HELPING
BUSINESSES
PERFORM
BETTER
ANNUAL REPORT 2013
WHO WE ARE
We are a focused and
successful international
distribution and outsourcing
group With operations across
the americas, europe and
australasia.
We support our customers all over the world
with a variety of products that are essential for
the successful operation of their businesses.
By outsourcing the purchasing, consolidation
and delivery of a broad range of everyday items,
our customers are able to focus on their core
businesses, achieve purchasing efficiencies
and savings, free up working capital, improve
distribution capabilities, reduce carbon emissions
and simplify their internal administration.
CONTENTS
strategic report
01 Financial highlights
02 Where we operate
04 Business model and strategy
06 Key performance indicators
10 Chairman’s statement
12 Chief Executive’s review
26 Financial review
30 Principal risks and uncertainties
33 Corporate responsibility
directors’ report
38 Board of directors
39 Corporate governance report
44 Audit Committee report
47 Directors’ remuneration report
68 Other statutory information
financial statements
72 Consolidated income statement
73 Consolidated statement of
comprehensive income
74 Consolidated balance sheet
75 Consolidated statement
of changes in equity
76 Consolidated cash flow statement
77 Notes
108 Company balance sheet
109 Notes to the Company financial
statements
116 Statement of directors’ responsibilities
117 Independent auditor’s report
119 Five year review
120 Shareholder information
FINANCIAL HIGHLIGHTS
Bunzl has produced another excellent set of results
with growth across all business areas and strong
increases in revenue, profits, earnings and dividend.
£6,097.7m
+12%
Revenue (2012: £5,359.2m)
Growth at constant exchange rates
(Actual exchange rates +14%)
£332.1m
+12%
Operating profit (2012: £293.8m)
Growth at constant exchange rates
(Actual exchange rates +13%)
£414.4m
Operating profit before intangible
amortisation and acquisition related
costs (2012: £352.4m)
£289.9m
Profit before tax (2012: £263.8m*)
+16%
+9%
Growth at constant exchange rates
(Actual exchange rates +18%)
Growth at constant exchange rates
(Actual exchange rates +10%)
£372.2m
Profit before tax, intangible amortisation,
acquisition related costs and disposal of
business (2012: £318.4m*)
63.5p
Basic earnings per share (2012: 58.7p*)
+16%
+7%
Growth at constant exchange rates
(Actual exchange rates +17%)
Growth at constant exchange rates
(Actual exchange rates +8%)
82.4p
+15%
Adjusted earnings per share† (2012: 70.6p*)
Growth at constant exchange rates
(Actual exchange rates +17%)
32.4p
+15%
Dividend per share (2012: 28.2p)
*Restated on adoption of IAS 19 (revised 2011) ‘Employee benefits’ (see Note 1).
†Before intangible amortisation, acquisition related costs and disposal of business.
The Annual Report can be downloaded online. To find out more visit www.bunzl.com.
BUNZL PLC ANNUAL REPORT 2013 01
WHERE WE OPERATE
We provide a one-stop-shop distribution
and outsourcing service across 27 countries,
supplying a broad range of internationally
sourced non-food products to a variety of
market sectors.
NORTH AMERICA
£3,401.7m
Revenue
£213.6m
Operating profit*
CONTINENTAL EUROPE
£1,151.5m
Revenue
£97.0m
Operating profit*
55%
of revenue
• Revenue increased 15% at constant
exchange rates.
• Slight decrease in operating margin from
6.4% to 6.3%.
• Return on operating capital down from
64.4% to 61.2%.
19%
of revenue
• Revenue up 2% at constant exchange
rates.
• Improvement in operating margin from
8.1% to 8.4%.
• Return on operating capital up from
42.4% to 47.5%.
Read more on page 16 >
Read more on page 19 >
OUR MARKET SECTORS
FOODSERVICE
Non-food consumables,
including food
packaging, disposable
tableware, guest
amenities, catering
equipment, cleaning
products and safety
items, to hotels,
restaurants, contract
caterers, food
processors and
the leisure sector.
GROCERY
Goods not for resale
(items which are used
but not actually sold),
including food
packaging, films,
labels and cleaning
and hygiene supplies,
to grocery stores,
supermarkets and
retail chains.
CLEANING
& HYGIENE
Cleaning and hygiene
materials, including
chemicals and hygiene
paper, to cleaning and
facilities management
companies and
industrial and
healthcare customers.
NON-FOOD
RETAIL
Goods not for resale,
including packaging and
a full range of cleaning
and hygiene products,
to department stores,
boutiques, office supply
companies, retail
chains and home
improvement chains.
SAFETY
A complete range of
personal protection
equipment, including
hard hats, gloves,
boots and workwear,
to industrial and
construction markets.
29%
27%
12%
12%
10%
02 BUNZL PLC ANNUAL REPORT 2013
*Before intangible amortisation and acquisition related costs.
UK & IRELAND
£1,018.5m
Revenue
£71.6m
Operating profit*
REST OF THE WORLD
£526.0m
Revenue
£51.2m
Operating profit*
17%
of revenue
• Revenue increased 2% at constant
exchange rates.
• Increase in operating margin from 6.6%
to 7.0%.
• Return on operating capital improved
from 86.5% to 98.8%.
9%
of revenue
• Revenue up 47% at constant exchange
rates.
• Significant increase in operating margin
from 8.7% to 9.7%.
• Return on operating capital down from
54.5% to 47.1%.
Read more on page 20 >
Read more on page 23 >
HEALTHCARE
Disposable healthcare
consumables, including
gloves, swabs, gowns
and bandages, to the
healthcare sector.
OTHER
A variety of product
ranges supplied to
other markets such
as government
and education
establishments.
MARKET ENVIRONMENT
GROWTH DRIVERS
• Increasing trend to outsourcing.
• Global legislative trends for
health & safety and the
environment.
• Favourable demographics in
healthcare.
COMPETITIVE ADVANTAGE
• No one does what we do, on our
scale, across our international
markets.
• Expertise in making successful
acquisitions.
• Global sourcing capabilities.
• Underlying growth in key sectors
• Bunzl’s national distribution
including:
networks.
− Foodservice – away from home;
− Cleaning & hygiene – away
from home;
− Safety – increased legislation;
− Healthcare – demographics.
CUSTOMERS
• Strong national, regional and local
customer base.
• Working with national and
international leading companies.
• Aligned with customer growth.
• Focus on customer service.
7%
3%
BUNZL PLC ANNUAL REPORT 2013 03
BUSINESS MODEL AND STRATEGY
For many years we have followed a well established and successful
business model and pursued a consistent and proven strategy. By doing
so we have delivered strong growth across our selected international
markets as we have looked to develop both in existing and new geographies.
OUR BUSINESS MODEL
C U S T O MER BENEFITS
I N V ESTMENTS
RC E
U
O
S
C
O
N
S
O
L
I
D
A
T
E
ONE-STOP
-SHOP FOR
NON-FOOD
CONSUMABLES
CUSTOMER
BENEFITS
Our customers
benefit from a
lower cost of
doing business
by reducing or
eliminating many
of the hidden
costs of in-house
procurement and
distribution and
reducing carbon
emissions.
E
F
F
I
C
I
E
N
C
I
E
S
SHAREHOLDER
RETURNS
Our shareholders
have enjoyed
significant
returns on their
investment over
time with
sustained growth
in Bunzl’s share
price and year-
on-year increases
in dividends.
DELI V E R
SHAREHOLDER R E T U R N S
E
TIS
R
EXPE
WE SOURCE
We source and procure branded,
own brand and unbranded products
globally, working with both multinational
and local suppliers, to ensure that
our customers have access to the best
and most suitable products to meet
their needs.
WE CONSOLIDATE
By applying our resources and
consolidating a broad range of products
into our extensive warehousing
infrastructure, we are able to offer our
customers a one-stop-shop solution
which reduces or eliminates many of
the hidden costs of self-distribution.
WE DELIVER
We offer several delivery options,
including direct store delivery, cross
dock and warehouse replenishment
programmes, on a local, regional and
national basis, to ensure that our
customers get their products when
and where they are needed.
04 BUNZL PLC ANNUAL REPORT 2013
BY FOLLOWING A STRATEGY OF FOCUSING
ON OUR STRENGTHS AND CONSOLIDATING THE
MARKETS IN WHICH WE COMPETE, WE ARE ABLE
TO CREATE LONG TERM SHAREHOLDER VALUE.
OUR STRATEGY
ORGANIC
GROWTH
ACQUISITION
GROWTH
We achieve organic growth by
applying our resources and expertise
to enable customers to outsource to
Bunzl the purchasing, consolidation
and delivery of a broad range of
products, thereby enabling them
to achieve efficiencies and savings.
Since 2004 we have announced
more than 80 acquisitions with
an average annual spend of £180
million, adding average annualised
revenue of £265 million.
OPERATING
MODEL
EFFICIENCIES
We continually strive to make
our businesses more efficient
and environmentally friendly
by investing in new IT systems
and warehouse facilities and
implementing best practice
operational procedures.
OUR STRATEGY BUILDING BLOCKS
• Unique business model
Our supply chain management and one-stop-shop
offering allows our customers to focus on their core
businesses more effectively and at the same time
reduce their working capital and carbon emissions.
• Experienced management
Our executive directors and business area heads
have extensive experience in managing the Group’s
businesses with an average of 16 years’ service
with Bunzl.
• Balanced business portfolio
We have a geographically balanced and diversified
business portfolio operating across 27 countries.
• Operational focus
With a decentralised operational structure, our
management are able to focus on our customers’ needs
while retaining full responsibility for the financial
performance of their businesses.
• Strong financial discipline
Over the last 10 years we have delivered consistently
good results with very high returns on capital and
operating cash flow conversion.
• Acquisition strategy and track record
Our acquisition strategy is to seek out those businesses
that satisfy key criteria, including having good financial
returns in resilient and growing markets, while at the
same time providing opportunities to extract further
value as part of the Bunzl Group.
• Attractive markets
We operate across six core fragmented markets sectors,
many of which are growing and resilient to challenging
economic conditions.
To find out how we are making progress
on our strategic priorities through our key
performance indicators, see pages 6 and 7.
BUNZL PLC ANNUAL REPORT 2013 05
KEY PERFORMANCE INDICATORS
We use the following key performance indicators (‘KPIs’) to measure our
progress in delivering the successful implementation of our strategy and
to monitor and drive performance. Together these KPIs reflect our strategic
priorities of developing the business through organic and acquisition led
growth and improving the efficiency of our operations as well as other
financial and environmental metrics.
ORGANIC REVENUE
GROWTH %
4.0
ADJUSTED
EARNINGS
PER SHARE p
Increase in revenue for the year
excluding the impact of currency
translation, acquisitions during the
first 12 months of ownership and
disposal of business.
Earnings per share excluding intangible
amortisation, acquisition related
costs and disposal of business. 2011
and 2012 have been restated on adoption
of IAS 19 (Revised 2011) ‘Employee
Benefits’ (see Note 1).
2.6
2.0
11
12
13
PROFIT MARGIN %
6.6
6.6
6.8
ACQUISITION
SPEND £m
Ratio of operating profit before intangible
amortisation and acquisition related
costs to revenue.
Consideration paid and payable, together
with net debt assumed, in respect of
businesses acquired or agreed to be
acquired during the year.
UNDERLYING
PROFIT MARGIN %
11
12
13
6.6
6.7
ANNUALISED
REVENUE FROM
ACQUISITIONS £m
82.4
70.6
67.6
11
12
13
295
277
185
11
12
13
518
Current year profit margin excluding
the impact of acquisitions during the
first 12 months of ownership compared
to the prior year profit margin restated
at constant exchange rates.
Estimated revenue which would have
been contributed by acquisitions made
or agreed to be made during the year if
such acquisitions had been completed
at the beginning of the relevant year.
281
204
12
13
11
12
13
06 BUNZL PLC ANNUAL REPORT 2013
FREE CASH
FLOW £m
302
275
235
SCOPE 1 CARBON
EMISSIONS
Tonnes of CO2 per
£m revenue
17.7
15.8
15.5
Cash generated from operations before
acquisition related costs less net capital
expenditure, interest and tax.
Measured using the Greenhouse Gas
Protocol applying 2013 Defra conversion
factors with the 2011 and 2012 data
restated accordingly.
11
12
13
12 months to 30 September
11
12
13
RETURN ON
AVERAGE
OPERATING
CAPITAL %
57.4
56.5
56.9
SCOPE 2 CARBON
EMISSIONS
Tonnes of CO2 per
£m revenue
5.3
5.3
4.6
Ratio of operating profit before
intangible amortisation, acquisition
related costs and disposal of business
to the average of the month end operating
capital employed, being tangible fixed
assets, inventories and trade and
other receivables less trade and
other payables.
Measured using the Greenhouse Gas
Protocol applying 2013 Defra conversion
factors with the 2011 and 2012 data
restated accordingly.
11
12
13
12 months to 30 September
11
12
13
RETURN ON
INVESTED
CAPITAL %
17.9
17.9
17.3
FUEL USAGE
Litres per
£000 revenue
6.1
5.6
5.1
Ratio of operating profit before intangible
amortisation, acquisition related costs
and disposal of business to the average
of the month end invested capital,
being equity after adding back net debt,
retirement benefit obligations, cumulative
intangible amortisation, acquisition
related costs and amounts written off
intangible assets, net of the related tax.
Diesel, petrol and LPG used
in the Group’s own vehicles.
11
12
13
12 months to 30 September
11
12
13
Included in the external auditor’s limited assurance scope referred to on page 36.
BUNZL PLC ANNUAL REPORT 2013 07
600,000+
Separate stock
keeping units of
products held
SUPPLY
DELIVER
ENABLE
WE DELIVER
MANY DIFFERENT
PRODUCTS TO
OUR CUSTOMERS
IN A TIMELY
MANNER, ENABLING
THEM TO OPERATE
MORE EFFICIENTLY
We supply a broad range of everyday items
across six core market sectors. We ensure
the right products are delivered where
and when they are needed, enabling our
customers to focus on their core businesses.
08 BUNZL PLC ANNUAL REPORT 2013
BUNZL PLC ANNUAL REPORT 2013 09
CHAIRMAN’S STATEMENT
Philip Rogerson
Chairman
‘ OUR DEEP UNDERSTANDING
OF THE FRAGMENTED MARKETS
IN WHICH WE OPERATE AND
OUR ABILITY TO OFFER TOTAL
SOLUTIONS THAT PROVIDE
QUANTIFIABLE BENEFITS TO
OUR CUSTOMERS HAVE ONCE
AGAIN CONTRIBUTED TO
OUR SUCCESS.’
RESULTS
Although there were signs of improving macroeconomic conditions
in some of the countries in which we operate, the market conditions
in many of our sectors remained challenging throughout 2013.
I am therefore delighted to be able to report an excellent set of
results for 2013.
Group revenue increased to £6,097.7 million (2012: £5,359.2 million),
an increase of 12% at constant exchange rates, due to organic
growth of 2% combined with the impact of acquisitions.
Operating profit before intangible amortisation and acquisition
related costs was £414.4 million (2012: £352.4 million), up 16%
at constant exchange rates, with the improvement in the Group
operating margin being driven by both organic growth and the
impact of acquisitions. Adjusted earnings per share before
intangible amortisation, acquisition related costs and the vending
disposal were 82.4p (2012: 70.6p), an increase of 15% at constant
exchange rates.
Positive currency translation movements, principally in the US dollar
and euro, which were partly offset by adverse exchange rate
movements elsewhere, increased the reported Group growth rates
by around a further 2%.
DIVIDEND
The Board is recommending a final dividend of 22.4p. This brings
the total dividend for the year to 32.4p, up 15% compared to 2012.
Shareholders will again have the opportunity to participate in our
dividend reinvestment plan.
STRATEGY
We have continued to pursue our consistent and proven strategy of
developing the business through organic growth, consolidating our
markets through focused acquisitions and continuously improving
the efficiency of our operations. Once again this has resulted in
another successful year of growth for the Group.
ADJUSTED EARNINGS PER SHARE p
04–12 RESTATED ON ADOPTION OF IAS 19 (REVISED 2011)
82.4
REVENUE £bn
04–05 CONTINUING OPERATIONS
70.6
67.6
59.7
55.4
51.8
44.4
41.1
38.2
31.7
3.6
3.3
2.9
2.4
6.1
5.4
5.1
4.8
4.6
4.2
04
05
06
07
08
09
10
11
12
13
04
05
06
07
08
09
10
11
12
13
10 BUNZL PLC ANNUAL REPORT 2013
We achieve our organic growth by applying our resources and
expertise to enable customers to outsource to Bunzl the purchasing,
consolidation and distribution of a broad range of goods not for
resale. By doing so our customers are able to focus on their core
business more cost effectively by achieving purchasing efficiencies
and savings, freeing up working capital, improving their distribution
capabilities, reducing carbon emissions and simplifying their
internal administration.
Acquisition activity continued at a similar pace to that seen in 2012.
In addition to completing in February 2013 the purchase of Vicsa
Brasil, which we agreed to acquire in December 2012, we made
11 acquisitions in the year. The committed spend in respect of these
11 acquisitions was £295 million, adding annualised revenue of over
£280 million. Having pursued our strategy consistently over many
years, we have built leading positions in a variety of market sectors
across the Americas, Europe and Australasia.
INVESTMENT
Investment in the business to support our growth strategy and
to expand and enhance our asset base is an ongoing process.
During the year, we have continued to improve existing warehouses
and open new ones. Upgrading our IT systems is also an important
task as we integrate new businesses into the Group and increase the
functionality and efficiency of our existing operations.
CORPORATE RESPONSIBILITY
We continue to emphasise the requirement for high standards of
business practice and sustainable operating processes throughout
the Group. Bunzl has collected and analysed environmental
performance data from across the businesses for a number of years.
As the Group has grown, the collation of this data has become more
complex and therefore we have, for the first time, obtained external
independent assurance of our CO² emissions and fuel usage data.
We have also continued to review and enhance our policies and
procedures to ensure that we remain compliant with changing
practices and legislation and over the last year have focused
on further understanding our waste stream and working with
our suppliers to ensure compliance with recently introduced
timber regulations.
EMPLOYEES
A key differentiator of Bunzl is its long serving and loyal workforce.
We believe that this is, in part, due to our decentralised organisation
structure. This structure allows our people to understand easily
their responsibilities and gives them the space to operate efficiently
and effectively. We very much appreciate their consistent high levels
of service, performance and hard work. As Bunzl continues to grow
by acquisition, we benefit from new ideas and collaboration between
our employees from across the world to improve our customer
service and introduce more innovative products to our customers.
BOARD
Ulrich Wolters, who served as a non-executive director from 2004,
retired after the Company’s Annual General Meeting in April 2013.
We thank Ulrich for his significant contribution over many years.
Jean-Charles Pauze and Meinie Oldersma were appointed as
non-executive directors in January and April 2013 respectively.
Based in Paris, Jean-Charles is presently Chairman of Europcar
and Chairman of the Supervisory Board of CFAO Group and was
Chairman and Chief Executive of Rexel for 10 years until 2012. Prior
to that he held a number of senior positions with PPR Group, Strafor
Facom Group and Alfa Laval Group in France and Germany. A Dutch
national, Meinie was Chief Executive of 20:20 Mobile Group from
2008 until earlier this month and previously held a variety of senior
positions with Ingram Micro, most recently as Chief Executive
and President of their China Group and Managing Director of their
business in Northern Europe. Both Jean-Charles and Meinie have
extensive international experience across a range of distribution
and service sectors, particularly in Europe and Asia, which is already
proving to be of great value to Bunzl as we expand and develop.
Philip Rogerson
Chairman
24 February 2014
SHARE PRICE RANGE p
884
777
710
742
757
675
578
627
542
482
676
616
643
486
405
443
1,450
1,167
1,014
852
OPERATING PROFIT* £m
04–05 CONTINUING OPERATIONS
* Before amortisation and acquisition
related and corporate costs
323
312
297
259
241
218
183
433
371
353
04
05
06
07
08
09
10
11
12
13
04
05
06
07
08
09
10
11
12
13
BUNZL PLC ANNUAL REPORT 2013 11
CHIEF EXECUTIVE’S REVIEW
Michael Roney
Chief Executive
OPERATING PERFORMANCE
The Group has had another successful year in 2013 due to a
combination of some organic growth, good performances from
the acquisitions made in 2012 and a high level of acquisition spend
during the year.
The overall positive translation effect of currency movements has
increased the reported Group growth rates of revenue and operating
profit by approximately 2%. The operations, including the relevant
growth rates, are reviewed below at constant exchange rates to
remove the distorting impact of these currency movements.
Changes in the level of revenue and profits at constant exchange
rates have been calculated by retranslating the results for 2012 at
the average rates used for 2013. Unless otherwise stated, all
references in this review to operating profit are to operating profit
before intangible amortisation and acquisition related costs.
Revenue increased 12% (14% at actual exchange rates) to £6,097.7
million and operating profit was £414.4 million, an increase of 16%
(18% at actual exchange rates). The percentage growth in operating
profit was greater than that of revenue due to the improvement in
Group operating margin at both actual and constant exchange
rates by 20 basis points to 6.8% as a result of improved levels of
profitability in some businesses and the impact of acquisitions.
In North America revenue rose 15% (17% at actual exchange rates)
due to good organic revenue growth and the impact of acquisitions
completed in both 2012 and 2013, while operating profit increased
14% (16% at actual exchange rates). Revenue in Continental Europe
rose 2% (7% at actual exchange rates) as a result of improved
organic revenue growth and the impact of acquisitions, with
operating profit up 6% (11% at actual exchange rates) as margins
improved. In UK & Ireland revenue was up 2% (3% at actual
exchange rates) due to the impact of relatively small acquisitions, but
operating profit rose 10% at both constant and actual exchange rates
as margins continued to recover during the year. In Rest of the World
revenue increased 47% (38% at actual exchange rates) and operating
profit was up 65% (54% at actual exchange rates) due to both good
organic revenue growth and the substantial impact of acquisitions.
12 BUNZL PLC ANNUAL REPORT 2013
Basic earnings per share were 7% higher (8% at actual exchange
rates) at 63.5p. Adjusted earnings per share, after eliminating the
effect of intangible amortisation, acquisition related costs and the
disposal of vending, were 82.4p, an increase of 15% (17% at actual
exchange rates). The return on average operating capital increased
from 56.5% to 56.9%. Return on invested capital was 17.9%, in line
with 2012, despite our ongoing acquisition spend.
Our operating cash flow continued to be strong with the ratio of
operating cash flow before acquisition related costs to operating
profit at 102%. The net debt to EBITDA ratio was 1.8 times, the same
level as at the previous year end despite an acquisition cash outflow
of £279.9 million.
Corporate Responsibility (‘CR’) remains intrinsic to the effective
running of our business. In particular we have continued to give
outstanding customer service by providing innovative products and
service solutions, many of which assist our customers in reducing
their impact on the environment. During the year Bunzl has received
a number of awards for CR activities from customers, public bodies
and other organisations.
ACQUISITIONS
Our committed acquisition spend in 2013 of £295 million was slightly
higher than in 2012 and was the highest level since 2004. During
the year 11 transactions were completed in addition to the
completion in February 2013 of the purchase of Vicsa Brasil which
we agreed to acquire in December 2012.
At the end of January 2013 we acquired McNeil Surgical in Australia.
With revenue of £10 million in 2013, the business is engaged in
the sale of healthcare consumables and equipment to aged care
facilities, hospitals and medical centres as well as to distributors and
increases our market presence in this growing sector. We completed
the purchase of Vicsa Brasil in February, the proposed acquisition of
which was agreed in December 2012, following clearance of the
transaction from the Brazilian Competition Authority. Based in São
Paulo, the business is engaged in the sale of personal protection
equipment throughout Brazil and expands our growing safety
business in Brazil. Revenue in 2013 was £6 million. In March we
purchased Labor Import, a business principally engaged in the
supply and distribution of own label medical and healthcare
consumable products to distributors as well as to hospitals, clinics,
laboratories and care homes throughout Brazil. Revenue in 2013 was
£15 million. This is another important step for Bunzl as it represents
our first move into the healthcare sector in Brazil, having previously
acquired businesses in the safety and cleaning and hygiene sectors.
The acquisition of MDA in the UK was also completed in March. The
business, which had revenue in 2013 of £23 million, is involved in the
procurement and fulfilment of promotional products and marketing
point of sale materials for a variety of customers, principally in the
food and drinks industries.
Our business in Australia was significantly expanded at the end of
April with the purchase of three businesses which formed part of the
Industrial & Safety division of Jeminex. The workwear and personal
safety business distributes an extensive range of specialist personal
protection equipment and workwear to the mining, resources,
construction and general industrial sectors. The lifting, rigging and
height safety business is principally engaged in the supply of lifting
chains and ropes, slings and load restraints as well as the provision
of accredited testing and repair services. The third business is
involved in the supply of industrial packaging products to a variety
of customers in different market sectors. Revenue of the acquired
businesses was £98 million in 2013.
The acquisition of TFS in the UK was completed at the end of July. With
revenue of £9 million in 2013, TFS complements MDA and has further
strengthened that part of our business in the UK which is focused on
marketing and point of sale materials. Espomega, which supplies a
variety of safety products to distributors throughout Mexico, was
acquired at the end of August. Revenue was £27 million in 2013 and the
acquisition has expanded significantly our safety business in Mexico.
ProEpta, a leading distributor of catering equipment throughout
Mexico, principally to luxury hotels and restaurants, was acquired in
September. Revenue in 2013 was £18 million.
Wesclean, a business engaged in the distribution of cleaning and
hygiene equipment and supplies to a variety of customer markets
throughout Western Canada with revenue of £40 million in 2013,
was acquired in November. Our safety business in Germany was
expanded with the acquisition at the end of November of pka Klöcker,
a business based near Düsseldorf engaged in the sale to distributors
of personal protection equipment, principally own label workwear.
Revenue in 2013 was £5 million. De Santis, a business based near
São Paulo principally engaged in the sale of personal protection
equipment to end user customers in a number of different market
sectors and with revenue of £5 million in 2013, was acquired in
December. Finally, SAS Safety, a business based in California
specialising in the sourcing and sale to distributors of a variety of
own label personal protection equipment, principally safety gloves,
was also acquired in December. Revenue in 2013 was £31 million.
Today we are announcing the acquisition of Bäumer and Protemo in
Germany and Oskar Plast in the Czech Republic. The businesses in
Germany had aggregated revenue of €11.9 million (c.£10 million) in
2013 and represent our first step into the cleaning and hygiene and
healthcare sectors in Germany. Oskar Plast had revenue of CZK284
million (c.£9 million) in 2013 and has expanded our operations in the
Czech Republic.
MANAGEMENT TEAM
PROSPECTS
We believe that an improving macroeconomic outlook, Bunzl’s strong
competitive position and the full year impact of the 2013 acquisitions
should lead to a good performance in 2014. However, with the recent
strengthening of sterling, our reported results will be negatively
affected by foreign exchange translation if exchange rates remain
at their current levels.
At constant exchange rates each of our business areas is expected
to grow. In North America, we expect good growth as a result of
both organic revenue growth and the acquisitions made in 2013.
Even though the economic environment continues to be sluggish
in Continental Europe, we expect to see continued growth this year.
In UK & Ireland, after a long period of time with a weak revenue line,
we expect to see some sales growth in 2014 with margin stability.
Rest of the World should show significant increase in revenue
and profit, especially in Latin America, due to a combination of
underlying growth and the impact of recent acquisitions.
We have had three consecutive years of higher than our historical
average acquisition spend and the pipeline of potential acquisitions
continues to be promising. Discussions are ongoing with a number
of targets in all of the business areas and we expect to complete
further acquisitions in the coming months.
The Board is confident that our strong market position will enable
the Group to grow the business and continue to build value for our
shareholders.
Michael Roney
Chief Executive
24 February 2014
Managers from across the Group meet regularly to review performance, discuss trends
affecting our businesses and seek further opportunities for growth and competitive advantage.
Brian May
Finance Director
Patrick Larmon
President and CEO
North America
Celia Baxter
Director of Group
Human Resources
Paul Hussey
General Counsel &
Company Secretary
Paul Budge
Managing Director
UK & Ireland
Andrew Mooney
Director of Corporate
Development
Frank van Zanten
Managing Director
Continental Europe
Rodrigo Mascarenhas
Managing Director
Latin America
Kim Hetherington
Managing Director
Australasia
BUNZL PLC ANNUAL REPORT 2013 13
27
Countries of
operation across
four continents
GROW
DEVELOP
SIMPLIFY
We have grown consistently and sustainably
with a clear and focused strategy through the
development of long term relationships and
by identifying future business opportunities.
Our service offer is based on a one-stop-shop
solution which allows our customers to
simplify their business processes.
14 BUNZL PLC ANNUAL REPORT 2013
WE UNDERSTAND
THE IMPORTANCE
OF GROWING
ORGANICALLY
AND THROUGH
ACQUISITIONS
WHILE MAKING
OUR BUSINESS
MORE EFFICIENT
BUNZL PLC ANNUAL REPORT 2013 15
CHIEF EXECUTIVE’S REVIEW CONTINUED
NORTH AMERICA
+14%
Increase in
operating profit
at constant
exchange rates
In North America revenue increased by 15% to £3,401.7 million
due to organic sales growth from new customer wins and overall
revenue gains in our existing business, together with the impact
of acquisitions, particularly those businesses purchased in 2012.
This sales growth contributed to an operating profit increase of
14% to £213.6 million.
Our largest business, which serves the grocery sector, continued to
produce solid results in 2013. We maintained strong positions with
our existing large national and regional customers. We also gained
several new locally based accounts to bolster our sales in this sector
during the year. Our uniform IT platform and ability to execute our
programmes on a local, regional and national basis give us a distinct
competitive advantage and the ability to accommodate supply chain
disruptions, such as those caused by bad weather, and thereby
sustain our level and quality of service.
The redistribution business once again provided opportunities for
our distributor customers to increase their sales and profitability.
As a result of our distribution scale and proximity, customers can
rely on our one-stop-shop offering, excellent fill rates, dependable
delivery capabilities and extensive product lines and use us as a
virtual extension of their own inventory. Customers can thereby
improve their asset utilisation and reallocate storage space to higher
revenue generating items previously occupied by the items we
provide. Our domestically sourced, environmentally friendly and
imported private label lines give customers the opportunity to
substitute quality private label alternatives to increase their gross
margins and profits. Our sales teams assist in consolidating the
sources of supply that lead to administrative and operating cost
reductions. Additionally, we provide sophisticated marketing tools
to drive increased customer sales of our products. The acquisition
of SAS Safety in December is a significant and strategic addition to
our safety business in North America.
We are increasing our marketing and communication activities
through the FoodHandler brand, which is recognised by the
foodservice market for excellence in innovation, quality and safety.
We also established a new FoodHandler distribution centre in the
Midwest, in addition to our existing East and West Coast facilities,
to reduce our operating costs, improve product availability and
reduce lead times.
Our food processor business continued to grow through our ability
to supply a wide range of MRO, personal protection equipment and
packaging products to major producers in the meat, field and fresh
cut produce, dairy and prepared foods industries. We gained
business with growers, packers and retailers through our Cool Pak,
Netpak and Destiny Packaging businesses which assist our
customers in designing and sourcing both flexible and rigid
packaging solutions and programmes that meet their specialised
needs in the agricultural processing sector.
Our business serving the non-food retail sector expanded further
despite the slow growth in US retail sales. Our uniform operating
platform, coupled with our extensive branch network, give us the
‘ AS A FOCUSED ORGANISATION WE
HAVE CONTINUED TO DEMONSTRATE THE
STRENGTH AND DEPTH OF OUR CUSTOMER
PROPOSITION AND SHOW OUR ABILITY
TO DEVELOP FURTHER ACROSS THE
MARKETS WE SERVE.’
Patrick Larmon
President and CEO North America
ability to create programmes that offer our retail customers
centralised account management while leveraging our sourcing and
import expertise thereby enabling us to service retailer locations on
a local basis coast to coast. Further integrating the expertise,
facilities and customer base of Schwarz Paper Company, which we
acquired in December 2012, has strengthened our retail fulfilment
capabilities and position in the marketplace. Schwarz has also
extended our product lines, especially in-store fixtures and store
supplies. Their materials consolidation division offers a dynamic
solution for our customers in handling store fixtures and equipment.
Similarly CDW Merchants, which was also acquired in 2012,
continues to deliver creative expertise in the design of point of sale
displays and specialty retail packaging. Overall, the retail supplies
businesses are together able to offer a wide breadth of resources
to our customers in this sector.
The convenience store sector also expanded in 2013. We have
partnered with retail convenience store chains and increased the
breadth of product lines provided through our programmes to assist
retailers in improving their in-store offerings. We also developed
our retail redistribution programme during the year and now
distribute products for two of our preferred suppliers through
a national wholesaler.
We increased the breadth of our imported private label product
offering and significantly grew our import business. In order to
do so we continued to utilise our state-of-the-art Shanghai export
consolidation centre, quality control services and international
logistics expertise. As a result, we have realigned our import
sales and marketing resources to focus on growing import
programme sales.
The recent acquisition of ProEpta in Mexico expands our presence
in the restaurant and hospitality sector. This also gives us the
opportunity to expand the business into other product lines available
through our existing operations there.
Our business in Canada continued to grow and produce good results.
McCordick Glove & Safety, acquired in 2012, performed well and has
gained several new national accounts. Our recent acquisition of
Wesclean has significantly expanded our operations in the cleaning
and hygiene sector in Canada and broadened the range of products
we can offer.
16 BUNZL PLC ANNUAL REPORT 2013
ProEpta
The acquisition of ProEpta further extends our
business in Mexico into the catering equipment
sector following the recent expansion into the
safety sector with the acquisition of both Vicsa
Safety and Espomega. The business has a strong
position in this promising market.
Wesclean
Equipment &
Cleaning Supplies
The purchase of Wesclean is an important
development for our business in Canada as it
significantly expands our operations there in the
cleaning and hygiene sector. The business has an
excellent reputation for providing a broad range
of products and services and should provide
additional opportunities for us to develop further
in this sector.
BUNZL PLC ANNUAL REPORT 2013 17
SAS Safety
SAS Safety is a significant and strategic addition
to our safety business in North America.
It specialises in the sourcing and sale of a variety
of own label personal protection equipment,
principally safety gloves, to distributors.
pka Klöcker
The acquisition of pka Klöcker extends our existing
safety operations in Germany following the purchase
of Majestic in 2011. The business is principally engaged
in the sale of own label workwear to distributors.
18 BUNZL PLC ANNUAL REPORT 2013
CHIEF EXECUTIVE’S REVIEW CONTINUED
CONTINENTAL EUROPE
+6%
Increase in
operating profit
at constant
exchange rates
Revenue rose by 2% to £1,151.5 million and operating profit improved
6% to £97.0 million. While macroeconomic conditions remained
challenging, overall profitability and operating margins have
improved due to a combination of organic sales growth, improved
margin management, continued tight cost control and the full year
impact of the 2012 acquisitions of Zahav and Distrimondo together
with the acquisition of pka Klöcker in late November 2013.
In France, our cleaning and hygiene business saw a slight decline
in sales but improved its gross margin despite ongoing market
pressures, particularly in the healthcare and public sectors, helped
partly by an increase in sales of own brand products. Cost reduction
measures continued to deliver savings such that operating profit
improved significantly following the reduction in profit last year.
Our personal protection equipment business enjoyed good sales
growth and consequently improved its operating profit.
In the Netherlands, sales improved in the healthcare, cleaning
and hygiene and horeca (hotel, restaurant and catering) sectors.
However sales declined in the food and non-food retail sectors given
the ongoing market pressures on our customers in these sectors.
While overall sales decreased slightly, margins improved and
cost increases were kept to a minimum. Two of our businesses
successfully migrated to a new IT system. The personal protection
equipment and safety products business recorded strong sales
growth from gaining market share and achieved better margins from
the increase in sales of own brand products. Overall the operating
profit for the Netherlands was at a similar level to the previous year.
In Belgium, we recorded strong sales growth in the cleaning and
hygiene sector, particularly from increasing business with a number
of existing key accounts, although sales remained weak in the retail
sector. With margins improving, profitability grew strongly.
In Germany, stronger sales to hotels and butchers were offset by
weaker trading in the foodservice and bakery sectors. Margins
improved and costs were reduced leading to an increase in operating
profit. At the end of November we acquired pka Klöcker which is
engaged in the sale of personal protection equipment, principally
own label workwear, to distributors. The business is integrating well
and will help improve our position in the safety sector in Germany
through cross-selling activities with our existing operations,
including Majestic. The recent acquisition of Bäumer and Protemo
in January 2014 has extended our business in Germany into the
cleaning and hygiene and healthcare sectors.
In Switzerland, our Weita business increased sales, in particular
in the retail and medical sectors, but margins remained under
pressure and operating profit declined. We have benefited from the
full year impact of the acquisition of Distrimondo in mid 2012 which
continues to trade well and benefit from the significant synergies
generated from the combination with Weita.
‘ WE HAVE BEEN ABLE TO INCREASE
BOTH REVENUE AND OPERATING PROFIT
DESPITE THE DIFFICULT ECONOMIC
CONDITIONS WE CONTINUED TO FACE
THROUGHOUT THE REGION.’
Frank van Zanten
Managing Director Continental Europe
In Denmark, sales of personal protection equipment and packaging
increased and revenue to horeca distributors improved but sales
of horeca products to the public sector, which continues to seek
significant cost savings, declined leading to a fall in overall revenue.
Gross margins stabilised in the retail sector but declined in the
horeca market, particularly as a result of public sector customers
issuing a number of major tenders. Costs were reduced due to the
impact of the new IT system in our horeca business and the same
system was successfully implemented into the retail business but
this was not sufficient to offset fully the reduction in gross margin,
leading to a decrease in operating profit.
In Spain, trading conditions have started to improve although our
cleaning and hygiene business saw full year sales decline slightly
compared to 2012. Sales increased in our personal protection
equipment businesses, particularly due to exports, but also as a
result of a return to modest growth in the Spanish economy in recent
months. Margins improved in both sectors and cost increases were
limited such that operating profit grew well. During the year we
consolidated our various warehouses in Catalonia into one new
facility which will generate cost savings going forward.
In central Europe, sales grew strongly, particularly in Romania
and the retail business in Hungary, although margins remained
under pressure across the region. Costs were carefully controlled
and operating profit grew significantly. The purchase of Oskar Plast
in February 2014 is an important addition to our business in the
Czech Republic.
In Israel, Silco saw sales decline following the loss of a major
customer. This was more than compensated for by the full year
impact of the 2012 acquisition of Zahav but overall operating profit
reduced in a difficult market environment.
BUNZL PLC ANNUAL REPORT 2013 19
CHIEF EXECUTIVE’S REVIEW CONTINUED
UK & IRELAND
Our operations in the UK & Ireland continued to build on the
improvements seen in recent years. Although revenue was up
2% to £1,018.5 million, operating profit rose significantly by 10% to
£71.6 million as we improved the efficiency of our businesses and,
as a result, the operating margin once again increased. A notable
element of this year’s performance is that we have made good
progress in each of the sectors in which we operate, including
those that were particularly adversely affected at the onset of
the financial crisis.
Against the background of the challenging macroeconomic
conditions over the last few years, we have remained focused on
margin management and tight cost control while also continuing to
enhance the levels of service that we provide to our customers. This
service offering has not only built our reputation in the markets in
which we compete but has also delivered an increasingly efficient
organisation. We continue to manage cash flow closely and are
pleased to report a further improvement in the return on capital
employed which was already the highest of our business areas.
In our food and non-food retail supplies businesses, our broad mix of
customers has helped to produce a strong performance in a difficult
market with both revenue and operating profit ahead. As our retail
customers adapt to changes in their market conditions, we have
assisted them as they have developed smaller local retail concepts
and their online sales offerings to their customers. The flexibility of
our services across procurement and different models of delivery,
including direct to store, has seen us continue to develop our
offering. Our retail packaging business, Keenpac, has opened a sales
office in Shenzhen which allows us to sell direct to global retail
brands with outlets in China.
During the year we acquired two marketing services businesses,
MDA and TFS. These businesses manage and deliver the supply of
point of sale and marketing materials on behalf of leading consumer
brands to retail outlets. They are both performing strongly and have
fitted in well alongside, and provided complementary services to,
our existing operations.
In the hospitality business, our own brand product offering has
grown and been well received and has partly helped to compensate
for a reduction in sales and operating profit, following the loss of
some business towards the end of 2012. We have continued to make
efficiency improvements, including in particular the consolidation
of three branches and the imminent relocation to a purpose built
facility in the West Midlands.
+10%
Increase in
operating profit
at constant
exchange rates
‘ DUE TO GOOD MARGIN MANAGEMENT AND
TIGHT COST CONTROL, OUR OPERATING
MARGIN HAS RETURNED TO 7.0%, ITS
HIGHEST LEVEL FOR FIVE YEARS, WITH
A FURTHER INCREASE IN OUR RETURN
ON OPERATING CAPITAL TO 98.8%.’
Paul Budge
Managing Director UK & Ireland
Our cleaning and hygiene supplies business had another good
year following a strong performance throughout the recession.
Our focus on efficiency and high service levels has continued to help
this business remain successful and we have further consolidated
our branch network, reducing the number of facilities by two.
In our safety business, demand has started to grow once more.
Our strong market position and our ability to offer both leading
brands and our own label products, combined with a responsive and
flexible service, continue to make us an attractive proposition to our
customers and position us well to take advantage of some major
construction and maintenance projects as they come on stream.
Our healthcare business operates in a market that continues
to be subject to tight spending constraints and ongoing cost
reduction initiatives. In this environment, although revenue was
slightly lower, our offering has once again proved to be competitive
and our high service levels have contributed to a continued
improvement in this business.
In Ireland, the hospitality sector has continued to recover and, having
significantly adjusted our cost base following the initial economic
downturn, we are now well positioned for further growth and have
seen a significant improvement in profitability during the year.
During the year we relocated one of our two facilities in Dublin into
a new facility. This investment has greatly enhanced the quality and
efficiency of our business serving the cleaning and safety sectors.
20 BUNZL PLC ANNUAL REPORT 2013
mda
MDA is engaged in the procurement and fulfilment
of promotional products and point of sale materials for
a variety of customers, principally in the food and drinks
industries. This is an exciting development for us as
the acquisition has extended our product offering in
the retail and hospitality sectors in the UK.
tfs
TFS complements MDA and has further strengthened
that part of our business in the UK which is focused
on products for marketing and point of sale displays.
It has also expanded our service capabilities in these
types of products into additional markets such as the
automotive and charity sectors.
BUNZL PLC ANNUAL REPORT 2013 21
McNeil
Surgical
McNeil Surgical has expanded our presence
in the healthcare sector in Australia,
supplying a broad range of medical
consumables and equipment to aged care
facilities, hospitals and medical centres as
well as to distributors.
BIS
The acquisition of the industrial and
safety businesses from Jeminex has
significantly increased the size of our
business in Australasia and extends
our operations there into the safety
market which is a successful sector for
us in many countries. Together these
businesses now form the Bunzl
Industrial & Safety division (‘BIS’)
in Australia.
Espomega
The purchase of Espomega has
significantly increased the size of our
safety business in Mexico, having
entered the safety sector there with
the acquisition of Vicsa Safety at the
end of 2012. The business has an
excellent range of own brand products
which has extended our product offering
to customers throughout the region.
De Santis
De Santis is the fifth acquisition we have
made in the safety sector in Brazil since
the purchase of Prot Cap in 2008. The
business sells a variety of personal
protection equipment to end user
customers in a number of different
market sectors.
Labor Import
Labor Import represents our first move
into the healthcare sector in Brazil,
having previously acquired businesses
in the safety and cleaning and hygiene
sectors. It has a market leading position
and an excellent customer base which
should provide a platform for us to
develop a strong presence in this sector
going forward.
22 BUNZL PLC ANNUAL REPORT 2013
CHIEF EXECUTIVE’S REVIEW CONTINUED
REST OF THE WORLD
+65%
Increase in
operating profit
at constant
exchange rates
In Rest of the World revenue increased 47% to £526.0 million and
operating profit rose 65% to £51.2 million with the results benefiting
significantly from the impact of acquisitions.
In Australia, the economy continued to be impacted by a slowdown
in demand for resources from the major export markets in Asia.
This has had a consequential effect on our customers supplying
into the mining and resource sectors which in turn has reduced
the demand for the products which we supply.
Our largest business, Outsourcing Services, which supplies the
healthcare, cleaning and hygiene, catering and retail sectors,
continued to develop its position providing consolidated value-added
supply solutions for disposable consumables across Australia and
New Zealand. Although the business faced challenging market
conditions, we increased our presence in the healthcare sector,
in particular the aged care and private hospital markets, where
we supply a wide range of disposable and medical consumables.
To support our growth in this sector, we acquired McNeil Surgical
in January 2013 which has provided us with increased levels of
expertise and a critical mass in the medical consumables and
wound care categories.
In April we acquired part of the Industrial & Safety division of
Jeminex. Based in Sydney, the businesses operate nationally from
a network of locations throughout Australia. While these businesses
have been impacted by the downturn in the resources sector, they
have benefited from having a spread of quality customers across
other markets and have achieved purchasing synergies and cost
reductions since acquisition. The businesses have settled well into
our ownership and we have already seen the benefits of creating
cross-selling opportunities into existing Bunzl customers.
Our food processor business delivered a much improved
performance in 2013. We made progress on our strategy to develop
our operations into non-meat and other food processors. To build
on this strategy and further consolidate our position as a leading
national supplier into this sector, we merged our existing business
with Network Packaging which was purchased as part of the
acquisition from Jeminex. Network Packaging has a long and
successful history supplying into the fruit and produce markets,
predominantly in Western Australia, and the merger provides the
combined business with an infrastructure and platform to develop
these markets nationally. In addition, we are leveraging the expertise
of our US operations which have already established a supply chain
for the specialist products in this sector. These developments have
also provided a good platform for the larger market on the east coast
of Australia.
Our operations in Latin America have performed strongly in 2013
and have grown substantially. Despite slower economic growth
and currency volatility in Brazil, the organic revenue growth there
continued to be strong and was supplemented by a significant impact
from acquisitions both in Brazil and elsewhere in Latin America.
Our personal protection equipment businesses in Brazil have
continued to develop positively. Prot Cap has gained several new
key accounts and has successfully introduced new products and
suppliers to its portfolio. This has resulted in a strong performance
with increases in both revenue and operating profit. We are
currently investing in a new distribution centre in São Paulo that
will significantly improve our efficiency and establish a sustainable
platform for future growth. Danny, our own brand redistribution
safety business, has been successfully integrated into the Group and
‘WE HAVE CONTINUED TO FOCUS
ON OPERATIONAL EFFICIENCIES IN
A WEAK ECONOMIC ENVIRONMENT
WHILE EXTENDING OUR OPERATIONS IN
AUSTRALASIA INTO THE SAFETY SECTOR.’
Kim Hetherington
Managing Director Australasia
‘ THE COMBINATION OF STRONG
ORGANIC GROWTH AND THE IMPACT
OF ACQUISITIONS IN BOTH NEW AND
EXISTING COUNTRIES AND SECTORS
HAS TRANSFORMED THE SIZE OF OUR
BUSINESS IN LATIN AMERICA.’
Rodrigo Mascarenhas
Managing Director Latin America
continues to introduce new innovative solutions for our customers.
Vicsa Brasil, which was acquired in February 2013, is meeting our
expectations and is also benefiting from purchasing synergies.
In particular the own label products they have developed have
expanded the range of our product offering in the safety sector
throughout Brazil. Its back office operation has been successfully
integrated with Danny’s and we are continuing to invest in more
efficient logistics solutions. Finally, the acquisition of De Santis in
December has further expanded our presence in the safety sector.
Overall our safety businesses in Brazil performed strongly with
substantial growth in both sales and operating profit.
Ideal, our cleaning and hygiene business in Brazil, achieved good
organic growth winning some new key accounts and also improving
gross margins which together have led to an increase in profitability.
In March we acquired Labor Import which is principally engaged in
the distribution of own label medical and healthcare consumables
and represents our first move into the healthcare sector in Brazil.
It has a market leading position and an excellent customer base
which should provide a platform for us to develop a strong presence
in this sector going forward. The company has integrated well and
we are in the process of implementing a new IT platform.
Vicsa Safety, our personal protection equipment business with
operations in Chile, Argentina, Peru, Colombia and Mexico which
was purchased in December 2012, is performing in line with our
expectations. New product development and partnerships with our
global suppliers are providing interesting opportunities in the region,
particularly in the mining and retail sectors. The business has moved
to new distribution centres in Chile and Colombia which will be key
for our future expansion in the region. We are introducing new
product lines and also benefiting from synergies both within Vicsa’s
operations in Latin America and other Bunzl companies.
The acquisition of Espomega in August has significantly expanded
our safety business in Mexico and has extended our product offering
to customers in this large and important market. Despite some
volatility in the Mexican economy, the business performed strongly
in 2013 and is integrating well.
BUNZL PLC ANNUAL REPORT 2013 23
24 BUNZL PLC ANNUAL REPORT 2013
360+
Warehouse
locations
throughout
the world
WE CARE
PASSIONATELY
ABOUT OUR
BUSINESS TO
ENSURE THAT OUR
STAKEHOLDERS’
REQUIREMENTS
ARE FULLY MET
LISTEN
PROVIDE
CARE
By listening to their needs, we have formed
strong partnerships with our customers,
providing them with reliable and value-added
outsourcing solutions and service oriented
distribution across the Americas, Europe
and Australasia.
BUNZL PLC ANNUAL REPORT 2013 25
FINANCIAL REVIEW
Brian May
Finance Director
‘THE GROUP HAS PRODUCED
ANOTHER STRONG SET OF
RESULTS WITH FREE CASH
FLOW OF £302 MILLION AND
COMMITTED ACQUISITION
SPEND OF £295 MILLION ON
11 ACQUISITIONS DURING
THE YEAR.’
26 BUNZL PLC ANNUAL REPORT 2013
GROUP PERFORMANCE
Revenue increased to £6,097.7 million (2012: £5,359.2 million), up
12% at constant exchange rates and up 14% at actual exchange
rates, reflecting organic growth of 2% and the benefit of acquisitions.
Operating profit before intangible amortisation and acquisition
related costs increased to £414.4 million (2012: £352.4 million),
an increase of 16% at constant exchange rates and 18% at actual
exchange rates, as a result of the revenue growth and the operating
profit margin increasing from 6.6% to 6.8%. Currency translation
had a positive impact of approximately 2% on the results for the
year principally due to the strengthening of the US dollar and euro,
partially offset by the weakening of the Australian dollar, Canadian
dollar and Brazilian real.
Intangible amortisation and acquisition related costs of £82.3 million
were up £23.7 million due to a £13.6 million increase in deferred
consideration payments relating to the continued employment of
former owners of businesses acquired, a £10.6 million increase in
intangible amortisation and a £1.5 million increase in transaction
costs and expenses, partially offset by a further reduction in
estimated earn out payments of £2.0 million.
The net interest charge of £42.2 million was up £8.2 million on
2012, principally due to higher average net debt from the funding
of acquisitions and additional interest expense from the new fixed
interest US dollar bonds agreed in 2012 which replaced maturing
floating interest US dollar bonds. Interest cover reduced to 9.8 times
compared to 10.4 times in 2012.
Profit before income tax, intangible amortisation, acquisition related
costs and disposal of business was £372.2 million (2012: £318.4
million), up 16% on 2012 at constant exchange rates and up 17% at
actual exchange rates, due to the growth in operating profit before
intangible amortisation and acquisition related costs, partially offset
by the higher interest charge.
The profit on disposal of business of £4.0 million in 2012 reflects the
reassessment of provisions relating to the disposal of the UK vending
business in 2011.
TAX
A tax charge at a rate of 27.9% (2012: 27.7%) has been provided on
the profit before tax, intangible amortisation, acquisition related
costs and disposal of business. Including the impact of intangible
amortisation of £58.3 million, acquisition related costs of £24.0
million and the associated deferred and current tax of £20.7 million,
the overall tax rate is 28.7% (2012: 27.5%). The underlying tax rate
of 27.9% is higher than the nominal UK rate of 23.3% for 2013
principally because many of the Group’s operations are in
countries with higher tax rates.
PROFIT FOR THE YEAR
Profit after tax of £206.8 million was up £15.5 million, primarily due
to the £53.8 million increase in profit before income tax, intangible
amortisation, acquisition related costs and disposal of business,
partially offset by the increase in intangible amortisation and
acquisition related costs of £23.7 million resulting from the
increased acquisition activity in 2012 and 2013 and an increase
in the tax charge of £10.6 million.
EARNINGS
The weighted average number of shares decreased to 325.8 million
from 326.1 million due to shares being purchased from the market
into the Company’s employee benefit trust, partially offset by employee
option exercises. Earnings per share were 63.5p, up 7% on 2012 at
constant exchange rates and 8% at actual exchange rates. After
adjusting for intangible amortisation, acquisition related costs and
the respective associated tax and the profit on disposal of business,
adjusted earnings per share were 82.4p, an increase on 2012 of
15% at constant exchange rates and 17% at actual exchange rates.
The intangible amortisation, acquisition related costs, profit on
disposal of business and associated tax are items which are not
taken into account by management when assessing the underlying
performance of the business. Accordingly, such items are removed
in calculating the adjusted earnings per share on which management
assesses the performance of the Group.
DIVIDENDS
An analysis of dividends per share for the years to which they relate
is shown below:
Interim dividend (p)
Final dividend (p)
Total dividend (p)
Dividend cover (times)*
*Based on adjusted earnings per share
2013
10.0
22.4
32.4
2.5
Growth
14%
15%
15%
2012
8.8
19.4
28.2
2.5
ACQUISITIONS
The acquisitions completed in 2013 were McNeil Surgical, Vicsa
Brasil (which the Company agreed to acquire in December 2012),
Labor Import, MDA, most of the Industrial & Safety division of
Jeminex, TFS, Espomega, ProEpta, Wesclean Equipment & Cleaning
Supplies, pka Klöcker, De Santis and SAS Safety. Annualised revenue
and operating profit before intangible amortisation and acquisition
related costs of the businesses acquired (excluding Vicsa Brasil)
were £281.1 million and £37.5 million respectively. A summary of
the effect of acquisitions is as follows:
Fair value of assets acquired
Goodwill
Consideration
Satisfied by:
cash consideration
deferred consideration
Contingent payments relating to continued employment
of former owners
Net bank overdrafts acquired
Transaction costs and expenses
Total committed spend in respect of current year
acquisitions
Spend on acquisition committed as at
31 December 2012
Total committed spend in respect of acquisitions
agreed in the current year
£m
159.1
97.4
256.5
223.8
32.7
256.5
32.4
7.5
8.4
304.8
(9.7)
295.1
£43.3 million outflow on employee share schemes, the net cash
outflow was £113.2 million. The summary cash flow for the year
was as follows:
Cash generated from operations*
Net capital expenditure
Operating cash flow*
Operating cash flow* to operating profit†
Net interest
Tax
Free cash flow
Dividends
Acquisitions
Employee share schemes
Net cash outflow
£m
446.4
(25.3)
421.1
102%
(39.0)
(80.3)
301.8
(91.8)
(279.9)
(43.3)
(113.2)
*Before acquisition related costs
†Before intangible amortisation and acquisition related costs
BALANCE SHEET
Return on average operating capital employed before intangible
amortisation and acquisition related costs increased to 56.9% from
56.5% in 2012, with the impact of the lower return on operating
capital from acquisitions being more than offset by improvements
in the return on operating capital in the rest of the Group. Return on
invested capital was 17.9%, in line with 2012, due to improved returns
in the underlying business offsetting the adverse impact of recent
acquisitions. Intangible assets increased by £116.3 million to £1,456.9
million, reflecting goodwill and customer relationships arising on
acquisitions in the year of £208.5 million, partially offset by an
amortisation charge of £58.3 million and a reduction of £33.9 million
due to exchange. The Group’s pension deficit of £45.0 million at 31
December 2013 was £30.5 million lower than at 31 December 2012,
with an actuarial gain of £26.9 million and contributions of £14.1 million
being partially offset by a current service cost of £6.6 million, net
interest charge of £2.8 million and other net costs of £1.1 million.
The actuarial gain arose primarily as a result of the actual return
on scheme assets being £18.6 million higher than expected and the
£8.2 million impact of changes in assumptions relating to the present
value of scheme liabilities, principally due to higher discount rates.
The net debt to EBITDA ratio was 1.8 times, the same level as at
the previous year end despite an acquisition cash outflow of £279.9
million. The movements in shareholders’ equity and net debt during
the year were as follows:
The net cash outflow in the year in respect of acquisitions comprised:
Cash consideration
Net bank overdrafts acquired
Deferred consideration in respect of prior year
acquisitions
Net cash outflow in respect of acquisitions
Acquisition related costs
Total cash outflow in respect of acquisitions
£m
223.8
7.5
22.5
253.8
26.1
279.9
Shareholders’ equity
At 1 January 2013
Profit for the year
Dividends
Currency
Actuarial gain on pension schemes (net of tax)
Share based payments
Employee trust shares
At 31 December 2013
CASH FLOW
Cash generated from operations before acquisition related costs was
£446.4 million, a £97.3 million increase from 2012, primarily due to a
£53.8 million increase in profit before tax, intangible amortisation,
acquisition related costs and disposal of business and a working
capital inflow in 2013 of £16.8 million compared to a £22.4 million
outflow in 2012. The Group’s free cash flow of £301.8 million was up
£67.1 million from 2012. After payment of dividends of £91.8 million in
respect of 2012, an acquisition cash outflow of £279.9 million and a
Net debt
At 1 January 2013
Net cash outflow
Currency
At 31 December 2013
Net debt to EBITDA (times)
£m
885.5
206.8
(91.8)
(52.1)
16.8
15.2
(40.5)
939.9
£m
(738.1)
(113.2)
1.8
(849.5)
1.8
BUNZL PLC ANNUAL REPORT 2013 27
FINANCIAL REVIEW CONTINUED
EXCHANGE RATES
Average
US$: £
: £
A$: £
C$: £
Brazilian real: £
Closing
US$: £
: £
A$: £
C$: £
Brazilian real: £
2013
1.56
1.18
1.62
1.61
3.38
2013
1.66
1.20
1.85
1.76
3.91
2012
1.59
1.23
1.53
1.58
3.10
2012
1.63
1.23
1.57
1.62
3.33
GROUP TAX STRATEGY
The Group’s tax strategy is principally focused on ensuring
compliance with the legal obligations of all countries in which it
operates. This extends to filings, payments and disclosures to tax
authorities. In alignment with the commercial and economic activity
of the business, the Group manages its taxes so as to maximise
value for its shareholders in a way that does not adversely impact its
reputation as a responsible taxpayer. The Board has approved the
Group’s tax strategy and regularly reviews the Group’s tax risks.
CAPITAL MANAGEMENT
The Group’s policy is to maintain a strong capital base so as to
maintain investor, creditor and market confidence and to sustain
future development of the business.
The Group monitors the return on average operating capital
employed and the return on invested capital as well as the level
of total shareholders’ equity and the amount of dividends paid to
ordinary shareholders.
The Group funds its operations through a mixture of shareholders’
equity and bank and capital market borrowings. All of the
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 Group has
a portfolio of competitively priced borrowing facilities to meet the
demands of the business over time and, in order to do so, the Group
arranges a mixture of borrowings from different sources with
a variety of maturity dates.
HEDGE ACCOUNTING
The Group designates derivatives which qualify as hedges for
accounting purposes as either (a) a hedge of the fair value of a
recognised asset or liability; (b) a hedge of the cash flow risk
resulting from changes in interest rates or foreign exchange rates;
or (c) a hedge of a net investment in a foreign operation. The Group
tests the effectiveness of hedges on a prospective and retrospective
basis to ensure compliance with IAS 39 ‘Financial Instruments:
Recognition and Measurement’. Methods for testing effectiveness
include dollar offset, critical terms and hypothetical derivatives.
LIQUIDITY RISK
Liquidity risk is the risk that the Group will not be able to meet its
financial obligations as they fall due. 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. The principal covenant
limits are net debt to operating profit before depreciation, intangible
amortisation and acquisition related costs (‘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 2013 all covenants
have been complied with and based on current forecasts it is
expected that such covenants will continue to be complied
with for the foreseeable future.
The Group has substantial borrowing facilities available to it
comprising multi-currency credit facilities from the Group’s banks
and US dollar and sterling bonds. An issue of fixed interest US dollar
bonds of $240.0m which was agreed in 2012 was drawn by the Group
in April 2013. At 31 December 2013 the total bonds outstanding were
£607.1 million (2012: £618.9 million) with maturities ranging from 2014
to 2024. During the year the Group also refinanced or agreed new
banking facilities totalling £264.2 million. The Group’s committed
bank facilities mature between 2014 and 2018. At 31 December 2013
the available committed bank facilities totalled £886.7 million
(2012: £758.5 million) of which £273.1 million (2012: £169.2 million)
was drawn down. The committed facilities maturity profile
at 31 December 2013 is set out in the chart below.
COMMITTED FACILITIES MATURITY PROFILE 2014–2024 £m
The Group’s businesses provide a high and consistent level of cash
generation which helps fund future development and growth. The
Group seeks to maintain an appropriate balance between the higher
returns that might be possible with higher levels of borrowings and
the advantages and security afforded by a sound capital position.
BANK FACILITIES – UNDRAWN
BANK FACILITIES – DRAWN
US DOLLAR AND STERLING BONDS
223
There were no changes to the Group’s approach to capital
management during the year 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 and foreign currency
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.
28 BUNZL PLC ANNUAL REPORT 2013
246
218
65
35
67
17
40
30
14
105
16
32
15
40
20
32
18
59
66
19
20
40
21
45
22
31
23
100
24
INTEREST RATE RISK
The Group is funded by a mixture of fixed and floating rate debt.
In addition, interest rate swaps and interest rate caps are used to
manage the interest rate risk profile. At 31 December 2013 fixed rate
debt of £607.1 million (2012: £472.2 million) related to fixed rate US
dollar and sterling bonds stated at amortised cost with maturities
ranging from 2014 to 2024.
CREDIT RISK
Credit risk is the risk of loss in relation to a financial asset due to
non-payment by the counterparty. The Group’s objective is to reduce
its exposure to counterparty default by restricting the type of
counterparty it deals with and by employing an appropriate policy
in relation to the collection of financial assets.
At 31 December 2013 floating rate debt comprised £273.1 million of
floating rate bank loans (2012: £174.3 million). Bank loans are drawn
for various periods of up to three months at interest rates linked
to LIBOR.
The interest rate risk on the floating rate debt is managed using
interest rate options. Borrowings with a notional principal of £60.0
million were capped at 31 December 2013 (2012: £162.6 million).
Hedge accounting is not applied to the interest rate caps since the
majority of their value is related to time value. The strike rates of
these options are based on LIBOR repricing every three months.
FOREIGN CURRENCY RISK
The majority of the Group’s sales are made and income is earned in
US dollars, euros and other foreign currencies. The Group does not
hedge the impact of exchange rate movements arising on translation
of earnings into sterling at average exchange rates. For the year
ended 31 December 2013, a movement of one cent in the US dollar
and euro average exchange rates would have changed profit before
tax by £1.0 million and £0.3 million respectively and profit before tax,
intangible amortisation, acquisition related costs and disposal of
business by £1.1 million and £0.6 million respectively.
The majority of the Group’s transactions are carried out in the
respective functional currencies of the Group’s operations and so
transaction exposures are usually relatively limited. Where they do
occur, the Group’s policy is to hedge significant exposures of firm
commitments for a period of up to one year as soon as they are
committed using forward foreign exchange contracts and these are
designated as cash flow hedges. However, the economic impact of
foreign exchange on the value of uncommitted future purchases and
sales is not hedged. As a result, sudden and significant movements
in foreign exchange rates can impact profit margins where there is
a delay in passing on to customers the resulting price increases.
The majority of the Group’s borrowings are effectively denominated
in sterling, US dollars and euros, aligning them to the respective
functional currencies of the component parts of the Group’s EBITDA.
This currency profile is achieved using short term foreign exchange
contracts, long term cross currency interest rate swaps and foreign
currency debt. This currency composition minimises the impact of
foreign exchange rates on the ratio of net debt to EBITDA.
The Group’s principal financial assets are cash and deposits,
derivative financial instruments and trade and other receivables
which represent the Group’s maximum exposure to credit risk in
relation to financial assets. The maximum exposure to credit risk
for these financial assets is their carrying amount.
Dealings are restricted to those banks with the relevant combination
of geographic presence and suitable credit rating. The Group
continually monitors the credit ratings of its counterparties and
the credit exposure to each counterparty.
For trade and other receivables, the amounts represented in the
balance sheet are net of allowances for doubtful receivables,
estimated by the Group’s management based on prior experience
and their assessment of the current economic environment.
At the balance sheet date there were no significant concentrations
of credit risk.
GOING CONCERN
Details of the Group’s activities, developments and performance
are set out on pages 10 to 37. This Financial review summarises the
Group’s financial performance, balance sheet and cash flows and
provides information on its treasury policies, exposure to financial
risks, debt profile and funding headroom. Note 13 to the consolidated
financial statements provides further details of the Group’s debt
profile, capital management policy, treasury policies and controls,
hedging activities and financial instruments and its policies and
exposures to liquidity, interest rate, foreign currency and credit risks.
The Group has significant financial resources, a well established
and fragmented customer base, strong supplier relationships and
a diverse geographic presence. As a consequence, the directors
believe that the Group is well placed to manage its business risks
successfully. Based on the expected future profit generation, cash
conversion and current facilities’ headroom over the 12 months to
March 2015, the directors have a reasonable expectation that the
Group has adequate resources to continue in operational existence
for the foreseeable future. For this reason the directors believe it is
appropriate to continue to adopt the going concern basis in preparing
the financial statements.
Brian May
Finance Director
24 February 2014
BUNZL PLC ANNUAL REPORT 2013 29
PRINCIPAL RISKS AND UNCERTAINTIES
Bunzl has an extensive risk management framework designed to identify
and assess the likelihood and consequences of risks and to manage the
actions necessary to mitigate their impact to acceptable levels. It also
identifies the assurance activities relating to the relevant mitigating actions.
RISK OVERVIEW
The effective identification, management and mitigation of risks and
uncertainties across the Group are an integral part of delivering the
Group’s strategic objectives. The ‘Risk management and internal
control’ section of the Corporate governance report on pages 42 and
43 includes further information on the specific procedures designed
to identify, manage and mitigate business risk which could have a
material impact on the Group’s business, financial condition or
results of operations.
The Company’s risk management framework provides a consistent
methodology by which every business and business area, the
Executive Committee and ultimately the Board assess the risks that
the Group faces against a defined set of probability and impact
criteria. In assessing impact, the following criteria are considered:
business continuity; health, safety and the environment; regulatory;
reputational; and financial. The probability and impact of each risk
is assessed on two bases. The first, defined as Gross Risk, is the
probability and impact of a risk if none of the mitigating actions or
internal controls designed to reduce either the probability or the
impact of a risk occurring were in place. The second, defined as Net
Risk, is the residual probability and impact of a risk assuming that
the mitigating actions and internal controls operated as intended in
an effective way.
Using this framework, every business documents their key risks
in a consistent reporting format which specifically identifies the
mitigating activities, relevant controls and related assurance
activities for each significant risk. Management then consolidates
the risk information at both a business area and Group level using
the same reporting format, culminating in the Group risk
assessment. The Executive Committee then reviews the Group risk
assessment, the relevant controls and other steps taken to mitigate
the risks identified and the assurance procedures in place over such
controls with a view to determining any further actions required in
order to reduce the levels of risk to acceptable levels. The risk
assessment is then submitted for review and approval by the Board.
CHANGES TO THE RISK PROFILE
The Group operates in many business environments and across a
number of geographies in which risks and uncertainties exist, not
all of which are necessarily within the Company’s control. The risks
identified in the 2012 Annual Report remain those of most concern
to the business at the end of 2013. However, the risk of a negative
impact due to countries leaving the eurozone is considered to have
decreased since the previous year and is no longer regarded as a
principal risk for the purposes of the Group risk assessment. The
principal risks and uncertainties faced by the Group and the steps
taken to mitigate such risks and uncertainties are detailed below.
This summary is not intended to be exhaustive and is not presented
in order of potential probability or impact.
Market risks
Mitigating factors
Competitive pressures
The Group operates in highly competitive markets and faces
competition from international companies as well as national,
regional and local companies in the countries in which it operates.
Increased competition and unanticipated actions by competitors or
customers could lead to an adverse effect on results and hinder the
Group’s growth potential, either through pressure on sales volumes
or margins from customers, the loss of customers, increased price
competition or unforeseen changes in the competitive landscape
due to changes in technology or routes to market.
Product price changes
The purchase price of products distributed by the Group can
fluctuate from time to time, thereby potentially affecting the results
of operations. There could be significant increases in the cost of
specific products leading to a diminution in margins if cost increases
cannot be passed on in full to customers or substitute products
sourced from elsewhere. In addition, adverse economic conditions
resulting in a period of commodity price deflation and increased
levels of imported products may lead to reductions in the price
and value of the Group’s products. If this were to occur, the Group’s
revenue and, as a result, its profits, could be reduced and the value
of inventory held in stock may not be fully recoverable.
The Group seeks to remain competitive by maintaining high service
levels and close contacts with its customers to ensure that their
needs and demands are being met satisfactorily, developing a
national presence in the markets in which the Group operates
and maintaining strong relationships with a variety of different
suppliers thereby enabling the Group to offer a broad range of
products to its customers. The Group also regularly reviews the
competitive environment in which it operates.
The Group endeavours, whenever possible, to pass on price
increases from its suppliers to its customers and to source its
products from a number of different suppliers so that it is not
dependent on any one source of supply for any particular product.
Increased focus on the Group’s own import programmes and
brands, together with the reinforcement of the Group’s service
and product offering to customers, helps to minimise the impact
of price deflation.
The Group mitigates against the risk of holding overvalued
inventory in a deflationary environment by managing stock levels
efficiently and ensuring they are kept to a minimum.
Economic environment
The Group’s business is partially dependent on general economic
conditions in the US, the UK, France and other important markets.
A significant deterioration in these conditions could have an adverse
effect on the Group’s business and results of operations.
The Group’s operations and its customer base are diverse, with
a variable and flexible cost base, and many of the sectors in which
it competes are traditionally, by their nature, relatively resilient
to economic downturns.
30 BUNZL PLC ANNUAL REPORT 2013
Financial risks
Mitigating factors
Foreign exchange
The majority of the Group’s sales are made and income is earned
in US dollars, euros and other foreign currencies. The Group does
not hedge the impact of exchange rate movements arising on
translation of earnings into sterling at average exchange rates.
As a result, movements in exchange rates may have a material
translation impact on the Group’s reported results.
The Group may also be subject to transaction exposures where
products are purchased in one currency and sold in another and
movements in exchange rates may also adversely affect the value
of the Group’s net assets.
Financial liquidity and debt covenants
The Group needs continuous access to funding in order to meet
its trading obligations, to support investment in organic growth and
to make acquisitions when appropriate opportunities arise. There
is a risk that the Group may be unable to obtain the necessary
funds when required or that such funds will only be available
on unfavourable terms.
The Group’s borrowing facilities include a requirement to comply with
certain specified covenants in relation to the level of net debt and
interest cover. A breach of these covenants could result in a significant
proportion of the Group’s borrowings becoming repayable immediately.
The Group believes that the benefits of its geographical spread
outweigh the associated risks.
The majority of the Group’s transactions are carried out in the
functional currency of the Group’s operations. As a result,
transaction exposures are usually limited and exchange rate
fluctuations have minimal effect on the quality of earnings unless
there is a sudden and significant adverse movement of a foreign
currency in which products are purchased which may lead to a delay
in passing on to customers the resulting price increases. The Group
undertakes some forward purchasing of foreign currencies for
identified exposures to reduce the impact of short term volatility.
The impact of changes in foreign exchange rates and related
hedging activity is regularly monitored by senior management.
The Group’s approach to managing foreign exchange risk is
reviewed annually by the Board.
The Group arranges a mixture of borrowings from different
sources and continually monitors net debt and forecast cash flows
to ensure that it will be able to meet its financial obligations as they
fall due and that sufficient facilities are in place to meet the Group’s
requirements in the short, medium and long term.
Compliance with the Group’s biannual debt covenants is monitored
on a monthly basis based on the management accounts. Sensitivity
analyses using various scenarios are applied to forecasts to assess
their impact on covenants.
Operational risks
Mitigating factors
Acquisitions
A significant portion of the Group’s historical growth has been
achieved through the acquisition of businesses and the Group’s
growth strategy includes additional acquisitions. Although the
Group operates in a number of fragmented markets which provide
future acquisition opportunities, there can be no assurance that the
Group will be able to make acquisitions in the future. There is also a
risk that not all of the acquisitions made will be successful due to
the loss of key people or customers after the acquisition, or
deterioration in the economic environment of the acquired business.
In the longer term, if an acquisition consistently underperforms
compared to its original investment case, there is a risk that this
will lead to a permanent impairment in the carrying value of the
intangible assets attributed to that acquisition.
Business continuity
The Group would be affected if there was a significant failure
of its major distribution facilities or information systems.
Laws and regulations
The international nature of the Group’s operations exposes it to
potential claims as the Group is subject to a broad range of laws
and regulations in each of the jurisdictions in which it operates.
In addition the Group faces potential claims from customers in
relation to the supply of defective products or breaches of their
contractual arrangements. The sourcing of products from lower cost
countries increases the risk of the Group being unable to recover any
potential losses relating thereto from the relevant supplier.
The Group’s acquisition strategy is to focus on those businesses
which operate in sectors where it has or can develop competitive
advantage and which have good growth opportunities. The Group
continually reviews acquisition targets and has established
processes and procedures with regard to detailed pre-acquisition
due diligence and post-acquisition integration.
The Group endeavours to maximise the performance of an
acquisition through the recruitment and retention of high
quality management combined with effective strategic planning,
investment in resources and infrastructure and regular reviews
of performance by both business area and Group management.
The Group seeks to reduce the impact of facilities’ failure through
the use of multi-site facilities with products stocked in more than
one location and the impact of information systems’ failure through
the adoption of detailed back up plans which are periodically tested
and which would be implemented in the event of any such failure.
Although the Group does not operate in particularly litigious
market sectors, it has in place processes to report, manage
and mitigate against third party litigation using external advisers
where necessary.
The use of reputable suppliers and internal quality assurance
and quality control procedures reduce the risks associated with
defective products.
The Financial review on pages 26 to 29 and Note 13 to the consolidated financial statements include information relating to the Group’s risk
management policies so far as they relate to financial instruments.
BUNZL PLC ANNUAL REPORT 2013 31
4%
Decrease
in accident
incidence rate
SUPPORT
IMPROVE
SUSTAIN
We are fully engaged in our wider responsibilities,
including reducing environmental impact, a
commitment to social well-being and supporting
our people to develop their skills to benefit
community initiatives.
32 BUNZL PLC ANNUAL REPORT 2013
CORPORATE RESPONSIBILITY
Sustainable business practices remain a priority for both Bunzl and our supply
chain while the services we provide continue to assist our customers to
reduce their carbon footprint.
STRATEGY
We believe that positive actions with respect to Corporate
Responsibility (‘CR’) are not only desirable in their own right but are
also of potential economic and commercial benefit to the Group. For
many years Bunzl has continued to pursue a consistent strategy of
focusing on its strengths and consolidating the markets in which it
competes. This requires continually redefining and deepening our
commitment to customers and markets, as well as extending our
business into new geographies. Our CR strategy and ambition
directly supports Bunzl’s strategic vision by seeking to gain
sustainable business success through building relationships with
stakeholders. We deliver this through an approach built on ethical
values and behaviours and responsible business practices, aimed at
winning the trust of our customers, suppliers, investors and other
stakeholders by effectively managing our social, environmental
and ethical impacts. It also helps us to attract and retain talented
and committed employees.
OUR FRAMEWORK AND APPROACH TO MATERIALITY
Our approach to CR is straightforward:
• we communicate our stance on key issues impacting our
business and, through our business conduct/code of ethics policy,
are clear about the standards we expect of ourselves and those
we work with;
• we consult with our employees, customers, suppliers, investors
and wider stakeholder groups to understand the main social and
environmental matters affecting our business;
• we identify and prioritise the risks we face and the opportunities
we have and develop relevant activities, objectives and targets;
• we manage CR focusing on the most relevant issues and where
we feel we have the greatest impact; and
• we communicate our performance with openness and
transparency, so that our stakeholders understand the progress
we are making.
A strong reputation for CR can provide business advantage and
contribute to shareholder value. Conversely, perceived weakness
in CR may damage our reputation and cause risks.
Materiality
Understanding our material issues is important to enable us to
manage our CR related impacts and stakeholder relationships
effectively. It also helps to focus our resources, engagement and
reporting activities by addressing those issues most material to
our business. Our current areas of focus are:
• business conduct/code of ethics training;
• employee engagement through clear communication using
a variety of channels, as well as provision of training and
development opportunities;
• improving safety in the warehouses and on our vehicles and
ensuring that everyone takes personal responsibility for this;
• reducing our and our customers’ impacts on the environment by
reducing carbon emissions and promoting the reduction of waste;
• providing innovative products to meet our customers’ needs,
for example environmentally friendly packaging;
• providing local community support by the encouragement of
employee fund raising and by donating stock and cash to charitable
organisations and good causes; and
• working with our suppliers as partners to encourage high levels of
CR and ethical trading initiatives.
These issues are governed by a policy framework, which is approved
and monitored by the Board, with implementation at a business
area level.
BUSINESS CONDUCT/CODE OF ETHICS
The Group’s business conduct/code of ethics policy is disseminated
to every employee as a guide to how employees are expected
to conduct themselves both from a corporate and individual
perspective. The policy clearly states that employees should avoid
conflicts of interest, provides guidance on the giving and receiving
of gifts and entertainment, prohibits illegal payments as well as
political donations and reinforces the need to comply with laws,
rules and regulations, protect confidential information and company
assets and maintain high standards in relationships with our
customers and suppliers.
No material breaches of our business conduct/code of ethics policy
were recorded in 2013. However, some minor incidents relating to
employee conduct, such as theft or misuse of the Group’s property,
did occur and were dealt with during the normal course of business
using Group human resource (‘HR’) policies and procedures. Seven
(2012: seven) calls/letters were received through our confidential
whistle blowing process, ‘Speak Up’, none of which raised any issues
of material concern.
Performance against 2013 objectives
• Our suite of nine tailored e-learning modules including modules
which provide an overview of the business conduct/code of ethics
policy and anti-bribery issues such as facilitation payments and
gifts and entertainment, continues to be used for induction training
of all managers and sales and procurement staff joining the Group.
These e-learning modules are particularly useful for introducing
staff from newly acquired businesses to Bunzl’s standards of
business conduct. During the year we reviewed the modules to
identify any gaps and an additional module relating to competition
law compliance has been developed and will be launched shortly.
• Taking into account the results of our monitoring and reviewing
of the existing CR policies, processes and controls, communication
of CR was enhanced by upgrading the Responsibility section
of our website, www.bunzl.com. Previously the information
provided on the website mirrored that within the Annual Report.
Additional material has been introduced such as a video describing
Bunzl’s approach to CR, as well as case studies which describe the
range of CR activities taking place in the Group. A ‘frequently
asked questions’ section is now included to assist researchers.
2014 objectives
• Continue to review our policies, processes and controls to ensure
that they continue to support the business appropriately and
remain in line with good business practice.
• Refresh and enhance communication relating to business conduct
across the Group.
BUNZL PLC ANNUAL REPORT 2013 33
CORPORATE RESPONSIBILITY CONTINUED
EMPLOYEES
Bunzl currently operates in 27 countries worldwide. We are a service
provider, not a manufacturer and, as such, our business relies
heavily on the skills and experience of our employees. We pride
ourselves on the fact that we run our businesses locally with local
managers. We do not unfairly discriminate and we respect human
rights. We seek to recruit the right people who are passionate about
our business and to provide opportunities for people to progress
within the organisation on the basis of their skills, experience and
aptitude. We believe that to get the best from people we need to
respect each other and encourage honest, straightforward
communication. Our acquisition pipeline continues to be a valuable
source of management talent for the Group and the completion of a
number of acquisitions during the year has brought further highly
skilled people into Bunzl. Details of the Group’s workforce diversity
at 31 December 2013 are set out in the pie charts below.
Human rights
Bunzl adheres to the Universal Declaration of Human Rights
(‘UDHR’) and upholds the Fundamental Principles and Rights at Work
policies, defined by the International Labour Organization, as well as
local laws. The majority of countries in which Bunzl operates have
their own laws banning child labour and promoting human rights.
We monitor the age of our workforce across the world to ensure
compliance and identify any potential succession issues. In the US
some of our operations, particularly in the north east, are
represented by trade unions with which we have negotiated pay
contracts. Bunzl does not restrict any of its employees in any of the
countries in which it operates from joining a trade union if they wish
to do so. We also work closely with our suppliers to ensure that they
at least meet internationally recognised minimum requirements for
workers’ welfare and conditions of employment, as defined by the
International Labour Organization or the Ethical Trading Initiative.
Performance against 2013 objectives
• The Group’s annual voluntary turnover, that is the percentage
of employees resigning from the Group, is 7.5%. Considering
the profile of our workforce, the current turnover level is low,
reflecting the underlying economic conditions in many of the
countries in which we operate rather than any intrinsic reasons
related to the Group. Sickness absence has fallen slightly in
Continental Europe, North America and UK & Ireland but has
risen slightly in Rest of the World. No underlying issues of
concern have been identified.
• An internal social networking tool was introduced into UK &
Ireland to improve communication and share best practice. The
effectiveness of this tool will be reviewed once it has been in place
for over 12 months to consider whether there would be benefits in
implementing it more widely across the Group.
2014 objectives
• Continue to monitor key HR measures such as voluntary turnover,
sickness absence, training days, workforce gender and age mix
and, as appropriate, take action to address any issues that
may arise.
HEALTH & SAFETY
The health and safety of our employees and other stakeholders
is a priority. Although we try to minimise the risks which occur,
particularly relating to the operation of our warehouses and vehicles,
incidents relating to manual handling, slipping and tripping remain
the highest cause of accidents. Regretfully in the 2013 reporting
period there was one fatality (2012: one) when a cyclist was killed
in a road traffic accident in Canada having been struck by a Bunzl
vehicle that was turning right at traffic lights. The accident was fully
investigated and no charges have been brought against Bunzl or our
driver. A number of actions have been taken to raise awareness and
continue to improve our health and safety performance.
Performance against 2013 objectives
• The 2013 target was to reduce the Group accident incidence rate
by 3% and the Group accident severity rate by 6% from the 2012
accident rates:
− for the year ended 30 September 2013 our accident incidence
rate reduced by 4%; and
− for the same period our accident severity rate reduced by 1%.
Accident incidence and severity rates for UK & Ireland and Rest of
the World improved in excess of the respective targets. However,
despite improvements in a number of areas, North America’s and
Continental Europe’s performance deteriorated overall, albeit that
some of this deterioration was due to the impact of acquiring a
business with health and safety processes below Bunzl’s standard.
Details of our performance from 2011 to 2013 are provided in the bar
charts on page 35. The accident data provided is for the whole Group
with the exception of some of the most recent acquisitions which
represent less than 4% of the total workforce.
2014 objectives
• Reduce the Group accident incidence rate by 3% from 2013.
• Reduce the Group accident severity rate by 5% from 2013.
AVERAGE NUMBER OF EMPLOYEES
BY BUSINESS AREA
TOTAL WORKFORCE
GENDER SPLIT AT 31 DECEMBER 2013
BOARD AND SENIOR
MANAGEMENT
GENDER SPLIT AT 31 DECEMBER 2013
15%
35%
NORTH AMERICA
CONTINENTAL EUROPE
UK & IRELAND
REST OF THE WORLD
25%
25%
34 BUNZL PLC ANNUAL REPORT 2013
35%
MALE (8,350)
FEMALE (4,399)
9%
MALE (308)
FEMALE (30)
65%
91%
BOARD COMPOSITION: 8 MALE, 1 FEMALE
ENVIRONMENT
We seek to prevent, mitigate and remediate the harmful effects of
Bunzl’s operations on the environment. To ameliorate our impact on
and exposure to climate change, our facilities operate worldwide to
Group standards, we promote environmental awareness throughout
the business and our branch network mitigates against the effects
of extreme local climate conditions. Our reported environmental
data includes all businesses that are subsidiaries of the Group
for financial reporting purposes, with the exception of recent
acquisitions which are excluded from environmental data reporting
to allow the acquired businesses sufficient time to adopt our
reporting guidelines. Bunzl had no significant environmental
incidents in 2013.
Our direct water usage and emissions are minimal and are largely
unchanged since the 2011 water audit. Water usage is principally
confined to workplace cleaning and hygiene purposes. If we lease a
purpose built site, wherever possible the specification includes water
harvesting to further minimise our use. We continue to measure
water usage across a sample of our sites worldwide.
ISO 14001 accreditation was renewed in a number of locations.
To date all sites in UK & Ireland and Australasia, with the exception
of the most recent acquisitions, and many sites in Continental
Europe are accredited. By revenue this represents more than 30%
of the Group.
Performance against 2013 objectives
Our carbon emissions data has been restated for prior years in order
to account for material changes to the conversion factors provided by
Defra for company reporting purposes.
Greenhouse gas emissions data for period 1 October to 30 September
Scope 1
Scope 2
Total gross emissions
Total carbon emissions
per £m revenue
Tonnes of CO2e
Base year 2010
95,249
28,757
124,006
2012
83,932
24,599
108,531
2013◊
89,397
30,465
119,862
26.3
20.4
20.8
Included in the external auditor’s limited assurance scope referred to on page 36.
• Our target for 2013 was to reduce our Scope 1 and Scope 2 carbon
emissions relative to revenue by 22% from 2010, our base year.
This data covers around 99% of the Group by revenue. During the
reporting period 14 acquisitions were completed providing total
revenue of c. £350 million. 10 of these acquisitions, representing
78% of this revenue, are included in the 2013 carbon emissions
data from the date of acquisition.
• Scope 1: emission rates per £m of revenue have decreased
between 2012 and 2013 by 2% (see the KPI bar chart on page 7) and
from 2010, our base year, by 23%. In 2013 fuel for transportation
contributed about 85% of Bunzl’s Scope 1 emissions. The level of
fuel consumed per £000 of revenue decreased between 2012 and
2013 by 9% (see the KPI bar chart on page 7). We continue to focus
on improved fuel efficiency through regular renewal of our fleet,
driver training and the use of telematics providing in-cab feedback
on performance. Many of the businesses acquired since 2010 do
not operate their own transport fleets and there has been some
transfer from own fleet to carriers where this has been shown to
be more cost effective. Gas consumption has increased by around
50% against the previous year. This is in part the result of our
ongoing acquisition programme which has increased the overall
size of our estate despite a continued programme of site
consolidations. In addition, we experienced a longer period of cold
weather than in the previous year. We continue to focus on gas
usage and boiler maintenance.
• Scope 2: emission rates per £m of revenue increased between
2012 and 2013 by 15% (see the KPI bar chart on page 7) but from
2010, our base year, have decreased by 13%. Most of the increase
in this year’s Scope 2 CO2e emissions was attributable to the
impact of new acquisitions. We have continued to implement
measures to reduce electricity consumption including investment
in energy efficient lighting systems, replacement of battery
chargers with high frequency energy efficient chargers, purchase
of more efficient manual handling equipment and ‘Switch off’
campaigns. However, the benefits of these measures were offset
by the extended period of cold weather in the year which resulted
in an increased requirement for artificial lighting and space heating.
• Waste data now covers 96% of the Group by revenue. Our
businesses in Latin America, Israel and recent acquisitions are
not currently included. The reduction in general waste has been
achieved by improved waste management including the elimination
and reuse of transit packaging and more sites providing waste
segregation facilities for increased recycling. The lack of suitable
weighing equipment, especially for waste to landfill, continues to
challenge the accuracy of this data and last year’s estimated
figures for North America have proved to be overstated. However
we are working with our contractors to improve this.
2014 objectives
• Using the 2010 data as the baseline, reduce the Scope 1 carbon
emissions by 26% (3% from 2013 to 2014) and the Scope 2 carbon
emissions by 15% (2% from 2013 to 2014).
• Develop a Scope 3 carbon emissions report in line with the Group’s
reporting guidelines.
• More closely integrate the environmental reporting with our
financial reporting processes.
INCIDENCE RATE
AVERAGE NUMBER OF INCIDENTS PER
MONTH PER 100,000 EMPLOYEES
SEVERITY RATE
AVERAGE NUMBER OF DAYS LOST PER
MONTH PER 100,000 EMPLOYEES
WASTE
TONNES PER £M REVENUE
159
140
135
3,446
3,552
3,514
0.21
0.08
0.14
0.55
1.96
0.73
0.93
1.30
1.14
INCINERATED WASTE
GENERAL WASTE
RECOVERED/RECYCLED WASTE
11
12
13
11
12
13
11
12
13
BUNZL PLC ANNUAL REPORT 2013 35
SUPPLIERS
Price is only one factor in our purchasing decisions and matters such
as quality, availability, our customers’ preferences and our policies
are also taken into account. The vast majority of our products are
sourced locally by our businesses but many products are sourced
elsewhere if it is appropriate to do so. In 2013 approximately 18% of
our products were sourced from lower cost countries. Each business
area is responsible for implementing appropriate processes to
assess key suppliers’ compliance with the relevant CR standards
and to monitor performance and improvements against such
standards. Bunzl focuses on its key suppliers to ensure that they
meet the same CR standards we have set for ourselves. We have
written to those suppliers that provide us with 50% of our products
by value to update them on our CR aspirations and to encourage
them to adopt a similar approach.
To facilitate the business areas, we have our own quality assurance/
quality control team based in Shanghai whose main aim is to
perform regular audits of our suppliers in Asia to ensure that
they meet international standards, as well as testing the factories’
production capabilities and their quality assurance and quality
control systems. Employees’ terms and conditions of work,
customer service, hygiene management systems and their policies
on environmental issues are also checked. Our policy is that all our
suppliers meet internationally recognised minimum requirements
for workers’ welfare and conditions of employment, as defined
by the International Labour Organization or the Ethical Trading
Initiative. A key tool available to the quality control team is an
on-site professional laboratory where they undertake tests on
manufacturers’ products.
Suppliers who are unable to meet all the requirements after an initial
assessment/audit will be given the opportunity to comply fully within
a period which is deemed appropriate for the circumstances. If a
serious breach is identified following assessment, an action plan
will be documented and the supplier will be expected to commit to
addressing all the areas where discrepancies have been identified.
The process of improvement via this method is principally down to
the commitment of the supplier’s management team/owner/agent
to ensure that all areas are addressed. If we have reason to believe
that the supplier is not making sufficient or committed progress, this
could lead to a suspension in the relationship until such time that we
are confident that all areas are being satisfactorily addressed. Bunzl
companies reserve the right to cease a relationship with a supplier
if it is found that unacceptable practices are being employed at any
sites used for producing or sourcing Bunzl products. Such practices
include use of child labour, forced or bonded labour as well as
physical abuse or discipline and intimidation.
During 2013 we have been liaising with suppliers to ensure that any
paper or wood based products are from sustainable sources in
compliance with the relevant timber regulations.
For more information on all of Bunzl’s CR policies and activities
please visit the Responsibility section of www.bunzl.com.
CORPORATE RESPONSIBILITY CONTINUED
External assurance
We engaged KPMG Audit Plc to undertake a limited assurance
engagement, reporting to Bunzl plc only, using International
Standard on Assurance Engagements (‘ISAE’) 3000: ‘Assurance
Engagements Other Than Audits or Reviews of Historical Financial
Information’ and ISAE 3410: ‘Assurance Engagements on
Greenhouse Gas Statements’ over the three KPIs on page 7 and the
data on page 35, in each case that has been highlighted with the
symbol . They have provided an unqualified opinion in relation to the
relevant KPIs and data and their full assurance opinion is available
in the Responsibility section of our website, www.bunzl.com.
The level of assurance provided for a limited assurance engagement
is substantially lower than a reasonable assurance engagement.
In order to reach their opinion, KPMG Audit Plc performed a range
of procedures which included interviews with management,
examination of reporting systems and visits to some of our
businesses in the UK, France and the US as well as specific data
testing at these businesses and the Group head office. A summary
of the work they performed is included in their assurance opinion.
Non-financial performance information, including greenhouse gas
quantification in particular, is subject to more inherent limitations
than financial information. It is important to read the selected
corporate responsibility information contained in this Annual Report
in the context of KPMG Audit Plc’s full limited assurance opinion and
the Company’s Corporate Responsibility Performance Reporting
Guidelines which are also available in the Responsibility section
of our website.
COMMUNITY
Although Bunzl’s operations are international, our strength is in
the local nature of our businesses. In keeping with this ethos, we
particularly support the fund raising activities championed by our
employees locally. This is supplemented by donations made at Group
level to charities predominantly in the fields of healthcare, disability
and the environment as well as benevolent societies to support
projects in communities where our operations are based. Where
possible and appropriate, Bunzl also looks to donate stock free of
charge (‘in-kind’). Group wide, Bunzl donated a total of £580,000
(2012: £480,000) to charities in 2013. This does not include in-kind
donations or employee fund raising.
CUSTOMERS
As a service business, our ability both to anticipate and meet our
customers’ needs is key to our success. We strive to ensure that
we provide high levels of service. We achieve this by building solid
relationships at a local level by regularly meeting with and seeking
feedback from our customers. We continue to provide innovative
service and product solutions to meet our customers’ needs,
including requirements to meet sustainability goals. The Group
provides customers with the ability to benefit from a consolidated
delivery of their consumable products. This reduces carbon
emissions by eliminating the need for multiple deliveries from many
different suppliers and streamlining the related administration for
our customers. Bunzl is not a manufacturer and therefore there is
complete flexibility to offer products that meet customers’
requirements. A full range of environmentally friendly products are
available. Bunzl continues to receive awards from its customers for
high levels of service.
36 BUNZL PLC ANNUAL REPORT 2013
RISKS
The Principal risks and uncertainties section on pages 30 and 31 details the principal risks and uncertainties which could have a material
impact on the Group’s business, financial condition or results of operations. Although many CR risks are not seen as principal risks to the
Group, as part of the Group risk analysis a number of CR risks which could impact the Group’s business have been identified and these are
set out below together with the steps taken by management to mitigate such risks:
Risk
Mitigating factors
CR compliance failures
Lack of adherence to the Group’s CR policies could result in a variety
of issues including those relating to inappropriate business
practices, accidents at work and increased levies due to levels of
waste or carbon emissions.
Loss of key employees
The Group is not capital intensive but the business is based on
strong customer and supplier relationships which are built up
locally. Stability of key relationship roles amongst the Group’s
employees is therefore important.
Loss of operating facilities/unavailability of staff
Climate change may result in higher frequency of extreme weather
conditions. This could result in some of the Group’s facilities being
affected or employees being unable to attend for work.
Suppliers’ non-compliance with good CR practices
The Group is not a manufacturer and has many international
suppliers across the world. The failure of one of the Group’s key
suppliers to adhere to recognised CR standards could affect the
Group’s reputation.
The Group has comprehensive CR policies and procedures
(including those relating to anti-bribery and corruption) in place
throughout the business as well as an established reporting
framework.
The Group seeks to secure key staff with appropriate incentive
packages, development opportunities and career progression.
Voluntary staff turnover is measured on a monthly basis, which
enables any issues to be identified and resolved.
The Group has multi-site facilities with products stocked in more
than one location as a result of which the Group usually has the
ability to distribute products from nearby facilities. Business
continuity plans are in place to minimise the impact of any
such issues.
The Group’s key suppliers are principally publicly owned
multinational organisations with high standards of operations.
Suppliers are monitored by the Group’s purchasing departments
and the QA/QC department based in China audits many suppliers
throughout Asia. Key suppliers are made aware of the Group’s
CR aspirations.
These risks are seen to be outweighed by a variety of opportunities that arise as a consequence of CR and its impact on the business
environment as previously outlined in this report.
BUNZL PLC ANNUAL REPORT 2013 37
BOARD OF DIRECTORS
1
6
2
7
3
8
4
9
5
1 Philip Rogerson # (Age 69)
Appointed to the Board in January 2010 and became Chairman in
March 2010. Chairman of the Nomination Committee. He was
an executive director of BG plc (formerly British Gas plc) from 1992
to 1998, latterly as Deputy Chairman. He is Chairman of Carillion plc
and De La Rue plc.
2 Michael Roney # (Age 59)
Chief Executive since 2005 having been a non-executive director
since 2003. After holding a number of senior general management
positions within Goodyear throughout Latin America and then Asia,
he became President of their Eastern European, African and Middle
Eastern businesses and subsequently Chief Executive Officer of
Goodyear Dunlop Tires Europe BV. He is the senior independent
non-executive director of Johnson Matthey Plc.
6 David Sleath *†#• (Age 52)
Non-executive director since 2007 and Chairman of the Audit
Committee. Formerly a Partner and Head of Audit and Assurance for
the Midlands region of Arthur Andersen, he subsequently became
Finance Director of Wagon plc before joining SEGRO plc, the
European industrial property group, where he was Group Finance
Director from 2006 and has been Chief Executive since 2011.
7 Eugenia Ulasewicz *†#• (Age 60)
Non-executive director since 2011. After holding a number of senior
retail positions with Bloomingdale’s, Galeries Lafayette and Saks
Fifth Avenue, she joined Burberry Group plc and was President of
Burberry, Americas, one of three global regions of Burberry Group
plc which includes North and Latin Americas, from 1998 until 2013.
She is a non-executive director of Signet Jewelers Limited.
3 Peter Johnson *†#• (Age 66)
Non-executive director since 2006, senior independent director and
Chairman of the Remuneration Committee. Having spent most of his
earlier career in the motor industry, he joined Inchcape plc in 1995,
became Chief Executive in 1999 and was Chairman from 2006 until
2009. He was the senior independent non-executive director of Wates
Group Limited from 2011 until 2013 and was Chairman of The Rank
Group Plc from 2007 until 2011.
8 Jean-Charles Pauze *†#• (Age 66)
Non-executive director since January 2013. Having previously held a
number of senior positions with PPR Group, Strafor Facom Group
and Alfa Laval Group in France and Germany, he was Chairman and
Chief Executive of Rexel SA from 2002 until 2012. He is presently
Chairman of Europcar Groupe SA and Chairman of the Supervisory
Board of CFAO SA.
4 Patrick Larmon (Age 61)
Executive director since 2004 and President and Chief Executive
Officer, North America. Having joined Bunzl in 1990 when Packaging
Products Corporation, of which he was an owner, was acquired, he
held various senior management positions over 13 years before
becoming President of North America in 2003 and additionally
assuming the role of Chief Executive Officer in 2004.
5 Brian May (Age 49)
Finance Director since 2006. A chartered accountant, he qualified
with KPMG and joined Bunzl in 1993 as Internal Audit Manager.
Subsequently he became Group Treasurer before taking up the role
of Finance Director, Europe & Australasia in 1996 and Finance
Director designate in 2005. He is a non-executive director of United
Utilities Group PLC and United Utilities Water PLC.
9 Meinie Oldersma *†#• (Age 54)
Non-executive director since April 2013. With over 20 years’
experience in the technology distribution sector, he held a variety
of senior positions with Ingram Micro and served as Chief Executive
and President of their China Group and Managing Director of their
business in Northern Europe before joining 20:20 Mobile Group
Limited where he was Chief Executive from 2008 until
February 2014.
Member of the Audit Committee
*
† Member of the Remuneration Committee
# Member of the Nomination Committee
• Independent director
38 BUNZL PLC ANNUAL REPORT 2013
CORPORATE GOVERNANCE REPORT
INTRODUCTION
Bunzl’s corporate governance framework is designed to facilitate
effective, entrepreneurial and prudent management that can
safeguard shareholders’ interests and sustain the success of
the Company over the longer term. In order to achieve this the
Company is committed to high standards of corporate governance.
In September 2012 the Financial Reporting Council published the
2012 edition of the UK Corporate Governance Code (‘the Code’) a
copy of which is available at www.frc.org.uk. This contains broad
principles together with more specific provisions which set out
standards of good practice in relation to Board leadership and
effectiveness, accountability, remuneration and relations with
shareholders. This report describes how these principles have been
applied by the Company during the year ended 31 December 2013.
Since the Financial Conduct Authority has yet to change the Listing
Rules and therefore requires that certain compliance statements are
made in relation to the predecessor edition of the Code, this report
addresses the requirements of both editions of the Code. The
Company confirms that it has complied throughout 2013 with the
provisions of both editions of the Code.
BOARD COMPOSITION
As at 31 December 2013 and as at the date of this report, the Board
was made up of nine members comprising a Chairman, a Chief
Executive, two other executive directors and five non-executive
directors. Brief biographical details of the directors are given on
page 38. Jean-Charles Pauze and Meinie Oldersma were appointed
to the Board as non-executive directors on 1 January and 1 April
2013 respectively and Ulrich Wolters retired from the Board
following the Company’s Annual General Meeting on 17 April 2013.
None of the Company’s non-executive directors had any previous
connection with the Company or its executive directors on
appointment to the Board and all of them are considered by both the
Board and the criteria set out in the Code to be independent. The
Chairman and each of the non-executive directors have a breadth of
strategic, management and financial experience gained in each of
their own fields in a range of multinational businesses. In accordance
with the terms of the Code each of the directors will be subject to
re-election at the forthcoming Annual General Meeting.
THE ROLE OF THE BOARD
To ensure directors maintain overall control over strategic, financial
and operational and compliance issues, the Board meets regularly
throughout the year and has formally adopted a schedule of matters
which are required to be brought to it for decision. Key aspects of the
Board’s role include:
• setting the Group’s strategic aims and ensuring that the Company
has the necessary capabilities to deliver the Group’s strategy;
• reviewing the Group’s operating performance and approving the
Group’s financial results;
• reviewing and approving larger capital expenditure and
acquisition/divestment proposals and material increases to
borrowing and loan facilities; and
• overseeing the Group’s risk management and internal controls
processes and procedures.
There is a clear division of responsibilities between the Chairman
and the Chief Executive which is set out in writing and has been
agreed by the Board and encompasses the following parameters:
• the primary job of the Chairman is to be responsible for the
leadership of the Board and ensuring its effectiveness on all
aspects of its role while the Chief Executive is responsible for the
leadership and the operational and performance management
of the Company within the strategy agreed by the Board.
• the Chairman is viewed by investors as the ultimate steward of the
business and the guardian of the interests of all the shareholders.
• the Chairman:
− takes overall responsibility for the composition and capability
of the Board and its Committees;
− consults regularly with the Chief Executive and is available on a
flexible basis to provide advice, counsel and support to the Chief
Executive; and
− ensures corporate governance is conducted in accordance
with current best practice, as appropriate to the Group.
• the Chief Executive:
− manages the executive directors and the Group’s management
and day-to-day activities;
− prepares and presents to the Board the strategy for growth
in shareholder value;
− sets the operating plans and budgets required to deliver
the agreed strategy;
− ensures that the Group has in place appropriate risk
management and control mechanisms; and
− communicates with the Company’s shareholders and analysts
on a day-to-day basis as necessary (subject to an overview of
such matters by the Chairman).
The Chief Executive is also the designated member of the Board
responsible for environmental, social and governance matters
and reports to the Board in relation to such matters.
Peter Johnson is the senior independent director and is available to
shareholders if they have concerns which contact through the
normal channels of Chairman, Chief Executive or Finance Director
has failed to resolve or for which such contact is inappropriate. He is
also available to the other directors should they have any concerns
which are not appropriate to raise with the Chairman or which have
not been satisfactorily resolved by the Chairman.
The non-executive directors play a key role in corporate governance
and accountability through both their attendance at Board meetings
and their membership of the various Board Committees. The
non-executive directors bring a broad and diverse range of business
and financial expertise and experience to the Board which
complements and supplements the experience of the executive
directors. This enables them to evaluate information provided and
constructively challenge management’s viewpoints, assumptions
and performance.
The Board has appointed Audit, Remuneration and Nomination
Committees all of which comply with the provisions of the Code and
play an important governance role through the detailed work they
carry out to fulfil the responsibilities delegated to them. Briefing
papers are prepared and circulated to Committee members in
advance of each meeting and, in respect of the Audit Committee,
made available to the other directors. Further information relating
to the Board Committees is set out on pages 40 and 41.
BUNZL PLC ANNUAL REPORT 2013 39
CORPORATE GOVERNANCE REPORT CONTINUED
INFORMATION AND SUPPORT
Board agendas are set by the Chairman in consultation with the Chief
Executive and with the assistance of the Company Secretary, who
maintains a rolling programme of items for discussion by the Board
to ensure that all matters reserved for the Board and other key
issues are considered at the appropriate time. The Board is
supplied with full and timely information, including detailed
financial information, to enable the directors to discharge their
responsibilities. To enable informed decision making, briefing papers
are prepared and circulated to directors approximately one week
before the scheduled Board meeting. All directors have access to
the advice and services of the Company Secretary who is tasked with
ensuring that Board procedures are complied with and the Board
is fully briefed on relevant legislative, regulatory and corporate
governance developments. Directors may also take independent
professional advice at the Company’s expense where they judge this
to be necessary in the furtherance of their duties to discharge their
responsibilities as directors.
The Board meets formally at least eight times a year and the Board
calendar is planned to ensure that the directors discuss a wide range
of topics throughout the year. Normally at least two Board meetings
a year are held at or near Group locations in the UK and overseas
where the directors have the opportunity to meet and interact with
senior executives from different businesses within the Group’s
portfolio as well as observe the operations in situ. During 2013 a
number of the Group’s senior executives made presentations to
the Board about a variety of different and diverse topics including
reviews of the post-acquisition performance of businesses acquired
in prior years, the Group’s financing facilities and treasury policies,
the Group’s pension schemes and cyber risk.
In addition to regular Board meetings, the directors meet annually
to review and discuss the Group’s overall strategy. As part of this
process, presentations are made by the Chief Executive and the
heads of each of the business areas together with the Director of
Corporate Development.
All new directors receive a tailored induction on joining the Board,
including meetings with senior management and visits to some
of the Group’s locations. They also receive a detailed information
pack which includes details of directors’ duties and responsibilities,
procedures for dealing in Bunzl’s shares and a number of other
governance related issues. Directors are continually updated on
the Group’s businesses and their markets and the changes to the
competitive and regulatory environments in which they operate.
Training and development needs of the Board are kept under review
and directors attend external courses where it is considered
appropriate for them to do so.
CONFLICTS OF INTEREST
The directors are required to avoid situations where they have, or
could have, a direct or indirect interest that conflicts, or possibly
may conflict, with the Company’s interests. In accordance with the
Companies Act 2006, the Company’s Articles of Association allow
the Board to authorise potential conflicts of interest that may arise
and to impose such limits or conditions as it thinks fit.
Directors are required to give notice of any potential situational and/
or transactional conflicts which are then considered by the Board
and, if considered appropriate, authorised accordingly. A director is
not however permitted to participate in such considerations or to
vote in relation to their own conflicts.
40 BUNZL PLC ANNUAL REPORT 2013
The Board has considered and authorised a number of potential
situational conflicts all of which relate to the holding of external
directorships and have been entered on the Company’s conflicts
register. No actual conflicts have been identified during the year.
The Board considers that these procedures operate effectively.
AUDIT COMMITTEE
The Audit Committee comprises all of the independent non-executive
directors and is chaired by David Sleath who, as Chief Executive and
formerly Group Finance Director of SEGRO plc and as a fellow of the
ICAEW, is considered by the Board to have recent and relevant
financial experience as required by the Code. While the other
directors are not members of the Committee, they normally attend
meetings of the Committee by invitation together with the Head of
Internal Audit and representatives from the external auditor. The
Secretary to the Committee is Paul Hussey, Company Secretary.
Further details about the Audit Committee and the work undertaken
by it during the year and prior to the publication of the Group’s
results for 2013 are set out in the Audit Committee report on pages
44 to 46. Members’ attendance at the Committee meetings held
during the year is set out in the table on page 41. The terms
of reference of the Committee, which were reviewed by the
Board during the year, are available on the Company’s website,
www.bunzl.com.
REMUNERATION COMMITTEE
The Remuneration Committee comprises all of the independent
non-executive directors and is chaired by the senior independent
director, Peter Johnson. While neither the Chairman of the Company
nor the Chief Executive are members of the Committee, they
normally attend meetings by invitation except when the Committee is
considering matters concerning themselves. The Secretary to the
Committee is Celia Baxter, Director of Group Human Resources.
Further details of the Remuneration Committee, the Company’s
remuneration policy and how it is applied are set out in the Directors’
remuneration report on pages 47 to 67. Members’ attendance at
the Committee meetings held during the year is set out in the table
on page 41. The terms of reference of the Committee, which were
reviewed and revised by the Board during the year, are available
on the Company’s website.
NOMINATION COMMITTEE
Composition
The Nomination Committee comprises the Chairman of the
Company, who chairs the Committee (unless the Committee is
dealing with the matter of succession of the Chairman of the
Company), the Chief Executive and all of the non-executive directors.
In accordance with the provisions of the Code, the majority of the
members are independent non-executive directors. The Secretary
to the Committee is Paul Hussey, Company Secretary.
Role
The Committee’s principal role is to consider, and make
recommendations to the Board concerning, the composition of the
Board and its Committees including proposed appointees to the
Board, whether to fill any vacancies that may arise or to change
the number of Board members. It is the Committee’s role to ensure
that the Board and its Committees maintain the appropriate balance
of skills, knowledge, experience and diversity to ensure their
continued effectiveness.
The Committee’s responsibilities include:
• reviewing the structure, size and composition (including the
skills, knowledge, experience and diversity) of the Board and
making recommendations to the Board with regard to any
proposed changes;
• nominating, for the approval of the Board, appropriate individuals
to fill Board vacancies as and when they arise having considered
candidates with relevant experience from a wide range of
backgrounds; and
• succession planning, taking into account the challenges and
opportunities facing the Company and the background, skills
and expertise that will be required on the Board in the future,
and reviewing annually management succession planning
processes in relation to the Company’s senior executives.
The Committee meets as necessary throughout the year to
discharge its responsibilities. An external search consultancy which
does not have any other connection with the Company is retained by
the Company to assess potential candidates to be considered as
prospective non-executive directors and, when appropriate,
executive directors. This process was adopted in relation to the
appointments of both Jean-Charles Pauze and Meinie Oldersma as
non-executive directors with effect from 1 January 2013 and 1 April
2013 respectively. The work undertaken by the Committee in
connection with these appointments was carried out during 2012 and
further information about the appointment process which was
followed can be found in the Corporate governance report set out in
the 2012 Annual Report.
Activities
The Committee met on five occasions during 2013. Members’
attendance at those meetings is set out in the table opposite.
During the year the Committee reviewed and took account of the
balance of skills, knowledge, experience and diversity of the Board,
the time commitment expected of the non-executive directors and
the conclusions of the formal evaluation process which was carried
out when considering and recommending the nomination of directors
for re-election at the 2014 Annual General Meeting. In particular the
Committee reviewed the performance of Peter Johnson and David
Sleath, who were appointed to the Board in January 2006 and
September 2007 respectively. The Committee believes that they
continue to be effective and to demonstrate strong independence
in character and judgement in the manner in which they discharge
their responsibilities as directors. Consequently the Committee is
satisfied that, despite their respective lengths of tenure, they
remain independent.
The Chief Executive presented his annual management succession
plan to the Committee. The Company recognises that having the
right directors and senior management is crucial for the Group’s
success and it is a key task of the Committee to ensure that the
Company has a robust and continuous succession planning process.
As part of the review in 2013 the Committee retained an external
consultant to provide objective insight into the development of the
Company’s senior executives.
As part of the review of the composition of the Board and the
succession planning process, the Committee notes the publication
of the Davies Review on Women on Boards in February 2011 and the
subsequent amendments which have been made to the Code which
apply to the 2013 financial year. Both the Board and the Committee
recognise the importance of gender diversity throughout the Group.
Currently one of the nine Board members and one of the five
Executive Committee members are female. The Committee aims to
have a Board with a broad range of skills, backgrounds, experience
and diversity and while the Committee will continue to follow a policy
of ensuring that the best people are appointed for the relevant roles,
the Committee recognises the benefits of greater diversity and will
continue to take account of this when considering any particular
appointment. However, the primary responsibility of the Committee
in selecting and recommending candidates to the Board when
making new appointments is to ensure the strength of the Board’s
composition and the overriding aim is to always select and
recommend the best candidate for the position. Although the Board
has not set a formal target in relation thereto, it is the Board’s aim
to increase its level of female representation as part of the ongoing
succession planning process. Further information about the
Company’s workforce diversity is set out on page 34.
The terms of reference of the Committee, which were reviewed by
the Board during the year, are set out on the Company’s website.
BOARD AND COMMITTEE ATTENDANCE
The following table shows the attendance in 2013 of directors at
Board meetings and at meetings of the Board Committees of which
they are members:
Board
Audit
Committee
Remuneration
Committee
Nomination
Committee
Number of meetings
Philip Rogerson
Michael Roney
Ulrich Wolters*
Patrick Larmon
Peter Johnson
Brian May
David Sleath
Eugenia Ulasewicz
Jean-Charles Pauze
Meinie Oldersma†
8
8
8
3
8
8
8
8
8
8
6
5
2
5
5
5
5
3
5
1
5
5
5
5
4
5
5
5
2
5
5
5
5
3
* Ulrich Wolters retired as a director on 17 April 2013 having attended all of the
Board and Committee meetings held between 1 January 2013 and that date.
† Meinie Oldersma was appointed as a director on 1 April 2013 and attended all
of the Board and Committee meetings held between that date and the end of
the year.
PERFORMANCE EVALUATION
The Company has a formal performance evaluation process for
the Board, its Committees and individual directors overseen by
the Chairman. This includes individual discussions between the
Chairman and each director when their individual training and
development needs are reviewed. Led by the senior independent
director, the non-executive directors also meet without the Chairman
present at least annually to appraise the Chairman’s performance
including a review of his other commitments to ensure that he is
able to allocate sufficient time to the Company to discharge his
responsibilities effectively. The Chairman also periodically holds
meetings with the non-executive directors without the executive
directors present. All of these processes were carried out
satisfactorily during the year.
BUNZL PLC ANNUAL REPORT 2013 41
CORPORATE GOVERNANCE REPORT CONTINUED
In accordance with the requirements of the Code an external
performance evaluation was carried out in 2012 and the results were
subsequently presented to the Board. The facilitator of the external
evaluation, Lintstock, does not provide any other services to, or have
any other connection with, the Company. Although the Code only
requires that the evaluation of the Board and its Committees should
be externally facilitated at least every three years, it was decided to
appoint Lintstock to carry out a further performance evaluation in
2013. By doing so, the Board was able to ensure that there was
consistency and continuity in the evaluation process from one year
to the next. Following the evaluation, the Board agreed to implement
a number of recommendations including:
• continuing the focus of the Nomination Committee on the
management succession plans for the Group, including in
particular increased exposure to the Group’s senior management
below Board level;
• adapting the process followed as part of the Board’s annual
strategy review to allow more discussion on the key strategic
issues facing the Group; and
• reviewing in more detail the opportunities and threats presented
by future developments in technology and how these might impact
on the continuing success of the Group.
As a result of the overall performance evaluation process carried
out, the Board concluded that both it and its Committees are
operating effectively.
FINANCIAL AND BUSINESS REPORTING
The responsibilities of the directors in respect of the preparation
of the Group and parent company financial statements are set
out on page 116 and the auditor’s report on pages 117 and 118
includes a statement by the external auditor about their reporting
responsibilities. As set out on page 29, the directors are of the
opinion that it is appropriate to continue to adopt the going concern
basis in preparing the financial statements.
The process of preparing the Annual Report has included
the following:
• verification procedures, both internally and by the external auditor,
to deal with the factual content of the Annual Report; and
• comprehensive reviews undertaken at different levels in the Group
in order to ensure the accuracy, consistency and overall balance of
the Annual Report.
From the information and assurance provided by the ongoing work of
the internal audit department, the reviews conducted by the external
auditor in relation to both the half year and full year results, the
Board’s understanding of the Group’s business and the information
provided by the senior executive management team, the Board
considers that the Annual Report, taken as a whole, is fair, balanced
and understandable and provides the information necessary for
shareholders to assess the Company’s performance, business
model and strategy.
RISK MANAGEMENT AND INTERNAL CONTROL
The directors acknowledge that they have overall responsibility for
identifying and managing the risks faced by the Group and for the
Group’s system of internal control relating to those risks. However,
such a system is designed to manage rather than eliminate the
risk of failure to achieve business objectives and can only provide
reasonable and not absolute assurance against material
misstatement or loss. In accordance with Principle C.2 of the
Code and the related guidance, the Company has established the
procedures necessary to ensure that there is an ongoing process for
identifying, evaluating, managing and mitigating significant risks to
the Group and for determining the nature and extent of the significant
risks it is willing to take to achieve its strategic objectives. The
directors confirm that such procedures have been in place for the
year ended 31 December 2013 and up to the date of approval of these
financial statements and have been reviewed during the year.
Further information relating to how the directors maintain overall
control over all significant strategic, financial, operational and
compliance issues is set out in the ‘Role of the Board’ section
on page 39.
In addition, the Board has delegated to an Executive Committee,
consisting of the Chief Executive, Finance Director and other
functional managers, the responsibility for identifying, evaluating
and monitoring the risks facing the Group and for deciding how these
are managed and to establish a system of internal control
appropriate to the business environments in which the Group
operates. The principal features of this system include:
• a procedure for monitoring the effectiveness of the internal control
system through a tiered management structure with clearly
defined lines of responsibility and delegation of authority;
• clearly defined authorisation procedures for capital investment
and acquisitions;
• strategic plans and comprehensive budgets which are prepared
annually by the business areas and approved by the Board;
• formal standards of business conduct (including a code of ethics
and whistle blowing procedure) based on honesty, integrity, fair
dealing and compliance with the local laws and regulations of
the countries in which the Group operates;
• a well established consolidation and reporting system for
the statutory accounts and monthly management accounts;
• continual investment in IT systems to ensure the production
of timely and accurate management information relating to
the operation of the Group’s businesses; and
• detailed manuals covering Group accounting policies and policies
and procedures for the Group’s treasury operations supplemented
by internal control procedures at a business area level.
42 BUNZL PLC ANNUAL REPORT 2013
Some of the procedures carried out in order to monitor the
effectiveness of the internal control system and to identify, manage
and mitigate business risk are listed below:
The directors confirm that they have reviewed the effectiveness of
the system of internal control and risk management in operation
during 2013.
• central management holds regular meetings with business area
management to discuss strategic, operational and financial issues
including a review of the significant risks affecting each of the
business areas and the policies and procedures by which these
risks are managed;
The external auditor is engaged to express an opinion on the financial
statements. The audit includes the review and test of the system of
internal financial control and the data contained in the financial
statements to the extent necessary for expressing an audit opinion
on the truth and fairness of the financial statements.
RELATIONS WITH SHAREHOLDERS
The Company reports formally to shareholders twice a year with
the half year results announced normally at the end of August and
the annual results announced normally at the end of February.
In addition the Company publishes two interim management
statements a year as required by the Disclosure and
Transparency Rules.
The Chief Executive and Finance Director have regular meetings
with representatives of institutional shareholders and report to
the Board the views of major shareholders. Additional forms of
communication include presentations of the half year and annual
results. The Chairman and the senior independent director and
the other non-executive directors are available to meet with major
shareholders on request. The Board also periodically reviews and
discusses analysts’ and brokers’ reports and surveys of shareholder
opinions conducted by the Company’s own brokers.
Notice of the Annual General Meeting is sent to shareholders at least
20 working days before the meeting. All shareholders are encouraged
to participate in the Annual General Meeting, are invited to ask
questions at the meeting and are given the opportunity to meet
all of the directors informally. Shareholders unable to attend
are encouraged to vote using the proxy card mailed to them or
electronically as detailed in the Notice of Meeting. Shareholders
are given the option to withhold their vote on the proxy form. As in
previous years, at the forthcoming Annual General Meeting each
of the resolutions put to the meeting will be taken on a poll rather
than on a show of hands as directors believe that a poll is more
representative of shareholders’ voting intentions because
shareholder votes are counted according to the number of shares
held and all votes tendered are taken into account. The results of the
poll will be publicly announced and made available on the Company’s
website as soon as practicable following the Annual General Meeting.
On behalf of the Board
Paul Hussey
Secretary
24 February 2014
• the Executive Committee meets twice per month and also reviews
the outcome of the discussions held at business area meetings on
internal control and risk management issues;
• the Board in turn reviews the outcome of the Executive Committee
discussions on internal control and risk management issues which
ensures a documented and auditable trail of accountability;
• each business area, the Executive Committee and the Board carry
out an annual fraud risk assessment;
• actual results are reviewed monthly against budget, forecasts
and the previous year and explanations obtained for all
significant variances;
• all treasury activities, including in relation to the management of
foreign exchange exposures and Group borrowings, are reported
and reviewed monthly;
• the Group’s bank balances around the world are monitored on a
weekly basis and significant movements are reviewed centrally;
• the internal audit department periodically reviews individual
businesses and procedures, makes recommendations to improve
controls and follows up to ensure that management implement
the recommendations made. The internal audit department’s work
is determined on a risk assessment basis and their findings are
reported to Group and business area management as well as to
the Audit Committee and the external auditor;
• an annual self-assessment of the status of internal controls
measured against a prescribed list of minimum standards is
performed by every business and action plans are agreed where
remedial action is required;
• the Audit Committee, which comprises all of the independent
non-executive directors of the Company, meets regularly
throughout the year. Further details of the work of the Committee,
which includes a review of the effectiveness of the Company’s
internal financial controls and the assurance procedures relating
to the Company’s risk management system, are set out in the
Audit Committee report on pages 44 to 46;
• regular meetings are held with insurance and risk advisers to
assess the risks throughout the Group;
• a management committee, which oversees issues relating
principally to environment, health & safety, insurance and
business continuity planning matters, sets relevant policies and
practices and monitors their implementation;
• risk assessments, safety audits and a regular review of progress
against objectives established by each business area are
periodically carried out; and
• developments in tax, treasury and accounting are continually
monitored by Group management in association with
external advisers.
BUNZL PLC ANNUAL REPORT 2013 43
AUDIT COMMITTEE REPORT
David Sleath
Chairman of the Audit Committee
‘I AM PLEASED TO INTRODUCE
THE REPORT OF THE AUDIT
COMMITTEE FOR 2013, THE
PURPOSE OF WHICH IS TO
GIVE SHAREHOLDERS AN
OVERVIEW OF THE OPERATION
AND SCOPE OF THE AUDIT
COMMITTEE’S FUNCTION
AND TO REPORT ON ITS
ACTIVITIES UNDERTAKEN
OVER THE PAST YEAR.’
In 2012 the Financial Reporting Council
introduced a number of changes to the UK
Corporate Governance Code (the ‘Code’),
some of which related to the role and
reporting requirements of Audit
Committees. In particular, these new
requirements, which apply for the first
time to the Company’s financial year ended
31 December 2013, are centred on the Audit
Committee’s relationship with the external
auditor and its review of the financial
statements. This report has been prepared
in accordance with the revised requirements
of the Code.
44 BUNZL PLC ANNUAL REPORT 2013
ROLE
The Committee’s principal role is to gain assurance as to the
integrity of the financial reporting and auditing processes and
the maintenance of sound internal control and risk management
systems. In particular the Committee is responsible for:
• monitoring and reviewing the integrity of the financial statements
of the Group and the significant reporting judgements contained
in them;
• reviewing the effectiveness of the Company’s internal
financial controls;
• reviewing the process for the management of risk and the
assurance procedures over controls designed to manage
key risks;
• reviewing the appropriateness of the Company’s relationship
with the external auditor, including auditor independence, fees
and provisions of non-audit services;
• making recommendations to the Board in relation to the
appointment of the external auditor; and
• developing and implementing a policy on the engagement
of the external auditor to supply non-audit services.
The Committee’s terms of reference, which were reviewed and
revised by the Board at the end of 2012 to take account of the recent
changes to the Code which apply to the 2013 financial year, are
available on the Company’s website, www.bunzl.com.
In the performance of its duties, the Committee has independent
access to the services of the Company’s internal audit function and
to the external auditor and may obtain outside professional advice
as necessary. Both the Head of Internal Audit and the external
auditor have direct access to me as the Chairman of the Committee
and I held a number of meetings with each of them during the year
outside formal Committee meetings.
ACTIVITIES
As Chairman of the Committee, I hold preparatory discussions with
the Company’s senior management, the Head of Internal Audit and
the external auditor prior to Committee meetings to discuss the
items to be considered at the Committee meetings. In addition,
separate discussions are held between the Committee and the Head
of Internal Audit and the external auditor without management
present. I also attend the Annual General Meeting to respond to any
shareholder questions that might be raised on the Committee’s
activities. The Committee met on five occasions during the year
and members’ attendance at those meetings is set out in the
table on page 41.
During the year the Committee’s activities included:
• receiving and considering reports from the external auditor in
relation to the half yearly financial report and the annual financial
statements, further details of which are set out below;
• reviewing the half yearly financial report and the annual financial
statements and the formal announcements relating thereto,
further details of which are also set out below;
• receiving and considering reports from the Head of Internal Audit
in relation to the work undertaken by the internal audit function
and reviewing and approving the internal audit work programme
for the year;
• reviewing the effectiveness of the Company’s internal financial
controls and the assurance procedures relating to the Company’s
risk management systems;
• reviewing the arrangements by which staff may, in confidence,
raise concerns about possible improprieties in matters of financial
reporting or other matters and receiving periodic reports relating
to the matters raised through such arrangements;
• reviewing the Committee’s terms of reference and the
Committee’s effectiveness;
• reviewing the effectiveness of both the external auditor and
the internal audit function following completion of detailed
questionnaires by both the Board and senior management within
the Company;
• making recommendations to the Board concerning the
appointment of the external auditor and approving the
remuneration and terms of engagement of the auditor
including the audit strategy and planning process for the
current financial year;
• reviewing and approving the level and type of non-audit work
which the external auditor performs, including the fees paid
for such work, further details of which are set out below; and
• reviewing the principal tax risks applicable to the Company and
the steps taken to manage such risks.
Following each Committee meeting, I report any significant findings
to the Board and copies of the minutes of the Committee meetings
are circulated to all of the directors and to the external auditor.
FINANCIAL STATEMENTS AND SIGNIFICANT
ACCOUNTING MATTERS
During the year and prior to the publication of the Group’s results
for 2013, the Audit Committee reviewed the 2013 half yearly financial
report, the 2013 Annual Report (including the financial statements),
the 2013 annual results news release and the reports from the
external auditor, KPMG Audit Plc, on the outcomes of their half year
review and audit relating to 2013.
As part of its work, the Committee considered the following
significant accounting issues, matters and judgements in relation
to the Group’s financial statements:
Accounting for business combinations
For business combinations, the Group has a long-standing process
for the identification of the fair values of the assets acquired and
liabilities assumed including separate identification of intangible
assets using external valuation specialists where required. The
Committee reviewed this process and discussed with management
and the external auditor the methodology and assumptions used
to value the assets and liabilities of the significant acquisitions
completed in 2013. The Committee concluded that it was satisfied
with management’s valuations of these assets and liabilities,
including the degree to which such valuations are supported
by professional advice from external advisers.
The carrying value of goodwill
Goodwill is allocated to cash generating units (‘CGUs’) and is tested
annually for impairment. The Committee critically reviewed and
discussed management’s report on the annual impairment testing
of the carrying value of goodwill of each CGU and considered the
external auditor’s testing thereof including the sensitivity of the
outcome of impairment testing to the use of different discount rates.
After due challenge and debate, the Committee concluded that it was
satisfied with the assumptions and judgements applied in relation
to such testing and agreed that there was no impairment to goodwill.
Details of the key assumptions and judgements used are set out in
Note 9 to the financial statements.
Taxation
The Committee reviewed reports and received presentations from
the Head of Tax highlighting the principal tax risks that the Group
faces, the tax strategy and the judgements underpinning the
provisions for potential tax liabilities. The Committee also reviewed
the results of the external auditor’s assessment of provisions for
income taxes and deferred tax assets and liabilities and, having done
so, was satisfied with the key judgements made by management.
Defined benefit pension scheme obligations
The Committee considered reports from management and the
external auditor in relation to the valuation of the defined benefit
pension schemes and reviewed the key actuarial assumptions used
in calculating the defined benefit pension liabilities, especially in
relation to discount rates, inflation rates and mortality/life
expectancy. The Committee discussed the reasons for the decrease
in the net pension deficit and was satisfied that the assumptions
used were appropriate and were supported by independent actuarial
specialists. Details of the key assumptions used are set out in
Note 20 to the financial statements.
Provisions
The Group holds a number of provisions relating to properties
(including liabilities for onerous lease commitments, repairs and
dilapidations) and actual and anticipated legal, environmental and
other claims. The Committee reviewed reports from management
and the external auditor concerning the significant provisions held
for such matters including any provisions with notable movements
and those provisions requiring a greater degree of judgement.
The Committee considered the background to such provisions and
discussed with management the judgements applied in determining
the value of provisions required. The Committee enquired of
management and the external auditor as to the existence of other
matters potentially requiring a provision to be made. The Committee
concluded that it was satisfied with the value of provisions carried.
EXTERNAL AUDITOR’S INDEPENDENCE AND
EFFECTIVENESS
The Committee ensures that the external auditor remains
independent of the Company and receives written confirmation from
the external auditor as to whether it considers itself independent
within the meaning of its own internal and the relevant regulatory
and professional requirements. Key members of the audit team
rotate off the Company’s audit after a specific period of time.
In order to ensure that the objectivity and independence of the
external auditor is not compromised, the Committee has also
pre-approved the non-audit service categories that can be provided
by the external auditor and agreed monetary amounts for each
service category that can be provided by them, subject to a maximum
individual engagement value. Certain categories of services are
prohibited under the ethical standards of the Accounting Practices
Board. A permitted service requires specific authorisation from the
Committee or myself as the Committee Chairman where it does not
fall within the pre-approved categories or where its value exceeds
the maximum pre-approved individual engagement value. Such
non-audit service categories which are pre-approved principally
comprise tax services and further assurance services relating to
pre-acquisition due diligence and other duties carried out in respect
of acquisitions and disposals of businesses. The Committee believes
that given the external auditor’s detailed knowledge of the Group’s
operations, its structure and accounting policies and the importance
of carrying out tax services and detailed due diligence as part of the
acquisition process, it is sometimes appropriate for this additional
work to be carried out by the Company’s auditor. However other
firms are also used by the Company to provide non-audit services
and it is the Company’s policy to assess the services required on a
case by case basis to ensure that the best placed adviser is retained.
BUNZL PLC ANNUAL REPORT 2013 45
AUDIT COMMITTEE REPORT CONTINUED
Details of the fees paid to the external auditor in 2013 in respect
of the audit and for non-audit services are set out in Note 4 to the
financial statements.
During the year the Committee carried out a review of the
effectiveness of the external audit process. As part of this review,
the Committee considered feedback on the audit gathered through
a detailed survey which was completed by each of the directors and
members of the Company’s senior management team at both Group
and business area levels. The survey covered a total of 22 different
aspects of the audit process grouped under three separate headings;
the robustness of the audit process, the quality of delivery of the
audit process and the quality of the people in the audit team and the
service provided by them. Each respondent was asked to award a
rating on a scale of 1 to 5 for each aspect reviewed and to provide any
additional comments they wished to make in relation to the questions
raised. The Committee discussed the findings of the survey and their
overall assessment of the work of the auditor.
AUDITOR RE-APPOINTMENT
As part of the decision to recommend to the Board the
re-appointment of the external auditor, the Committee takes into
account the tenure of the auditor in addition to the results of its
review of the effectiveness of the external auditor and considers
whether there should be a full tender process. There are no
contractual obligations restricting the Committee’s choice of
external auditor.
KPMG Audit Plc (or its predecessor firms) has been the Company’s
external auditor since 1986, being the date when an audit tender was
last conducted. As a consequence of its satisfaction with the results
of its review of the external auditor’s activities during the year, the
Committee has recommended to the Board that a resolution
proposing the re-appointment of KPMG Audit Plc as external auditor
be put to shareholders at the forthcoming Annual General Meeting.
However, notwithstanding this recommendation, in line with the new
requirement under the Code and the recent report of the UK
Competition Commission for listed companies to tender the external
audit at least once every 10 years, the Committee has also made a
recommendation to the Board that the Company should carry out
such a tender during 2014 with a view to the successful firm
performing the external audit for the year ending 31 December 2014.
The Board intends to implement this recommendation later this year.
Any firm so appointed during the year would then be subject to
re-appointment by the Company’s shareholders at the 2015 Annual
General Meeting.
In order to comply with good governance practice and given KPMG’s
length of tenure as the Company’s auditor and the current regulatory
environment which may soon impose an obligation on listed
companies to rotate their auditor periodically, the Board has decided
that it intends to appoint a new audit firm as the Company’s external
auditor following the tender process. As a result KPMG Audit Plc will
not be invited to participate in the process. KPMG has served the
Company very well over many years and we thank them for their
hard work.
INTERNAL CONTROL AND RISK MANAGEMENT
As mentioned above, the Committee is responsible for reviewing
on behalf of the Board the effectiveness of the Company’s internal
financial controls and the assurance procedures relating to the
Company’s risk management system. These controls and
procedures are designed to manage, but not eliminate, the risk of
failure of the Company to meet its business objectives and, as such,
provide reasonable, but not absolute, assurance against material
misstatement or loss. During the year, the Committee monitors the
effectiveness of the internal financial controls framework through
reports from the Finance Director, the Head of Internal Audit and the
external auditor. In particular the Committee considered the scope
and results of work of the internal audit function, the findings of the
external auditor in relation to the year end audit, the assessment
of fraud risk carried out by management, the controls over the
Company’s financial consolidation and reporting system, the
treasury controls, the tax risks and the processes for setting
strategic plans and budgets and for monitoring the ongoing
performance of the Company.
In relation to the risk management system, the Committee reviewed
the process by which significant risks had been identified by
management and the Board, the key controls and other processes
designed to manage and mitigate such risks and the assurance
provided by the internal audit function, the external auditor and
other oversight from management and the Board.
INTERNAL AUDIT
The Company has an internal audit department which comprises
eight in-house auditors, including the Head of Internal Audit who
reports jointly to me, in my capacity as Chairman of the Audit
Committee, and the Finance Director. The scope of work of the
internal audit function covers all systems and activities of the Group.
Work is prioritised according to the Company’s risk profile with the
annual audit plan being approved by the Committee each year.
Internal audit reports are regularly provided to the Committee which
include details of the audit findings, and the relevant management
actions required in order to address any issues arising therefrom,
as well as updates on the progress made by management in
addressing any outstanding recommendations from previously
reported findings. In addition, the internal audit function reports on
any significant issues relating to the processes for controlling the
activities of the Group and the adequacy and effectiveness of such
processes. Together the work of the internal audit function provides
the Committee with a further means of monitoring the processes
and actions to manage and mitigate those risks identified as posing
the greatest threat to the Company.
A review by the Committee of the effectiveness of the internal audit
function was carried out during the year. The Committee considered
the results of a questionnaire completed by each of the directors and
those members of the senior management team who interact with
the internal audit department and discussed generally the work of
the internal audit department, the adequacy of resources and the
skills and capabilities of the internal audit team.
David Sleath
Chairman of the Audit Committee
24 February 2014
46 BUNZL PLC ANNUAL REPORT 2013
DIRECTORS’ REMUNERATION REPORT
Peter Johnson
Chairman of the Remuneration Committee
‘OUR REMUNERATION POLICIES
AND PRACTICES ARE DESIGNED
TO REWARD MANAGEMENT
FOR DELIVERING THE
CONTINUAL STRATEGIC
GROWTH OF OUR BUSINESS.’
This report has been prepared on behalf
of and has been approved by the Board.
It complies with Schedule 8 to the Large
and Medium-sized Companies and Groups
(Accounts and Reports) Regulations 2008
(as amended) (the ‘Regulations’), the UK
Corporate Governance Code and the
Financial Conduct Authority Listing Rules
and takes into account the accompanying
Directors’ Remuneration Reporting Guidance
and the relevant policies of shareholder
representative bodies. As required this
report is presented in three main sections:
an annual statement from the Chairman of
the Committee; the Directors’ remuneration
policy report; and the Annual report on
remuneration for 2013. The report also
contains information relating to the
directors’ remuneration for 2014 and
additional information on directors’
share interests.
STATEMENT FROM PETER JOHNSON, CHAIRMAN OF THE
REMUNERATION COMMITTEE
During late 2012 and 2013 we have, together with Deloitte LLP
(‘Deloitte’), reviewed our long term incentive arrangements in the
context of the overall remuneration package. Bunzl’s current Long
Term Incentive Plan (‘LTIP’) is due to expire in May 2014 and so the
review included the development of appropriate replacement
arrangements which would continue to align executive reward with
returns to shareholders and support our strategy going forward.
Since the introduction of the current LTIP, the business has
performed consistently well and grown significantly with operating
profit before intangible amortisation and acquisition related
and corporate costs growing in the 10 year period to 2013 from
£183 million to £433 million (10% compound growth per annum
over this period) without raising any new equity. When conducting
the review, the Committee considered a number of key principles
which are set out below:
• Our remuneration arrangements should be simple and
transparent for both employees and shareholders.
• One of Bunzl’s main objectives is to build shareholder value. Our
strategic focus places great importance on continuing to grow
organically and by acquisition. The remuneration framework
should be designed to reinforce the link between pay and
performance and reward senior executives for delivering superior
shareholder returns.
• Performance should be assessed against measures and targets
that are relevant to Bunzl’s business and are stretching, whilst
providing maximum clarity.
• A significant amount of Bunzl’s success can be attributed to the
strong leadership of the management team. It is important that
key individuals are retained and that we can attract new talent into
the business by recruitment or acquisition. The competitiveness
of the remuneration package we offer is key.
• Bunzl is an international business providing outsourcing solutions
and value-added distribution across the Americas, Europe and
Australasia. The remuneration framework should be structured
in a way which will allow us to compete for talent across multiple
geographies whilst also complying with UK corporate governance
good practice.
The conclusion of our review was that whilst the current
remuneration structure has served the business well, there were
a number of changes that needed to be made to ensure the
remuneration framework continues to support the strategic
direction of the business and further comply with good practice
whilst addressing various matters previously raised by shareholder
representative bodies. The principal change relates to the proposed
introduction of a revised LTIP to be known as the 2014 LTIP.
Overview of the 2014 LTIP
Grants of executive share option (part A) and performance share
(part B) awards will continue to be made on a biannual basis and
performance will be measured over a three year performance
period. The Committee considered whether a holding period post
vesting would be appropriate but felt that the current three year
performance period with no additional holding period was more
suitable to Bunzl’s business cycle. For awards made after the Annual
General Meeting (‘AGM’) in 2014, we are introducing clawback terms
on both executive share option and performance share awards
referred to on page 50. We have set out below the main design
features of the proposed 2014 LTIP.
BUNZL PLC ANNUAL REPORT 2013 47
DIRECTORS’ REMUNERATION REPORT CONTINUED
Executive share options (Part A)
• The maximum value of annual share option awards which can
be granted under the 2014 LTIP rules to be reduced from 300%
to 250% of base salary.
share performance against the target for the year but that the annual
bonus outcome will be modified based on the return on average
operating capital performance for the year relative to a target level
of return.
• Under the 2014 LTIP, executive share option awards for the
directors will vest subject to a performance condition linked to the
growth of the Company’s earnings per share over the performance
period, with the introduction of scaled vesting as referred to on
pages 50 and 64. The intrinsic value of an option will reduce
compared with the current plan.
• To maintain the current expected value of the option element of
the 2014 LTIP, the annual grant level will be increased from 150%
to 200% of annual salary for the Chief Executive and by a similar
percentage for the other executive directors.
• It is no longer considered appropriate to measure performance
against the Retail Prices Index (‘RPI’) in the UK given that only
17% of revenue and 25% of operating profit now relates to Bunzl’s
UK & Ireland operations and these percentages are expected to
decline further as the Group’s business continues to grow
internationally. The Committee will review the growth targets
annually to ensure that the performance conditions remain
sufficiently challenging.
Performance shares (Part B)
• The maximum value of annual performance share awards which
can be granted under the 2014 LTIP rules will be reduced from
200% to 150% of base salary.
• There will be no change in the actual award levels for directors.
The Chief Executive will continue to receive annual awards with
a face value of 112.5% of base salary.
• 50% of an award will continue to be subject to earnings per share
growth performance over the performance period, but not relative
to UK RPI as mentioned above, with scaled vesting as referred to
on pages 50 and 64.
• 50% of an award will be subject to relative Total Shareholder
Return (‘TSR’) performance over the performance period. TSR
performance will be measured against the constituents of the
FTSE 50 – 150 with significant international operations, excluding
companies in the financial services, oil & gas and natural
resources sectors. The vesting schedule will be unchanged
from the 2004 LTIP as referred to on pages 50 and 64.
The earnings per share performance targets are determined,
based on both historic and consensus forecast performance for the
business, to be stretching yet achievable. In setting the proposed
targets for 2014 the Committee has taken into consideration that the
intrinsic value of a performance share is much higher than that of
an executive share option and therefore that it is appropriate that
a more challenging target be set.
Changes to other elements of the remuneration framework
When reviewing the proposed structure of the 2014 LTIP, we
also conducted a review of other elements of the remuneration
framework. In light of this we have doubled the shareholding
guideline to 200% of annual salary for all executive directors
to align further their interests with shareholders.
Consultation
As part of the process to develop the new remuneration
arrangements we wrote to 19 of the Company’s principal
shareholders representing around 60% of the shareholder base,
as well as two major shareholder representative bodies, seeking
their views with regard to our proposals. Subsequently I, the
Secretary of the Remuneration Committee and the General Counsel
and Company Secretary took part in a number of meetings and
telephone conferences to gain feedback and answer questions.
The vast majority of those consulted indicated that they were
supportive of the Company’s directors’ remuneration policy.
Reporting and disclosure
We have restructured our reporting in line with the revised
regulations and associated guidance relating to remuneration
matters and have tried to make it as clear as possible and explain
the rationale for the decisions that we have made during the year.
I look forward to receiving your support for both the annual
report on remuneration and our directors’ remuneration policy
for future years.
Peter Johnson
Chairman of the Remuneration Committee
24 February 2014
DIRECTORS’ REMUNERATION POLICY REPORT
Bunzl continues to pursue its well defined strategy of developing
the business through organic growth, consolidating the markets in
which we compete through focused acquisitions in both existing and
new geographies and continuously improving the efficiency of our
operations. Bunzl’s business model relies on excellent customer
and supplier relationships and the skills, knowledge and experience
of its directors and employees. The Company’s remuneration policy
supports this strategy by ensuring that the overall remuneration
package is set at a competitive level whilst ensuring that additional
reward is paid for high performance over a sustained period. This
policy is designed to ensure the recruitment, retention and
motivation of the executive directors and other senior executives
over the long term.
The performance related elements of the remuneration package
are designed to incentivise executives to meet key performance
metrics which align their interests and remuneration with those of
shareholders, for example targets relating to earnings per share and
TSR. In setting such targets the Committee takes due account of the
potential effect such targets could have on the attitude and behaviour
of executives to risk within the business. In addition the Committee
has the discretion to take into account performance on
environmental, social and governance matters.
As mentioned above the Committee also reviewed and discussed the
appropriateness of the performance measures for the 2014 LTIP and
whether the addition of other measures would be more appropriate.
After full discussion the Committee decided that the use of earnings
per share and TSR remained appropriate for a company such as
Bunzl. It was felt that the principal measure of performance for the
annual bonus should remain constant exchange rate earnings per
The following table summarises the proposed policy for the
remuneration of executive directors effective from the 2014 AGM
which, if approved by shareholders, will become binding until the
AGM to be held in 2017. To aid shareholders’ understanding,
explanations are included where appropriate on how this policy
differs from the policy in operation for the 2013 financial year.
48 BUNZL PLC ANNUAL REPORT 2013
Salary
Purpose
• recognise knowledge, skills and experience as well as reflect the scope and size of the role
• reward individual performance without encouraging undue risk
• promote the importance of environmental, social and governance issues
Operation
• paid in 12 equal monthly instalments during the year
• reviewed annually, normally in December (with any changes usually effective from January)
• taking into consideration individual and Group performance, salary increases across the Group are benchmarked for
appropriate salary levels using a comparator group of similarly sized companies with a large international presence
• pensionable
• salary increases are normally considered in relation to the salary increases of other employees in the Group and
performance of the individual unless there has been a major change in role or responsibility or major market movement.
The annual salaries for the executive directors for 2013 and 2014 are on pages 58 and 64 respectively
• individual performance in the role, as well as the performance of the Group and achievements related to environmental,
social and governance issues, are all taken into consideration
Maximum
potential
value
Performance
metrics
Annual bonus
Purpose
• incentivise the attainment of annual corporate targets
• retain high performing employees
• align with shareholders’ interests
Operation
• annual award based on financial targets set by the Committee at the beginning of the year
• at the end of the performance period, which is the Group’s financial year from 1 January until 31 December, the Committee
assesses the extent to which the performance measures have been achieved. The level of bonus for each measure is
determined by reference to the actual performance relative to that measure’s performance targets, on a pro rata basis
• any bonus is paid as 50% in cash and 50% in shares (with the shares normally deferred for three years under the
Deferred Annual Share Bonus Scheme (‘DASBS’))
• a clawback facility is in operation by which part or the full deferred bonus award may be reduced or cancelled to the
extent that the value of the bonus originally awarded is subsequently found to have been overstated as a result of a
material misstatement of the financial accounts by which the bonus was originally determined
• non-pensionable
Maximum
potential
value
• the annual on target bonus opportunity for Michael Roney and Brian May is 70% of salary with a threshold award of 49%
of salary and a maximum award of 115% of salary and for Patrick Larmon is 65% of salary with a threshold award of 31%
of salary and a maximum award of 110% of salary
Performance
metrics
• the principal measure for performance is the growth at constant exchange rates in the Company’s earnings per share
adjusted to exclude items which do not reflect the Company’s underlying financial performance (‘eps’) against the
relevant target
• the bonus derived from constant exchange rate eps performance will be increased or decreased according to the
Company’s performance against the target return on average operating capital (‘RAOC’), referred to as the RAOC modifier
• the use of eps and RAOC measures are seen as appropriate as they are two of Bunzl’s key performance indicators
(‘KPIs’). The use of eps growth aligns the executive directors’ interests with those of the shareholders and the RAOC
modifier ensures the continued focus on working capital management together with profit growth
• bonus awards are at the Committee’s discretion and may take into account performance on environmental, social and
governance matters as appropriate
• Patrick Larmon has additional measures based on the profit before interest and tax (‘pbit’) and working capital
employed in the business area for which he has direct responsibility (North America). The additional measures relating
to pbit and working capital are relevant for Patrick Larmon as these are both KPIs of the business area he is responsible
for running and these measures, together with other performance measures, are used to incentivise the management
group in North America
• the Group RAOC modifier has been introduced as a performance metric to the executive directors’ bonus plan from
1 January 2014
• the performance metrics and targets are reviewed annually to ensure they remain appropriate. The Committee retains the
discretion to set alternative metrics as appropriate
• the current relevant performance metrics are: threshold (which must be exceeded to attract any payment of bonus);
target; and maximum amount (the level at which the bonus is capped). These performance metrics are determined at
the start of the year by reference to the Group’s annual budget. No elements of the bonus are guaranteed. As in previous
years, the specific targets will not be disclosed while still commercially sensitive
BUNZL PLC ANNUAL REPORT 2013 49
DIRECTORS’ REMUNERATION REPORT CONTINUED
Long term incentives
Purpose
• incentivise growth in longer term eps and TSR
• align with shareholders’ interests
• recruit and retain senior employees
Operation
• discretionary biannual grants of executive share option awards and performance share awards which vest subject to
performance conditions measured over three years and subject to continuous Company service. There is no opportunity
to retest
• a clawback facility is in operation under which part or the full amount of a vested award may be recovered, by reduction
in the amount of any future bonus, subsisting award, the vesting of any subsisting award or future share awards and/or
a requirement to make a cash payment, to the extent that the value of a vested award is subsequently found to have
been overstated as a result of a material misstatement of the financial accounts by which the vesting was determined
• all awards are subject to the discretions contained in the relevant plan rules
Maximum
potential
value
Executive share options
• maximum annual award of 250% of salary
• normal grant levels for executive directors are expected to be between 167% and 200% of salary and the Committee
would not grant above this level to incumbent executive directors without further consultation with shareholders
Performance shares
• maximum annual award of 150% of salary
• normal grant levels for executive directors are expected to be between 94% and 112.5% of salary and the Committee
would not grant above this level to incumbent executive directors without further consultation with shareholders
Performance
metrics
Performance and service conditions must be met over a three year performance period
Executive share options
• eps performance measure relates to the absolute growth in the Company’s eps against the targets set for the
performance period
• the vesting is scaled as follows:
− no vesting for performance below the threshold target
− 25% of an award will vest for achieving the threshold target
− 100% of an award will vest for achieving or exceeding the maximum target
− for performance between these targets, the level of vesting will vary on a straight line sliding scale
• the Committee annually reviews the performance conditions outlined above and, in line with the rules of the 2014 LTIP,
reserves the right to set different targets for forthcoming annual grants provided it is deemed that the relevant
performance conditions remain appropriately challenging in the prevailing economic environment
• the targets set out in the Remuneration report on page 61 relate to the previously approved 2004 LTIP. The targets set
for the 2014 LTIP are shown on page 64
Performance shares
• TSR performance measure (50% of the total award) compares a combination of both the Company’s share price
and dividend performance during the performance period against a comparator group of the constituents of the
FTSE 50 – 150 with significant international operations, excluding companies in the financial services, oil & gas
and natural resources sectors
• the other 50% of the award is subject to an eps performance measure which relates to the absolute growth in the
Company’s eps against the targets set for the performance period
• the vesting for both performance measures is scaled as follows:
− no vesting for performance below median performance (TSR) or the threshold target (eps)
− 25% of an award will vest for achieving median performance (TSR) or the threshold target (eps)
− 100% of an award will vest for achieving or exceeding upper quartile performance (TSR) or the maximum target (eps)
− for performance between these targets, the level of vesting will vary on a straight line sliding scale
• the Committee annually reviews the performance conditions outlined above and, in line with the rules of the 2014 LTIP,
reserves the right to set different targets for forthcoming annual grants provided it is deemed that the relevant
performance conditions remain appropriately challenging in the prevailing economic environment
• the targets set out in the Remuneration report on page 61 relate to the previously approved 2004 LTIP. The targets set
for the 2014 LTIP are shown on page 64
50 BUNZL PLC ANNUAL REPORT 2013
All employee share plans
Purpose
• encourage employees including the executive directors to build a shareholding through the operation of all employee
share plans such as the HM Revenue & Customs (‘HMRC’) approved Sharesave Scheme in the UK and the Internal
Revenue Service (‘IRS’) approved Employee Stock Purchase Plan (US) (the ‘ESPP’) in the US
Operation
• the Sharesave Scheme has standard terms under which participants can normally enter a savings contract, over a
period of either three or five years, in return for which they are granted options to acquire shares at a discount of up to
20% of the market price prevailing on the day immediately preceding the date of invitation to apply for the option. Options
are normally exercisable either three or five years after they have been granted
• the ESPP provides an opportunity for employees in the US to purchase the Company’s shares in the market at a 15%
discount to the market price. The purchase of the shares is funded by after tax payroll deductions from the employee
with the employing company contributing the 15% discount
• rules of both of the above plans were approved by shareholders at the 2011 AGM
Maximum
potential
value
• in the UK, the Sharesave Scheme is linked to a contract for monthly savings within the HMRC limits over a period of
either three or five years (currently £250 per month)
• in the US, the ESPP allows the purchase in the market of shares within IRS limits (currently up to an annual maximum
of 10% of remuneration or US$25,000 worth of shares, whichever is lower)
Performance
metrics
• service conditions apply
Retirement benefits
Purpose
• provision of competitive retirement benefits
• retain executive directors
Operation
• all defined benefit pension plans in the Group have been closed to new entrants since 2003 with any new recruits being
offered defined contribution retirement arrangements and/or a pension allowance
• legacy arrangements exist for one UK based executive director and the US based executive director as disclosed previously
• pension contributions and allowances are normally paid monthly
Maximum
potential
value
• company pension contributions to defined contribution retirement arrangements or cash allowances are capped at 30%
of annual salary
• benefits under the legacy UK defined benefit pension plan accrue at a rate of 2.4% on salary up to the notional
pensionable salary cap (from 6 April 2014 £145,800 per annum)
Performance
metrics
Not applicable
Other benefits
Purpose
• provision of competitive benefits which helps to recruit and retain executive directors
Operation
• benefits may include a car allowance or a car which may be fully expensed, various insurances such as life, disability
and medical and in some jurisdictions club expenses and other benefits provided from time to time
• some benefits may only be provided in the case of relocation, such as removal expenses, and in the case of an
international relocation might also include fees for children’s schooling, home leave, tax equalisation and professional
advice etc
• the value of benefits is based on the cost to the Company and varies according to individual circumstances. For example
the cost of medical insurance varies according to family circumstances and the jurisdiction in which the family is based
Maximum
potential
value
Performance
metrics
Not applicable
BUNZL PLC ANNUAL REPORT 2013 51
DIRECTORS’ REMUNERATION REPORT CONTINUED
Shareholding requirement
Purpose
• strengthen the alignment between the interests of the executive directors and those of shareholders
Operation
• Executives will be normally expected to retain shares through the exercise of awards under the DASBS and the LTIP
until they attain the required holding. Three years is allowed for executives who are promoted from within the
Company to achieve the required shareholding. It is recognised that a longer time period may be required for
externally recruited executives to achieve the required shareholding
Maximum
potential value
Performance
metrics
• retain shareholdings worth equal to at least 200% of annual salary. This does not include any holdings of deferred
shares or vested but unexercised share options or performance shares
Not applicable
Performance measures and targets
The key measures used by the Committee for incentivising the executive directors are: eps modified by RAOC for the annual bonus and
eps and relative TSR for the 2014 LTIP. The Committee considers that all of these measures are appropriate for incentive purposes:
• Eps is one of Bunzl’s KPIs. The use of eps aligns the executive directors’ interests with those of shareholders. In addition, one of the
executive directors, Patrick Larmon, President and Chief Executive Officer of North America, also has part of his annual bonus
determined by additional measures relating to pbit and working capital which are relevant as these are two of the KPIs of the business
area he is responsible for running
• RAOC is another of Bunzl’s KPIs. The RAOC modifier ensures continued focus on working capital and profit growth by rewarding efficient
profit generation, taking into account acquisitions once they are established, and uses average capital employed rather than only capital
at the end of the period
• Relative TSR provides an external assessment of the Company’s performance against similar sized companies listed in the UK. It also
aligns the rewards received by executives with the returns received by shareholders
This combination of performance measures provides an important balance relevant to the Group’s business and market conditions as well
as providing a common goal for the executive directors, senior management and shareholders. The Committee does not feel that the
introduction of non-financial measures for the executive directors is appropriate at this time.
The Committee reviews performance targets on an annual basis taking into account the Company’s annual budgeting process, the economic
environment in the jurisdictions in which the Company operates and external expectations.
Changes to the remuneration policy from that operating in 2013 and 2012
As described above in the Statement from the Chairman of the Remuneration Committee, during late 2012 and 2013 a review of the executive
directors’ remuneration arrangements took place, particularly with regard to the proposed replacement of the 2004 LTIP. A number of
changes have been made for implementation following the 2014 AGM to bring the arrangements in line with best practice.
Element
Salary
Annual bonus
Operation
No change
No change
Maximum potential value
Performance metric
No change
No change
No change
Introduction of RAOC modifier
Long term incentives
Executive share options:
Increase of normal annual
grants to:
Chief Executive:
from 150% to 200%
Finance Director:
from 140% to 187%
Other executive director:
from 125% to 167%
Performance shares:
No change to normal
annual grant levels
Clawback introduced
Executive share options:
Reduction of maximum
grant from 300% to 250%
of salary
Performance shares:
Reduction of maximum
grant from 200% to 150%
of salary
Executive share options and performance shares:
UK RPI removed and absolute eps measure
introduced
Executive share options:
Eps performance measure retained but vesting
will vary on a straight line sliding scale
Performance shares:
No change to TSR measure
Comparator group changed to FTSE 50 – 150
with significant international operations, excluding
companies in financial, oil & gas and natural
resources sectors
All employee share/
stock purchase plans
No change
Retirement benefits
No change
Other benefits
Shareholding
guidelines
No change
No change
52 BUNZL PLC ANNUAL REPORT 2013
No change
No change
No change
No change
Increased to 200% of
annual salary
No change
No change
No change
Differences in remuneration policy for executive directors and employees in general
The main difference in remuneration policy between the executive directors and employees in general is the split of fixed and performance
related pay such as bonus and long term incentives. Overall the percentage of performance related pay, in particular longer term incentive
pay, is greater for the executive directors. This reflects that executive directors have more freedom to act and the consequences of their
decisions are likely to have a broader and more far reaching time span of effect than those decisions made by employees with more limited
responsibility. As a consequence only executive directors, Executive Committee members and other key employees (currently 22 people) are
granted both executive share option and performance share awards. Approximately 300 senior managers are granted executive share option
awards on an annual basis, which helps to provide a common focus for the management in the Company’s decentralised organisation
structure, whereas the annual bonuses are related to the performance of individual operating units.
Bonus arrangements vary throughout the Group and are related to the specific role and the country in which the employee operates.
The majority of bonus plans have quantitative targets but the performance measures and targets vary according to each specific role.
Sales representatives often have high levels of annual bonus payments which may be commission based.
When there is a critical mass of employees within a country to make it cost effective to do so, to encourage wider employee share ownership
an all employee share plan is offered. Currently plans are offered to all employees based in Australia, Canada, Germany, Ireland, the
Netherlands, US and UK. In France employees take part in profit sharing arrangements in accordance with local regulations.
Retirement and other benefits offered to employees across the Group differ according to the country in which the job is based, as social
provision and market norms differ, and the function and seniority of the relevant role.
Statement of consideration of employment conditions elsewhere in the Group
The Committee is provided annually with information on the salaries and proposed increases for the Executive Committee members and
other senior direct reports of the Chief Executive, as well as data on the average salary increases within each geographical region within
the Group. In addition the Committee reviews and agrees all grants of executive share option and performance share awards.
In 2014 employees across the Group have received, on average, salary increases in the range of 2% – 3%, dependent on geographical
location with the exception being those employees based in Latin America and China where, due to inflation, current market salary
increases are much higher. The actual increases received by employees have been based on each individual’s contribution and
performance as well as the market competitiveness of the salary.
The Company did not consult with employees when drawing up the directors’ remuneration policy set out in this part of the report.
Recruitment of executive directors – approach to remuneration
For the ongoing stability and growth of the Group, it is important to secure, as necessary, the appointment of high calibre executives to
the Board by either external recruitment or internal promotion. The overarching principles applied by the Committee in developing the
remuneration package will be to set an appropriate base salary together with benefits and short and long term incentives taking into
consideration the skills and experience of the individual, the complexity and breadth of the role, the particular needs and situation of the
Group, internal relativities, the marketplace in which the executive will operate and an individual’s current remuneration package and
location. In addition, the Committee recognises that it may need to meet certain relocation expenses as appropriate.
To ensure consistency across the Board, the expected components of the package would be in line with the remuneration policy as set out on
pages 49 to 52. In order to provide the Company with sufficient flexibility on the recruitment of an executive director, the Committee has set
the maximum level of variable remuneration on recruitment at 427.5% of annual salary. This covers the maximum annual bonus, including
the deferred annual share bonus award, and the maximum face value of any long term incentive awards.
For an external appointment, the Committee may consider offering additional cash and/or share based elements to the remuneration
package when it considers these to be in the best interests of the Company and its shareholders. Such elements, as appropriate, would be
made under Section 9.4.2 of the Listing Rules and take account of any remuneration relinquished when leaving the former employer and
would reflect the nature, time horizons and performance requirements attaching to that remuneration. Shareholders will be informed
of any such payments at the time of appointment.
For an internal appointment, any variable pay element or benefit awarded in respect of the prior role may be allowed to remain in place
according to its terms, adjusted as relevant to take into account the new appointment.
Executive directors’ service contracts
It is the Company’s policy that executive directors are normally employed on contracts that provide for 12 months’ notice from the Company
and six months’ notice from the executive. For Michael Roney and Brian May there is no predetermined compensation for termination of
these contracts. Patrick Larmon’s contract provides that on termination by the Company without cause he is entitled to receive payment
of 12 months’ base salary plus health insurance coverage, reduced by any interim earnings. The date of each service contract is noted in
the table below.
Michael Roney
Brian May
Patrick Larmon
Date of service contract
1 September 2005
9 December 2005
1 January 2005
BUNZL PLC ANNUAL REPORT 2013 53
DIRECTORS’ REMUNERATION REPORT CONTINUED
Policy on payment for departure from office
On termination of an executive director’s service contract, the Committee will take into account the departing director’s duty to mitigate his
loss when determining the amount of compensation. The Committee’s policy in respect of the treatment of executive directors leaving the
Group is described below and is designed to support a smooth transition from the Company taking into account the interests of shareholders:
Component
of pay
Voluntary resignation
or termination for cause
Death, ill health, disability
(excluding redundancy)
Departure on
agreed terms
Base salary,
pension and
benefits
Paid for the proportion of the
notice period worked and any
untaken holidays pro rated to
the leaving date
Annual bonus
cash
Cessation of employment
during a bonus year will
normally result in no cash
bonus being paid
Annual bonus
deferred
shares
Unvested deferred shares
will lapse
Executive
share options
Unvested executive share
options will lapse
Performance
shares
Unvested performance
shares will lapse
Paid up to the date of death or leaving, including any untaken
holidays pro rated to such date. In the case of ill health, a
payment in lieu of notice may be made and, according to
the circumstances, may be subject to mitigation. In such
circumstances some benefits such as company car or medical
insurance may be retained until the end of the notice period
Cessation of employment during a bonus year or after the
year end but prior to the normal bonus payment date will
result in cash and deferred bonus being paid and pro rated
for the relevant portion of the financial year worked and
performance achieved
In the case of the death of an executive, all deferred shares
will be transferred to the estate as soon as possible after
death. In all other cases, subject to the discretion of the
Committee, unvested deferred shares will be transferred
to the individual on a date determined by the Committee
Approved options will vest in full on the cessation of
employment and be exercisable for the following 12 months
after which any unexercised options will lapse
Subject to the discretion of the Committee, unvested
unapproved share options will normally be retained by the
individual for the remainder of the vesting period and remain
subject to the relevant performance conditions. However in
the case of the death of an executive, the Committee will
determine the extent of vesting within 12 months of the date
of death
Subject to the discretion of the Committee, unvested
performance shares will normally be retained by the
individual for the remainder of the vesting period and remain
subject to the relevant performance conditions. However in
the case of the death of an executive, the Committee will
determine the extent of vesting within 12 months of the date
of death
Treatment will normally
fall between the two
treatments described in
the previous columns,
subject to the discretion
of the Committee and
the terms of any
termination agreement
Options under
Sharesave
As per HMRC regulations
As per HMRC regulations
Other
None
Disbursements such as legal costs and outplacement fees
Notes
a) For share options granted under Part A of the 2004 LTIP, any unvested executive share options which are subject to the discretion of the Committee may vest in full
on the termination date and be exercisable for the following 12 months following which any unexercised options will lapse.
b) The Committee will have the authority to settle any legal claims against the Company, e.g. for unfair dismissal etc, that might arise on termination.
Discretions retained by the Committee in operating the incentive plans
The Committee operates the Group’s various incentive plans according to their respective rules and in accordance with HMRC and IRS
rules where relevant. To ensure the efficient administration of these plans, the Committee may apply certain operational discretions.
These include the following:
• selecting the participants in the plans;
• determining the timing of grants and/or payments;
• determining the quantum of grants and/or payments (within the limits set out in the policy table above);
• adjusting the constituents of the TSR comparator group;
• determining the extent of vesting based on the assessment of performance;
54 BUNZL PLC ANNUAL REPORT 2013
• determining ‘good leaver’ status and the extent of vesting in the case of the share based plans;
• determining the extent of vesting of awards under share based plans in the event of a change of control;
• making the appropriate adjustments required in certain circumstances (e.g. rights issues, corporate restructuring events, variation of
capital and special dividends); and
• under the annual review of weighting of performance measures, setting targets for the annual bonus plan and 2014 LTIP from year to year.
The Committee may vary the performance conditions applying to share based awards if an event occurs which causes the Committee to
consider that it would be appropriate to amend the performance conditions, provided the Committee considers the varied conditions are
fair and reasonable and not materially less challenging than the original conditions would have been but for the event in question.
Remuneration overview
The remuneration package comprises both core fixed elements (base salary, pension and other benefits) and performance based variable
elements (cash bonus, the DASBS and the LTIP). The Committee has set a guideline that for on target performance approximately half of the
remuneration package should be performance related. The structure of the remuneration packages for on target and stretch performance
for each of the executive directors is illustrated in the bar charts below.
Michael Roney
Threshold performance
(Total £1,172,667)
Target performance
(Total £2,436,855)
Stretch performance
(Total £3,745,792)
Brian May
Threshold performance
(Total £678,015)
Target performance
(Total £1,360,265)
Stretch performance
(Total £2,057,015)
Patrick Larmon
Threshold performance
(Total £867,912)
Target performance
(Total £1,709,337)
Stretch performance
(Total (£2,517,612)
78%
37%
11%
26%
24%
7%
28%
41%
76%
38%
12%
26%
25%
8%
28%
39%
77%
39%
12%
26%
27%
8%
28%
37%
22%
26%
24%
24%
23%
23%
SALARY AND BENEFITS
PENSION
BONUS (CASH/DASBS)
LTIP
Notes
a) Salary represents annual salary for 2014. Patrick Larmon’s salary is paid in US dollars but has been translated at the exchange rate of £1: US$1.56. Benefits such
as a car or car allowance and private medical insurance are as shown on page 58.
b) Pension represents the cost of pension accrued in 2013 in the Defined Benefit Section of the Bunzl Pension Plan for Brian May, the value of the annual pension
allowance for Michael Roney and Brian May, the contributions to the Defined Contribution Section of the Bunzl Pension Plan for Michael Roney and the total of
Company contributions to Patrick Larmon’s 401K Plan, Retirement Savings Benefit (the ‘RSB’) and through the Defined Contribution Senior Executive Retirement
Agreement (‘SERA’), further details of which are shown on page 60.
c) Below threshold performance comprises salary, benefits and pension only with no bonus awarded and no LTIP awards vested.
d) Target performance comprises annual bonus awarded at target level (i.e. 70% of base salary comprised of 50% cash and 50% deferred shares under the DASBS)
and, for the LTIP, an assumption that 50% of performance shares will vest and that 50% of the share options will vest and deliver 30% of their face value in gain
to the executives.
e) Stretch performance comprises annual bonus awarded at maximum level (i.e. 115% of base salary for Michael Roney and Brian May and 110% of base salary
for Patrick Larmon comprised of 50% cash and 50% deferred shares under the DASBS) and, for the LTIP, an assumption that 100% of performance shares will
vest delivering 100% of their face value in gain to the executive directors and 100% of share options will vest which will deliver 30% of their face value in gain to
the executives.
BUNZL PLC ANNUAL REPORT 2013 55
DIRECTORS’ REMUNERATION REPORT CONTINUED
Legacy arrangements
For the avoidance of doubt, in approving this Remuneration policy report, authority is given to the Company to honour any commitments
entered into with current or former directors (that have been disclosed to shareholders in previous remuneration reports) or internally
promoted future directors (in each case, such as the payment of a pension or the unwind of legacy share plans). Details of any payments
to former directors will be set out in the Remuneration report as they arise.
Policy of executive directors’ external appointments
With the specific approval of the Board in each case, executive directors may accept external appointments as non-executive directors
of other companies and retain any related fees paid to them.
Non-executive directors’ terms of appointment
On appointment of a new Chairman of the Board or non-executive director, the fees will be set taking into account the experience and calibre
of the individual and the prevailing fee rates of the other non-executive directors at that time.
The non-executive directors do not have service contracts with the Company but instead have letters of appointment. The date of
appointment and the most recent re-appointment and the length of service for each non-executive director are shown in the table below.
Philip Rogerson
Ulrich Wolters*
Peter Johnson
David Sleath
Eugenia Ulasewicz
Jean-Charles Pauze
Meinie Oldersma
Date of
appointment
1 January 2010
1 July 2004
1 January 2006
1 September 2007
1 April 2011
1 January 2013
1 April 2013
Date of last
re-appointment
at AGM
17 April 2013
n/a
17 April 2013
17 April 2013
17 April 2013
17 April 2013
17 April 2013
Length of
service as
at 2014 AGM
4 years 3 months
n/a
8 years 3 months
6 years 7 months
3 years
1 year 3 months
1 year
* Ulrich Wolters retired from the Board at the conclusion of the 2013 AGM.
On termination, at any time, a non-executive director is entitled to any accrued but unpaid director’s fees but not to any other compensation.
Fees policy for Chairman and non-executive directors
(the ‘NEDs’)
Purpose
• provision of a competitive fee to attract NEDs who have a broad range of experience and skills to oversee the
implementation of the Company’s strategy
Operation
• determined in light of market practice and with reference to time commitment and responsibilities associated with
the roles
• annual fees are paid in 12 equal monthly instalments during the year
• the senior independent director and Chairman
of the Audit and Remuneration Committees are paid an extra fee to reflect their additional responsibilities
• the NEDs and the Chairman are not eligible to receive benefits and do not participate in pension or incentive plans.
Expenses incurred in respect of their duties as directors of the Company are reimbursed
• the NEDs’ fees are reviewed annually in January each year and the Chairman’s fee is reviewed biennially, the last date
being February 2014
• the Board as a whole considers the policy and structure for the NEDs’ fees on the recommendation of the Chairman and
the Chief Executive. The NEDs do not participate in discussions on their specific levels of remuneration; the Chairman’s
fees are set by the Committee
• determined within the overall aggregate annual limit of £1,000,000 authorised by shareholders with reference to the
Company’s Articles of Association
Not eligible to participate in any performance related elements of remuneration
Maximum
potential
value
Performance
metrics
Statement of consideration of shareholder views
The Committee considers shareholder feedback received in relation to the AGM each year and guidance from shareholder representative
bodies more generally. In addition the Committee consults proactively with its major shareholders prior to making significant changes to
its policy.
56 BUNZL PLC ANNUAL REPORT 2013
ANNUAL REPORT ON REMUNERATION FOR 2013
Committee remit and membership
The following independent non-executive directors were members of the Committee during 2013:
Ulrich Wolters*
Peter Johnson
David Sleath
Eugenia Ulasewicz
Jean-Charles Pauze
Meinie Oldersma
Date of
appointment to
the Committee
21 July 2004
18 January 2006
5 December 2007
20 April 2011
1 January 2013
1 April 2013
Meetings
eligible
to attend
1
5
5
5
5
4
Meetings
attendance
1
5
5
5
5
4
* Ulrich Wolters retired from the Board at the conclusion of the 2013 AGM.
The Secretary to the Committee is Celia Baxter, Director of Group Human Resources. No director plays any part in determining his or her
remuneration. During the year ended 31 December 2013, both the Chief Executive and the Chairman were consulted and invited to attend
meetings of the Committee, but were not present during any part of the meeting when their own remuneration was under consideration.
The terms of reference of the Committee have been formally adopted by the Board and are available for inspection in the Investor Centre
section of the Company’s website, www.bunzl.com. The key responsibilities of the Committee include:
• ensuring that executive directors and senior executives are properly incentivised to attract, retain and fairly reward them for their
individual contribution to the Company and having due regard to the policies and practices applied to the rest of the employees within
the Group;
• determining the framework or broad policy for the remuneration of the Chairman and the executive directors of the Board including
setting their individual remuneration packages as well as their level of remuneration and overseeing all the Company’s long term
incentive plans;
• ensuring that remuneration is aligned with and supports the Company’s strategy and performance, having due regard to the shareholders
and to the financial and commercial health of the Company, while at the same time not encouraging undue risk taking; and
• communicating and discussing any remuneration issues with the Company’s stakeholders as and when appropriate.
Advisers to the Remuneration Committee
In carrying out these responsibilities, the Committee seeks external remuneration advice as necessary. During the year the Committee
received advice from Deloitte, PwC and New Bridge Street. Deloitte undertook a review of the long term incentive arrangements and made
recommendations to the Committee on changes to the LTIP and other elements of remuneration as described in the Committee Chairman’s
statement. PwC provided external survey data on directors’ remuneration and benefit levels. New Bridge Street drafted the rules of the
2014 LTIP and provided information to determine whether, and if so to what extent, the performance conditions attached to existing share
option and performance share awards under the 2004 LTIP had been satisfied. The fees payable to each adviser, based on hourly rates,
were: £48,000 (Deloitte), £19,065 (PwC) and £14,150 (New Bridge Street) for such work undertaken in 2013. In addition to the work
undertaken on behalf of the Committee, Deloitte also provides the Company with some tax related services, PwC also provides the Company
with some tax related and pre-acquisition due diligence services and New Bridge Street may from time to time also provide services to the
Company on remuneration and benefit related matters that are not subject to review by the Committee. The Committee remains satisfied
that the provision of these other services does not in any way compromise the independence of their advisers.
Statement of voting at the 2013 AGM
Last year the remuneration report received a 98.37% shareholder vote in favour as set out below:
Votes cast
261,017,954
Votes For
256,760,966
% of shares voted
98.37
Votes Against
4,256,988
% of shares voted
1.63
Votes Withheld
1,837,707
Notes
a) The votes ‘For’ include votes given at the Company Chairman’s discretion.
b) A vote ‘Withheld’ is not a vote in law and is not counted in the calculation of the votes ‘For’ or ‘Against’ the resolution. Votes ‘For’ and ‘Against’ are expressed
as a percentage of the votes cast.
BUNZL PLC ANNUAL REPORT 2013 57
DIRECTORS’ REMUNERATION REPORT CONTINUED
Single total figure of remuneration 2013 (audited information)
Executive directors
Michael Roney
Brian May
Patrick Larmon
Total
2013
870.0
480.0
634.0
1,984.0
Non-executive directors
Philip Rogerson
Ulrich Wolters
Peter Johnson
David Sleath
Eugenia Ulasewicz
Jean-Charles Pauze
Meinie Oldersma
Total
Salary
£000
2012
845.0
468.0
603.8
1,916.8
Taxable benefits
£000
2013
16.7
16.7
18.2
51.6
2012
16.4
16.4
16.5
49.3
2013
906.5
500.2
540.9
1,947.6
Bonus
£000
2012
650.6
360.4
518.6
1,529.6
2013
1,964.5
1,016.5
1,068.6
4,049.6
LTIP
£000
2012
1,737.4
893.7
950.2
3,581.3
Pension
£000
2012
253.5
161.3
232.3
647.1
2013
261.0
161.3
199.7
622.0
2013
4,018.7
2,174.7
2,461.4
8,654.8
Total
£000
2012
3,502.9
1,899.8
2,321.4
7,724.1
Board fees
£000
Committee
Chair/SID fees
£000
2013
310.0
21.0
63.0
63.0
63.0
63.0
47.2
630.2
2012
310.0
61.5
61.5
61.5
61.5
–
–
556.0
2013
–
–
29.0
13.0
–
–
–
42.0
2012
–
–
28.0
12.0
–
–
–
40.0
2013
310.0
21.0
92.0
76.0
63.0
63.0
47.2
672.2
Total
£000
2012
310.0
61.5
89.5
73.5
61.5
–
–
596.0
Notes
a) The figures above represent remuneration earned as directors during the relevant financial year including the bonus of which the cash element, 50% of the bonus,
is paid in the year following that in which it is earned. The other 50% of the bonus shown above is deferred and conditionally awarded as shares under the rules of
the DASBS. Shares relating to the 2012 deferred bonus were awarded in 2013 as shown in the table on page 65 and the shares relating to the 2013 deferred bonus
will be awarded in 2014.
b) The remuneration for Patrick Larmon is determined and paid in US dollars and has been translated at the average exchange rates for the year of £1: US$1.56 in
respect of 2013 and £1: US$1.59 in respect of 2012.
c) The long term incentives are in the form of awards under the 2004 LTIP which were granted in 2010 and 2011. See page 59 for details of the performance conditions
applicable and for the valuation method applied to such awards. Long term incentive figures exclude any gain from the purchase of shares by Patrick Larmon
through the ESPP described on page 51.
d) Benefits provided for all executive directors are a car or car allowance and medical insurance coverage for them and their families. In addition to these benefits
Patrick Larmon’s club fees are paid by the Company.
e) Ulrich Wolters retired from the Board on 17 April 2013.
f) Meinie Oldersma was appointed to the Board on 1 April 2013.
g) There were no payments made to former directors during the year and no payments were, or are due to be, made in respect of loss of office.
Executive directors’ annual salary (audited information)
Executive directors’ salaries were reviewed with effect from 1 January 2013 in accordance with normal policy and were increased taking into
account the average salary increases for employees across the Group.
Michael Roney
Brian May
Patrick Larmon
Salary from
1 January
2013
£870,000
£480,000
US$989,000
Salary from
1 January
2012
£845,000
£468,000
US$960,000
Increase in salary
2012 to 2013
%
3.0
2.6
3.0
Executive directors’ salaries were also reviewed with effect from 1 January 2014 and the increases awarded are shown on page 64.
58 BUNZL PLC ANNUAL REPORT 2013
Executive directors’ external appointments
Michael Roney served as a non-executive director of Johnson Matthey Plc throughout 2013 and retained fees of £68,000. Brian May served
as a non-executive director of United Utilities Group PLC throughout 2013 and retained fees of £60,468. Patrick Larmon does not hold any
such appointments.
Non-executive directors’ fees (audited information)
The Chairman’s fee is reviewed every two years and, as a result, no review of the fee took place in 2013. The fees for the non-executive
directors were reviewed with effect from 1 January 2013 in accordance with normal policy.
Chairman’s fee
Non-executive director fee
Supplements:
Senior independent director
Audit Committee Chairman
Remuneration Committee Chairman
With effect from
January 2013
£
310,000
63,000
16,000
13,000
13,000
Fees paid
in 2012
£
310,000
61,500
16,000
12,000
12,000
Increase in fees
2012 to 2013
%
–
2.4
–
8.3
8.3
The Chairman’s and non-executive directors’ fees were reviewed with effect from 1 January 2014 and the increases awarded are shown on page 65.
Performance against annual bonus targets (audited information)
The annual bonus plan and DASBS operate as set out in the policy section on page 49. 100% of Michael Roney’s and Brian May’s and 25% of
Patrick Larmon’s bonus potential in 2013 related to the growth in the Company’s constant exchange rate eps relative to budget. This resulted
in a bonus payment between the target and maximum bonus opportunity. For Patrick Larmon, a further 75% of his bonus potential related
to the pbit performance of North America which was modified by the achievement of North America’s return on average operating capital
relative to the target set. Pbit performance for North America resulted in a bonus payment 1.2% above target and the return on average
operating capital slightly exceeded target as a result of which the bonus related to North America’s performance was increased by a further
0.8%. Accordingly the total payments under the annual bonus plan were:
Michael Roney
Brian May
Patrick Larmon
Total bonus payment (cash and deferred shares) as a % of salary
2013
%
104.2
104.2
85.3
2012
%
77.0
77.0
85.9
2011
%
114.0
114.0
110.0
2010
%
81.6
81.6
76.7
2009
%
52.2
52.2
54.2
The monetary values of the bonus payments for 2013 and 2012 are included in the table on page 58.
LTIP grants/awards with performance periods ending in 2013 (audited information)
Executive share options – LTIP Part A
Executive share option awards, granted three years previously, are due to vest on 3 March 2014 and 2 September 2014. The Committee
assessed the relevant performance of the Company against the performance conditions. Eps (restated on adoption of IAS 19 (revised 2011))
growth was 38.02% for the three years ended 31 December 2013 which compared to an increase in RPI of 10.95% over the same period. Since
the performance condition would have been satisfied if eps had grown by at least 20.22% over the period, all of the options will vest. Included
in the single total figure of remuneration table on page 58 is the estimated value of these awards based on the difference between the grant
price and the average of the Company’s closing mid-market share price for the three month period ended 31 December 2013 (1,372p).
Performance shares – LTIP Part B
Awards of performance shares were made to the executive directors on 1 April 2010 and 8 October 2010 with the three year performance
periods being completed on 31 March 2013 and 30 September 2013 respectively. The Committee subsequently assessed the performance
of the Company against the relevant performance conditions. The extent to which half of the awards would vest was subject to a performance
condition based on eps growth relative to RPI. Eps growth was 28.4% for the three years ended 31 December 2012 compared to an increase
in RPI of 13.2% over the same period. A quarter of the award would have been exercisable if eps had grown by at least 25.7% over the period
and the whole award would have been exercisable if eps had grown by at least 46.3%. As a result of the Company’s actual growth in eps over
the period, 35.0% of this part of the awards vested (17.5% of the full awards).
The extent to which the other half of the awards vested was based on the Company’s TSR performance against the relevant comparator
group. For the April 2010 award, the Company ranked 12th out of the remaining 38 companies in the comparator group of companies,
as a result of which 86.5% of this part of the award vested (43.3% of the full award) for performance between median and upper quartile.
For the October 2010 award, the Company ranked 11th out of the remaining 37 companies in the comparator group of companies, as a
result of which 89.9% of this part of the award vested (44.9% of the full award) for performance between median and upper quartile.
Accordingly 60.7% of the total performance shares awarded in April 2010 and 62.4% of the total performance shares awarded in October 2010
vested in April and October 2013 respectively. Included in the single total figure of remuneration table on page 58 is the value of these vested
awards at the closing mid-market share price on the dates of vesting, 8 April 2013 and 8 October 2013, which were 1,290p and 1,305p respectively.
BUNZL PLC ANNUAL REPORT 2013 59
DIRECTORS’ REMUNERATION REPORT CONTINUED
Total pension entitlements (audited information)
Accrued
benefits at
31.12.13 per
annum
£
–
58,479
15,738
Change in
transfer value
of accrued
benefits during
the year
£
–
(159,428)
(11,257)
Transfer value
of accrued
benefits at
31.12.13
£
–
957,860
153,923
Defined benefit pension (DB) entitlements
Pension
plan’s
normal
retirement
age
–
60
65
Additional
value
of pension on
early
retirement
–
–
–
Pension value
in the year
from DB
scheme
–
59,378
–
Value of cash
allowance including
any company DC
and/or 401k
contributions
in 2013
261,000
101,970
199,663
Total
pension
2013
261,000
161,348
199,663
Michael Roney
Brian May
Patrick Larmon
Notes
a) The changes in the transfer values of accrued benefits have been calculated on the basis of actuarial advice in accordance with any relevant actuarial legislation
and, in the case of Brian May, are net of his contributions of £12,609. The changes in the transfer values of accrued benefits for Brian May and Patrick Larmon
include the effect of fluctuations in the transfer values due to factors such as changes in the assumptions used to value pension assets and, in particular, the higher
assumed discount rates as a result of an increase in long dated gilt yields.
b) Michael Roney receives a pension allowance of 30% of base salary. He has chosen to join the Defined Contribution Section of the Bunzl Pension Plan (‘BPP’) and his
contribution of 5% of base salary, up to the pensionable salary cap (notionally £141,000 for tax year 2013/2014 and £137,400 for tax year 2012/2013) is matched by the
Company. During 2013 such contributions amounted to £7,005 (2012: £6,773) and this amount was deducted from his pension allowance.
c) Brian May, who joined the Group in the UK prior to the closure of the defined benefit sections of the BPP, is a member of the Bunzl Senior Pension Section of the BPP.
His pension accrues at the rate of 2.4% per annum up to two thirds of the pensionable salary cap, as described above. The employee contribution rate is currently
9% of pensionable salary. In addition to benefits from the BPP, Brian May receives a pension allowance of 30% of base salary above the pensionable salary cap
which permits him to make provision, of his own choice, in respect of that part of his salary which exceeds the cap.
d) Patrick Larmon originally joined the US Plan, subject to IRS limits, which accrued at a rate of 1.67% per annum up to 50% of the five year average pensionable salary
less the primary social security benefit, with a normal retirement age of 65 years. Pensionable salary in the US Plan is capped at US$140,000. On closure of the US
Plan, Patrick Larmon chose to freeze his benefit and no further benefits have accrued. The decrease in transfer value shown in the table above is principally due to
foreign exchange translation. Patrick Larmon is currently a member of a defined contribution plan, the Retirement Saving Benefit (‘RSB’). Contributions to the RSB
are fully funded by the employer on a sliding scale that is age related. The contributions are a percentage of base salary (maximum 5%) which is capped at
US$200,000 per annum. The Company made contributions in respect of Patrick Larmon in 2013 of £6,410 (2012: £6,289).
e) In addition, Patrick Larmon receives a supplementary pension through a defined benefit Senior Executive Retirement Agreement (‘SERA’). Patrick Larmon’s SERA,
which became fully accrued in 2012, provides for a lifetime pension of US$100,000 per annum, payable upon retirement. In 2013 the Company paid all necessary
expenses, due to changes in assumptions and other factors outside of the Company’s control such as change in market conditions, on actuarial advice, to the SERA
which amounted to £47,490 (2012: £74,030). In 2007, this SERA arrangement was closed to new entrants and existing members’ benefits were frozen. A new defined
contribution SERA (‘DC SERA’) was put in place for Patrick Larmon. During 2013 the contribution to the DC SERA amounted to £185,897 (2012: £182,390).
f) Patrick Larmon also participates in the Bunzl USA, Inc Deferred Savings (401k) Plan. The Company makes matching contributions to this Plan. During 2013
contributions for Patrick Larmon amounted to £7,356 (2012: £6,934).
LTIP grant policy
Conditional awards of executive share options and performance shares are granted twice a year to executive directors and other senior
executives. Executive share option awards are normally granted in February or March and August or September dependent on the date of
announcement of the Company’s results. Performance share awards are normally granted in April and October each year. In 2013 executive
share options were granted in February and August and for performance shares in April and October in accordance with the existing grant
policy and performance conditions as detailed on pages 52 and 61 respectively.
LTIP interests awarded during the financial year (audited information)
Michael Roney
Brian May
Patrick Larmon
Plan
LTIP Part A
LTIP Part B
LTIP Part A
LTIP Part B
LTIP Part A
LTIP Part B
LTIP Part A
LTIP Part B
LTIP Part A
LTIP Part B
LTIP Part A
LTIP Part B
Date of grant
28.02.13
05.04.13
30.08.13
07.10.13
28.02.13
05.04.13
30.08.13
07.10.13
28.02.13
05.04.13
30.08.13
07.10.13
Basis of award
75% of salary
56.25% of salary
75% of salary
56.25% of salary
70% of salary
52.5% of salary
70% of salary
52.5% of salary
62.5% of salary
47% of salary
62.5% of salary
47% of salary
Face value
£’000
657.2
491.6
653.1
490.3
341.0
255.4
336.9
258.4
390.6
293.7
391.9
291.5
% vesting at
threshold
performance
100%
25%
100%
25%
100%
25%
100%
25%
100%
25%
100%
25%
Number
of shares
53,000
38,500
47,500
37,000
27,500
20,000
24,500
19,500
31,500
23,000
28,500
22,000
Performance
period end date
31.12.15
31.03.16
31.12.15
30.09.16
31.12.15
31.03.16
31.12.15
30.09.16
31.12.15
31.03.16
31.12.15
30.09.16
Note
The face value of the awards is calculated using the closing mid-market share price on the day prior to the grant of the award. Options were awarded under LTIP
Part A on 28 February and 30 August 2013 at a value of 1,240p and 1,375p per share respectively. Performance shares were awarded under LTIP Part B on 5 April
and 7 October 2013 at a value of 1,277p and 1,325p per share respectively.
60 BUNZL PLC ANNUAL REPORT 2013
Performance conditions for 2013 awards
Executive share options
Executive share option awards may vest based solely on the Company’s eps growth (adjusted to exclude items which do not reflect the
Company’s underlying financial performance) relative to UK inflation (RPI) over three years, based on the following sliding scale:
Face value of annual executive share options granted as a proportion of salary
First 150% of salary
Next 75% of salary
Next 75% of salary
Total margin over UK inflation (RPI) after three years
9.3%
12.5%
19.1%
Performance shares
The extent to which half of the awards may vest is subject to a performance condition based on the Company’s eps growth (adjusted to
exclude items which do not reflect the Company’s underlying financial performance) relative to UK inflation (RPI) over three years, based
on the following sliding scale:
Total margin over UK inflation (RPI) after three years
Below 12.5%
12.5%
Between 12.5% and 33.1%
33.1% or above
Proportion of performance share awards exercisable
Nil
25%
Pro rata between 25%–100%
100%
The extent to which the other half of the performance share awards may vest is subject to the Company’s TSR performance, a combination
of both the Company’s share price and dividend performance during the three year performance period, relative to the TSR performance
of a specified group of companies of similarly sized companies with large international presence. The comparator group consists of at
least 40 UK based companies (excluding companies in the financial services, oil & gas and natural resources sectors) that have substantial
operations overseas and have at 30 September prior to the grant of the awards similar levels of revenue, profit and market capitalisation
as Bunzl. The applicable comparator group for the LTIP Part B awards in October 2013 are shown below and will form the basis of the
comparator group for the LTIP Part B awards in April 2014.
Aggreko
Ashstead Group
ARM Holdings
Burberry Group
Carnival Corporation
Cobham
Computacenter
Croda International
Diageo
Dixons Retail
Easyjet
Experian
G4S
GKN
Hays
IMI
Inchcape
Informa
Inmarsat
Intercontinental Hotels Group
International Consolidated Airlines Group
Intertek Group
Johnson Matthey
Meggitt
Melrose
Millennium & Copthorne Hotels
Mondi
Pearson
Reckitt Benckiser Group
Rexam
SABMiller
SIG
Smith & Nephew
Smiths Group
Spectris
Tate & Lyle
Thomas Cook Group
Vesuvius
Weir Group
Wolseley
WPP
These performance share awards vest in line with the following vesting schedule:
TSR
Below median
Median
Between median and upper quartile
Upper quartile or above
Proportion of performance share awards exercisable
Nil
25%
Pro rata between 25%–100%
100%
Awards granted in 2011 and 2012 were subject to the same performance conditions as described above.
Shareholder consultation
In 2012, the Chairman of the Committee met with one of the shareholder representative bodies to discuss the introduction of a performance
condition on a sliding scale for the vesting of the share options. These views were taken into account in developing the proposals for the
amendments to the remuneration arrangements outlined in the Committee Chairman’s statement on pages 47 and 48. In 2013, 19 major
shareholders and two shareholder representative bodies were consulted on the proposed changes to the remuneration policy. The vast
majority of those consulted indicated that they were supportive of the Company’s directors’ remuneration policy.
BUNZL PLC ANNUAL REPORT 2013 61
DIRECTORS’ REMUNERATION REPORT CONTINUED
Shareholder dilution
In accordance with the Principles of Remuneration issued by the Association of British Insurers, the Company can satisfy awards to
employees under all its share plans with new issue shares or shares issued from treasury up to a maximum of 10% of its issued share
capital (adjusted for share issuance and cancellation) in a rolling 10 year period. Within this 10% limit, the Company can only issue
(as newly issued shares or from treasury), 5% of its issued share capital (adjusted for share issuance and cancellation) to satisfy awards
under executive (discretionary) plans.
As well as the LTIP, the Company operates various all employee share schemes as described on page 51. Newly issued shares are
currently used to satisfy the exercise of options under the Sharesave Scheme and International Sharesave Scheme. Awards under the
LTIP of executive options and performance shares are principally satisfied by shares delivered from the Employee Benefit Trust which
buys shares on the market, unless security laws in relevant jurisdictions prevent this.
Limit on awards
10% in any rolling 10 year period
5% in any rolling 10 year period (executive (discretionary) plans)
Cumulative options and performance shares
granted as a percentage of issued share capital
as at 31 December 2013
(including those held in treasury)
3.0%
1.6%
Statement of directors’ shareholding and share interests (audited information)
As at 31 December 2013, all executive directors and their connected persons owned shares outright at a level exceeding their required
shareholding. In 2013 executive directors were required to hold 100% of their annual salary in the Company’s shares. The shareholding
requirement is increasing in 2014 to 200% of their annual salary in the Company’s shares as described on page 52.
Michael Roney
Brian May
Patrick Larmon
Actual share ownership as a percentage
of salary at 31 December 2013
at the closing mid-market price
(1,450p)
520%
318%
270%
Interests in shares and share options
The interests of the directors, and their connected persons, in the Company’s ordinary shares and share options at 31 December 2013 were:
Shares
Options (LTIP Part A and Sharesave)
Total
interests held
Unvested
and subject
to holding
period
(DASBS)
117,672
64,911
82,766
–
–
–
–
–
–
Unvested
and subject to
performance
conditions
(LTIP Part B)
289,000
150,500
163,500
–
–
–
–
–
–
Unvested
and subject to
performance
conditions
385,500
200,000
218,000
–
–
–
–
–
–
Unvested and
subject to
continued
employment
1,948
3,462
–
–
–
–
–
–
–
Owned
outright
312,263
105,240
117,838
10,000
6,630
4,000
4,000
2,500
2,500
Vested
but not
exercised
270,000
–
203,500
–
–
–
–
–
–
1,376,383
524,113
785,604
10,000
6,630
4,000
4,000
2,500
2,500
Michael Roney
Brian May
Patrick Larmon
Philip Rogerson
Peter Johnson
David Sleath
Eugenia Ulasewicz
Jean-Charles Pauze
Meinie Oldersma
62 BUNZL PLC ANNUAL REPORT 2013
Performance graph and table
Schedule 8 to the Large and Medium-sized Companies and Groups
(Accounts and Reports) Regulations 2008 requires that the Company
must provide a graph comparing the TSR performance of a
hypothetical holding of shares in the Company with a broad equity
market index over a five year period. The Company’s TSR
performance against the FTSE 350 Support Services Sector over a
five year period commencing on 1 January 2009 is shown to the right.
300
280
260
240
220
200
180
160
140
120
100
BUNZL
FTSE 350 SUPPORT SERVICES
2009
2010
2011
2012
2013
Chief Executive’s pay in last five years (audited information)
The table below summarises the Chief Executive’s single figure for total remuneration, as shown on page 58, annual bonus and long term
incentive payout as a percentage of maximum opportunity for 2013 and the previous four years.
Source: Thomson Reuters datastream
Year
Single figure of remuneration £’000
Annual variable element award rates
against maximum opportunity
Long term incentive vesting rates
against maximum opportunity
2009
1,943.2
2010
2,314.2
2011
3,394.1
2012
3,502.9
2013
4,018.7
LTIP Part A (options)
LTIP Part B (performance shares)
45%
100%
84%
71%
100%
65%
99%
100%
29%
67%
100%
45%
91%
100%
62%
Percentage change in Chief Executive’s remuneration
The table below sets out the increase in the salary, benefits and bonus of the Chief Executive and that of a Bunzl UK and US management
population. This population has been selected for this comparison because it is considered to be the most relevant as these countries
have the Group’s largest concentration of employees with a similarly structured remuneration package. Employees from businesses
acquired by Bunzl in 2013 and leavers and joiners in either year have been removed from the data to prevent distortion.
Salary
Benefits
Bonus
Notes
a) US and UK management population includes any promotional increases that occurred during either year
b) Bonus relates to the performance targets of the companies for which the relevant individuals work
Chief Executive
Percentage change
(2013 vs 2012)
3%
1%
39%
UK and US
management population
Percentage change
(2013 vs 2012)
5%
0%
3%
Relative importance of spend on pay
The table below shows a comparison between the overall expenditure on pay and dividends paid to shareholders for 2013 and 2012
(as stated in Note 21 and Note 17 to the financial statements on pages 103 and 98 respectively).
£ million unless otherwise stated
Overall expenditure on pay
Dividend paid in the year
2013
509.4
91.8
2012
442.0
85.7
Percentage change
15.2%
7.1%
Note
a) Overall expenditure on pay excludes employer’s social security costs.
b) Dividends paid in the year relate to the previous financial year’s interim and final dividends.
BUNZL PLC ANNUAL REPORT 2013 63
DIRECTORS’ REMUNERATION REPORT CONTINUED
2014 REMUNERATION (AUDITED INFORMATION)
The remuneration policy will be implemented with effect from the 2014 AGM as follows:
Salary
The salary increases for the executive directors for 2014, which are in line with increases that have been implemented for other employees
in the Group as discussed on pages 53, are as follows:
Michael Roney
Brian May
Patrick Larmon
Salary from
1 January 2014
£895,000
£500,000
$1,014,000
Salary from
1 January 2013
£870,000
£480,000
US$989,000
Increase in salary
2013 to 2014
%
2.9
4.2
2.5
2014 bonus targets
The structure for Michael Roney’s, Brian May’s and 25% of Patrick Larmon’s annual bonus for 2014 is described on page 49. The threshold
for bonus payments on growth in constant exchange rate eps has been set above the actual result achieved in 2013 on a constant exchange
rate basis. For Patrick Larmon the other 75% of his bonus will relate to the attainment of pbit performance of North America relative to
budget which will be modified, positively or negatively, by the achievement of North America’s return on average operating capital relative
to the target set. The relevant performance points are: threshold (which must be exceeded to attract any payment of bonus); target; and
maximum amount (the level at which the bonus for that measure is capped). These performance points are determined at the start of the
year by reference to the Group’s annual budget. No elements of the bonus are guaranteed. As in previous years, the specific performance
points will not be disclosed while still commercially sensitive.
Performance measures for long-term incentives to be awarded in 2014
Grants of executive share options and performance shares awarded in February and April 2014 respectively will have the same performance
conditions as those awarded in 2013 as shown on page 61. However, assuming that the proposed 2014 LTIP is approved by shareholders at
the 2014 AGM, grants of executive share options and performance shares awarded to executive directors and senior executives in August
and October 2014 will be subject to the following performance measures:
Executive options – LTIP Part A
Executive share options may vest based solely on the Company’s eps growth (adjusted to exclude items which do not reflect the Company’s
underlying financial performance) over three years, based on the following sliding scale:
Absolute annual growth in the Company’s eps over a three year period
Below 5%
5%
Between 5% and 8%
8% or above
Proportion of share option awards exercisable
Nil
25%
Pro rata between 25%–100%
100%
Performance shares – LTIP Part B
The extent to which half of the awards may vest is subject to a performance condition based on the Company’s eps growth (adjusted to
exclude items which do not reflect the Company’s underlying financial performance) over three years, based on the following sliding scale:
Absolute annual growth in the Company’s eps over a three year period
Below 6%
6%
Between 6% and 12%
12% or above
Proportion of performance share awards exercisable
Nil
25%
Pro rata between 25%–100%
100%
The extent to which the other half of the performance share awards may vest is subject to the Company’s TSR performance, a combination
of both the Company’s share price and dividend performance during the three year performance period, relative to the TSR performance of
a specified comparator group of similarly sized companies with large international presence. These performance share awards may vest
based on the following sliding scale:
TSR
Below median
Median
Between median and upper quartile
Upper quartile or above
Proportion of performance share awards exercisable
Nil
25%
Pro rata between 25%–100%
100%
The comparator group for the April 2014 award will be the same as that used for the October 2013 award being a minimum of 40 companies
of similar revenue, profit and market capitalisation to Bunzl, with significant international operations, excluding companies in the financial
services, oil & gas and natural resources sectors, as shown on page 61. For the October 2014 award the comparator group will be those
companies in the FTSE 50 – 150 with significant international operations, excluding companies in the financial services, oil & gas and natural
resources sectors.
64 BUNZL PLC ANNUAL REPORT 2013
Non-executive directors’ fees for 2014 (audited information)
The current fee structure for the non-executive directors is shown below:
Chairman’s fee
Non-executive director basic fee
Supplements:
Senior independent director
Audit Committee Chairman
Remuneration Committee Chairman
Note
Prior to 2014 the Chairman’s fee was last increased in January 2012.
With effect from
1 January 2014
£
325,000
64,500
16,000
14,000
14,000
Fees paid
in 2013
£
310,000
63,000
16,000
13,000
13,000
Increase in fees
2013 to 2014
%
4.8
2.4
–
7.7
7.7
ADDITIONAL INFORMATION ON DIRECTORS’ INTERESTS
Details of the executive director’s interests in outstanding share awards under the DASBS, LTIP and all employee share plans are
set out below.
Deferred share awards as at 31 December 2013
The outstanding awards granted to each director of the Company under the DASBS are set out in the table below. Further information
relating to the deferred bonus is provided on page 49.
Michael Roney
Brian May
Patrick Larmon
Shares held
at 1 January
2013
29,724
43,215
48,882
–
16,300
23,728
27,018
–
23,268
28,372
33,349
–
Shares
awarded
during 2013
–
–
–
25,575
–
–
14,165
–
–
–
21,045
Total number
of award
shares at
31 December
2013
–
43,215
48,882
25,575
–
23,728
27,018
14,165
–
28,372
33,349
21,045
Shares
vested
during 2013
29,724
–
–
–
16,300
–
–
–
23,268
–
–
–
Normal
vesting date
01.03.13
01.03.14
01.03.15
01.03.16
01.03.13
01.03.14
01.03.15
01.03.16
01.03.13
01.03.14
01.03.15
01.03.16
Share price
at grant
p
680.5
760
962
1,272
680.5
760
962
1,272
680.5
760
962
1,272
Market price
at vesting
p
1,282
–
–
–
1,282
–
–
–
1,266
–
–
–
Monetary
value of
vested award
£000
381
–
–
–
209
–
–
–
295
–
–
–
Note
The deferred element of the 2013 annual bonus plan as shown on page 58 is not included in the table above as the appropriate number of shares have not yet been
awarded. No shares lapsed during the year.
BUNZL PLC ANNUAL REPORT 2013 65
DIRECTORS’ REMUNERATION REPORT CONTINUED
LTIP
The tables below show the number of executive share options and performance shares held by the executive directors under the LTIP.
Details of the relevant performance conditions of the LTIP are set out on page 61.
Executive share options – LTIP Part A
Michael Roney
Total
Brian May
Total
Patrick Larmon
Total
Options at
1 January
2013
99,500
89,500
81,000
85,500
76,500
66,000
57,000
–
–
555,000
33,000
42,500
46,000
41,500
44,500
39,500
34,500
29,500
–
–
311,000
43,000
47,000
45,000
44,500
45,500
56,500
54,500
48,500
44,000
46,500
41,500
36,000
34,000
–
–
586,500
Grant
date
27.08.09
25.02.10
03.09.10
03.03.11
02.09.11
01.03.12
31.08.12
28.02.13
30.08.13
–
28.02.08
29.08.08
25.02.10
03.09.10
03.03.11
02.09.11
01.03.12
31.08.12
28.02.13
30.08.13
–
01.09.06
01.03.07
31.08.07
28.02.08
29.08.08
26.02.09
27.08.09
25.02.10
03.09.10
03.03.11
02.09.11
01.03.12
31.08.12
28.02.13
30.08.13
–
Exercise
Price
p
585
676.5
746
724.5
812.5
962
1,116
1,240
1,375
–
721.5
700.5
676.5
746
724.5
812.5
962
1,116
1,240
1,375
–
652.5
659
684.5
721.5
700.5
564
585
676.5
746
724.5
812.5
962
1,116
1,240
1,375
–
Options
exercisable
between
27.08.12–26.08.19
25.02.13–24.02.20
03.09.13–02.09.20
03.03.14–02.03.21
02.09.14–01.09.21
01.03.15–28.02.22
31.08.15–30.08.22
28.02.16–27.02.23
30.08.16–29.08.23
–
28.02.11–27.02.18
29.08.11–28.08.18
25.02.13–24.02.20
03.09.13–02.09.20
03.03.14–02.03.21
02.09.14–01.09.21
01.03.15–28.02.22
31.08.15–30.08.22
28.02.16–27.02.23
30.08.16–29.08.23
–
01.09.09–31.08.16
01.03.10–28.02.17
31.08.10–30.08.17
28.02.11–27.02.18
29.08.11–28.08.18
26.02.12–25.02.19
27.08.12–26.08.19
25.02.13–24.02.20
03.09.13–02.09.20
03.03.14–02.03.21
02.09.14–01.09.21
01.03.15–28.02.22
31.08.15–30.08.22
28.02.16–27.02.23
30.08.16–29.08.23
–
Options at
31 December
2013
99,500
89,500
81,000
85,500
76,500
66,000
57,000
53,000
47,500
655,500
–
–
–
–
44,500
39,500
34,500
29,500
27,500
24,500
200,000
–
–
–
–
–
56,500
54,500
48,500
44,000
46,500
41,500
36,000
34,000
31,500
28,500
421,500
Notes
a) Executive share options were exercised during 2013 by:
(i) Brian May on 7 November 2013 in respect of 33,000 ordinary shares at an exercise price of 721.5p, 42,500 ordinary shares at an exercise price of 700.5p, 46,000
ordinary shares at an exercise price of 676.5p and 41,500 ordinary shares at an exercise price of 746p, at a market price of approximately 1,385p resulting in a
gain of £1,100,963; and
(ii) Patrick Larmon on 25 February 2013 in respect of 43,000 ordinary shares at an exercise price of 652.5p and 47,000 ordinary shares at an exercise price of 659p
at a market price of 1,221p resulting in a gain of £508,595. In addition Patrick Larmon exercised share options on 3 April 2013 in respect of 45,000 ordinary shares
at an exercise price of 684.5p at a market price of 1,313p resulting in a gain of £282,825. Patrick Larmon also exercised share options on 11 November 2013 in
respect of 44,500 ordinary shares at an exercise price of 721.5p at a market price of 1,409p resulting in a gain of £305,938 and on 14 November 2013 in respect
of 45,500 ordinary shares at an exercise price of 700.5p at a market price of 1,397p resulting in a gain of £316,908.
b) The mid-market price of a share on 31 December 2013 was 1,450p and the range during 2013 was 1,014p to 1,450p.
c) The performance conditions have been satisfied in relation to options granted prior to 2012 under the LTIP Part A.
66 BUNZL PLC ANNUAL REPORT 2013
Performance shares – LTIP Part B
Awards
(shares)
held at
1 January
2013
63,000
60,000
64,500
59,000
48,000
42,000
–
–
336,500
32,500
31,000
33,500
30,500
25,000
22,000
–
–
174,500
34,500
32,500
35,000
32,000
26,500
25,000
–
–
185,500
Conditional
shares
awarded
during 2013
–
–
–
–
–
–
38,500
37,000
75,500
–
–
–
–
–
–
20,000
19,500
39,500
–
–
–
–
–
–
23,000
22,000
45,000
Market price
per share
at award
p
721
759
725
787
990.5
1,137
1,277
1,325
–
721
759
725
787
990.5
1,137
1,277
1,325
–
721
759
725
787
990.5
1,137
1,277
1,325
–
Award
date
01.04.10
08.10.10
08.04.11
11.10.11
05.04.12
08.10.12
05.04.13
07.10.13
–
01.04.10
08.10.10
08.04.11
11.10.11
05.04.12
08.10.12
05.04.13
07.10.13
–
01.04.10
08.10.10
08.04.11
11.10.11
05.04.12
08.10.12
05.04.13
07.10.13
–
Lapsed
awards
(shares)
during
2013
24,734
22,560
–
–
–
–
–
–
47,294
12,761
11,657
–
–
–
–
–
–
24,418
13,545
12,221
–
–
–
–
–
–
25,766
Exercised
awards
(shares)
during
2013
38,266
37,440
–
–
–
–
–
–
75,706
19,739
19,343
–
–
–
–
–
–
39,082
20,955
20,279
–
–
–
–
–
–
41,234
Market price
per share
at exercise
p
1,285
1,322
–
–
–
–
–
–
–
1,285
1,325
–
–
–
–
–
–
–
1,282
1,322
–
–
–
–
–
–
–
Awards
(shares)
held at 31
December
2013
–
–
64,500
59,000
48,000
42,000
38,500
37,000
289,000
–
–
33,500
30,500
25,000
22,000
20,000
19,500
150,500
–
–
35,000
32,000
26,500
25,000
23,000
22,000
163,500
Value at
exercise
£000
492
495
–
–
–
–
–
–
987
254
256
–
–
–
–
–
–
510
269
268
–
–
–
–
–
–
537
Michael Roney
Total
Brian May
Total
Patrick Larmon
Total
Note
The closing mid-market price of the Company’s shares as at the vesting dates on 8 April 2013 and 8 October 2013 were 1,290p and 1,305p respectively.
All employees share scheme
Sharesave Scheme
The table below shows the number of share options granted to the executive directors under the Sharesave Scheme. Details of the
Sharesave Scheme are set out on page 51.
Michael Roney
Brian May
Peter Johnson
Chairman of the Remuneration Committee
24 February 2014
Options at
1 January
2013
1,948
3,462
Grant
date
27.03.12
24.03.09
Exercise
price
p
770
452
Options
exercisable between
01.05.17–31.10.17
01.05.14–31.10.14
Options at
31 December
2013
1,948
3,462
BUNZL PLC ANNUAL REPORT 2013 67
OTHER STATUTORY INFORMATION
ANNUAL GENERAL MEETING
The Annual General Meeting will be held at The Park Suite, The
Dorchester, Park Lane, London W1K 1QA on Wednesday 16 April 2014
at 11.00 am. The Notice convening the Annual General Meeting is set
out in a separate letter from the Chairman to shareholders which
explains the items of business which are not of a routine nature.
DIVIDENDS
An interim dividend of 10.0p was paid on 2 January 2014 in respect of
2013 and the directors recommend a final dividend of 22.4p, making
a total for the year of 32.4p per share (2012: 28.2p). Dividend details
are given in Note 17 to the consolidated financial statements. Subject
to approval by the shareholders at the Annual General Meeting on
16 April 2014, the final dividend will be paid on 1 July 2014 to those
shareholders on the register at the close of business on 9 May 2014.
SHARE CAPITAL
The Company has a single class of share capital which is divided into
ordinary shares of 321∕7p each which rank pari passu in respect of
participation and voting rights. The shares are in registered form,
are fully paid up and are quoted on the London Stock Exchange.
In addition, the Company operates a Level 1 American Depositary
Receipt programme with Citibank N.A. under which the Company’s
shares are traded on the over-the-counter (OTC) market in the form
of American Depositary Receipts.
Details of changes to the issued share capital during the year are
set out in Note 16 to the consolidated financial statements.
BUNZL GROUP GENERAL EMPLOYEE BENEFIT TRUST
Bunzl Employee Trustees Limited is trustee of the Bunzl Group
General Employee Benefit Trust (‘the EBT’) which holds shares in
respect of employee share options and awards that have not been
exercised or vested. The current position is that the EBT abstains
from voting in respect of these shares. The trustee has agreed to
waive the right to dividend payments on shares held within the EBT.
Details of the shares so held are set out in Note 16 to the
consolidated financial statements.
SUBSTANTIAL SHAREHOLDINGS
As at 31 December 2013 the directors had been notified by the
following shareholders that they were each interested in 3% or more
of the issued share capital of the Company.
Shareholder
INVESCO plc
Cascade Investment, LLC
Lloyds Banking Group plc
Newton Investment
Management Ltd
Date of
notification
20.05.10
20.04.12
27.05.10
Number of
shares
32,571,686
16,593,248
16,425,039
% of issued
share capital
9.8
5.0
4.9
07.03.11
13,864,410
4.2
As at 24 February 2014 no further notifications have been received
since the year end.
68 BUNZL PLC ANNUAL REPORT 2013
RIGHTS AND OBLIGATIONS ATTACHING TO SHARES
Subject to the provisions of the Companies Act 2006 and without
prejudice to any rights attached to any existing shares, the Company
may resolve by ordinary resolution to issue shares with such rights
and restrictions as set out in such resolution or (if there is no such
resolution or so far as it does not make specific provision) as the
Board may decide. Subject to the provisions of the Companies Act
2006 and of any resolution of the Company passed pursuant thereto
and without prejudice to any rights attached to existing shares, the
Board is duly authorised to issue and allot, grant options over or
otherwise dispose of the Company’s shares on such terms and
conditions and at such times as it thinks fit. If at any time the share
capital of the Company is divided into different classes of shares, the
rights attached to any class may be varied or abrogated by special
resolution passed at a separate general meeting of such holders.
Subject to the rights attached to any existing shares, rights attached
to shares will be deemed to be varied by the reduction of capital paid
up on the shares and by the allotment of further shares ranking in
priority in respect of dividend or capital or which confer on the
holders more favourable voting rights than the first-mentioned
shares, but will not otherwise be deemed to be varied by the
creation or issue of further shares.
POWER TO ISSUE AND ALLOT SHARES
The directors are generally and unconditionally authorised under
the authorities granted at the 2013 Annual General Meeting to allot
shares or grant rights to subscribe for or to convert any security
into shares of the Company up to a maximum nominal amount of
£35.6 million. At the same meeting authority was also granted to the
directors to allot the Company’s shares for cash, up to a maximum
nominal amount of approximately £5.7 million, without regard to the
pre-emption provisions of the Companies Act 2006. No such shares
were issued or allotted under these authorities in 2013, nor is there
any current intention to do so, other than to satisfy share options
under the Company’s share option schemes and, if necessary, to
satisfy the consideration payable for businesses to be acquired.
These authorities are valid until the conclusion of the forthcoming
Annual General Meeting. The directors again propose to seek
equivalent authorities at such Annual General Meeting.
RESTRICTIONS ON TRANSFER OF SHARES
Dealings in the Company’s ordinary shares by its directors, persons
discharging managerial responsibilities, certain employees of the
Company and, in each case, their connected persons, are subject
to the Company’s dealing code which adopts the Model Code of the
Listing Rules published by the Financial Conduct Authority.
Certain restrictions, which are customary for a listed company, apply
to transfers of shares in the Company. The Board may refuse to
register an instrument of transfer of any share which is not a fully
paid share and of a certificated share at its discretion unless it is:
• lodged, duly stamped or duly certified, at the offices of the
Company’s registrar or such other place as the Board may specify
and is accompanied by the certificate for the shares to which it
relates and such other evidence as the Board may reasonably
require to show the right of the transferor to make the transfer;
• in respect of only one class of shares; and
• in favour of not more than four transferees.
Registration of a transfer of an uncertificated share may be refused
in the circumstances set out in the uncertificated securities rules,
and where, in the case of a transfer to joint holders, the number of
joint holders to whom the uncertificated share is to be transferred
exceeds four.
In addition, no instrument of transfer for certificated shares shall be
registered if the transferor has been served with a restriction notice
(as defined in the Company’s Articles of Association (the ‘Articles’))
after failure to provide the Company with information concerning
certain interests in the Company’s shares required to be provided
under the Companies Act 2006, unless the transfer is shown to the
Board to be pursuant to an arm’s length sale. The Board has the
power to procure that uncertificated shares are converted into
certificated shares and kept in certificated form for as long as
the Board requires.
The Company is not aware of any agreements between shareholders
that may result in any restriction of the transfer of shares or
voting rights.
RESTRICTIONS ON VOTING RIGHTS
A member shall not be entitled to vote, unless the Board otherwise
decides, at any general meeting or class meeting in respect of any
shares held by them if any call or other sums payable remain unpaid.
Currently, all issued shares are fully paid. In addition, no member
shall be entitled to vote if he has been served with a restriction notice
after failure to provide the Company with information concerning
certain interests in the Company’s shares required to be provided
under the Companies Act 2006. Votes may be exercised in person or
by proxy. The Articles currently provide a deadline for submission of
proxy forms of 48 hours before the relevant meeting, 24 hours before
a poll is taken if such poll is taken more than 48 hours after it was
demanded or during the meeting at which the poll was demanded
if the poll is not taken straight away but is taken not more than
48 hours after it was demanded.
PURCHASE OF OWN SHARES
At the 2013 Annual General Meeting, shareholders gave the Company
authority to purchase a maximum of 33,225,000 ordinary shares.
During the year ended 31 December 2013 the Company did not
purchase any of its own shares pursuant to this authority or the
authority granted at the 2012 Annual General Meeting and no shares
have been purchased between 31 December 2013 and 24 February
2014. On 4 December 2013 the Company cancelled a total number
of 23,325,000 ordinary shares held in treasury and currently holds
no treasury shares. The Company is therefore currently authorised
to buy back 33,225,000 of its own shares pursuant to the existing
shareholders’ authority which is due to expire at the conclusion
of the forthcoming Annual General Meeting. The directors again
propose to seek the equivalent authority at such Annual
General Meeting.
DIRECTORS
Directors may be elected by ordinary resolution at a duly convened
general meeting or appointed by the Board. Under the Articles, the
minimum number of directors shall be two and the maximum shall
be 15. In accordance with the Articles, each director is required to
retire at the Annual General Meeting held in the third calendar year
after which he or she was appointed or last appointed and any
director who has held office with the Company, other than
employment or executive office, for a continuous period of nine years
or more at the date of the Annual General Meeting is subject to annual
re-appointment. The Board may also appoint a person willing to
act as a director during the year either to fill a vacancy or as an
additional director but so that the total number of directors shall
not at any time exceed 15. However such appointee shall only hold
office until the next Annual General Meeting of the Company.
In addition to any power to remove a director from office conferred by
company law, the Company may also by special resolution remove a
director from office before the expiration of his or her period of office
under the Articles.
The office of a director shall also be vacated pursuant to the Articles
if the director:
• resigns by giving notice to the Company or is asked to resign by all
of the other directors who are not less than three in number; or
• is or has been suffering from mental or physical ill health and the
Board resolves that his or her office be vacated; or
• is absent without permission from Board meetings for six
consecutive months and the Board resolves that his or her office
be vacated; or
• becomes bankrupt or compounds with his or her creditors
generally; or
• is prohibited by law from being a director; or
• ceases to be a director by virtue of any provisions of company
law or is removed from office pursuant to the Articles.
Biographical details of the current directors are set out on page 38.
Jean-Charles Pauze and Meinie Oldersma were appointed to the
Board with effect from 1 January 2013 and 1 April 2013 respectively
and Ulrich Wolters retired from the Board on 17 April 2013. All of the
other directors served throughout the year. Notwithstanding the
retirement by rotation provisions in the Articles, each of the directors
will retire and offer themselves for re-election at the forthcoming
Annual General Meeting in accordance with the UK Corporate
Governance Code.
Directors’ interests in ordinary shares are shown in Note 19 to the
consolidated financial statements. None of the directors was
materially interested in any contract of significance with the
Company or any of its subsidiary undertakings during or at the end of
2013. Information relating to the directors’ service agreements and
their remuneration for the year and details of the directors’ share
options under the Company’s share option schemes and awards
under the Long Term Incentive Plan and Deferred Annual Share
Bonus Scheme are set out in the Directors’ remuneration report on
pages 47 to 67.
POWERS OF THE DIRECTORS
Subject to the Articles, the Companies Act 2006 and any directions
given by the Company by special resolution, the business of the
Company is managed by the Board who may exercise all powers
of the Company. The Board may, by power of attorney or otherwise,
appoint any person or persons to be the agent or agents of the
Company for such purposes and on such conditions as the
Board determines.
DIRECTORS’ INDEMNITIES
As at the date of this report, indemnities are in force under which the
Company has agreed to indemnify the directors and the Company
Secretary, in addition to other senior executives who are directors of
subsidiaries of the Company, to the extent permitted by law and the
Articles in respect of all losses arising out of, or in connection with,
the execution of their powers, duties and responsibilities as a
director or officer of the Company or any of its subsidiaries.
BUNZL PLC ANNUAL REPORT 2013 69
OTHER STATUTORY INFORMATION CONTINUED
AMENDMENT OF ARTICLES
Any amendments to the Articles may be made in accordance with the
provisions of the Companies Act 2006 by way of special resolution of
the Company’s shareholders.
ENVIRONMENTAL AND SOCIAL RESPONSIBILITY
The directors recognise that the Company is part of a wider
community and that it has a responsibility to act in a way that
respects the environment and social and community issues. Further
information relating to the Company’s approach to these matters is
set out in the Corporate responsibility report on pages 33 to 37.
EMPLOYMENT POLICIES
The employment policies of the Group have been developed to meet
the needs of its different business areas and the locations in which
they operate worldwide, embodying the principles of equal
opportunity. The Group has standards of business conduct with
which it expects all its employees to comply. Bunzl encourages
involvement of its employees in the performance of the business
in which they are employed and aims to achieve a sense of shared
commitment. In addition to a regular magazine and the Company’s
intranet, which provide a variety of information on activities and
developments within the Group and incorporate half year and annual
financial reports, announcements are periodically circulated to give
details of corporate and staff matters together with a number of
subsidiary or business area publications dealing with activities in
specific parts of the Group.
It is the Group’s policy that disabled applicants should be considered
for employment and career development on the basis of their
aptitudes and abilities. Employees who become disabled during their
working life will be retained in employment wherever possible and
given help with rehabilitation and training.
SIGNIFICANT AGREEMENTS
The Company’s wholly owned subsidiary, Bunzl Finance plc, has
a number of bilateral loan facilities with a range of different
counterparties, all of which are guaranteed by the Company, are in
substantially the same form and are prepayable at the option of the
lender in the event of a change of control of the Company. Similar
change of control provisions in relation to the Company are included
in the US dollar and sterling bonds which have been entered into by
Bunzl Finance plc and the Company and are also guaranteed by
the Company.
POLITICAL DONATIONS
During 2013 no contributions were made for political purposes.
EXTERNAL AUDITOR
Each of the directors at the date of approval of this report
confirms that:
• so far as the director is aware, there is no relevant audit
information of which the Company’s auditor is unaware; and
• the director has taken all steps that he or she ought to have taken
as a director in order to make the director aware of any relevant
audit information and to establish that the Company’s auditor is
aware of that information.
This confirmation is given and should be interpreted in accordance
with the provisions of section 418 of the Companies Act 2006.
Resolutions are to be proposed at the forthcoming Annual General
Meeting for the re-appointment of KPMG Audit Plc as auditor of the
Company at a rate of remuneration to be determined by
the directors.
STRATEGIC REPORT AND DIRECTORS’ REPORT
Pages 1 to 37 inclusive consist of the strategic report and pages 38 to
70 inclusive consist of the directors’ report. These reports have been
drawn up and presented in accordance with, and in reliance upon,
applicable English company law and any liability of the directors in
connection with these reports shall be subject to the limitations and
restrictions provided by such law.
Under the Companies Act 2006, a safe harbour limits the liability
of directors in respect of statements in and omissions from the
strategic report and the directors’ report. Under English law, the
directors would be liable to the Company, but not to any third party, if
the strategic report or the directors’ report contain errors as a result
of recklessness or knowing misstatement or dishonest concealment
of a material fact, but would not otherwise be liable.
The strategic report and the directors’ report were approved by
the Board on 24 February 2014.
On behalf of the Board
Paul Hussey
Secretary
24 February 2014
70 BUNZL PLC ANNUAL REPORT 2013
Financial
Statements
72 Consolidated income statement
73 Consolidated statement of comprehensive income
74 Consolidated balance sheet
75 Consolidated statement of changes in equity
76 Consolidated cash flow statement
77 Notes
108 Company balance sheet
109 Notes to the Company financial statements
116 Statement of directors’ responsibilities
117 Independent auditor’s report
119 Five year review
120 Shareholder information
BUNZL PLC ANNUAL REPORT 2013 71
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2013
Revenue
Operating profit before intangible amortisation and acquisition related costs
Intangible amortisation and acquisition related costs
Operating profit
Finance income
Finance cost
Disposal of business
Profit before income tax
Profit before income tax, intangible amortisation, acquisition related costs and disposal of business
Income tax
Profit for the year attributable to the Company’s equity holders
Earnings per share attributable to the Company’s equity holders
Basic
Diluted
Notes
3
3
3
3
5
5
6
7
7
2013
£m
6,097.7
414.4
(82.3)
332.1
2.6
(44.8)
–
289.9
372.2
(83.1)
206.8
2012*
£m
5,359.2
352.4
(58.6)
293.8
3.6
(37.6)
4.0
263.8
318.4
(72.5)
191.3
63.5p
62.7p
58.7p
58.3p
*Restated on adoption of IAS 19 (revised 2011) ‘Employee Benefits’ (see Note 1).
The Accounting policies and Notes on pages 77 to 107 form part of these consolidated financial statements.
72 BUNZL PLC ANNUAL REPORT 2013
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2013
Profit for the year
Other comprehensive income/(expense)
Items that will not be reclassified to profit or loss:
Actuarial gain/(loss) on pension schemes
Tax on items that will not be reclassified to profit or loss
Total items that will not be reclassified to profit or loss
Items that may be reclassified to profit or loss:
Foreign currency translation differences for foreign operations
Gain taken to equity as a result of designated effective net investment hedges
Loss recognised in cash flow hedge reserve
Movement from cash flow hedge reserve to income statement
Tax on items that may be reclassified to profit or loss
Total items that may be reclassified subsequently to profit or loss
Other comprehensive expense for the year
Total comprehensive income attributable to the Company’s equity holders
*Restated on adoption of IAS 19 (revised 2011) ‘Employee Benefits’ (see Note 1).
Notes
2013
£m
206.8
2012*
£m
191.3
20
6
6
26.9
(10.1)
16.8
(68.6)
14.4
–
0.8
1.3
(52.1)
(35.3)
171.5
(8.0)
2.9
(5.1)
(47.5)
18.5
(0.4)
(1.0)
(0.7)
(31.1)
(36.2)
155.1
BUNZL PLC ANNUAL REPORT 2013 73
CONSOLIDATED BALANCE SHEET
AT 31 DECEMBER 2013
Assets
Property, plant and equipment
Intangible assets
Derivative financial assets
Deferred tax assets
Total non-current assets
Inventories
Income tax receivable
Trade and other receivables
Derivative financial assets
Cash and deposits
Total current assets
Total assets
Equity
Share capital
Share premium
Translation reserve
Other reserves
Retained earnings
Total equity attributable to the Company’s equity holders
Liabilities
Interest bearing loans and borrowings
Retirement benefit obligations
Other payables
Derivative financial liabilities
Provisions
Deferred tax liabilities
Total non-current liabilities
Bank overdrafts
Interest bearing loans and borrowings
Income tax payable
Trade and other payables
Derivative financial liabilities
Provisions
Total current liabilities
Total liabilities
Total equity and liabilities
Notes
2013
£m
2012*
£m
8
9
15
10
11
23
16
23
20
14
15
23
23
12
14
118.8
1,456.9
6.2
7.5
1,589.4
645.1
0.7
863.0
0.2
73.1
1,582.1
3,171.5
107.2
153.0
(45.4)
17.8
707.3
939.9
855.8
45.0
24.8
0.5
23.8
129.5
1,079.4
26.3
46.5
62.2
1,004.4
0.8
12.0
1,152.2
2,231.6
3,171.5
111.1
1,340.6
8.2
7.9
1,467.8
581.5
0.3
818.7
2.2
81.2
1,483.9
2,951.7
114.2
143.9
7.3
9.7
610.4
885.5
599.2
75.5
28.7
1.2
21.3
124.6
850.5
25.4
204.9
53.9
909.3
0.9
21.3
1,215.7
2,066.2
2,951.7
*Revised on adjustment to provisional fair values on acquisitions made in 2012 (see Note 24).
Approved by the Board of Directors of Bunzl plc (Company registration number 358948) on 24 February 2014 and signed on its behalf by
Michael Roney, Chief Executive and Brian May, Finance Director.
74 BUNZL PLC ANNUAL REPORT 2013
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2013
At 1 January 2013
Profit for the year
Actuarial gain on pension schemes
Foreign currency translation differences for
foreign operations
Gain taken to equity as a result of designated
effective net investment hedges
Movement from cash flow hedge reserve
to income statement
Income tax credit/(charge) on other
comprehensive income
Total comprehensive (expense)/income
2012 interim dividend
2012 final dividend
Issue of share capital
Cancellation of treasury shares
Employee trust shares
Movement on own share reserves
Share based payments
At 31 December 2013
At 1 January 2012
Profit for the year
Actuarial loss on pension schemes
Foreign currency translation differences for
foreign operations
Gain taken to equity as a result of designated
effective net investment hedges
Loss recognised in cash flow hedge reserve
Movement from cash flow hedge reserve
to income statement
Income tax (charge)/credit on other
comprehensive income
Total comprehensive (expense)/income
2011 interim dividend
2011 final dividend
Issue of share capital
Employee trust shares
Share based payments
At 31 December 2012
Share
capital
£m
114.2
Share
premium
£m
Translation
reserve
£m
Merger
£m
Other reserves
Cash flow
hedge
£m
Capital
redemption
£m
Retained earnings
Own
shares
£m
Earnings
£m
143.9
7.3
2.5
8.6
(1.4)
(223.4)
(68.6)
14.4
1.5
(52.7)
0.5
(7.5)
9.1
0.8
(0.2)
0.6
7.5
163.1
(50.1)
10.4
107.2
153.0
(45.4)
2.5
16.1
(0.8)
(100.0)
Share
premium
£m
Translation
reserve
£m
Merger
£m
Other reserves
Cash flow
hedge
£m
Capital
redemption
£m
Own
shares
£m
Retained earnings*
Share
capital
£m
113.8
136.4
37.3
2.5
8.6
(0.3)
(213.8)
(47.5)
18.5
(1.0)
(30.0)
(0.4)
(1.0)
0.3
(1.1)
0.4
7.5
(9.6)
114.2
143.9
7.3
2.5
8.6
(1.4)
(223.4)
Total
equity
£m
885.5
206.8
26.9
(68.6)
14.4
0.8
(8.8)
171.5
(28.8)
(63.0)
9.6
–
(50.1)
–
15.2
939.9
Total
equity*
£m
806.7
191.3
(8.0)
(47.5)
18.5
(0.4)
(1.0)
2.2
155.1
(26.1)
(59.6)
7.9
(9.6)
11.1
885.5
833.8
206.8
26.9
(10.1)
223.6
(28.8)
(63.0)
(163.1)
(10.4)
15.2
807.3
Earnings
£m
722.2
191.3
(8.0)
2.9
186.2
(26.1)
(59.6)
11.1
833.8
*Restated on adoption of IAS 19 (revised 2011) ‘Employee Benefits’ (see Note 1).
BUNZL PLC ANNUAL REPORT 2013 75
Notes
2013
£m
2012*
£m
289.9
263.8
25.9
82.3
6.2
–
16.8
(2.6)
44.8
(7.8)
(7.3)
(1.8)
446.4
(26.1)
(80.3)
340.0
1.5
(26.5)
1.2
(253.8)
(277.6)
(40.5)
(91.8)
116.3
(9.7)
9.6
(52.9)
(69.0)
(2.4)
(9.0)
55.8
(9.0)
46.8
23.0
58.6
5.7
(4.0)
(22.4)
(3.6)
37.6
(6.4)
(7.8)
4.6
349.1
(20.2)
(63.6)
265.3
2.2
(23.0)
2.8
(234.5)
(252.5)
(32.8)
(85.7)
123.8
(0.9)
7.9
(11.6)
0.7
(2.7)
10.8
45.0
10.8
55.8
24
24
23
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2013
Cash flow from operating activities
Profit before income tax
Adjustments:
depreciation
intangible amortisation and acquisition related costs
share based payments
disposal of business
Working capital movement
Finance income
Finance cost
Provisions
Retirement benefit obligations
Other
Cash generated from operations before acquisition related costs
Cash outflow from acquisition related costs
Income tax paid
Cash inflow from operating activities
Cash flow from investing activities
Interest received
Purchase of property, plant and equipment
Sale of property, plant and equipment
Purchase of businesses
Cash outflow from investing activities
Cash flow from financing activities
Interest paid
Dividends paid
Increase in loans
Realised losses on foreign exchange contracts
Issue of ordinary shares to settle share options
Net purchase of employee trust shares
Cash (outflow)/inflow from financing activities
Exchange loss on cash and cash equivalents
(Decrease)/increase in cash and cash equivalents
Cash and cash equivalents at start of year
(Decrease)/increase in cash and cash equivalents
Cash and cash equivalents at end of year
*Restated on adoption of IAS 19 (revised 2011) ‘Employee Benefits’ (see Note 1).
76 BUNZL PLC ANNUAL REPORT 2013
NOTES
1 BASIS OF PREPARATION
The consolidated financial statements for the year ended 31 December 2013 have been approved by the directors and prepared in
accordance with EU endorsed International Financial Reporting Standards (‘IFRS’) and interpretations of the International Financial
Reporting Interpretations Committee (‘IFRIC’). The consolidated financial statements have been prepared on a going concern basis (as
referred to in the Financial review on page 29) and under the historical cost convention with the exception of certain items which are
measured at fair value as disclosed in the accounting policies below. The Company has elected to prepare its parent company financial
statements in accordance with UK Generally Accepted Accounting Practice (‘UK GAAP’).
The Group has adopted the following new standards and amendments to standards, including any consequential amendments to other
standards, with a date of initial application of 1 January 2013.
International Accounting Standard (‘IAS’) 19 (revised 2011) ‘Employee Benefits’
IFRS 13 ‘Fair Value Measurement’
Amendments to IAS 1 ‘Presentation of Financial Statements’ – Presentation of Items of Other Comprehensive Income
Annual Improvements to IFRS 2009–2011 cycle
With the exception of the revisions to IAS 19, these have not had a material impact on the Group’s overall results and financial position.
Some of the prior year numbers have been restated following the adoption of IAS 19 (revised 2011) ‘Employee Benefits’, which is effective for
the 2013 financial year, as a result of which the expected return on assets and the interest charge on pension scheme liabilities have been
replaced with a net finance cost based on the relevant discount rate. For the year ended 31 December 2012 the impact has been to increase
the net finance cost by £5.5m, to reduce profit before income tax by £5.5m and reduce profit after tax by £4.0m. The actuarial loss has been
reduced by £5.5m and the income tax credit on other comprehensive income has been reduced by £1.5m. Basic earnings per share in 2012
decreased by 1.2p to 58.7p as a result.
For the acquisitions made in 2012, the fair value reallocation period remained open during 2013. In accordance with IFRS 3 ‘Business
Combinations’ the Group has adjusted in 2013 the fair values attributable to some of these acquisitions. The balance sheet at 31 December
2012 has been revised accordingly (see Note 24 for further details).
The accounting policies set out below have, unless otherwise stated, been applied to all periods presented in the consolidated
financial statements.
2 ACCOUNTING POLICIES
a Basis of consolidation
(i) Subsidiaries
Subsidiaries are entities controlled by the Group. Control exists when the Group is exposed or has rights to variable returns from its
involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are included in the
consolidated financial statements from the date that control commences until the date that control ceases.
The acquisition method of accounting is used to account for the acquisition of subsidiaries. Identifiable assets acquired and liabilities and
contingent liabilities assumed in a business combination are measured initially at fair value at the acquisition date. The consideration paid or
payable in respect of acquisitions comprises amounts paid on completion, deferred consideration and payments which are contingent on the
continued employment of former owners of businesses acquired. The excess of the consideration (excluding payments contingent on future
employment) over the fair value of the identifiable net assets acquired is recorded as goodwill. Payments that are contingent on future
employment and transaction costs and expenses such as professional fees are charged to the income statement.
(ii) Associates
Associates are entities over which the Group is in a position to exercise significant influence. Associates are accounted for using the equity
method and are recognised initially at cost. The consolidated financial statements include the Group’s share of the income and expenses
of associates.
(iii) Transactions eliminated on consolidation
Intragroup balances and any unrealised gains and losses or income and expenses arising from intragroup transactions are eliminated in
preparing the consolidated financial statements.
b Foreign currency
Transactions in foreign currencies are recorded at the rate of exchange at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies at the balance sheet date are translated at the exchange rate prevailing at that date. Foreign exchange
differences arising on translation are recognised in the income statement, unless they qualify for cash flow or net investment hedge
accounting treatment, in which case the effective portion is recognised directly in a separate component of equity.
Assets and liabilities of foreign operations are translated at the exchange rate prevailing at the balance sheet date. Income and expenses
of foreign operations are translated at average exchange rates. All resulting exchange differences, including exchange differences arising
from the translation of borrowings and other financial instruments designated as hedges of such investments, are recognised directly in a
separate component of equity. Differences that have arisen since 1 January 2004, the date of transition to IFRS, are presented as a separate
component of equity.
BUNZL PLC ANNUAL REPORT 2013 77
NOTES CONTINUED
2 ACCOUNTING POLICIES CONTINUED
c Financial instruments
Under IAS 39 ‘Financial Instruments: Recognition and Measurement’, financial instruments are initially measured at fair value with
subsequent measurement depending upon the classification of the instrument. IFRS 13 defines fair value as the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Other financial
assets and liabilities are held at amortised cost unless they are in a fair value hedging relationship. Derivative financial instruments are
used to hedge exposures to foreign exchange and interest rate risks.
(i) Fair value hedge
Where a derivative financial instrument is designated and qualifies as a hedge of a recognised asset or liability, all changes in the fair value
of the derivative are recognised immediately in the income statement. The carrying value of the hedged item is adjusted by the change in fair
value that is attributable to the risk being hedged with changes recognised in the income statement.
(ii) Cash flow hedge
Where a derivative that is designated and qualifies as a hedge is used to hedge forecast transactions, any effective portion of the change
in fair value is recognised in equity. The gain or loss relating to any ineffective portion is recognised immediately in the income statement.
Amounts accumulated in equity are recycled to the income statement in the period when the hedged item affects profit or loss.
(iii) Hedge of a net investment in foreign operations
Foreign currency differences arising on the retranslation of a financial liability designated as a hedge of a net investment in foreign
operations are recognised directly in equity to the extent the hedge is effective. To the extent that the hedge is ineffective such differences
are recognised in the income statement.
d Property, plant and equipment
Property, plant and equipment are stated at historical cost less accumulated depreciation and any impairment losses.
e Depreciation
Depreciation is provided on a straight line basis to write off cost less estimated residual value over the assets’ estimated remaining useful
lives. This is applied at the following annual rates:
Buildings
Plant and machinery
Fixtures, fittings and equipment
Freehold land
2% (or depreciated over life of lease if shorter than 50 years)
8%–33%
8%–33%
Not depreciated
The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each balance sheet date.
f Intangible assets
(i) Goodwill
Acquisitions are accounted for using the acquisition method. As permitted by IFRS 1 ‘First-time Adoption of International Financial Reporting
Standards’, the Group has chosen to apply IFRS 3 ‘Business Combinations’ from 1 January 2004 and has elected not to restate previous
business combinations. For acquisitions made before 1 January 2004, goodwill represents the amount previously recorded under UK GAAP.
For acquisitions that occurred between 1 January 2004 and 31 December 2009, goodwill represents the cost of the business combination in
excess of the fair value of the identifiable assets, liabilities and contingent liabilities acquired. For acquisitions that have occurred on or after
1 January 2010, goodwill represents the cost of the business combination (excluding payments contingent on future employment and
acquisition related costs) in excess of the fair value of the identifiable assets, liabilities and contingent liabilities acquired. Goodwill is
allocated to cash generating units and is tested annually for impairment. Negative goodwill arising on acquisition is recognised immediately
in the income statement.
(ii) Other intangible assets
Intangible assets acquired in a business combination are recognised on acquisition and recorded at fair value. These principally relate to
customer relationships and are stated at cost less accumulated amortisation and any impairment losses. Amortisation is charged to the
income statement on a straight line basis over the estimated useful economic lives (which range from 10 to 19 years).
g Leases
Operating lease rentals and any incentives receivable are recognised in the income statement on a straight line basis over the term of the
relevant lease. Leases in which the Group assumes substantially all the risks and rewards of ownership of the leased assets are classified
as finance leases. Where land and buildings are held under leases, the accounting treatment of the land is considered separately from that
of the buildings due to the indefinite life of land.
h Impairment
The carrying amounts of the Group’s assets are reviewed annually to determine if there is any indication of impairment. If any such indication
exists, the assets’ recoverable amounts are estimated. The recoverable amounts of assets carried at amortised cost are calculated as the
present value of estimated future cash flows, discounted at appropriate pre-tax discount rates. The recoverable amounts of other assets are
the greater of their fair value less the costs to sell and the value in use. In assessing the value in use, the estimated future cash flows are
discounted to their present values using appropriate pre-tax discount rates. Impairment losses are recognised when the carrying amount
of an asset or cash generating unit exceeds its recoverable amount, with impairment losses being recognised in the income statement.
78 BUNZL PLC ANNUAL REPORT 2013
2 ACCOUNTING POLICIES CONTINUED
i Inventories
Inventories are valued at the lower of cost and net realisable value.
j Cash and cash equivalents
Cash and cash equivalents comprise cash balances, bank overdrafts and short term deposits with maturities of three months or less from
the date the deposit is made.
k Trade and other receivables
Trade and other receivables are stated at cost less any impairment losses. A provision for impairment is established when there is objective
evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables or uncertainty as to
whether the Group will be able to collect all such amounts.
l Trade and other payables
Trade and other payables are stated at cost.
m Income tax
Income tax in the income statement comprises current and deferred tax. Income tax is recognised in the income statement except when it
relates to items reflected in equity when it is recognised in equity.
Current tax reflects tax payable on taxable income for the year using rates enacted or substantively enacted at the balance sheet date and
any adjustments in respect of prior years.
Deferred tax is provided using the balance sheet liability method providing for temporary differences arising between tax bases and carrying
amounts in the consolidated financial statements. Deferred tax is measured at the tax rates that are expected to be applied to temporary
differences when they reverse, based on the laws that have been enacted or substantively enacted at the balance sheet date.
Deferred tax is not recognised for the following temporary differences: goodwill not deductible for tax purposes, the initial recognition of
assets and liabilities that affect neither accounting nor taxable profits and differences relating to investments in subsidiaries to the extent
that they will probably not reverse in the foreseeable future. Deferred tax assets are recognised to the extent that it is probable that future
taxable profit will be available against which any asset can be utilised.
n Revenue
The Group is engaged in the delivery of goods to customers. Revenue from a sale is recognised in the income statement upon delivery
of the relevant goods, which is the point in time at which the significant risks and rewards of ownership of the goods are transferred.
Revenue is valued at invoiced amounts, excluding sales taxes, less estimated provisions for returns and trade discounts where relevant.
Returns’ provisions and early settlement discounts are based on experience over an appropriate period whereas volume discounts are
based on agreements with customers.
Revenue is not recognised if there is significant uncertainty regarding recovery of the consideration due.
o Retirement benefit obligations
(i) Defined contribution pension schemes
Obligations for contributions to defined contribution pension schemes are charged as an expense to the income statement as incurred.
(ii) Defined benefit pension schemes
Pension liabilities are recognised in the consolidated balance sheet and represent the difference between the fair value of scheme assets
and the present value of scheme liabilities. Scheme liabilities are determined on an actuarial basis using the projected unit method and
discounted using the rate applicable to AA rated corporate bonds that have a similar maturity to the scheme liabilities.
Current service cost, past service cost/credit and gains and losses on any settlements and curtailments are credited or charged to the
income statement. Past service cost is recognised immediately to the extent benefits are already vested. Net interest on the net defined
benefit liability is included within finance cost and comprises interest income on scheme assets and interest cost on the defined benefit
obligation. The net interest is calculated using the same discount rate that is used in calculating the defined benefit obligation, applied
to the net defined liability at the start of the period.
Actuarial gains and losses are recognised in full in the statement of comprehensive income.
p Investment in own shares
The cost of shares held either directly (treasury shares) or indirectly (employee benefit trust shares) is deducted from equity. Repurchased
shares are classified as treasury shares and are presented as a deduction from total equity. When treasury shares are sold or reissued
subsequently, the amount received is recognised as an increase in equity and the resulting surplus or deficit on the transaction is recognised
in retained earnings.
At each reporting date the Group remeasures the value of the shares held in the employee benefit trust to present them in the own shares
reserve at the market value of those shares at reporting date. This is done through a reclassification from retained earnings to the own
shares reserve. This movement has no effect on the actual numbers of shares held by the employee benefit trust.
BUNZL PLC ANNUAL REPORT 2013 79
NOTES CONTINUED
2 ACCOUNTING POLICIES CONTINUED
q Share based payments
The Group operates equity settled share based compensation plans. Details of these plans are outlined in Note 16 and the Directors’
remuneration report. The total expected expense is based on the fair value of options and other share based incentives on the grant
date calculated using a valuation model and is spread over the expected vesting period with a corresponding credit to equity.
r Provisions
Provisions are recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event
and where it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions
are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time
value of money and, where appropriate, the risks specific to the liability.
A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than
the unavoidable costs of meeting the Group’s obligations under the contract.
s Net debt
Net debt is defined as interest bearing loans and borrowings and the fair value of interest rate swaps on fixed interest rate borrowings,
less cash and cash equivalents.
t Dividends
The interim dividend is recognised in the consolidated statement of changes in equity in the period in which it is paid and the final dividend
in the period in which it is approved by shareholders at the Annual General Meeting.
CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES
The following provides information on those policies that management considers critical because of the level of judgement and estimation
required which often involves assumptions regarding future events which can vary from what is anticipated. The directors review the
judgements and estimates on an ongoing basis with revisions to accounting estimates recognised in the period in which the estimates are
revised and in any future periods affected. The key sources of estimation uncertainty at the balance sheet date that have risk of causing
material adjustment to the carrying amounts of assets and liabilities are set out below. The directors believe that the consolidated financial
statements reflect appropriate judgements and estimates and provide a true and fair view of the Group’s performance and financial position.
Where appropriate and practicable, sensitivities are disclosed in the relevant notes.
a Retirement benefit obligations
The cost of defined benefit pension schemes and the present value of the obligations relating thereto are determined using actuarial
valuations appropriate for each country where defined benefit pension schemes are provided. The actuarial valuations involve making
assumptions about discount rates, future salary increases, future pension increases and mortality rates. All assumptions are reviewed
at each reporting date. In determining the appropriate discount rates, management considers the interest rates of corporate bonds with
an AA rating in the relevant country. Future salary increases and future pension increases are based on expected future inflation rates
for each country. Mortality rates are based on the relevant mortality tables for each country. Further details about the assumptions used
are set out in Note 20.
b Intangible assets
IFRS 3 requires the identification of acquired intangible assets as part of a business combination. The methods used to value such intangible
assets require the use of estimates including forecast performance and customer attrition rates. Future results are impacted by the
amortisation periods adopted and changes to the estimated useful lives would result in different effects on the income statement.
Goodwill is tested annually for impairment. Tests for impairment are based on discounted cash flows and assumptions (including discount
rates, timing and growth prospects) which are inherently subjective. Further details about the assumptions used are set out in Note 9.
c Acquisitions
Acquisitions are accounted for using the acquisition method based on the fair value of the consideration paid. Assets and liabilities are
measured at fair value and the purchase price is allocated to assets and liabilities based on these fair values.
Determining the fair values of assets and liabilities acquired involves the use of significant estimates and assumptions (including discount
rates, asset lives and recoverability). Assets and liabilities are measured at fair value and the value of freehold properties is typically
determined by qualified valuers on an open market basis.
d Tax
The Group is subject to income taxes in a number of jurisdictions. Management is required to make judgements and estimates in
determining the provisions for income taxes and deferred tax assets and liabilities recognised in the consolidated financial statements.
Tax benefits are recognised to the extent that it is probable that sufficient taxable income will be available in the future against which
temporary differences and unused tax losses can be utilised.
80 BUNZL PLC ANNUAL REPORT 2013
NEW ACCOUNTING STANDARDS AND INTERPRETATIONS
The Group is currently assessing the potential impact of other new and revised standards and interpretations issued by the International
Accounting Standards Board that will be effective from 1 January 2014 and beyond. Based on the analysis to date, the Group does not
anticipate that these will have a material impact on the Group’s overall results and financial position.
3 SEGMENT ANALYSIS
Year ended 31 December 2013
Revenue
Operating profit/(loss) before intangible
amortisation and acquisition related costs
Intangible amortisation
Acquisition related costs
Operating profit/(loss)
Finance income
Finance cost
Profit before income tax
Profit before income tax, intangible amortisation
and acquisition related costs
Income tax
Profit for the year
Capital expenditure
Depreciation
Year ended 31 December 2012
Revenue
Operating profit/(loss) before intangible amortisation
and acquisition related costs
Intangible amortisation
Acquisition related costs
Operating profit/(loss)
Finance income
Finance cost
Disposal of business
Profit before income tax
Profit before income tax, intangible amortisation,
acquisition related costs and disposal of business
Income tax
Profit for the year
Capital expenditure
Depreciation
North
America
£m
3,401.7
Continental
Europe
£m
1,151.5
UK &
Ireland
£m
1,018.5
Rest of the
World
£m
526.0
Corporate
£m
Total
£m
6,097.7
213.6
(12.6)
(6.8)
194.2
97.0
(29.1)
(3.5)
64.4
71.6
(7.1)
(1.6)
62.9
51.2
(9.5)
(12.1)
29.6
(19.0)
–
–
(19.0)
2.3
2.8
–
0.2
11.2
7.8
8.7
11.1
North
America
£m
2,905.8
Continental
Europe
£m
1,079.4
184.6
(8.1)
(4.4)
172.1
87.5
(27.7)
(3.5)
56.3
4.3
4.0
UK &
Ireland
£m
992.1
65.2
(6.5)
(0.4)
58.3
Rest of the
World
£m
381.9
33.2
(5.4)
(2.6)
25.2
Corporate
£m
Total*
£m
5,359.2
(18.1)
–
–
(18.1)
414.4
(58.3)
(24.0)
332.1
2.6
(44.8)
289.9
372.2
(83.1)
206.8
26.5
25.9
352.4
(47.7)
(10.9)
293.8
3.6
(37.6)
4.0
263.8
318.4
(72.5)
191.3
23.0
23.0
6.9
6.5
9.1
10.9
2.9
3.6
4.0
1.8
0.1
0.2
*Restated on adoption of IAS 19 (revised 2011) ‘Employee Benefits’ (see Note 1).
Acquisition related costs for the year ended 31 December 2013 include transaction costs and expenses of £8.4m (2012: £6.9m), deferred
consideration payments of £22.0m (2012: £8.4m) relating to the continued employment of former owners of businesses acquired and a
credit of £6.4m (2012: £4.4m credit) from adjustments to previously estimated earn outs.
The Group is managed through four business areas based on geographic regions which represent the reporting segments under IFRS 8
‘Operating Segments’. The revenue presented relates to external customers. Sales between the business areas are not material. Each of
the business areas supplies a range of products to customers operating primarily in the foodservice, grocery, cleaning & hygiene, non-food
retail, safety and healthcare market sectors. The performance of the four business areas is assessed by reference to operating profit before
intangible amortisation and acquisition related costs and this measure also represents the segment results for the purposes of reporting in
accordance with IFRS 8. Debt and associated interest is managed at a Group level and therefore has not been allocated across the business
areas. In accordance with the provisions of IFRS 8, the Company’s chief operating decision maker is the Board of Directors.
BUNZL PLC ANNUAL REPORT 2013 81
NOTES CONTINUED
3 SEGMENT ANALYSIS CONTINUED
Within each of the four business areas, there are a number of further segments based on geography and market sector. These segments
have been aggregated into the four business areas as shown above due to the similarity between them in terms of economic characteristics
and also in respect of the nature of the products and services, types of customer and the methods used to distribute these products
and services.
There are no customers who account for more than 10% of Group revenue. Customer dependencies are regularly monitored.
Revenue by market sector
Foodservice
Grocery
Cleaning & hygiene
Non-food retail
Safety
Healthcare
Other
2013
£m
1,766.9
1,648.3
733.9
696.9
624.7
418.6
208.4
6,097.7
The Other category covers a wide range of market sectors, none of which is sufficiently material to warrant separate disclosure.
At 31 December 2013
Segment assets
Unallocated assets
Total assets
Segment liabilities
Unallocated liabilities
Total liabilities
At 31 December 2012
Segment assets
Unallocated assets
Total assets
Segment liabilities
Unallocated liabilities
Total liabilities
North
America
£m
1,078.6
Continental
Europe
£m
920.6
UK &
Ireland
£m
624.4
Rest of
the World
£m
443.9
Unallocated
£m
1078.6
920.6
624.4
443.9
407.8
246.9
270.2
407.8
246.9
270.2
87.9
87.9
104.0
104.0
1,218.8
1,218.8
North*
America
£m
1,006.4
Continental*
Europe
£m
921.9
UK &
Ireland
£m
597.7
Rest of*
the World
£m
317.7
Unallocated*
£m
1,006.4
921.9
597.7
317.7
364.9
240.1
256.3
364.9
240.1
256.3
88.0
88.0
108.0
108.0
1,116.9
1,116.9
*Revised on adjustment to provisional fair values on acquisitions made in 2012 (see Note 24).
Unallocated assets and liabilities include Corporate assets and liabilities, tax assets and liabilities, cash and deposits, borrowings,
derivative assets and liabilities and pension scheme assets and liabilities.
2012
£m
1,571.2
1,574.0
724.3
447.6
455.7
378.3
208.1
5,359.2
Total
£m
3,067.5
104.0
3,171.5
1,012.8
1,218.8
2,231.6
Total*
£m
2,843.7
108.0
2,951.7
949.3
1,116.9
2,066.2
82 BUNZL PLC ANNUAL REPORT 2013
4 ANALYSIS OF OPERATING INCOME AND EXPENSES
Purchase of goods and changes in inventories
Employee costs (see Note 21)
Depreciation of property, plant and equipment
Amortisation of intangible fixed assets
Acquisition related costs
Profit on disposal of property, plant and equipment
Rentals payable under operating leases and subleases
Lease and sublease income
Other operating expenses
Net operating expenses
Auditor’s remuneration
Audit of these financial statements
Amounts receivable by the Company’s auditor and
its associates in respect of:
Audit of financial statements of subsidiaries of
the Company
Audit-related assurance services
Taxation compliance services
Other tax advisory services
All other services
Total auditor’s remuneration
UK
£m
0.3
0.4
0.1
–
–
0.1
0.9
Overseas
£m
–
1.6
–
0.1
0.1
0.4
2.2
2013
Total
£m
0.3
2.0
0.1
0.1
0.1
0.5
3.1
UK
£m
0.3
0.3
0.1
–
0.1
–
0.8
2013
£m
4,638.3
570.2
25.9
58.3
24.0
(0.2)
90.2
(0.8)
359.7
5,765.6
Overseas
£m
–
1.3
–
0.1
0.2
0.8
2.4
2012
£m
4,118.2
494.7
23.0
47.7
10.9
(0.2)
83.8
(1.5)
288.8
5,065.4
2012
Total
£m
0.3
1.6
0.1
0.1
0.3
0.8
3.2
Management believes that given the external auditor’s detailed knowledge of the Group’s operations, its structure and accounting policies
and the importance of carrying out tax services and detailed pre-acquisition due diligence, it is often appropriate for this additional work
to be undertaken by the external auditor rather than another firm of accountants. However other firms are also used by the Company to
provide non-audit services and it is the Company’s policy to assess the services required on a case by case basis to ensure that the best
placed adviser is retained.
The Audit Committee, which consists entirely of independent non-executive directors, reviews and approves the level and type of non-audit
work which the external auditor performs, including the fees paid for such work, to ensure that the auditor’s objectivity and independence
are not compromised. Further information is set out in the Audit Committee’s report on pages 44 to 46.
5 FINANCE INCOME/(COST)
Interest on deposits
Interest income from foreign exchange contracts
Other finance income
Finance income
Interest on loans and overdrafts
Interest expense from foreign exchange contracts
Interest charge on retirement benefit obligations
Fair value gain on US dollar bonds in a hedge relationship
Fair value loss on interest rate swaps in a hedge relationship
Foreign exchange gain/(loss) on intercompany funding
Foreign exchange (loss)/gain on external debt not in a hedge relationship
Other finance expense
Finance cost
*Restated on adoption of IAS 19 (revised 2011) ‘Employee Benefits’ (see Note 1).
2013
£m
0.8
1.4
0.4
2.6
(39.9)
(1.5)
(2.8)
2.0
(2.0)
10.9
(11.0)
(0.5)
(44.8)
2012*
£m
0.8
1.8
1.0
3.6
(33.2)
(1.0)
(3.3)
5.7
(5.7)
(8.7)
8.9
(0.3)
(37.6)
The foreign exchange gain/(loss) on intercompany funding arises as a result of foreign currency intercompany loans and deposits. This is
substantially matched by external debt to minimise this foreign currency exposure in the income statement.
BUNZL PLC ANNUAL REPORT 2013 83
NOTES CONTINUED
6 INCOME TAX
Current tax on profit
current year
prior years
double tax relief
Deferred tax on profit
current year
prior years
Income tax on profit
2013
£m
102.1
(10.2)
–
91.9
(6.7)
(2.1)
(8.8)
83.1
In assessing the underlying performance of the Group, management uses adjusted profit which excludes intangible amortisation,
acquisition related costs and the profit on disposal of business. Similarly the tax effect of these items is excluded in monitoring
the tax rate on the adjusted profit of the Group which is shown in the table below:
Income tax on profit
Tax associated with intangible amortisation, acquisition related costs and disposal of business
Tax on adjusted profit
Profit before income tax
Intangible amortisation, acquisition related costs and disposal of business
Adjusted profit before income tax
2013
£m
83.1
20.7
103.8
289.9
82.3
372.2
2012*
£m
84.9
(8.6)
(0.1)
76.2
(2.3)
(1.4)
(3.7)
72.5
2012*
£m
72.5
15.7
88.2
263.8
54.6
318.4
Reported tax rate
Tax rate on adjusted profit
28.7%
27.9%
27.5%
27.7%
Tax on other comprehensive income and equity
Actuarial gain/(loss) on pension schemes
Foreign currency translation differences for foreign
operations
Gain taken to equity as a result of designated effective net
investment hedges
Loss recognised in cash flow hedge reserve
Movement from cash flow hedge reserve to income
statement
Other comprehensive (expense)/income
Dividends
Issue of share capital
Employee trust shares
Share based payments
Other comprehensive (expense)/income and equity
Gross
2013
£m
26.9
(68.6)
14.4
–
0.8
(26.5)
(91.8)
9.6
(50.1)
6.2
(152.6)
Tax credit/
(charge)
2013
£m
(10.1)
–
1.5
–
(0.2)
(8.8)
–
–
–
9.0
0.2
Net
2013
£m
16.8
Gross
2012*
£m
(8.0)
(68.6)
(47.5)
15.9
–
0.6
(35.3)
(91.8)
9.6
(50.1)
15.2
(152.4)
18.5
(0.4)
(1.0)
(38.4)
(85.7)
7.9
(9.6)
5.7
(120.1)
Tax credit/
(charge)
2012*
£m
2.9
–
(1.0)
0.1
0.2
2.2
–
–
–
5.4
7.6
Net
2012*
£m
(5.1)
(47.5)
17.5
(0.3)
(0.8)
(36.2)
(85.7)
7.9
(9.6)
11.1
(112.5)
*Restated on adoption of IAS 19 (revised 2011) ‘Employee Benefits’ (see Note 1).
84 BUNZL PLC ANNUAL REPORT 2013
6 INCOME TAX CONTINUED
Factors affecting the tax charge for the year
The Group operates in many countries and is subject to income tax in many different jurisdictions. The expected tax rate is calculated as a
weighted average of the tax rates in the tax jurisdictions in which the Group operates. The adjustments to the tax charge at the weighted
average rate to determine the income tax on profit are as follows:
Profit before income tax
Tax charge at weighted average rate (2013: 31.4%; 2012: 31.7%)
Effects of:
gain on disposal not taxable
adjustment in respect of prior years
non-taxable and non-deductible items
other
Income tax on profit
Deferred tax in the income statement
Accelerated capital allowances
Retirement benefit obligations
Intangible assets
Share based payments
Provisions
Other
Deferred tax on profit
2013
£m
289.9
91.0
–
(12.3)
1.6
2.8
83.1
2013
£m
1.0
(0.5)
(12.4)
(1.5)
1.5
3.1
(8.8)
2012*
£m
263.8
83.7
(1.0)
(10.0)
(1.3)
1.1
72.5
2012
£m
0.6
0.8
(11.2)
(0.1)
(0.7)
8.4
(2.2)
UK tax rate change
Following the enactment of legislation in the UK to reduce the corporation tax rate to 21% from 1 April 2014 and 20% from 1 April 2015,
the UK deferred tax balances were reduced from 23% to 20%. The impact on the tax expense for the year was negligible.
7 EARNINGS PER SHARE
Profit for the year
Adjustment
Adjusted profit†
Basic weighted average ordinary shares in issue (million)
Dilutive effect of employee share plans (million)
Diluted weighted average ordinary shares (million)
Basic earnings per share
Adjustment
Adjusted earnings per share†
Diluted basic earnings per share
Adjustment
Adjusted diluted earnings per share†
2013
£m
206.8
61.6
268.4
325.8
4.0
329.8
63.5p
18.9p
82.4p
62.7p
18.7p
81.4p
2012*
£m
191.3
38.9
230.2
326.1
1.9
328.0
58.7p
11.9p
70.6p
58.3p
11.9p
70.2p
*Restated on adoption of IAS 19 (revised 2011) ‘Employee Benefits’ (see Note 1).
† Adjusted profit, adjusted earnings per share and adjusted diluted earnings per share exclude the charge for intangible amortisation,
acquisition related costs, the profit on disposal of business and the respective associated tax. The intangible amortisation, acquisition
related costs, profit on disposal of business and the associated tax are items which are not taken into account by management when
assessing the underlying performance of the business. Accordingly, such items are removed in calculating the adjusted earnings per
share on which management assesses the performance of the Group.
BUNZL PLC ANNUAL REPORT 2013 85
NOTES CONTINUED
8 PROPERTY, PLANT AND EQUIPMENT
2013
Cost
Beginning of year
Acquisitions
Additions
Disposals
Currency translation
End of year
Depreciation
Beginning of year
Charge in year
Disposals
Currency translation
End of year
Net book value at 31 December 2013
2012
Cost
Beginning of year
Acquisitions
Additions
Disposals
Currency translation
End of year
Depreciation
Beginning of year
Charge in year
Disposals
Currency translation
End of year
Net book value at 31 December 2012
Land and
buildings
£m
Plant and
machinery
£m
Fixtures,
fittings and
equipment
£m
75.2
3.0
1.9
(1.7)
(0.1)
78.3
25.2
3.3
(1.2)
(0.6)
26.7
51.6
98.9
4.4
14.5
(2.9)
(3.6)
111.3
64.5
10.9
(2.7)
(2.1)
70.6
40.7
109.4
2.2
10.1
(3.5)
(1.7)
116.5
82.7
11.7
(3.2)
(1.2)
90.0
Total
£m
283.5
9.6
26.5
(8.1)
(5.4)
306.1
172.4
25.9
(7.1)
(3.9)
187.3
26.5
118.8
Land and
buildings*
£m
Plant and
machinery
£m
Fixtures,
fittings and
equipment
£m
74.5
3.2
2.0
(3.6)
(0.9)
75.2
24.1
2.7
(1.8)
0.2
25.2
50.0
95.3
4.0
8.9
(5.5)
(3.8)
98.9
63.5
8.2
(5.1)
(2.1)
64.5
34.4
103.3
0.6
12.1
(5.0)
(1.6)
109.4
76.5
12.1
(4.6)
(1.3)
82.7
26.7
Total*
£m
273.1
7.8
23.0
(14.1)
(6.3)
283.5
164.1
23.0
(11.5)
(3.2)
172.4
111.1
*Revised on adjustment to provisional fair values on acquisitions made in 2012 (see Note 24).
The net book value of property, plant and equipment includes assets held under finance leases and hire purchase contracts totalling £8.7m
(2012: £9.2m). Accumulated depreciation of these assets was £5.8m (2012: £4.8m). Future capital expenditure at 31 December 2013
consisted of commitments not provided for of £0.6m (2012: £0.7m).
86 BUNZL PLC ANNUAL REPORT 2013
9 INTANGIBLE ASSETS
Goodwill
Beginning of year
Acquisitions
Currency translation
End of year
Customer relationships
Cost
Beginning of year
Acquisitions
Currency translation
End of year
Amortisation
Beginning of year
Charge in year
Currency translation
End of year
Net book value at 31 December
Total net book value of intangible assets at 31 December
2013
£m
823.2
97.4
(19.6)
901.0
2013
£m
793.1
111.1
(17.0)
887.2
275.7
58.3
(2.7)
331.3
2012*
£m
784.6
64.5
(25.9)
823.2
2012*
£m
707.9
111.5
(26.3)
793.1
235.7
47.7
(7.7)
275.7
555.9
517.4
1,456.9
1,340.6
*Revised on adjustment to provisional fair values on acquisitions made in 2012 (see Note 24).
Both goodwill and customer relationships have been acquired as part of business combinations. Customer relationships are amortised over
their estimated useful lives which range from 10 to 19 years.
Impairment tests
The carrying amount of goodwill is allocated across cash generating units (‘CGUs’).
A description of the Group’s principal activities is set out in the Chief Executive’s review. There is no significant difference in the nature of
activities across different geographies. The identification of CGUs reflects the way in which the business is managed on a geographical
basis. Given the similar nature of the activities of each CGU, a consistent methodology is applied across the Group in assessing CGU
recoverable amounts. The recoverable amount is the higher of the value in use and the fair value less the costs to sell. The value in use is the
present value of the cash flows expected to be generated by the CGU over a projection period together with a terminal value. The projection
period is the time period over which future cash flows are predicted. The Group’s methodology is to use a projection period of five years
being the maximum period over which detailed future cash flows for each CGU are prepared. For periods after this five year period, the
methodology applies a long term growth rate to derive a terminal value. Cash flow expectations exclude any future cash flows that may arise
from restructuring or other enhancements to the cash generating activities of the CGU and reflect management’s expectations of the range
of economic conditions that may exist over the projection period.
The value in use calculations are principally sensitive to revenue growth, including any significant changes to the customer base,
achievability of future margins and the discount rate used in the present value calculation. The information used for valuation purposes
takes into consideration past experience and the current economic environment with regard to customer attrition rates and additions to
the customer base, the ability to introduce price increases and new products and experience in controlling the underlying cost base. This
provides a long term growth rate which is consistent with the geographic segments in which the Group operates and management’s
assessment of future operating performance and market share movements. The growth rate has been calculated based principally
on current inflation rates of the relevant economies.
At 31 December 2013 North America, France Hygiene and UK Hospitality carried a significant amount of goodwill in comparison with the
total value of the Group’s goodwill. At 31 December 2013 the carrying value of goodwill in respect of North America was £233.5m (2012:
£224.8m as reported; £217.6m revised on adjustment to provisional fair values on acquisitions made in 2012, see Note 24). France Hygiene
was £82.2m (2012: £80.2m) and UK Hospitality was £62.5m (2012: £62.5m). At 31 December 2013 the aggregate amount of goodwill
attributable to the Group’s CGUs, excluding North America, France Hygiene and UK Hospitality, was £531.9m (2012: £462.9m). The remaining
goodwill relates to CGUs which are not individually significant.
For North America, France Hygiene and UK Hospitality the weighted average growth rate used in 2013 was 2.5% (2012: 2.5%). A discount
rate of 9% (2012: 8%) has been applied to the value in use calculations representing a pre-tax rate reflecting market assessments of the
time value of money at the balance sheet date. Similar assumptions have been applied to the other CGUs but where appropriate the directors
have considered alternative market risk assumptions to reflect the specific conditions arising in individual countries (with discount rates
ranging from 9%–18%).
BUNZL PLC ANNUAL REPORT 2013 87
NOTES CONTINUED
9 INTANGIBLE ASSETS CONTINUED
Sensitivity to changes in key assumptions
Impairment testing is dependent on management’s estimates and judgements, particularly as they relate to the forecasting of future cash
flows, the discount rates selected and expected long term growth rates. A key assumption on which value in use calculations are dependent
relates to revenue growth including the impact of changes to the underlying customer base. This assumption is sensitive to customer
attrition and the rate at which new customer relationships are introduced and established.
Based on past experience and taking into account current market conditions, management has concluded that it is reasonable to assume
that there will be no material deterioration in the customer base over the projection period which will significantly impact future cash flows
and that no reasonably possible change in key assumptions would result in impairment in any of the Group’s CGUs. Should such a change
occur, this would represent a triggering event to indicate that an impairment review may be necessary. In accordance with IAS 36
‘Impairment of Assets’, a full impairment review would then be undertaken on the relevant assets within the CGU. Any such changes
are monitored through normal monthly procedures.
10 INVENTORIES
Goods for resale
2013
£m
645.1
2012*
£m
581.5
*Revised on adjustment to provisional fair values on acquisitions made in 2012 (see Note 24).
£2.9m was written off inventories during the year (2012: £5.3m) due to obsolescence or damage. The inventories provision at 31 December
2013 was £58.3m (2012: £55.6m).
11 TRADE AND OTHER RECEIVABLES
Trade receivables
Prepayments and other receivables
The ageing of trade receivables at 31 December was:
Current
0–30 days overdue
31–90 days overdue
Over 90 days overdue
Gross
2013
£m
542.9
126.0
28.4
13.8
711.1
Provision
2013
£m
0.4
0.4
1.3
13.8
15.9
The movement in the provision for doubtful debts in respect of trade receivables during the year was as follows:
Beginning of year
Acquisitions
Charge
Utilised and unused
Currency translation
End of year
*Revised on adjustment to provisional fair values on acquisitions made in 2012 (see Note 24).
2013
£m
695.2
167.8
863.0
Gross
2012
£m
517.5
129.9
24.4
9.7
681.5
2013
£m
14.9
2.0
1.9
(2.6)
(0.3)
15.9
2012*
£m
666.6
152.1
818.7
Provision
2012*
£m
2.9
0.2
2.1
9.7
14.9
2012*
£m
13.8
1.1
2.4
(1.9)
(0.5)
14.9
88 BUNZL PLC ANNUAL REPORT 2013
12 TRADE AND OTHER PAYABLES – CURRENT
Trade payables
Other tax and social security contributions
Other payables
Accruals and deferred income
2013
£m
682.9
23.8
140.1
157.6
1,004.4
2012*
£m
648.1
22.2
104.0
135.0
909.3
*Revised on adjustment to provisional fair values on acquisitions made in 2012 (see Note 24).
13 RISK MANAGEMENT AND FINANCIAL INSTRUMENTS
Capital management
The Group’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future
development of the business. The Group monitors the return on average operating capital employed and the return on invested capital as
well as the level of total shareholders’ equity and the amount of dividends paid to ordinary shareholders. For the year ended 31 December
2013, the return on average operating capital employed was 56.9% (2012: 56.5%, revised on adjustment to provisional fair values on
acquisitions made in 2012, see Note 24), the return on invested capital was 17.9% (2012: 17.9%), the level of total shareholders’ equity
at 31 December 2013 was £939.9m (2012: £885.5m) and the amount of dividends paid in the year ended 31 December 2013 was £91.8m
(2012: £85.7m).
The Group funds its operations through a mixture of shareholders’ equity and bank and capital market borrowings. All of the 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 Group has a portfolio of competitively priced borrowing facilities to meet the demands of the business
over time and, in order to do so, the Group arranges a mixture of borrowings from different sources with a variety of maturity dates.
The Group’s businesses provide a high and consistent level of cash generation which helps fund future development and growth. The
Group seeks to maintain an appropriate balance between the higher returns that might be possible with higher levels of borrowings
and the advantages and security afforded by a sound capital position.
There were no changes to the Group’s approach to capital management during the year 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 and foreign currency
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.
Hedge accounting
The Group designates derivatives which qualify as hedges for accounting purposes as either (a) a hedge of the fair value of a recognised
asset or liability; (b) a hedge of the cash flow risk resulting from changes in interest rates or foreign exchange rates; or (c) a hedge of a net
investment in a foreign operation. The accounting treatment for hedges is set out in the financial instruments accounting policy in Note 2.
The Group tests the effectiveness of hedges on a prospective and retrospective basis to ensure compliance with IAS 39. Methods for testing
effectiveness include dollar offset, critical terms and hypothetical derivatives.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. 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 debt covenants is monitored.
During 2013 all covenants have been complied with.
The Group has substantial borrowing facilities available to it comprising multi-currency credit facilities from the Group’s banks and US
dollar and sterling bonds. An issue of fixed interest US dollar bonds of US$240.0m, which was agreed in 2012, was drawn down by the Group
in April 2013. At 31 December 2013 the total bonds outstanding were £607.1m (2012: £618.9m) with maturities ranging from 2014 to 2024.
During the year the Group also refinanced or agreed new banking facilities totalling £264.2m. The Group’s committed bank facilities mature
between 2014 and 2018. At 31 December 2013 the available committed bank facilities totalled £886.7m (2012: £758.5m) of which £273.1m
(2012: £169.2m) was drawn down.
BUNZL PLC ANNUAL REPORT 2013 89
NOTES CONTINUED
13 RISK MANAGEMENT AND FINANCIAL INSTRUMENTS CONTINUED
The undrawn committed bank facilities available at 31 December were as follows:
Expiring within one year
Expiring after one year but within two years
Expiring after two years
2013
£m
40.0
245.8
327.8
613.6
2012
£m
50.1
80.0
459.2
589.3
In addition the Group maintains overdraft and uncommitted facilities to provide short term flexibility. At 31 December 2013 loans totalling
£0.8m were secured by fixed charges on property (2012: £0.8m).
The contractual maturity profile of the Group’s financial assets and liabilities at 31 December is set out in the tables below. The amounts
disclosed are the contractual undiscounted cash flows and therefore include interest cash flows (forecast using LIBOR interest rates at
31 December in the case of floating rate financial assets and liabilities). Derivative assets and liabilities have been included within the tables
since they predominantly relate to derivatives which are used to manage the interest cash flows on the Group’s debt. Bank loans have been
drawn under committed facilities and can be refinanced on maturity from these same facilities. Accordingly they have been aged based on
the maturity dates of the underlying facilities.
The tables below also compare the fair value and carrying amounts for financial assets and liabilities:
Contractual cash inflows/(outflows)
After
two years
but within
five years
£m
After
more than
five years
£m
After
one year
but within
two years
£m
Fair value
£m
Carrying
amount
£m
Total
contractual
cash flows
£m
Within one
year
£m
73.1
73.1
73.1
73.1
695.2
695.2
695.2
695.2
6.0
0.2
774.5
(285.5)
(635.7)
(26.3)
(0.2)
(1.1)
(682.9)
(151.1)
(22.7)
6.0
0.2
774.5
(285.4)
(607.1)
(26.3)
(0.2)
(1.1)
(682.9)
(151.1)
(22.7)
6.4
0.2
774.9
(294.6)
(761.3)
(26.3)
(0.2)
(1.1)
(682.9)
(151.1)
(22.7)
2.1
0.2
770.6
(14.8)
(58.2)
(26.3)
–
(0.4)
(682.9)
(151.1)
–
–
–
2.1
–
2.1
(4.1)
(61.2)
–
(0.2)
(0.2)
–
–
(22.7)
–
–
–
–
–
(9.2)
(9.2)
(9.5)
(5.3)
(0.7)
(1,815.4)
(0.7)
(1,786.7)
(0.7)
(1,950.4)
(0.7)
(939.7)
(4.2)
–
(92.6)
–
–
2.2
–
2.2
–
–
–
–
–
(275.7)
(258.8)
–
–
(383.1)
–
–
(0.5)
–
–
–
–
–
–
–
–
–
–
–
–
–
(535.0)
–
(383.1)
2013
Financial assets:
Cash and deposits
Loans and receivables
Trade receivables
Derivative financial instruments
Interest rate swaps
Foreign exchange contracts for net
investment hedging
Financial liabilities:
Financial liabilities at amortised cost
Bank loans
US dollar and sterling bonds
Bank overdrafts
Other interest bearing loans
and borrowings
Finance lease creditors
Trade payables
Other current payables
Non-current payables
Financial liabilities at fair value
US dollar bonds
Derivative financial instruments
Cross currency interest rate swaps
Foreign exchange contracts for
cash flow hedging
90 BUNZL PLC ANNUAL REPORT 2013
13 RISK MANAGEMENT AND FINANCIAL INSTRUMENTS CONTINUED
2012
Financial assets:
Cash and deposits
Loans and receivables
Trade receivables*
Derivative financial instruments
Interest rate swaps
Financial liabilities:
Financial liabilities at amortised cost
Bank loans
US dollar and sterling bonds
Bank overdrafts
Other interest bearing loans and
borrowings
Finance lease creditors
Trade payables
Other current payables*
Non-current payables
Financial liabilities at fair value
US dollar bonds
Derivative financial instruments
Cross currency interest rate swaps
Foreign exchange contracts for cash flow
hedging
Foreign exchange contracts for net
investment hedging
Fair value
£m
Carrying
amount
£m
Total
contractual
cash flows
£m
Within one
year
£m
Contractual cash inflows/(outflows)
After
one year
but within
two years
£m
After
two years
but within
five years
£m
After
more than
five years
£m
81.2
666.6
10.2
758.0
(175.7)
(528.9)
(25.4)
(0.3)
(0.6)
(648.1)
(113.5)
(26.4)
81.2
666.6
10.2
758.0
(175.7)
(472.2)
(25.4)
(0.3)
(0.6)
(648.1)
(113.5)
(26.4)
81.2
666.6
11.8
759.6
(180.4)
(659.4)
(25.4)
(0.3)
(0.6)
(648.1)
(113.5)
(26.4)
81.2
666.6
5.2
753.0
(56.7)
117.6
(25.4)
–
(0.3)
(648.1)
(113.5)
–
(146.4)
(146.7)
(148.6)
(148.6)
(7.3)
(0.8)
(7.3)
(0.8)
(7.3)
(0.8)
(2.7)
(1,676.1)
(2.7)
(1,619.7)
(2.7)
(1,813.5)
(0.6)
(0.8)
(2.7)
(879.1)
–
–
2.2
2.2
(1.6)
(62.8)
–
–
(0.1)
–
–
(26.4)
–
(3.7)
–
–
(94.6)
–
–
4.1
4.1
–
–
0.3
0.3
(122.1)
(278.3)
–
–
(435.9)
–
(0.3)
(0.2)
–
–
–
–
(3.0)
–
–
–
–
–
–
–
–
–
–
(403.9)
–
(435.9)
*Revised on adjustment to provisional fair values on acquisitions made in 2012 (see Note 24).
All financial assets and liabilities stated at fair value in the tables above have carrying amounts where the fair value component is, and has
been throughout the year, a level two fair value measurement. Level two fair value measurements use inputs other than quoted prices that
are observable for the relevant asset or liability, either directly or indirectly. The fair values of both financial assets and liabilities are
calculated by discounting expected future cash flows using observable inputs and translating at the appropriate balance sheet date
exchange rates. The Group has taken into account its own credit risk in the valuation of financial assets and liabilities carried at fair value.
Fair value gains and losses on interest rate caps impact the income statement immediately while all other financial assets and liabilities
stated at fair value are in hedging relationships.
BUNZL PLC ANNUAL REPORT 2013 91
NOTES CONTINUED
13 RISK MANAGEMENT AND FINANCIAL INSTRUMENTS CONTINUED
Interest rate risk
The Group is funded by a mixture of fixed and floating rate debt. In addition, interest rate swaps and interest rate caps are used to manage
the interest rate risk profile. At 31 December 2013 fixed rate debt of £607.1m (2012: £472.2m) related to fixed rate US dollar and sterling
bonds stated at amortised cost with maturities ranging from 2014 to 2024.
At 31 December 2013, floating rate debt was comprised of £273.1m floating rate bank loans (2012: £174.3m). Bank loans are drawn for
various periods of up to three months at interest rates linked to LIBOR.
The interest rate risk on the floating rate debt is managed using interest rate options. Borrowings with a notional principal of £60.0m were
capped at 31 December 2013 (2012: £162.6m). Hedge accounting is not applied to the interest rate caps since the majority of their value is
related to time value. The strike rates of these options are based on LIBOR repricing every three months.
After taking account of hedge relationships, a change of 1% in the interest rate forward curves on 31 December would have increased/
(decreased) profit before tax and equity for the year by the amounts shown below as a result of changes in the fair values of derivative
assets and liabilities at that date:
2013
2012
Impact on profit before tax
–1%
£m
+1%
£m
Impact on equity
–1%
£m
+1%
£m
0.6
0.1
(0.1)
0.2
0.6
0.1
(0.1)
0.2
Foreign currency risk
The majority of the Group’s sales are made and income is earned in US dollars, euros and other foreign currencies. The Group does not
hedge the impact of exchange rate movements arising on translation of earnings into sterling at average exchange rates.
The following significant exchange rates applied during the year:
US dollar
Euro
Average rate
Closing rate
2013
1.56
1.18
2012
1.59
1.23
2013
1.66
1.20
2012
1.63
1.23
For the year ended 31 December 2013, a movement of one cent in the US dollar and euro average exchange rates would have changed profit
before tax by £1.0m and £0.3m respectively (2012: £0.8m and £0.3m) and profit before tax, intangible amortisation, acquisition related costs
and disposal of business by £1.1m and £0.6m respectively (2012: £0.9m and £0.5m).
The majority of the Group’s transactions are carried out in the respective functional currencies of the Group’s operations and so transaction
exposures are usually relatively limited. Where they do occur the Group’s policy is to hedge significant exposures of firm commitments for
a period of up to one year as soon as they are committed using forward foreign exchange contracts and these are designated as cash flow
hedges. However, the economic impact of foreign exchange on the value of uncommitted future purchases and sales is not hedged. As a
result, sudden and significant movements in foreign exchange rates can impact profit margins where there is a delay in passing on to
customers the resulting price increases. For the year ended 31 December 2013 all foreign exchange cash flow hedges were effective with
a loss of £0.7m recognised in equity (2012: loss of £0.8m) which will affect the income statement during 2014.
The majority of the Group’s borrowings are effectively denominated in sterling, US dollars and euros, aligning them to the respective
functional currencies of the component parts of the Group’s EBITDA. This currency profile is achieved using short term foreign exchange
contracts, long term cross currency interest rate swaps and foreign currency debt. This currency composition minimises the impact of
foreign exchange rates on the ratio of net debt to EBITDA.
Cross currency interest rate swaps in a cash flow hedge relationship were effective during the year with a loss of £0.4m (2012: loss of £1.1m)
being recognised in equity which will affect the income statement from 2014 to 2015.
92 BUNZL PLC ANNUAL REPORT 2013
13 RISK MANAGEMENT AND FINANCIAL INSTRUMENTS CONTINUED
The currency profile of the Group’s net debt at 31 December is set out in the table below:
Sterling
US dollar
Euro
Other
2013
£m
292.7
388.2
149.9
18.7
849.5
2012
£m
198.7
365.3
114.4
59.7
738.1
If a 10% strengthening or weakening of sterling had taken place on 31 December it would have increased/(decreased) profit before tax and
equity for the year by the amounts shown below. The impact of this translation is much greater on equity than it is on profit before tax since
equity is translated using the closing exchange rates and profit before tax is translated using the average exchange rates for the year. As a
result the value of equity is more sensitive than the value of profit before tax to a movement in exchange rates on 31 December and the
resulting movement in profit before tax is due solely to the translation effect on monetary items. This analysis assumes that all other
variables, and in particular interest rates, remain constant.
2013
2012
Impact on profit before tax
–10%
£m
(0.8)
(0.7)
+10%
£m
0.7
0.5
Impact on equity
–10%
£m
87.5
57.6
+10%
£m
(71.6)
(47.0)
Credit risk
Credit risk is the risk of loss in relation to a financial asset due to non-payment by the counterparty. The Group’s objective is to reduce its
exposure to counterparty default by restricting the type of counterparty it deals with and by employing an appropriate policy in relation to
the collection of financial assets.
The Group’s principal financial assets are cash and deposits, derivative financial instruments and trade and other receivables which
represent the Group’s maximum exposure to credit risk in relation to financial assets. The maximum exposure to credit risk for cash
and deposits (Note 23), derivative financial instruments (see page 90) and trade and other receivables (Note 11) is their carrying amount.
Dealings are restricted to those banks with the relevant combination of geographic presence and investment grade rating. The Group
continually monitors the credit ratings of its counterparties and the credit exposure to each counterparty.
For trade and other receivables, the amounts represented in the balance sheet are net of allowances for doubtful receivables, estimated
by the Group’s management based on prior experience and their assessment of the current economic environment. Note 11 sets out an
analysis of trade and other receivables and the provision for doubtful debts in respect of trade receivables.
At the balance sheet date there were no significant concentrations of credit risk.
BUNZL PLC ANNUAL REPORT 2013 93
NOTES CONTINUED
14 PROVISIONS
Current
Non-current
Beginning of year
Charge
Acquisitions
Disposal of business
Utilised or released
Currency translation
End of year
2013
£m
12.0
23.8
35.8
Properties
2013
£m
17.1
0.5
2.6
–
(3.5)
(0.2)
16.5
Claims
2013
£m
25.5
2.4
1.8
–
(9.9)
(0.5)
19.3
Total
2013
£m
42.6
2.9
4.4
–
(13.4)
(0.7)
35.8
Properties
2012
£m
Claims
2012*
£m
19.2
1.1
0.6
–
(3.7)
(0.1)
17.1
29.2
4.8
4.8
(4.0)
(8.6)
(0.7)
25.5
2012*
£m
21.3
21.3
42.6
Total
2012*
£m
48.4
5.9
5.4
(4.0)
(12.3)
(0.8)
42.6
*Revised on adjustment to provisional fair values on acquisitions made in 2012 (see Note 24).
The properties provision includes provisions for vacant properties where amounts are held against liabilities for onerous lease
commitments, repairs and dilapidations. These provisions cover the relevant periods of the lease agreements, up to the earliest
possible termination date, which typically extend from one to 10 years.
The Group has provisions for expected legal, environmental and other claims based on management’s best estimate at the balance sheet
date of the probable loss likely to be incurred. It expects that these amounts, which are based on detailed plans or other known factors and
take account of past experience for similar items, will be settled within the next one to five years.
The Group is a defendant in a number of legal proceedings incidental to its operations. While any litigation has an element of uncertainty,
management does not expect that the outcome of such proceedings, either individually or in the aggregate, will have a material adverse
effect on the Group’s financial condition or results of operations.
94 BUNZL PLC ANNUAL REPORT 2013
15 DEFERRED TAX
Accelerated capital allowances
Defined benefit obligations
Intangible assets
Share based payments
Provisions
Inventories
Other
Deferred tax asset/(liability)
Set-off of tax
Net deferred tax asset/(liability)
Asset
£m
1.4
14.4
–
13.6
14.0
9.2
5.9
58.5
(51.0)
7.5
Liability
£m
(7.7)
–
(147.5)
–
(1.2)
(15.5)
(8.6)
(180.5)
51.0
(129.5)
2013
Net
£m
(6.3)
14.4
(147.5)
13.6
12.8
(6.3)
(2.7)
(122.0)
–
(122.0)
Asset
£m
1.8
25.3
–
8.6
10.3
8.0
8.6
62.6
(54.7)
7.9
Liability
£m
(7.7)
–
(146.8)
–
(1.2)
(15.0)
(8.6)
(179.3)
54.7
(124.6)
2012*
Net
£m
(5.9)
25.3
(146.8)
8.6
9.1
(7.0)
–
(116.7)
–
(116.7)
Except as noted below, deferred tax is calculated in full on temporary differences under the liability method using the tax rate of the country
of operation.
The Company is able to control the dividend policy of its subsidiaries and, therefore, the timing of the remittance of the undistributed
earnings of overseas subsidiaries. In general, the Company has determined either that such earnings will not be distributed in the
foreseeable future or, where there are plans to remit those earnings, no tax liability is expected to arise. Deferred tax liabilities of
£3.0m (2012: £2.5m) has been recognised in the exceptional case where distribution of earnings is both planned and expected to
result in a tax liability.
Deferred tax assets in respect of temporary differences have only been recognised in respect of tax losses and other temporary differences
where it is probable that these assets will be realised. No deferred tax asset has been recognised in respect of unutilised tax losses of £9.0m
(2012: £5.3m). The unutilised tax losses may be carried forward indefinitely.
No deferred tax has been recognised in respect of unutilised capital losses of £96.1m (2012: £96.1m) as it is not considered probable that
there will be suitable future taxable profits against which they can be utilised.
The movement on the net deferred tax liability is shown below:
Beginning of year
Acquisitions
Credit to income statement
Recognised in other comprehensive income and equity
Reclassification to current tax
Currency translation
End of year
*Revised on adjustment to provisional fair values on acquisitions made in 2012 (see Note 24).
2013
£m
116.7
13.2
(8.8)
3.5
(1.6)
(1.0)
122.0
2012*
£m
113.5
18.5
(3.7)
(5.7)
(2.4)
(3.5)
116.7
BUNZL PLC ANNUAL REPORT 2013 95
NOTES CONTINUED
16 SHARE CAPITAL AND SHARE BASED PAYMENTS
Issued and fully paid ordinary shares of 321⁄7p each
Number ordinary shares in issue and fully paid
Beginning of year
Cancelled – treasury shares
Issued – option exercises
End of year
2013
£m
107.2
2012
£m
114.2
355,420,634
(23,325,000)
1,419,599
353,975,080
–
1,445,554
333,515,233 355,420,634
The Company operates the following share plans for the benefit of employees of the Company and its subsidiaries relating to the acquisition
of shares in the Company. Further details of the share plans operated by the Company are set out in the Directors’ remuneration report.
Sharesave Scheme (2011)
The Sharesave Scheme (2011), approved by shareholders at the 2011 Annual General Meeting, is approved by HM Revenue & Customs in
the UK and is open to all UK employees, including UK based executive directors, who have completed at least three months of continuous
service. It is linked to a contract for monthly savings of up to £250 per month over a period of either three or five years. Under the Sharesave
Scheme (2011) options are granted to participating employees at a discount of up to 20% of the market price prevailing shortly before the
invitation to apply for the option. Options are normally exercisable either three or five years after they have been granted.
The Sharesave Scheme (2011) replaced the Sharesave Scheme (2001) which was approved by shareholders at the 2001 Annual General
Meeting. The Sharesave Scheme (2001) operates on a similar basis to the Sharesave Scheme (2011). Although there are a number of options
outstanding under the Sharesave Scheme (2001), no further options have been granted under this Scheme since it expired in May 2011.
International Sharesave Plan
The International Sharesave Plan was introduced following the approval of the Sharesave Scheme (2001) by shareholders and was extended
following the approval of the Sharesave Scheme (2011). The plan operates on a similar basis to both the Sharesave Scheme (2001) and the
Sharesave Scheme (2011) as described above except that it is linked to a contract for monthly savings of approximately £250 per month (or
equivalent in other currencies) over a period of three years.
Irish Sharesave Plan
The Irish Sharesave Plan was also introduced following the approval of the Sharesave Scheme (2001) by shareholders and was extended
following the approval of the Sharesave Scheme (2011). It is approved by the Irish Revenue Commissioners and operates on a similar basis
to both the Sharesave Scheme (2001) and the Sharesave Scheme (2011) as described above except that it is linked to a contract for monthly
savings of the euro equivalent of approximately £250 per month over a period of three years.
1994 Executive Share Option Scheme (‘1994 Scheme’)
The 1994 Scheme was approved by shareholders at the 1994 Annual General Meeting. No further options have been granted under the 1994
Scheme since it expired in May 2004. A performance condition, based on the Company’s adjusted earnings per share growth relative to UK
RPI inflation over three years, had to be satisfied before options would normally be exercisable. All such performance conditions relating to
options granted under the 1994 Scheme were satisfied. As at 31 December 2013 no options remained outstanding under the 1994 Scheme.
Long Term Incentive Plan (‘LTIP’)
The LTIP was approved by shareholders at the 2004 Annual General Meeting and replaced the 1994 Scheme. The LTIP is divided into two parts.
Part A allows the Board to grant share options. In normal circumstances options granted are only exercisable if the relevant performance
condition has been satisfied. Share options granted to date have a performance condition attached based on the Company’s adjusted
earnings per share growth relative to UK RPI inflation over three years.
Part B of the LTIP allows the Board to grant performance share awards which is a conditional right to receive shares in the Company for nil
consideration. A performance share award will normally vest (i.e. become exercisable) on the third anniversary of its grant to the extent that
the applicable performance condition has been satisfied. The extent to which performance share awards granted vest is normally partly
subject to the Company’s total shareholder return performance and partly subject to the Company’s adjusted earnings per share growth
relative to UK RPI inflation over three years.
The LTIP is due to expire in May 2014 and no further share options or performance share awards will be granted after that date.
A resolution will be proposed at the forthcoming Annual General Meeting to adopt a revised LTIP to be known as the 2014 Long Term
Incentive Plan (‘2014 LTIP’). Further details of the 2014 LTIP are set out in the Directors’ remuneration report.
96 BUNZL PLC ANNUAL REPORT 2013
16 SHARE CAPITAL AND SHARE BASED PAYMENTS CONTINUED
Investment in own shares
The Company holds a number of its ordinary shares in an employee benefit trust. The principal purpose of this trust is to hold shares in
the Company for subsequent transfer to certain senior employees and executive directors relating to options granted and awards made
in respect of market purchase shares under the 1994 Scheme, the LTIP and the Deferred Annual Share Bonus Scheme (‘DASBS’). Details
of such plans are set out above and in the Directors’ remuneration report. The assets, liabilities and expenditure of the trust have been
incorporated in the consolidated financial statements. Finance costs and administration charges are included in the income statement
on an accruals basis. At 31 December 2013 the trust held 6,895,539 (2012: 4,348,175) shares, upon which dividends have been waived,
with an aggregate nominal value of £2.2m (2012: £1.4m) and market value of £100.0m (2012: £43.9m).
During the year 23,325,000 treasury shares with an aggregate nominal value of £7.5m were cancelled.
IFRS 2 disclosures
Options granted during the year have been valued using a stochastic model. The fair value per option granted during the year and the
assumptions used in the calculations are as follows:
Grant date
Share price at grant date (£)
Exercise price (£)
Options granted during the year (shares)
Vesting period (years)
Expected volatility (%)
Option life (years)
Expected life (years)
Risk free rate of return (%)
Expected dividends expressed as a dividend yield (%)
Fair value per option (£)
2013
2012
28.02.13–07.10.13
12.61–13.61
nil–13.75
3,569,284
3–5
18–22
3–10
3.0–6.1
0.3–2.0
2.0–2.2
1.43–3.29
01.03.12–08.10.12
9.73–11.28
nil–11.16
3,985,922
3–5
19–23
3–10
3.0–6.7
0.2–1.2
2.4–2.7
0.94–4.88
The expected volatility is based on historical volatility over the last three to seven years. The expected life is the average expected period
to exercise. The risk free rate of return is the yield on zero coupon UK government bonds of a term consistent with the assumed option life.
The weighted average share price for options exercised by employees of the Company and its subsidiaries during the year was £13.24
(2012: £10.30). The total charge for the year relating to share based payments was £6.2m (2012: £5.7m). After tax the total charge was
£3.7m (2012: £3.3m).
Details of share options and performance share awards which have been granted and exercised, those which have lapsed during 2013 and
those outstanding and available to exercise at 31 December 2013, in each case in respect of all options and awards, whether over new issue
or market purchase shares, under the Sharesave Scheme (2001), Sharesave Scheme (2011), International Sharesave Plan, Irish Sharesave
Plan, 1994 Scheme and LTIP Part A and Part B are set out in the following table:
Options
outstanding
at 01.01.13
Grants/awards
2013
Exercises
Lapses*
2013
2013
Options
outstanding
Options
available
to exercise
at 31.12.13
31.12.13
Number
Number
Price (p)
Number
Price (p) Number
Number
Price (p)
Number
541,751
–
–
218,774
452-580
14,720
308,257
452-580
4,583
232,106
264,611
992
1,416
770-992
41,817
453,484
770-992
6,268
125,063
19,262
68,000
12,808,882
2,021,247
15,816,311
86,964
10,110
–
992
992
–
2,739,459 1,240-1,375
–
468,140
3,569,284
43,666
4,161
68,000
2,864,449
394,533
3,594,999
542-770
542-770
446-452
429-1,116
5,532
2,400
–
162,829
22,811
–
157,250 12,526,642
1,849,391
467,182 15,323,414
– 245,463
580-992
770-992
–
429-1,375
–
–
–
–
3,770,174
36,451
3,817,476
Sharesave
Scheme (2001)
Sharesave
Scheme (2011)
International
Sharesave Plan
Irish Sharesave Plan
1994 Scheme
LTIP Part A
LTIP Part B
*Share option lapses relate to those which have either been forfeited or have expired during the year.
BUNZL PLC ANNUAL REPORT 2013 97
NOTES CONTINUED
16 SHARE CAPITAL AND SHARE BASED PAYMENTS CONTINUED
Sharesave Scheme
International Sharesave Plan
Irish Sharesave Plan
LTIP Part A
LTIP Part B
Weighted
average
fair value
of options
granted (£)
Weighted
average
remaining
contractual
life (years)
2.06
1.43
1.43
1.93
3.14
2013
£m
28.8
63.0
91.8
2.52
2.22
2.22
2.60
2.50
2012
£m
26.1
59.6
85.7
2013
10.0p
22.4p
32.4p
Per share
2012
8.8p
19.4p
28.2p
The outstanding share options and performance share awards are exercis able at various dates up to September 2023.
17 DIVIDENDS
2011 interim
2011 final
2012 interim
2012 final
Total
Total dividends per share for the year to which they relate are:
Interim
Final
Total
The 2013 interim dividend of 10.0p per share was paid on 2 January 2014 and comprised £32.6m of cash. The 2013 final dividend of 22.4p per
share will be paid on 1 July 2014 to shareholders on the register at the close of business on 9 May 2014.
18 CONTINGENT LIABILITIES
Bank guarantees
2013
£m
0.4
2012
£m
0.2
19 DIRECTORS’ ORDINARY SHARE INTERESTS
The interests of the directors, and their connected persons, in the share capital of the Company at 31 December were:
Philip Rogerson
Michael Roney
Patrick Larmon
Peter Johnson
Brian May
David Sleath
Eugenia Ulasewicz
Jean-Charles Pauze
Meinie Oldersma
2013
10,000
312,263
117,838
6,630
105,240
4,000
4,000
2,500
2,500
564,971
2012
10,000
312,263
113,875
6,630
105,240
4,000
4,000
–
–
556,008
Details of directors’ options over ordinary shares and awards made under the LTIP, Sharesave Scheme and DASBS are set out in the
Directors’ remuneration report. Since 31 December 2013 Patrick Larmon has acquired interests in 664 ordinary shares as a result of his
election to participate in the dividend reinvestment plan in respect of the interim dividend which was paid on 2 January 2014 and he has
also acquired an interest in 319 ordinary shares pursuant to the Company’s US Employee Stock Purchase Plan. No other changes to the
directors’ ordinary share interests shown in this note and the Directors’ remuneration report have taken place between 31 December 2013
and 24 February 2014.
98 BUNZL PLC ANNUAL REPORT 2013
20 RETIREMENT BENEFIT OBLIGATIONS
The Group operates a number of retirement benefit schemes in the UK, the US and other countries including both defined benefit and
defined contribution schemes. The funds of the principal defined benefit schemes are administered by trustees and are held independently
from the Group. Pension costs of defined benefit schemes are assessed in accordance with the advice of independent professionally
qualified actuaries. Full triennial actuarial valuations were last carried out on the UK defined benefit schemes in April 2012 and annual
actuarial valuations are performed on the principal US defined benefit schemes. The valuation of the UK defined benefit schemes has been
updated to 31 December 2013 by the Group’s actuaries. Contributions to all schemes are determined in line with actuarial advice and local
conditions and practices. Scheme assets for the purpose of IAS 19 are stated at their bid value.
Characteristics
Europe
The Group operates a number of defined benefit pension schemes in Europe including the UK, France, the Netherlands and the Republic of
Ireland. The Group’s principal defined benefit scheme in Europe is the UK scheme. The UK defined benefit scheme is a contributory defined
benefit pension scheme providing benefits based on final pensionable pay. The scheme has been closed to new members for over 10 years.
The UK scheme is an HMRC registered pension scheme and is subject to standard UK pensions and tax law. This means that the payment of
contributions and benefits are subject to the appropriate tax treatments and restrictions and the scheme is subject to the scheme funding
requirements outlined in section 224 of the Pensions Act 2004.
In accordance with UK trust and pensions law, the pension scheme has a corporate trustee. Although the Company bears the financial cost
of the scheme, the responsibility for the management and governance of the scheme lies with the trustee, which has a duty to act in the best
interest of members at all times. The assets of the scheme are held in trust by the trustee who consults with the Company on investment
strategy decisions.
A de-risking strategy has been agreed for the scheme to reduce the mismatch between the assets and liabilities, whereby investments are
switched from return seeking assets to liability matching assets as the funding improves, based on pre-agreed triggers.
The last triennial review was carried out by a qualified actuary as at 5 April 2012 and showed that there was a deficit on the agreed funding
basis. To address the deficit, the Company has agreed to contribute an additional £5.5m per year from April 2013 to March 2019. In
comparison, in the year to April 2013, the Company paid £5.3m in shortfall contributions.
US
The US defined benefit scheme is a non-contributory defined benefit pension scheme providing benefits based on final pensionable pay.
The scheme has been closed to new members for over 10 years. The assets of the scheme are held in trust by an independent custodian.
The US scheme is a qualified pension scheme and is subject to standard regulations under the Employee Retirement Income Security Act,
the Pension Protection Act 2006 and the Department of Labor and Internal Revenue reporting requirements. The scheme pays annual
premiums to the Pension Benefit Guaranty Corporation to insure the benefits of the scheme.
The Company has established a Retirement Scheme Investment Committee. The members of the Committee are the scheme fiduciaries
and as such are ultimately responsible for the management of the scheme assets. The Committee performs the oversight function and
will delegate the day-to-day management process to appropriate staff. A registered investment adviser advises the Committee regarding
the investment of scheme assets.
A de-risking strategy has been agreed for the scheme to reduce the mismatch between the assets and liabilities, whereby investments are
switched from return seeking assets to liability matching assets as the funding improves, based on pre-agreed triggers.
The last annual review was carried out by a qualified actuary as at 1 January 2013 and showed that there was a required annual contribution
of £2.4m. Bunzl plans to contribute £4.9m for the 2013 plan year to cover prudently this required contribution and anticipate future funding
needs. In comparison, in the 2012 plan year, Bunzl paid a contribution of £4.3m.
Risks
The main risks to which the Company is exposed in relation to the defined benefit schemes are described below:
• Inflation risk — the majority of the UK scheme’s liabilities increase in line with inflation and, as a result, if inflation is greater than expected
the liabilities will increase. The impact of high inflation is capped each year for the UK scheme’s benefits. The US scheme‘s liabilities are
not directly tied to inflationary increases.
• Interest rate risk — a fall in bond yields will increase the value of the schemes’ liabilities. A proportion of both the UK and US schemes’
assets are invested in liability matching assets to mitigate bond yield and inflation risk.
• Mortality risk — the assumptions adopted by the Company make allowance for future improvements in life expectancy. However, if life
expectancy improves at a faster rate than assumed, this would result in greater payments from the schemes and consequently increases
in the schemes’ liabilities. The mortality assumptions are reviewed on a regular basis to minimise the risk of using an inappropriate
assumption.
• Investment risk — the schemes invest in a diversified range of asset classes to mitigate the risk of falls in any one area of the investments.
In the UK, the trustee implements partial currency hedging on the overseas assets to mitigate currency risk.
BUNZL PLC ANNUAL REPORT 2013 99
NOTES CONTINUED
20 RETIREMENT BENEFIT OBLIGATIONS CONTINUED
The risks above could lead to a material deficit in the schemes. Given the long term time horizon of the schemes’ cash flows, the
assumptions used are uncertain and can be volatile from year to year. The Company and the trustees seek to mitigate actively the
risks associated with the schemes.
A higher retirement benefit obligation could lead to additional funding requirements in future years. Any deficit measured on a funding
valuation basis, which may differ from the actuarial valuation under IAS 19, will generally be financed over a period that ensures the
contributions are appropriate to the Group and in line with the relevant regulations.
Financial information
The amounts included in the consolidated financial statements at 31 December were:
Amounts included in net operating expenses
Defined contribution schemes
Defined benefit schemes
current service cost
past service gain
Loss on settlement
Total operating charge
Amounts included in finance cost
Net interest
Total charge
Amounts recognised in the statement of comprehensive income
Actual return less expected return on scheme assets included in net interest
Experience gain on scheme liabilities
Impact of changes in assumptions relating to the present value of scheme liabilities
Actuarial gain/(loss) on pension schemes
*Restated on adoption of IAS 19 (revised 2011) ‘Employee Benefits’ (see Note 1).
2013
£m
12.6
6.6
(0.1)
0.3
19.4
2.8
22.2
2013
£m
18.6
0.1
8.2
26.9
The cumulative amount of actuarial losses arising since 1 January 2004 recognised in the statement of comprehensive income at
31 December 2013 was £84.0m (2012: £110.9m).
The principal assumptions used by the independent qualified actuaries for the purposes of IAS 19 were:
Europe
Longevity at age 65 for current pensioners (years)
Longevity at age 65 for future pensioners (years)
US
Longevity at age 65 for current and future pensioners (years)
2013
22.5
24.3
20.2
Rate of increase in salaries
Rate of increase in pensions
Discount rate
Inflation rate
2013
2012
4.1%
3.2%
4.6%
2.4%
3.7%
2.9%
4.5%
2.2%
Europe
2011
3.8%
3.0%
4.7%
2.3%
2013
2012
3.0%
–
4.9%
2.5%
3.0%
–
4.1%
2.5%
2012*
£m
12.9
5.4
–
–
18.3
3.3
21.6
2012
£m
20.8
4.7
(33.5)
(8.0)
2012
22.5
24.2
20.2
US
2011
3.0%
–
5.1%
2.5%
The assumptions used by the actuaries are the best estimates chosen from a range of possible actuarial assumptions which, due to the
timescales covered, may not necessarily be borne out in practice.
The impact on the net pension deficit as at 31 December 2013 of reasonably possible changes to key assumptions was:
Europe
US
100 BUNZL PLC ANNUAL REPORT 2013
Impact of change
in inflation rate
Impact of change
in discount rate
+0.25%
£m
7.9
(0.1)
–0.25%
£m
(8.4)
0.1
+0.25%
£m
(11.6)
(3.8)
–0.25%
£m
12.4
4.0
20 RETIREMENT BENEFIT OBLIGATIONS CONTINUED
The market value of scheme assets and the present value of retirement benefit obligations at 31 December were:
Equities
Bonds
Other
Total market value of scheme assets
Present value of funded obligations
Present value of unfunded obligations
Present value of funded and unfunded obligations
Deficit
Deferred tax
Net deficit
Equities
Bonds
Other
Total market value of scheme assets
Present value of funded obligations
Present value of unfunded obligations
Present value of funded and unfunded obligations
Unrecognised past service cost
Deficit
Deferred tax
Net deficit
Europe
2013
£m
89.7
150.5
1.4
241.6
(258.8)
(5.4)
(264.2)
(22.6)
6.8
(15.8)
Europe
2012
£m
123.1
96.3
3.1
222.5
(244.9)
(6.1)
(251.0)
–
(28.5)
7.1
(21.4)
US
2013
£m
57.8
31.4
4.8
94.0
(106.7)
(9.7)
(116.4)
(22.4)
7.6
(14.8)
US
2012
£m
45.4
32.1
3.8
81.3
(117.4)
(11.0)
(128.4)
0.1
(47.0)
18.2
(28.8)
Total
2013
£m
147.5
181.9
6.2
335.6
(365.5)
(15.1)
(380.6)
(45.0)
14.4
(30.6)
Total
2012
£m
168.5
128.4
6.9
303.8
(362.3)
(17.1)
(379.4)
0.1
(75.5)
25.3
(50.2)
BUNZL PLC ANNUAL REPORT 2013 101
NOTES CONTINUED
20 RETIREMENT BENEFIT OBLIGATIONS CONTINUED
Five year summary
Total market value of scheme assets
Present value of funded and unfunded obligations
Unrecognised past service cost
Deficit
2013
£m
335.6
(380.6)
–
(45.0)
2012
£m
303.8
(379.4)
0.1
(75.5)
2011
£m
272.3
(346.7)
0.1
(74.3)
Experience adjustments arising on scheme liabilities
(0.2)
(4.7)
0.4
Movement in deficit
Beginning of year
Current service cost
Past service gain
Contributions
Net interest
Actuarial gain/(loss)
Loss on settlement
Currency and other movements
End of year
*Restated on adoption of IAS 19 (revised 2011) ‘Employee Benefits’ (see Note 1).
Changes in the present value of defined benefit obligations
Beginning of year
Current service cost
Past service gain
Interest costs
Contributions by employees
Settlement payments
Actuarial (gain)/loss
Benefits paid
Loss on settlement
Currency translation
End of year
Changes in the fair value of scheme assets
Beginning of year
Interest income
Actuarial gain
Contributions by employer
Contributions by employees
Settlement payments
Benefits paid
Currency translation
End of year
2010
£m
258.0
(310.5)
0.2
(52.3)
1.2
2013
£m
(75.5)
(6.6)
0.1
14.1
(2.8)
26.9
(0.3)
(0.9)
(45.0)
2013
£m
379.4
6.6
(0.1)
16.4
0.8
(0.6)
(8.3)
(12.6)
0.3
(1.3)
380.6
£m
303.8
13.6
18.6
14.1
0.8
(0.6)
(12.6)
(2.1)
335.6
2009
£m
223.1
(283.1)
0.2
(59.8)
1.2
2012*
£m
(74.3)
(5.4)
–
13.2
(3.3)
(8.0)
–
2.3
(75.5)
2012*
£m
346.7
5.4
–
16.3
0.8
–
28.8
(12.0)
–
(6.6)
379.4
£m
272.3
13.0
20.8
13.2
0.8
–
(12.0)
(4.3)
303.8
*Restated on adoption of IAS 19 (revised 2011) ‘Employee Benefits’ (see Note 1).
The actual return on scheme assets was £32.2m (2012: £28.3m).
The Group expects to pay approximately £14.1m in contributions to the defined benefit pension schemes in the year ending 31 December 2014.
The weighted average duration of the defined benefit obligation at 31 December 2013 was approximately 19.8 years for Europe and 13.5 years
for US.
The total retirement benefit obligations are divided between active (£135.0m), deferred members (£121.0m) and pensioners (£124.6m).
102 BUNZL PLC ANNUAL REPORT 2013
21 DIRECTORS AND EMPLOYEES
Average number of employees
North America
Continental Europe
UK & Ireland
Rest of the World
Corporate
Employee costs
Wages and salaries
Social security costs
Retirement benefit obligation costs
Share based payments
2013
4,756
3,408
3,456
2,005
13,625
50
13,675
2013
£m
483.8
60.8
19.4
6.2
570.2
2012
3,687
3,447
3,314
1,241
11,689
49
11,738
2012
£m
418.0
52.7
18.3
5.7
494.7
In addition to the above, acquisition related costs for the year ended 31 December 2013 include deferred consideration payments of £22.0m
(2012: £8.4m) relating to the continued employment of former owners of businesses acquired.
Key management remuneration
Salaries and short term employee benefits
Share based payments
Post employment benefits
2013
£m
5.9
1.9
1.0
8.8
2012
£m
5.2
1.4
1.0
7.6
The Group considers key management personnel as defined in IAS 24 ‘Related Party Disclosures’ to be the directors of the Company and
those members of the Executive Committee and the Managing Directors of the major geographic regions who are not directors of the Company.
Directors’ emoluments
Non-executive directors
Executive directors:
remuneration excluding performance related elements
annual bonus
2013
£m
0.7
2.4
1.9
5.0
2012
£m
0.6
2.3
1.5
4.4
More detailed information concerning directors’ emoluments and long term incentives is set out in the Directors’ remuneration report.
The aggregate amount of gains made by directors on the exercise of share options during the year was £2.5m (2012: £4.1m). The aggregate
market value of performance share awards exercised by directors under long term incentive schemes during the year was £2.0m (2012:
£1.5m). The aggregate market value of shares exercised by directors under the DASBS was £0.9m (2012: £0.9m).
22 LEASE COMMITMENTS
The Group leases certain property, plant and equipment under non-cancellable operating lease agreements. These leases have varying
terms and renewal rights. At 31 December the total future minimum lease payments under non-cancellable operating leases for each of
the following periods were:
Within one year
Between one and five years
After five years
Total of future minimum sublease income under non-cancellable subleases
Land &
buildings
2013
£m
53.2
139.9
65.0
258.1
(0.2)
Other
2013
£m
21.0
33.3
1.9
56.2
–
Land &
buildings
2012
£m
53.0
149.8
66.3
269.1
(0.3)
Other
2012
£m
21.1
32.2
1.0
54.3
–
BUNZL PLC ANNUAL REPORT 2013 103
NOTES CONTINUED
23 CASH AND CASH EQUIVALENTS AND NET DEBT
Cash at bank and in hand
Short term deposits repayable in less than three months
Cash and deposits
Bank overdrafts
Cash and cash equivalents
Current liabilities
Non-current liabilities
Derivative assets – fair value of interest rate swaps on fixed interest rate borrowings
Interest bearing loans and borrowings
Net debt
Movement in net debt
Beginning of year
Net cash outflow
Realised losses on foreign exchange contracts
Currency translation
End of year
2013
£m
73.1
–
73.1
(26.3)
46.8
(46.5)
(855.8)
6.0
(896.3)
(849.5)
2013
£m
(738.1)
(113.2)
(9.7)
11.5
(849.5)
2012
£m
77.0
4.2
81.2
(25.4)
55.8
(204.9)
(599.2)
10.2
(793.9)
(738.1)
2012
£m
(652.9)
(109.4)
(0.9)
25.1
(738.1)
24 ACQUISITIONS
2013
The acquisitions completed in the year ended 31 December 2013 were McNeil Surgical, Vicsa Brasil, Labor Import, MDA, most of the
Industrial & Safety division of Jeminex, TFS, Espomega, ProEpta, Wesclean Equipment & Cleaning Supplies, pka Klöcker, De Santis
and SAS Safety.
McNeil Surgical, a business principally engaged in the sale of healthcare consumables and equipment to aged care facilities, hospitals
and medical centres as well as to distributors throughout South Australia, was acquired on 31 January 2013. Vicsa Brasil, the proposed
acquisition of which was agreed in December 2012, was acquired on 19 February 2013. The business is engaged in the sale of personal
protection equipment throughout Brazil. Labor Import, which is principally engaged in the supply and distribution of own label medical
and healthcare consumable products to distributors as well as to hospitals, clinics, laboratories and care homes throughout Brazil,
was acquired on 1 March 2013. MDA, which is engaged in the procurement and fulfilment of promotional products and marketing point
of sale materials for a variety of customers in the UK, principally in the food and drinks industries, was acquired on 15 March 2013. Three
businesses which formed part of the Industrial & Safety division of Jeminex in Australia were acquired on 30 April 2013. The workwear and
personal safety business distributes an extensive range of specialist personal protection equipment and workwear to the mining, resources,
construction and general industrial sectors. The lifting, rigging and height safety business is principally engaged in the supply of lifting
chains and ropes, slings and load restraints as well as the provision of accredited testing and repair services. The third business is involved
in the supply of industrial packaging products to a variety of customers in different market sectors. TFS, a business engaged in the
procurement and fulfilment of promotional products and marketing point of sale materials for customers in the UK across various market
sectors, was acquired on 31 July 2013. Espomega, a business supplying a variety of safety products, including gloves and protective clothing,
to distributors throughout Mexico, was acquired on 30 August 2013. ProEpta, a leading distributor of catering equipment throughout Mexico,
principally to luxury hotels and restaurants, was acquired on 27 September 2013. Wesclean, a business principally engaged in the
distribution of cleaning and hygiene equipment and supplies to a variety of customer markets throughout Western Canada, was acquired
on 1 November 2013. pka Klöcker, a business based in Germany engaged in the sale to distributors of personal protection equipment,
principally own label workwear, was acquired on 29 November 2013. De Santis, a business based in Brazil and principally engaged in the
sale of personal protection equipment to end user customers in a number of different market sectors, was acquired on 20 December 2013.
SAS Safety, a business specialising in the sourcing and sale of a variety of own label personal protection equipment, principally safety
gloves, to distributors in the US was acquired on 23 December 2013.
Acquisitions involving the purchase of the acquiree’s share capital or the relevant assets of the businesses acquired, have been accounted
for under the acquisition method of accounting. Part of the Group’s strategy is to grow through acquisition. The Group has developed a
process to assist with the identification of the fair values of the assets acquired and liabilities assumed, including the separate identification
of intangible assets in accordance with IFRS 3 ‘Business Combinations’. This formal process is applied to each acquisition and involves an
assessment of the assets acquired and liabilities assumed with assistance provided by external valuation specialists where appropriate.
Until this assessment is complete, the allocation period remains open up to a maximum of 12 months from the relevant acquisition date.
At 31 December 2013 the allocation period for all acquisitions completed since 1 January 2013 remained open and accordingly the fair
values presented are provisional.
104 BUNZL PLC ANNUAL REPORT 2013
24 ACQUISITIONS CONTINUED
Adjustments are made to the assets acquired and liabilities assumed during the allocation period to the extent that further information and
knowledge come to light that more accurately reflect conditions at the acquisition date. To date the adjustments made have impacted assets
acquired to reflect more accurately the estimated realisable or settlement value. Similarly, adjustments have been made to acquired
liabilities to record onerous commitments or other commitments existing at the acquisition date but not recognised by the acquiree.
Adjustments have also been made to reflect the associated tax effects.
The consideration paid or payable in respect of acquisitions comprises amounts paid on completion, deferred consideration and payments
which are contingent on the continued employment of former owners of businesses acquired. IFRS 3 requires that any payments that are
contingent on future employment are charged to the income statement. All other consideration has been allocated against the identified
net assets, with the balance recorded as goodwill. Transaction costs and expenses such as professional fees are charged to the income
statement. The acquisitions provide opportunities for further development of the Group’s activities and create enhanced returns. Such
opportunities and the workforces inherent in each of the acquired businesses do not translate to separately identifiable intangible assets
but do represent much of the assessed value that supports the recognised goodwill.
A summary of the effect of acquisitions completed in 2013 is detailed below:
Book value at
acquisition
£m
Provisional
fair value
adjustments
£m
Fair value
of assets
acquired
£m
Intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Trade and other payables
Net bank overdrafts
Provisions for liabilities and charges
Tax and deferred tax
Goodwill
Consideration
Satisfied by:
cash consideration
deferred consideration
Contingent payments relating to continued employment of former owners
Net bank overdrafts acquired
Transaction costs and expenses
Total committed spend in respect of current year acquisitions
Spend on acquisition committed as at 31 December 2012
Total committed spend in respect of acquisitions agreed in the current year
The net cash outflow in the year in respect of acquisitions comprised:
Cash consideration
Net bank overdrafts acquired
Deferred consideration in respect of prior year acquisitions
Net cash outflow in respect of acquisitions
Acquisition related costs
Total cash outflow in respect of acquisitions
–
11.6
55.4
51.3
(34.2)
(7.5)
(0.3)
0.3
76.6
111.1
(2.0)
(4.2)
(1.0)
(3.8)
–
(4.1)
(13.5)
82.5
111.1
9.6
51.2
50.3
(38.0)
(7.5)
(4.4)
(13.2)
159.1
97.4
256.5
223.8
32.7
256.5
32.4
7.5
8.4
304.8
(9.7)
295.1
223.8
7.5
22.5
253.8
26.1
279.9
Cash flow on acquisition related costs relates to £9.6m (2012: £5.4m) of transaction costs paid and £16.5m (2012: £14.8m) from payments
relating to continued employment of former owners.
Acquisitions made in the year ended 31 December 2013 contributed £129.5m to the Group’s revenue and £16.5m to the Group’s operating
profit before intangible amortisation and acquisition related costs.
The estimated contributions of businesses agreed to be acquired during the year to the results of the Group, as if the acquisitions had been
made at the beginning of the year, are as follows:
Revenue
Operating profit before intangible amortisation and acquisition related costs
£m
281.1
37.5
BUNZL PLC ANNUAL REPORT 2013 105
NOTES CONTINUED
24 ACQUISITIONS CONTINUED
2012
The principal acquisitions made in the year ended 31 December 2012 were CDW Merchants, the redistribution business of Star Services
International, FoodHandler, Zahav, Service Paper, Distrimondo, Indigo Concept Packaging, Atlas Health Care, McCordick Glove & Safety,
Destiny Packaging, Vicsa Safety and Schwarz Paper Company.
CDW Merchants, a business principally engaged in the sale of retail gift packaging and visual merchandising solutions and products to
the specialty retail and online retailing sectors throughout the US, was acquired on 21 February 2012. The Star Services International
redistribution business, which is principally engaged in the supply of foodservice disposable products to wholesalers and redistributors
throughout Queensland, Australia, was acquired on 27 April 2012. FoodHandler, a leading supplier of a variety of disposable gloves and other
foodhandling products to the foodservice sector throughout the US, was acquired on 30 April 2012. Zahav, a leading distributor of packaging
supplies to the foodservice sector throughout Israel was acquired on 30 April 2012. Service Paper, a business principally engaged in the
distribution of disposable supplies to the grocery, foodservice, food processor and industrial packaging sectors throughout the Pacific
Northwest in the US, was acquired on 11 June 2012. Distrimondo, a business principally engaged in the distribution of foodservice
disposables and cleaning and hygiene products throughout Switzerland, was acquired on 29 June 2012. Indigo Concept Packaging, a
business based in the UK and principally engaged in the sale of quality retail packaging products, was acquired on 3 October 2012. Atlas
Health Care, a business principally engaged in the supply of medical consumables to the healthcare sector in South Australia, was acquired
on 31 October 2012. McCordick Glove & Safety, a distributor of gloves and other personal protection equipment to a variety of industrial and
retail customers as well as to redistributors, was acquired on 14 December 2012. Destiny Packaging, a leading distributor of flexible
packaging supplies to fruit and vegetable growers in the US, was acquired on 20 December 2012. Vicsa Safety, a business specialising in the
sourcing and sale of a variety of personal protection equipment throughout Chile, Peru, Argentina, Colombia and Mexico, was acquired on
21 December 2012. Schwarz Paper Company, a business based in Chicago and principally engaged in the provision of consumables and
supply chain solutions for the non-food retail and grocery sectors, was acquired on 28 December 2012.
The Company also entered into an agreement on 21 December 2012 to acquire Vicsa Brasil which distributes personal protection equipment
throughout Brazil. Following clearance from the Brazilian Competition Authority, the acquisition was completed on 19 February 2013.
For the acquisitions made in 2012, the fair value reallocation period remained open during 2013. In accordance with IFRS 3 ‘Business
Combinations’ the Group has adjusted in 2013 the fair values attributable to some of these acquisitions. As a result, customer relationships
have been increased by £16.8m, goodwill has been increased by £0.9m, other assets and liabilities have been decreased by £16.0m and
deferred consideration has been increased by £1.7m. The balance sheet at 31 December 2012 has been revised accordingly.
A summary of the effect of the 2012 acquisitions is detailed below:
Book value at
acquisition
£m
Provisional
fair value
adjustments
in 2012
£m
Adjustments
made in
2013
£m
Final
fair value
adjustments
£m
Fair value
of assets
acquired
£m
Intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Trade and other payables
Net bank overdrafts
Provisions for liabilities and charges
Tax and deferred tax
Goodwill
Consideration
Satisfied by:
cash consideration
deferred consideration
other consideration
–
9.3
81.0
72.0
(54.3)
(21.8)
–
(0.2)
86.0
94.7
(1.2)
(1.2)
(0.2)
(5.1)
–
(2.3)
(14.2)
70.5
16.8
(0.3)
(6.1)
(0.8)
(0.7)
–
(3.1)
(5.0)
0.8
111.5
(1.5)
(7.3)
(1.0)
(5.8)
–
(5.4)
(19.2)
71.3
Contingent payments relating to continued employment
of former owners
Net bank overdrafts acquired
Transaction costs and expenses
Total committed spend in respect of acquisitions completed
Committed spend in respect of acquisition agreed but not completed by 31 December 2012
Total committed spend in respect of acquisitions
106 BUNZL PLC ANNUAL REPORT 2013
111.5
7.8
73.7
71.0
(60.1)
(21.8)
(5.4)
(19.4)
157.3
64.5
221.8
206.0
14.8
1.0
221.8
16.3
21.8
6.9
266.8
9.7
276.5
24 ACQUISITIONS CONTINUED
The net cash outflow in the year in respect of acquisitions comprised:
Cash consideration
Net bank overdrafts acquired
Deferred consideration in respect of prior year acquisitions
Net cash outflow in respect of acquisitions
Acquisition related costs
Total cash outflow in respect of acquisitions
£m
206.0
21.8
6.7
234.5
20.2
254.7
Acquisitions made in the year ended 31 December 2012 contributed £111.3m to the Group’s revenue and £8.7m to the Group’s operating
profit before intangible amortisation and acquisition related costs.
The estimated contributions of acquired businesses to the results of the Group, as if the acquisitions had been made at the beginning of the
year, are as follows:
Revenue
Operating profit before intangible amortisation and acquisition related costs
£m
518.4
36.1
25 RELATED PARTY DISCLOSURES
The Group has identified the directors of the Company, the Group pension schemes and its key management as related parties for the
purpose of IAS 24 ‘Related Party Disclosures’. Details of the relevant relationships with these related parties are disclosed in the Directors’
remuneration report, Note 20 and Note 21 respectively.
26 PRINCIPAL SUBSIDIARY UNDERTAKINGS
Bunzl Australasia Holdings Pty Limited
Bunzl Finance plc*
Bunzl Holding Danmark A/S
Bunzl Distribution Spain SAU
Bunzl Holdings France SNC
Bunzl Outsourcing Services BV
Bunzl UK Ltd
Bunzl USA Holdings LLC
*Direct subsidiary undertaking of Bunzl plc.
Country of incorporation
Australia
England & Wales
Denmark
Spain
France
Netherlands
England & Wales
USA
The companies named above are the principal subsidiary undertakings of Bunzl plc at 31 December 2013, which are wholly owned, and are
included in the consolidated financial statements of the Group. The investments in these companies, as shown above, relate to ordinary
shares or common stock. The principal country in which each company operates is the country of incorporation. The principal activities of
the Group are reviewed in the Chief Executive’s review. A full list of the Group’s subsidiary undertakings will be annexed to the next annual
return filed at Companies House.
BUNZL PLC ANNUAL REPORT 2013 107
COMPANY BALANCE SHEET
AT 31 DECEMBER 2013
Fixed assets
Tangible fixed assets
Investments
Current assets
Debtors
Cash at bank and in hand
Current liabilities
Creditors: amounts falling due within one year
Net current assets
Total assets less current liabilities
Provisions
Net assets
Capital and reserves
Called up share capital
Share premium account
Other reserves
Capital redemption reserve
Profit and loss account
Shareholders’ funds
Notes
3
4
5
6
7
8
9
9
9
9
2013
£m
0.5
654.6
655.1
268.8
0.1
268.9
(109.6)
159.3
814.4
(2.3)
812.1
107.2
153.0
5.6
16.1
530.2
812.1
2012
£m
0.6
654.6
655.2
398.0
0.5
398.5
(109.0)
289.5
944.7
(2.7)
942.0
114.2
143.9
5.6
8.6
669.7
942.0
Approved by the Board of Directors of Bunzl plc (Company registration number 358948) on 24 February 2014 and signed on its behalf by
Michael Roney, Chief Executive and Brian May, Finance Director.
The Accounting policies and Notes on pages 109 to 115 form part of these financial statements.
108 BUNZL PLC ANNUAL REPORT 2013
NOTES TO THE COMPANY FINANCIAL STATEMENTS
1 BASIS OF PREPARATION
The financial statements of Bunzl plc (‘the Company’) have been prepared on a going concern basis and under the historical cost convention
and have been prepared in accordance with the Companies Act 2006 and UK GAAP. Under section 408 of the Companies Act 2006, the
Company is exempt from the requirement to present its own profit and loss account.
In accordance with the exemption allowed by paragraph 5 (a) of Financial Reporting Standard (‘FRS’) 1 ‘Cash Flow Statements’, a cash flow
statement has not been provided for the Company.
The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the
Company’s financial statements.
2 ACCOUNTING POLICIES
a Investments in subsidiary undertakings
Investments in subsidiary undertakings are held at cost less any provision for impairment.
b Investment in own shares
The cost of shares held either directly (treasury shares) or indirectly (employee benefit trust shares) is deducted from equity. Repurchased
shares are classified as treasury shares and are presented as a deduction from total equity. When treasury shares are subsequently sold or
reissued, the amount received is recognised as an increase in equity and the resulting surplus or deficit on the transaction is recognised in
retained earnings.
c Share based payments
The Company operates equity settled share based compensation plans for which the total expected expense is based on the fair value of
options and other share based incentives on the grant date, calculated using a valuation model, and is spread over the expected vesting
period with a corresponding credit to equity. The amount recognised as an expense is adjusted to reflect the number of options that are
expected to vest. Details of the relevant plans are outlined in Note 16 to the consolidated financial statements. Where the Company grants
options over its own shares to the employees of its subsidiaries these awards are accounted for by the Company as an additional investment
in the relevant subsidiary equivalent to the equity settled share based payment charge recognised in the consolidated financial statements
with the corresponding credit recognised directly in equity. Any payment made by the subsidiaries in respect of these arrangements is treated
as a return of this investment. These costs are determined in accordance with FRS 20 ‘Share-based Payment’.
d Tangible fixed assets
All tangible fixed assets are included at historical cost, less accumulated depreciation. The profit or loss on sale of tangible fixed assets
is calculated by reference to the carrying values of the assets. The carrying values of tangible fixed assets are periodically reviewed for
impairment when events or changes in circumstances indicate that the carrying values may not be recoverable.
e Depreciation
Depreciation is provided on a straight line basis to write off cost less estimated residual value over the assets’ estimated remaining useful
lives. This is applied at the following annual rates:
Buildings
Fixtures, fittings and equipment
2% (or depreciated over life of lease if shorter than 50 years)
10%–33%
The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each balance sheet date.
f Leases
Operating lease rentals and any incentives receivable are recognised in the income statement on a straight line basis over the term of the
relevant lease. Leases in which the Company assumes substantially all the risks and rewards of ownership of the leased assets are
classified as finance leases. Where land and buildings are held under leases, the accounting treatment of the land is considered separately
from that of the buildings due to the indefinite life of land.
BUNZL PLC ANNUAL REPORT 2013 109
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
2 ACCOUNTING POLICIES CONTINUED
g Tax
The charge for tax is based on the profit or loss for the year and takes into account tax deferred due to timing differences between the
treatment of certain items for tax and accounting purposes. Deferred tax is recognised in respect of all timing differences between
the treatment of certain items for tax and accounting purposes which have arisen but not reversed by the balance sheet date, except
as otherwise required by FRS 19 ‘Deferred Tax’.
h Retirement benefit obligations
The Company participates in a Group UK defined benefit scheme providing benefits based on final pensionable pay. As the Company is
unable to identify its share of scheme assets and liabilities on a consistent and reasonable basis, the Company treats contributions to the
defined benefit scheme as if they were contributions to a defined contribution scheme in accordance with the exemptions permitted by FRS
17 ‘Retirement Benefits’. As a result the amount charged to the profit and loss account represents the contributions payable to the scheme
in respect of the relevant accounting period.
i Financial guarantee contracts
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within the Group,
the Company considers these to be insurance arrangements and accounts for them as such. In this respect, the Company treats the
guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment
under the guarantee.
j Dividends
The interim dividend is included in the financial statements in the period in which it is paid and the final dividend in the period in which
it is approved by shareholders at the Annual General Meeting.
3 TANGIBLE FIXED ASSETS
Cost
Beginning and end of year
Depreciation
Beginning of year
Charge in year
End of year
Net book value at 31 December 2013
Net book value at 31 December 2012
Short
leasehold
£m
Fixtures,
fittings and
equipment
£m
0.5
0.5
–
0.5
–
–
2.8
2.2
0.1
2.3
0.5
0.6
Total
£m
3.3
2.7
0.1
2.8
0.5
0.6
110 BUNZL PLC ANNUAL REPORT 2013
4 INVESTMENTS HELD AS FIXED ASSETS
Cost
Beginning and end of year
Impairment provisions
Beginning and end of year
Net book value at 31 December 2013
Net book value at 31 December 2012
The principal companies in which the Company’s interest at 31 December 2013 is more than 20% are as follows:
Bunzl Australasia Holdings Pty Limited
Bunzl Finance plc*
Bunzl Holding Danmark A/S
Bunzl Distribution Spain SAU
Bunzl Holdings France SNC
Bunzl Outsourcing Services BV
Bunzl UK Ltd
Bunzl USA Holdings LLC
*Direct subsidiary undertaking of Bunzl plc.
5 DEBTORS
Amounts owed by subsidiary undertakings
Prepayments and other debtors
Corporation tax
Deferred tax
Investments in
subsidiary
undertakings
£m
700.2
45.6
654.6
654.6
Country of incorporation
Australia
England & Wales
Denmark
Spain
France
Netherlands
England & Wales
USA
2013
£m
261.1
1.1
6.4
0.2
268.8
2012
£m
390.0
1.4
6.1
0.5
398.0
BUNZL PLC ANNUAL REPORT 2013 111
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
6 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
Trade creditors
Amounts owed to subsidiary undertakings
Other tax and social security contributions
Accruals and deferred income
7 PROVISIONS
Beginning of year
Utilised or released
End of year
2013
£m
0.2
101.1
1.6
6.7
109.6
2013
£m
2.7
(0.4)
2.3
2012
£m
0.3
100.7
1.4
6.6
109.0
2012
£m
8.7
(6.0)
2.7
The provisions relate to properties, where amounts are held against liabilities for onerous lease commitments, repairs and dilapidations
and other claims.
8 SHARE CAPITAL AND SHARE BASED PAYMENTS
Issued and fully paid ordinary shares of 321⁄7p each
Number of ordinary shares in issue and fully paid
Beginning of year
Cancelled – treasury shares
Issued – option exercises
End of year
2013
£m
107.2
2012
£m
114.2
355,420,634
(23,325,000)
1,419,599
353,975,080
–
1,445,554
333,515,233 355,420,634
The Company operates a number of share plans, for the benefit of employees of the Company and its subsidiaries relating to the acquisition
of shares in the Company, which are described in Note 16 to the consolidated financial statements.
112 BUNZL PLC ANNUAL REPORT 2013
8 SHARE CAPITAL AND SHARE BASED PAYMENTS CONTINUED
FRS 20 disclosures
Options granted to employees of the Company during the year have been valued using a stochastic model. The fair value per option granted
during the year and the assumptions used in the calculations are as follows:
Grant date
Share price at grant date (£)
Exercise price (£)
Options granted during the year (shares)
Vesting period (years)
Expected volatility (%)
Option life (years)
Expected life (years)
Risk free rate of return (%)
Expected dividends expressed as a dividend yield (%)
Fair value per option (£)
2013
28.02.13–07.10.13
12.61–13.61
nil–13.75
525,997
3–5
18–22
3–10
3.0–6.1
0.3–1.8
2.16–2.24
1.78–3.29
2012
01.03.12–08.10.12
9.73–11.28
nil–11.6
632,328
3–5
19–23
3–10
3.0–6.2
0.2–1.2
2.40–2.70
0.94–4.88
The expected volatility is based on historical volatility over the last three to seven years. The expected life is the average expected period
to exercise. The risk free rate of return is the yield on zero coupon UK government bonds of a term consistent with the assumed option life.
The weighted average share price for options exercised by employees of the Company during the year was £13.33 (2012: £10.17). The total
Company charge for the year relating to share based payments was £1.3m (2012: £1.1m).
Details of share options and awards to employees of the Company which have been granted and exercised, those which have lapsed during
2013 and those outstanding and available to exercise at 31 December 2013, in each case in respect of all options and awards, whether over
new issue or market purchase shares, under the Sharesave Scheme (2001), Sharesave Scheme (2011) and Long Term Incentive Plan Part A
and Part B are set out in the following table:
Options
outstanding
at 01.01.13†
Grants/awards
Exercises
Lapses*
Options
outstanding
Options
available
to exercise
2013
2013
2013
at 31.12.13
31.12.13
Sharesave Scheme (2001)
Sharesave Scheme (2011)
LTIP Part A
LTIP Part B
Number
Number
Price (p)
Number
Price (p)
Number
Number
Price (p)
Number
37,731
9,772
1,705,345
927,804
2,680,652
–
11,497
–
992
323,900 1,240-1,375
–
190,600
525,997
8,929
–
370,366
175,582
554,877
542-578
–
568-746
–
1,996
3,154
6,000
108,182
119,332
26,806
18,115
1,652,879
834,640
2,532,440
452-580
770-992
585-1,375
–
–
–
492,979
21,876
514,855
† Options outstanding at 1 January 2013 have been adjusted to include any options held by individuals whose employment has transferred
from a wholly owned subsidiary to the Company and to exclude any options held by individuals whose employment has transferred from
the Company to a wholly owned subsidiary, in each case during 2013.
*Share option lapses relate to those which have either been forfeited or have expired during the year.
Sharesave Scheme
LTIP Part A
LTIP Part B
The outstanding options and awards are exercis able at various dates up to September 2023.
Weighted
average
fair value
of options
granted (£)
Weighted
average
remaining
contractual
life (years)
2.08
1.88
3.14
2.85
2.46
2.50
BUNZL PLC ANNUAL REPORT 2013 113
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
9 CAPITAL AND RESERVES
At 1 January 2013
Issue of share capital
Treasury shares cancelled
Employee trust shares
Movement on own share reserves
Share based payments
Profit for the year
2012 interim dividend
2012 final dividend
At 31 December 2013
Share
capital
£m
114.2
0.5
(7.5)
Share
premium
account
£m
143.9
9.1
Other
reserves
£m
5.6
Capital
redemption
reserve
£m
8.6
7.5
Profit and loss account
Retained
earnings
£m
Own
shares
£m
(223.4)
893.1
163.1
(50.1)
10.4
(163.1)
(10.4)
1.3
1.1
(28.8)
(63.0)
630.2
Total
£m
942.0
9.6
–
(50.1)
–
1.3
1.1
(28.8)
(63.0)
812.1
107.2
153.0
5.6
16.1
(100.0)
As permitted by section 408 of the Companies Act 2006, the profit and loss account of the Company has not been separately presented
in these financial statements.
Included within own shares are ordinary shares of the Company held by the Group in an employee benefit trust. The principal purpose of
this trust is to hold shares in the Company for subsequent transfer to certain senior employees and executive directors relating to options
granted and awards made in respect of market purchase shares under the Long Term Incentive Plan and the Deferred Annual Share
Bonus Scheme. Details of such plans are set out in Note 16 to the consolidated financial statements and the Directors’ remuneration
report. The assets, liabilities and expenditure of the trust have been incorporated in the consolidated financial statements. Finance costs
and administration charges are included in the income statement on an accruals basis. At 31 December 2013 the trust held 6,895,539
(2012: 4,348,175) shares, upon which dividends have been waived, with an aggregate nominal value of £2.2m (2012: £1.4m) and market
value of £100.0m (2012: £43.9m).
During the year 23,325,000 treasury shares with an aggregate nominal value of £7.5m were cancelled.
114 BUNZL PLC ANNUAL REPORT 2013
10 RECONCILIATION OF MOVEMENT IN SHAREHOLDERS’ FUNDS
Profit for the year
Dividends
Issue of share capital
Employee trust shares
Share based payments
Net (decrease)/increase in shareholders’ funds
Opening shareholders’ funds
Closing shareholders’ funds
2013
£m
1.1
(91.8)
(90.7)
9.6
(50.1)
1.3
(129.9)
942.0
812.1
2012
£m
197.5
(85.7)
111.8
7.9
(9.6)
5.7
115.8
826.2
942.0
The Company had no other recognised gains or losses in the year ended 31 December 2013 or the year ended 31 December 2012.
11 CONTINGENT LIABILITIES
Borrowings by subsidiary undertakings totalling £874.3m (2012: £778.2m) which are included in the Group’s borrowings have been
guaranteed by the Company.
12 DIRECTORS’ REMUNERATION
The remuneration of the directors of the Company is disclosed in Note 21 to the consolidated financial statements and the Directors’
remuneration report.
13 EMPLOYEE NUMBERS AND COSTS
The average number of persons employed by the Company (including directors) during the year was 41 (2012: 41).
The aggregate employee costs relating to these persons were:
Wages and salaries
Social security costs
Share based payments
Pension costs
2013
£m
7.5
1.6
1.3
1.0
11.4
2012
£m
7.6
1.0
1.1
0.9
10.6
14 RELATED PARTY DISCLOSURES
The Company has identified the directors of the Company, the UK pension scheme and its key management as related parties for the
purpose of FRS 8 ‘Related Party Disclosures’. Details of the relevant relationships with these related parties are disclosed in the Directors’
remuneration report, Note 20 of the consolidated financial statements and Note 21 of the consolidated financial statements respectively.
BUNZL PLC ANNUAL REPORT 2013 115
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The directors are responsible for preparing the Group and parent
company financial statements in accordance with applicable law
and regulations.
The directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company’s website.
Company law requires the directors to prepare Group and parent
company financial statements for each financial year. Under that law
the directors are required to prepare the Group financial statements
in accordance with IFRS as adopted by the EU and applicable law and
have elected to prepare the parent company financial statements in
accordance with UK GAAP and applicable law.
Under company law the directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and parent company and
of their profit or loss for that period.
In preparing both the Group and parent company financial
statements, the directors are required to:
• select suitable accounting policies and then apply them
consistently;
• make judgements and estimates that are reasonable and prudent;
• for the Group financial statements, state whether they have been
prepared in accordance with IFRS as adopted by the EU;
Legislation in the UK governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
The Annual Report and financial statements comply with the
Disclosure and Transparency Rules of the United Kingdom’s Financial
Conduct Authority in respect of the requirement to produce an annual
financial report.
We confirm on behalf of the Board that to the best of our knowledge:
• the Group and parent company financial statements have been
prepared in accordance with the applicable set of accounting
standards and give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and the
undertakings included in the consolidation taken as a whole; and
• the Annual Report and financial statements include a fair review of
the development and performance of the business and the position
of the Company and the undertakings included in the consolidation
taken as a whole, together with a description of the principal risks
and uncertainties that they face.
• for the parent company financial statements, state whether
applicable UK GAAP has been followed, subject to any material
departures disclosed and explained in the parent company
financial statements; and
On behalf of the Board
Michael Roney
Chief Executive
24 February 2014
Brian May
Finance Director
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and the
parent company will continue in business.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the parent company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the parent company and enable them to ensure
that its financial statements comply with the Companies Act 2006.
They have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Group
and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the directors are also
responsible for preparing a strategic report, directors’ report,
Directors’ remuneration report and Corporate governance
statement that comply with that law and those regulations.
116 BUNZL PLC ANNUAL REPORT 2013
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BUNZL PLC ONLY
OPINION AND CONCLUSIONS ARISING FROM OUR AUDIT
1 Our opinion on the financial statements is unmodified
We have audited the financial statements of Bunzl plc for the year ended 31 December 2013 which comprise the consolidated income
statement, the consolidated statement of comprehensive income, the Group and parent company balance sheets, the consolidated cash
flow statement, the consolidated statement of changes in equity and related notes. In our opinion:
• the financial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 31 December 2013
and of the Group’s profit for the year then ended;
• the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted
by the European Union;
• the parent company financial statements have been properly prepared in accordance with UK Accounting Standards; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group
financial statements, Article 4 of the IAS Regulation.
2 Our assessment of risks of material misstatement
In arriving at our audit opinion on the financial statements, the risks of material misstatements that had the greatest effect on our audit
were as follows:
The risk
Our response
Business combination accounting – goodwill and intangible assets recognised in 2013 of £208.5m
Refer to page 45 (Audit Committee report), page 77 (accounting policy) and pages 104 to 107 (financial disclosures)
Given the acquisitive nature of the Group, accounting for acquisitions
is considered a significant audit risk due to the judgements involved.
Any error made in the identification and/or valuation of acquired
intangibles gives rise to an equal, compensating error in goodwill.
Whereas acquired intangibles are amortised in the income
statement, goodwill is carried at cost with only impairment losses
affecting the income statement.
Our audit procedures in this area included assessing the
competency of the external experts used by the Group to value
significant acquired intangibles. We challenged, through our own
experience, the methodology and assumptions used, in particular
those relating to the growth and discount rates used to determine
the present value of the cash flow projections. We also assessed
whether the Group’s disclosures about the business combinations
are appropriate and in accordance with relevant accounting
standards.
Goodwill and intangibles – value at 31 December 2013 of £1,456.9m
Refer to page 45 (Audit Committee report), page 78 (accounting policy) and pages 87 to 88 (financial disclosures)
The recoverability of these assets, which are spread across multiple
geographies and economies, is dependent on individual businesses
acquired sustaining sufficient profitability in the future. Due to the
inherent uncertainty involved in forecasting and discounting future
cash flows, which are the basis of the assessment of recoverability,
this is one of the key judgemental areas that our audit is
concentrated on.
In this area our audit procedures included, among others, using our
own valuation specialist to assist us in evaluating the judgements
and methodologies used by the Group, in particular those relating
to the discount rate used to determine the present value of the cash
flow projections. We compared the Group’s assumptions to
externally derived data, as well as to our own assessments,
in relation to key inputs such as projected economic growth,
competition, cost inflation and discount rates and applied
sensitivities in assessing whether the Group’s assessments were
too conservative or optimistic. We also assessed whether the
Group’s disclosures reflected appropriately the outcome of its
impairment testing.
Tax – total tax charge of £83.1m, income tax payable of £62.2m
Refer to page 45 (Audit Committee report), page 79 (accounting policy) and pages 84 to 85 (financial disclosures)
Tax provisioning is considered a significant audit risk due to the
Group operating in a number of tax jurisdictions, the complexities
of international tax legislation and the time taken for tax matters
to be agreed with the local tax authorities.
The directors are required to make judgements and estimates
in determining the liability for income taxes recognised in the
consolidated financial statements.
Using the knowledge and experience of our own tax specialists, both
at a Group and component level, we challenged the appropriateness
of the directors’ judgements and estimates in relation to tax liabilities
including the range of possible amounts that may be assessed under
tax laws, likely settlement based on the latest correspondence with
the relevant tax authorities and the complexity of tax legislation. We
also assessed whether the Group’s tax disclosures are appropriate
and in accordance with relevant accounting standards.
BUNZL PLC ANNUAL REPORT 2013 117
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BUNZL PLC ONLY CONTINUED
The risk
Our response
Retirement benefit obligations – £45.0m
Refer to page 45 (Audit Committee report), page 79 (accounting policy) and pages 99 to 102 (financial disclosures)
The Group has a number of defined benefit pension schemes.
Significant estimates are made in valuing the Group’s post-
retirement defined benefit schemes and small changes in
assumptions and estimates used to value the Group’s net pension
deficit would have a significant effect on the results and financial
position of the Group.
Using the knowledge and experience of our own actuarial specialists,
we challenged the key assumptions and estimates applied to
membership data to determine the Group’s net deficit including
discount rate, inflation rate and mortality/life expectancy. This included
a comparison of these key assumptions against externally derived data.
We also considered the adequacy of the Group’s disclosures in respect
of the sensitivity of the deficits to these assumptions.
3 Our application of materiality and an overview of the scope of
our audit
The materiality for the Group financial statements as a whole was set
at £15m. This has been determined with reference to a benchmark
of Group profit before taxation (of which it represents 5.2%), which
we consider to be one of the principal considerations for members
of the Company in assessing the financial performance of the Group.
We agreed with the Audit Committee to report to it all corrected
and uncorrected misstatements we identified through our audit
with a value in excess of £0.75m in addition to other audit
misstatements below that threshold that we believed warranted
reporting on qualitative grounds.
Audits for Group reporting purposes were performed by component
audit teams at 35 components in North America, Continental Europe,
UK & Ireland and Rest of the World. In addition, specified audit
procedures were performed by five components in the United
Kingdom and Continental Europe. These Group procedures covered
99% of total Group revenue; 98% of Group profit before taxation and
98% of total Group assets.
The audits undertaken for Group reporting purposes at all the key
reporting components of the Group were all performed to local
materiality levels. These local materiality levels were set individually
for each component and agreed with the Group audit team and
ranged from £53,000 to £12.8m.
Detailed instructions were sent to all the auditors in these locations.
These instructions covered the significant areas that should be
addressed by the component auditors (which included the relevant
risks of material misstatement detailed above) and set out the
information required to be reported back to the Group audit team.
The Group audit team visited the following locations: North America,
UK, Chile and Denmark. Telephone meetings were also held with the
auditors at these locations and the majority of the other locations
that were not physically visited.
4 Our opinion on other matters prescribed by the Companies
Act 2006 is unmodified
In our opinion:
• the part of the Directors’ remuneration report to be audited has been
properly prepared in accordance with the Companies Act 2006; and
• the information given in the strategic report and the directors’
report for the financial year for which the financial statements
are prepared is consistent with the financial statements.
5 We have nothing to report in respect of the matters on which
we are required to report by exception
Under ISAs (UK and Ireland) we are required to report to you if, based
on the knowledge we acquired during our audit, we have identified
other information in the Annual Report that contains a material
inconsistency with either that knowledge or the financial statements,
a material misstatement of fact, or that is otherwise misleading.
118 BUNZL PLC ANNUAL REPORT 2013
In particular, we are required to report to you if:
• we have identified material inconsistencies between the
knowledge we acquired during our audit and the directors’
statement that they consider that the Annual Report and financial
statements taken as a whole is fair, balanced and understandable
and provides the information necessary for shareholders to assess
the Group’s performance, business model and strategy; or
• the Audit Committee report on page 44 does not appropriately
address matters communicated by us to the Audit Committee.
Under the Companies Act 2006 we are required to report to you if,
in our opinion:
• adequate accounting records have not been kept by the parent
company or returns adequate for our audit have not been received
from branches not visited by us; or
• the parent company financial statements and the part of the
Directors’ remuneration report to be audited are not in agreement
with the accounting records and returns; or
• certain disclosures of directors’ remuneration specified by law
are not made; or
• we have not received all the information and explanations we
require for our audit.
Under the Listing Rules we are required to review:
• the directors’ statement, set out on page 29, in relation to going
concern; and
• the part of the Corporate governance statement on pages 39 to 43
relating to the Company’s compliance with the nine provisions of
the 2010 UK Corporate Governance Code specified for our review.
We have nothing to report in respect of the above responsibilities.
Scope of report and responsibilities
As explained more fully in the Statement of directors’ responsibilities
set out on page 116, the directors are responsible for the preparation
of the financial statements and for being satisfied that they give a
true and fair view. A description of the scope of an audit of financial
statements is provided on the Financial Reporting Council’s website
at www.frc.org.uk/auditscopeukprivate. This report is made solely
to the Company’s members as a body and is subject to important
explanations and disclaimers regarding our responsibilities,
published on our website at www.kpmg.com/uk/auditscopeukco2013a,
which are incorporated into this report as if set out in full and should
be read to provide an understanding of the purpose of this report,
the work we have undertaken and the basis of our opinions.
Michael Maloney (Senior Statutory Auditor)
for and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
15 Canada Square, London
24 February 2014
FIVE YEAR REVIEW
Revenue
Operating profit before intangible amortisation and acquisition
related costs
Intangible amortisation and acquisition related costs
Operating profit
Finance income
Finance cost
Disposal of business
Profit before income tax
Profit before income tax, intangible amortisation, acquisition
related costs and disposal of business
Income tax
Profit for the year
Basic earnings per share
Adjusted earnings per share
2013
£m
2012*
£m
2011*
£m
2010*
£m
2009*
£m
6,097.7
5,359.2
5,109.5
4,829.6
4,648.7
414.4
(82.3)
332.1
2.6
(44.8)
–
289.9
372.2
(83.1)
206.8
352.4
(58.6)
293.8
3.6
(37.6)
4.0
263.8
318.4
(72.5)
191.3
335.7
(56.4)
279.3
3.5
(37.0)
(56.0)
189.8
302.2
(68.8)
121.0
306.7
(51.0)
255.7
3.5
(37.9)
–
221.3
272.3
(65.1)
156.2
295.7
(41.8)
253.9
2.1
(42.3)
–
213.7
255.5
(66.4)
147.3
63.5p
82.4p
58.7p
70.6p
37.3p
67.6p
48.2p
59.7p
43.9p
55.4p
*Restated on adoption of IAS 19 (revised 2011) ‘Employee Benefits’ (see Note 1).
BUNZL PLC ANNUAL REPORT 2013 119
SHAREHOLDER INFORMATION
FINANCIAL CALENDAR
Annual General Meeting
Results for the half year to 30 June 2014
Results for the year to 31 December 2014
Annual Report circulated
2014
16 April
26 August
2015
February
March
Dividend payments are normally made on these dates:
Ordinary shares (final)
Ordinary shares (interim)
1 July
2 January
ANALYSIS OF ORDINARY SHAREHOLDERS
At 31 December 2013 the Company had 5,397 (2012: 5,429)
shareholders who held 333.5 million (2012: 355.4 million) ordinary
shares between them, analysed as follows:
Number of
shareholders
% of issued
share capital
Size of holding
0 – 10,000
10,001 – 100,000
100,001 – 500,000
500,001 – 1,000,000
1,000,001 and over
REGISTRAR
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS99 6ZZ
Telephone +44 (0) 870 889 3257
Fax +44 (0) 870 703 6101
Email webcorres@computershare.co.uk
Website www.computershare.com
INVESTOR CENTRE
Shareholders can manage their shareholding online at
www.investorcentre.co.uk. The Investor Centre is our registrar’s
easy to use website, available 24 hours a day, 7 days a week, where
the following services are available:
• change of address;
• view share balance information;
• join the dividend reinvestment plan; and
• view dividend payment and tax information.
In order to register for the Investor Centre, shareholders will need
their shareholder reference number which can be found on either
their share certificate or dividend tax voucher.
DIVIDEND PAYMENT BY BACS
Shareholders can have their dividends paid directly into their bank
or building society account using the Bankers’ Automated Clearing
Service (‘BACS’). This means that dividends will be in the account on
the same day the dividend payment is made. Shareholders will receive
their tax vouchers by post. To use this method of payment please
contact our registrar on +44 (0) 870 889 3257 or visit the Investor
Centre website. Please note that this option will not override any
existing dividend scheme mandate, which would need to be revoked
in writing.
DIVIDEND REINVESTMENT PLAN
The Company operates a dividend reinvestment plan which allows
shareholders to use the whole of their cash dividend to buy additional
shares in the Company, thereby increasing their shareholding.
120 BUNZL PLC ANNUAL REPORT 2013
Shareholders can apply to join the plan online in the Investor Centre
or can contact the Company’s registrar to request the terms and
conditions of the plan and a printed mandate form.
AMERICAN DEPOSITARY RECEIPTS
The Company has a sponsored Level 1 American Depositary Receipt
(ADR) programme that trades on the over-the-counter (OTC) market
in the US. Citibank N.A. acts as the Depositary Bank.
Telephone Citibank New York +1 212 723 5435
Citibank London +44 (0) 20 7500 2030
Email citiadr@citi.com
Website www.citi.com/dr
GLOBAL PAYMENTS SERVICE
Shareholders may if they wish have their dividend payments paid
directly into their bank account in certain foreign currencies. Please
contact the Company’s registrar on +44 (0) 870 889 3257 to request
further information about the currencies for which this service
is available.
4,784
363
159
37
54
5,397
2
4
10
8
76
100
SHARE DEALING
Bunzl plc shares can be traded through most banks and
stockbrokers. The Company’s registrar also offers an internet
and telephone dealing service. Further details can be found at
www.computershare.com/dealing/uk or by telephoning
+44 (0) 870 703 0084.
SHAREGIFT
Sometimes shareholders have only a small holding of shares which
may be uneconomical to sell. Shareholders who wish to donate these
shares to charity can do so through ShareGift, an independent
charity share donation scheme (registered charity no. 1052686).
Further information about ShareGift may be obtained from ShareGift
on +44 (0) 20 7930 3737 or at www.sharegift.org.
SHAREHOLDER SECURITY
Shareholders are advised to be cautious about any unsolicited
financial advice, offers to buy shares at a discount or offers of
free company reports. More detailed information about this can
be found at www.fca.org.uk in the Consumers section. Details of
any share dealing facilities that the Company endorses
will be included in Company mailings.
AUDITOR
KPMG Audit Plc
STOCKBROKERS
J.P. Morgan Cazenove
Citigroup
COMPANY SECRETARY
Paul Hussey
REGISTERED OFFICE
York House
45 Seymour Street
London W1H 7JT
Telephone +44 (0) 20 7725 5000
Fax +44 (0) 20 7725 5001
Website www.bunzl.com
Registered in England no. 358948
FORWARD-LOOKING STATEMENTS
The Annual Report contains certain statements about the future
outlook for the Group. Although the Company believes that the
expectations are based on reasonable assumptions, any statements
about future outlook may be influenced by factors that could cause
actual outcomes and results to be materially different.
Printed on Amadeus 50 Silk which is produced using
50% recycled post-consumer waste and 50% wood fibre
from fully sustainable forests with FSC® certification.
All pulps used are Elemental Chlorine Free (ECF). Printed
in the UK by Pureprint using their
environmental printing technology and vegetable inks were
used throughout. Pureprint is a Carbon Neutral® company.
Both the manufacturing mill and the printer are registered
to the Environmental Management System ISO14001 and are
Forest Stewardship Council® (FSC) chain-of-custody certified.
® and
®
Designed and produced by
York House
45 Seymour Street
London W1H 7JT
www.bunzl.com