow or next week. It's very difficult currently to forecast anything, and that's why we've withdrawn guidance also.
Great. Thank you.
Thank you, Chirag. We now have a question from James Rose of Barclays. Your line is now open. Please go ahead.
Hi, good morning. Firstly, could you comment on gross margin trends year-over-year in the H1? My second question is on some particular areas you flagged with sectors which have underlying weakness. I think that was healthcare and safety. Could you talk a bit more about what you're seeing there? Any color you can give us for the H2? Lastly, on trading in FY 2021, which you mentioned it has a tough comp. For the retail and food service sector in 2021, do you have an idea of what its trading could be versus FY 2019 values? It's like a two-year like for like. Any thoughts you have there would be appreciated. Thank you.
Yes. Let me take the first two and Richard take the last question. On gross margin trends, although we don't really comment on gross margins, given the situation we're in, I'll give you a bigger picture answer on this. We've seen gross margins a little bit higher than last year, but it was mostly related to the fact that our margin in rest of the world improved. We've seen a weaker comp last year, so the performance in the business wasn't great compared to 2018. We took some sort of measures to improve profitability, which was good. Also they are strongly linked, as I said in my speech also, to the healthcare and the safety sector. They've seen the benefit from that going on. It's really a mixed impact on why the gross margins were lower or were slightly higher.
On the underlying business, well, actually, if you look at sort of the additional business we've done in the COVID area, and we've shown it in the bridge, basically, where you see the growth, in terms of COVID and the weakness underlying. Obviously that was more than compensated by COVID products. That's why we're all saying on the second half, if there's going to be less favorable picture on big orders, smaller orders in the COVID side, and you will have basically the continuation of the underlying weakness in different sectors that we've seen in Q2, we will also potentially see that weakness in Q3, Q4, which is two quarters. Having said, we expect a bit of a recovery in the hospitality sector and into the retail sector.
Obviously, we still have the impact of having two quarters of underlying weakness versus one quarter of underlying weaknesses given. Just the macroeconomic picture is expected to be still challenging. Richard, can you take the last one?
Sure. James, look, on retail and food service, it's been very difficult and badly hit in Q2 in particular. In many respects, we see this as an acceleration of the trends or some of the trends that were already in place, particularly in retail. We're seeing some customers have real credit issues, some going through Chapter 11 or bankruptcy processes. We think they'll come out. Those that come out, we think will come out with many fewer stores, and some may not come out at all. I think that tends to make us feel that even though there will be an improvement into the second half, as the activity starts to pick up, our sense is that we won't be back at 2019 levels for some time.
As to when that is, it is too hard to say, but I think certainly won't be there in the second half of 2020. I don't expect us to be there back to 2019 in 2021. Thereafter, let's see. These are our end markets which have been impacted most.
Okay. Thanks very much.
Thank you, James. Before our next question, I will reiterate that, ladies and gentlemen, if you would like to ask a question, it is star followed by one. Our next question is from George Gregory of Exane BNP Paribas. Your line is now open. Please go ahead.
Morning. Most of my questions have been answered. I have just one outstanding, please. Just focusing in on the growth in food service and retail, which was down 9% in the first half. Just wondered if you could perhaps unpick that between COVID related and other items. That down 9% was a bit less bad than I had expected. Obviously mindful of the COVID effect across the divisions, which are a bit difficult to model. Thanks.
Richard, you want to take this one? I didn't hear it very loudly, so maybe you can answer it.
Yes, sure. George, look, obviously, it is the first half. Q2 is much worse than that. There are underpinning elements to both food service and retail. In our food service business, we have sold more takeaway packaging to those sectors than we had anticipated. That as an activity level has increased quite significantly. I think particularly in the U.S., where the sort of delivery or indeed collect services were actually quite a decent amount of the food service business in the end. I think you have to say that on top of that, we've clearly sold a lot of COVID product into both end markets. That could be sanitizers, it could be masks. You should certainly think about when you strip those effects out and some of the mitigants, that the underlying effect in both food service and retail is material in Q2.
Look, we expect to be better going into the second half, but still quite an impact in Q2 in particular.
Thanks.
Thank you, George. Our next question is from Kate Somerville of UBS. Your line is now open. Please go ahead.
Thanks. Yes, a lot of my questions have also been answered, but one final one. You mentioned that you're slightly concerned about the financial health of some of your customers. Is this predominantly smaller customers, or is it more related to the end markets that they operate in? Thanks.
I think it's more related to the end markets. I think certainly when we talk about the slightly bigger customers, we see more risk in the retail space. We've seen some bankruptcies already. We see risk in the food service. Also, wider, I think with smaller customers, risks tend to go up as well because, if you think about it, I think a lot of businesses have been a little bit on the government support oxygen, and I do expect these support packages at some point to tail off, and then obviously people need to stand on their own feet. We try to make a proper judgment around that for the half year and also going forward. It's a tough place, but the pressures are going to be the highest in the food service and the retail sector. I don't know, Richard, you want to add anything on this?
No, I think you've captured it. As I said earlier, these are trends we've been seeing for some time. I think plenty of retailers have come into the crisis in a quite weak position, and as a consequence, this process we think will accelerate probably what was inevitable anyway. We saw that in parts of food service as well with the casual dining sector, which was probably oversaturated, quite leveraged in the way it was owned. We've seen a bit of a shakeout in that over the last 12 to 18 months. I think you've got a mixture of the bricks and mortar trends, some weakened customers coming into a very difficult crisis. Then taking the opportunity, I think, to probably make sure that those that do come out, come out in fewer stores, lower footprint, but hopefully in perhaps a better position than they entered the crisis.
Yes. Okay. Just one quick follow-up. Are you considering expanding into any other end market to kind of offset these weaker end markets?
Yes, I think we always stay open-minded on doing acquisitions in new sectors. Although, let's say, the sectors we are operating in are very large. A good example is the U.S. acquisition today. We've bought many businesses there already. There's still another $250 million opportunity out there in terms of sales. We like the markets we're in, but we keep open-minded. I'm particularly excited about some of these digital businesses as well. It's a high priority for us. We're moving these orders up and making the relationships stickier. If we can do more deals in that kind of space to support our strategy, we won't hesitate. It's very hard to plan these things. I've said it before, we're not going to say we're going to buy a business in Germany next year, or we're going to buy a business in cleaning and hygiene.
The way it works is we're building these funnels. All our local managers are building the pipeline, and then every time, every executive committee meeting we have, there's opportunities there, and we look at them and we weigh them, and we know these sectors very well. We try to focus on what are the strong strategic additions to the group, like an MCR, for instance, and what do we believe is going to be a healthy payback for the business. If we can go into new sectors with similar dynamics of our current businesses that drive the success, we certainly will not hesitate. We got the capacity to do it.
Great. Thanks very much.
Thank you, Kate. Our next question is from Andy Grobler of Credit Suisse. Your line is now open. Please go ahead.
Hi. Good morning. Just three from me. Firstly, very quick. Just to check on the provisions, the bad debt provisions. Did they amount to around GBP 30 million that you took against EBITDA in the first half? I think you said that. Just to clarify. Secondly, on the prepayment, the GBP 68 million, would you expect that to reverse into the second half? Thirdly, from a slightly broader perspective, you've talked about the benefits you've seen of diversification, financial strength, and digital selling. Given that and the likely challenges of some of your competitors, how does that make you feel about longer term growth? Historically, organic has been around 2% over the last 15 years or so. Given those advantages and assuming the world goes back to some kind of normality, do you think it could be more than that as you take share over the next several years?
Okay. I think your first and second question, provisions first half and prepayment, I think the answer is yes. If I'm not wrong, Richard, but please confirm.
Yes. I think yes to both of those.
The last question on diversification and digital. Yes. The distribution businesses they have relatively light assets and low CapEx levels. What you tend to see in a downturn is that or when businesses are struggling or not growing, is that they are reducing their working capital a bit, which gives them a bit of cash to survive as well. The question is, if things start to pick up again, can they fund that kind of growth? We will have to see if people really get into trouble. Certainly in 2009, we've taken the opportunity to pick up some very good businesses at attractive prices. But I think it's a bit early because we only want to buy good businesses, and often good businesses don't get into trouble very easily. If it happens, we'll do that.
In terms of growth going forward, I would say organically, are we going to pick up market share? We may, but I think it's going to be around the edges, probably because we are focused on making good returns. Winning volume just for the sake of growing the business is certainly not something that I'm a great fan of. If we can build it based on our value proposition, I think that's great, but I don't think there will be a massive change.
I think maybe longer term where I see maybe more of an opportunity, but then we may be talking two, three, four, five years from now, is just the point I made earlier is, I think there's been a lot of people who had a bit of a shock during Q2 because they thought they were financially independent, and then they realized that all their eggs in one basket. I think we will see activity in the future, and that may be a bit more of an opportunity for us. Maybe not this year, but maybe the years after to buy high-quality businesses. The great thing is because our cash flow grows, our capacity to acquire businesses is growing every year. I'm, in that sense, more excited about the M&A opportunity. Certainly, it won't work against us if other competitors struggle and we are in a strong position.
Okay. Thank you very much.
Thank you, Andy. Our final question is from Sam Dindol of Stifel. Your line is now open. Please go ahead.
Morning, guys. A couple of quick questions from me. On digital, I think you said it was up 6%, you only had 67 %. Do you think that is a permanent change or just purely driven by COVID-19? I'm interested to get your views on that. Secondly, on our own brands, I think it's typically about 20% the products you sell. Are you able to give the 2Q figure and whether, again, you think that's a potential, not a permanent change, but a sort of step up that can be potentially partially maintained going forward? Thanks.
On the digital, yes, we were up the last 12 months with about 6%, 61% to 67%. I would say that is a significant shift, and I think that has been boosted by the coronavirus, a little bit like what the supermarket chains have seen. Is it going to be staying at this level? It may fall back a little bit, and then it will continue to go up because it's the strategic priority for us. Certainly, we've seen it go up quite a bit in terms of the number of orders. In terms of the own brand, we were slightly above the 20%. I think in the first half, it was more towards sort of the 24%, which was exceptional increase given the COVID also.
I expect that part, if COVID comes down, I think the own brand will probably come down a bit again. The way to think about it is if I look at the last 10 to 12 years, we've been growing the own brand percentage with about 1% a year. I can't see any reason, given our mix of business, given the priorities we set for the business, that we will continue to grow that own brand percentage. We are also very keen to drive relationship with our branded suppliers. May come down a bit, but will start to come up again.
Thanks.
Okay. Well, thank you very much for attending this half year results call. I hope you all have a nice day. Thank you very much for joining.