If you are looking at this on a tablet,
the search, print and go to page
functions will not work.
Welcome to
the Bunzl plc
Annual Report 2018
Use the interactive PDF control panel along the
top of each page to help you find information
and navigate around this document easily.
Go to
home
page
Search
Print
Previous
view
Go to
page
Go to
contents
Navigate
within
the report
Links
Dynamic links within the text are indicated
when the user rolls over hyperlinks and the
mouse cursor changes to a pointed hand.
Full screen mode
This PDF is set up to view in full screen
mode. To turn this off, press esc and the
full toolbar is revealed.
Financial statementsStrategic reportDirectors’ report Delivering
business
solutions
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report Bunzl plc is a focused and successful specialist
international distribution and services Group providing
customised solutions. We support businesses all over the
world with a variety of products that are essential for our
customers in the successful operation of their businesses.
Through our strategy we have built leading positions
in a number of market sectors in the Americas, Europe
and Asia Pacific.
Delivering business solutions around the world
Expert
knowledge
and advice
Value added
services
Customised
digital
solutions
Read more
pg 15
Read more
pg 16
Read more
pg 17
www.bunzl.com
Financial statementsStrategic reportDirectors’ report Directors’ report
56
58
66
68
73
98
Board of directors
Corporate governance report
Nomination Committee report
Audit Committee report
Directors’ remuneration report
Other statutory information
Contents
Strategic report
1
2
4
6
9
10
12
13
14
18
20
26
27
36
40
51
Financial highlights
Group at a glance
Chairman’s statement
Chief Executive’s review
Investment case
Our business model
Purpose, values, strategy and culture
Our strategy
Our unique service offering
Key performance indicators
Financial review
Our management team
Operating review
Our people
Corporate responsibility
Principal risks and uncertainties
Financial statements
102
103
Consolidated income statement
Consolidated statement of
comprehensive income
Consolidated balance sheet
Consolidated statement of
changes in equity
Consolidated cash flow statement
Notes
Company balance sheet
Company statement of changes
in equity
Notes to the Company
financial statements
Statement of directors’
responsibilities
Independent auditors’ report
to the members of Bunzl plc
Shareholder information
Five year review
104
105
106
107
148
149
150
155
156
162
169
Financial highlights
Our long term track record of strong cash generation has enabled us to pay a growing
dividend over the past 26 years and to support our growth strategy by making
acquisitions and reinvesting in the underlying business.
Adjusted earnings per share*
Cash conversion*
Dividend per share
129.6p
(2017: 119.4p)
+12%
Growth at constant exchange rates
(Actual exchange rates +9%)
94%
(2017: 97%)
50.2p
(2017: 46.0p)
+9%
Revenue
Adjusted operating profit*
Adjusted profit before income tax*
£9,079.4m
(2017: £8,580.9m)
+9%
£614.0m
(2017: £589.3m)
+7%
£559.0m
(2017: £542.6m)
+6%
Growth at constant exchange rates
(Actual exchange rates +6%)
Growth at constant exchange rates
(Actual exchange rates +4%)
Growth at constant exchange rates
(Actual exchange rates +3%)
Operating profit
Profit before income tax
Basic earnings per share
£466.2m
(2017: £456.0m)
£424.8m
(2017: £409.3m)
98.4p
(2017: 94.2p)
Actual exchange rates +2%
Actual exchange rates +4%
Actual exchange rates +4%
* Alternative performance measure (see Note 3 on page 114).
Growth at constant exchange rates is calculated by comparing the 2018 results to the results for 2017 retranslated at the average exchange rates used for 2018.
Bunzl plc Annual Report 2018
1
Financial statementsStrategic reportDirectors’ report Group at a glance
We provide a one-stop-shop, on-time and in-full
specialist distribution service across more
than 30 countries, supplying a broad range
of internationally sourced non-food products
to a variety of market sectors.
Markets served
(% of 2018 revenue)
Foodservice
Retail
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.
29%
Goods not for resale, including
packaging and other store supplies and
a full range of cleaning and hygiene
products, to retail chains, boutiques,
office supply companies, department
stores, home improvement chains and
related e-commerce sales channels.
11%
Grocery
Healthcare
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 and
supermarkets.
26%
Healthcare consumables, including
gloves, swabs, gowns, bandages and
other healthcare related equipment
and cleaning and hygiene products
to hospitals, care homes and other
facilities serving the healthcare sector.
7%
Safety
Other
A complete range of personal
protection equipment, including
gloves, boots, hard hats, ear and
eye protection and other workwear,
to industrial and construction markets.
A variety of product ranges to other
end user markets.
3%
12%
Cleaning & Hygiene
Cleaning and hygiene materials,
including chemicals and hygiene
paper, to cleaning and facilities
management companies and industrial
and public sector customers.
12%
2
North
America
Revenue
£5,277.8m
% of 2018 revenue
58%
Adjusted operating profit*
£317.1m
• Revenue increased 8% at
constant exchange rates.
• Adjusted operating profit* up
3% at constant exchange rates.
• Decrease in operating margin*
from 6.3% to 6.0%.
• Return on operating capital*
down from 53.6% to 48.4%.
Read more
pg 28
* Alternative performance measure (see Note 3 on page 114).
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report Expansion
into Norway
The purchase of Enor in July 2018
was an important development for the
Group as it represented Bunzl’s first
acquisition in Norway and expanded
Bunzl’s operations in Scandinavia.
The business is engaged in the supply
of a broad range of catering equipment
to end user customers principally
operating in the foodservice sector.
Continental
Europe
Revenue
£1,797.5m
% of 2018 revenue
20%
UK &
Ireland
Revenue
£1,263.6m
% of 2018 revenue
14%
Rest of
the World
Latin America and Asia Pacific
Revenue
£740.5m
% of 2018 revenue
8%
Adjusted operating profit*
Adjusted operating profit*
Adjusted operating profit*
£176.8m
• Revenue up 12% at constant
exchange rates.
• Adjusted operating profit* up
18% at constant exchange rates.
• Improvement in operating
margin* from 9.3% to 9.8% at
constant exchange rates.
• Return on operating capital*
up from 57.5% to 60.4%.
Read more
pg 30
£86.8m
• Revenue increased 6% at
constant exchange rates.
• Adjusted operating profit* down
2% at constant exchange rates.
• Operating margin* down from
7.4% to 6.9%.
• Return on operating capital*
down from 90.0% to 87.8%.
Read more
pg 32
£56.4m
• Revenue up 12% at constant
exchange rates.
• Adjusted operating profit* up
15% at constant exchange rates.
• Operating margin* up from
7.4% to 7.6% at constant
exchange rates.
• Return on operating capital*
down from 32.4% to 31.9%.
Read more
pg 34
Bunzl plc Annual Report 2018
3
Financial statementsStrategic reportDirectors’ report Chairman’s statement
The combination of the strength, resilience and
reliability of our business model and the continued
successful execution of our consistent and proven
strategy have together delivered further growth.
Results
I am pleased to report that Bunzl has produced
another good set of results for 2018 against
the background of variable macroeconomic
and market conditions across the countries
and sectors in which we operate.
Group revenue increased by 6% to £9,079.4
million (2017: £8,580.9 million) and adjusted
operating profit was up 4% to £614.0 million
(2017: £589.3 million). Adjusted profit before
income tax increased 3% to £559.0 million
(2017: £542.6 million) and adjusted earnings
per share were 129.6p (2017: 119.4p), an
increase of 9%. Profit before income tax
increased 4% to £424.8 million (2017: £409.3
million) and basic earnings per share were
also up 4% to 98.4p (2017: 94.2p).
Overall currency translation movements,
principally the strengthening of sterling
against the US dollar, had a negative
impact on the reported Group growth
rates at actual exchange rates. At constant
exchange rates, revenue increased by 9%
and adjusted operating profit rose by 7%
with the Group operating margin down
10 basis points at 6.8%. Adjusted earnings
per share were up 12%.
Return on average operating capital
decreased from 53.1% in 2017 to 50.7%,
principally driven by a lower return in the
underlying business, partly offset by the
positive impact of acquisitions net of
disposals and exchange rate movements.
Return on invested capital of 15.0% was
down from 16.0% in 2017 as a result of the
impact of recent acquisitions and disposals,
a lower return in the underlying business
and an adverse impact from exchange
rate movements.
Dividend
The Board is recommending a final
dividend of 35.0p. This brings the total
dividend for the year to 50.2p, up 9%
compared to 2017. Shareholders will
again have the opportunity to participate
in our dividend reinvestment plan.
Strategy
Our consistent and proven strategy of
developing the business through organic
growth, consolidating the markets in which
we compete through focused acquisitions
and continuously improving the quality
of our operations and making our
businesses more efficient has delivered
another successful year for Bunzl.
We seek to achieve organic growth by
continually redefining and deepening our
commitment to our customers. We apply our
resources, knowledge and expertise to offer
an efficient and cost-effective one-stop-shop
solution to enable our customers to reduce
or eliminate the hidden costs of sourcing
and distributing a broad range of goods
that are essential to the successful operation
of their businesses but which they do not
themselves resell. By doing so, combined
with the provision of a variety of value
added, innovative, sustainable and
customised service solutions, our customers
are able to focus on their core businesses
and achieve purchasing efficiencies and
savings, while at the same time free up
working capital, improve their distribution
capabilities, reduce carbon emissions
and simplify their internal administration.
Acquisition activity continued in 2018,
albeit at a slower pace compared to the
record year of 2017. Excluding Aggora in
the UK and Talge in Brazil, which we agreed
to acquire in 2017 and completed at the
beginning of January 2018, but including
Volk do Brasil which we agreed to acquire
in October 2018 and completed in January
2019, we made six acquisitions in 2018.
The total committed spend for these
businesses was £183 million which added
annualised revenue of £148 million.
4
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report Revenue £bn
£9.1bn
6.1
6.2
6.5
5.4
5.1
4.6
4.8
9.1
8.6
7.4
09
10
11
12
13
14
15
16
17
18
Adjusted operating profit* £m
£614m
614
589
525
414
430
455
336
352
296
307
09
10
11
12
13
14
15
16
17
18
Adjusted earnings per share* p
09–12 restated on adoption of
IAS 19 (revised 2011)
129.6p
86.2
82.4
91.0
67.6
70.6
55.4 59.7
129.6
119.4
106.1
09
10
11
12
13
14
15
16
17
18
Share price range p
High
2,452p
Low
1,936p
1,450
1,167
1,014
852
884
777
616
676
675
482
2,465
2,452
2,436
1,950
1,820
2,016
1,936
1,671
1,735
1,367
09
10
11
12
13
14
15
16
17
18
* Alternative performance measure (see Note 3 on page 114).
Bunzl plc Annual Report 2018
During the first half of the year we also
completed the disposal of two non-core
businesses which were no longer considered
to be a strategic fit within the portfolio of the
Group’s businesses. OPM was involved in
the sale of SodaStream products to retailers
in France and the marketing services
business in the UK had limited opportunities
to expand overseas. The aggregate
annualised revenue of both businesses
was £94 million and the cash consideration
received was £59 million.
Investment
We have continued to invest in the capital
base of the Group through the expansion
and improvement of our facilities,
consolidating our warehouse footprint
to make it more efficient and developing
and enhancing our IT systems and digital
platforms. Through this investment we are
able to support our growth strategy and
improve our service offering which in turn
helps us to retain a competitive advantage.
Corporate responsibility
Our approach to corporate responsibility
(‘CR’) is guided by a central framework of
policies but it is our individual businesses
that are empowered to identify what their CR
priorities are and how to make improvements
year on year. Our experts and champions
in the business shape local practices and
ensure our operations run responsibly and
ethically over the long term. During 2018
we continued to make improvements in our
CR approach by undertaking a quantitative
analysis of material social risks in our global
supply chain. In addition, the quality
assurance/quality control team in Shanghai
undertook a record number of audits of the
working practices of our key Asian suppliers
and continued to carry out audits with the
assistance of third party specialists in a
number of countries outside of Asia which
have been identified as having medium
levels of social risk.
We have continued to work with customers in
our quest to be responsible suppliers of more
sustainable disposable packaging and reduce
their waste footprints while also expanding
our range of alternative sustainable
products. Our unique one-stop-shop offering
also actively contributes to the sustainable
footprint of our customers’ businesses by
consolidating and thereby reducing the
number of product deliveries.
People
In 2018 we conducted our biennial global
employee engagement survey which is an
important tool in developing our people
standards and the behaviours and attitudes
we expect of ourselves. We were pleased
with the overall positive results and in
2019 our businesses will implement their
local action plans for further enhancing
engagement with our employees. We believe
that diversity across Bunzl drives better
performance and a stronger business.
Our revised and refreshed senior leadership
development programme that brings
together employees from different cultures,
backgrounds and nationalities is launching
in 2019 and will further help us to develop
our talent pipeline for future growth. We also
encourage our people to use their skills to
benefit the communities within which they
work. Many volunteer their time and skills
to support causes and charities they feel
passionate about.
I would like to thank all our employees for
their contribution to the Group’s success
in the past year and for their unwavering
dedication and commitment.
Board
Patrick Larmon, who had been an executive
director of the Company and Chief Executive
Officer of the North America business
area since 2004, retired from the Board
and the Company on 31 December 2018.
Jean-Charles Pauze, who had been a
non-executive director since January 2013,
also retired from the Board at the end of the
year. We thank Pat and Jean-Charles for
their significant contribution to our success.
I myself have been a director of the Company
for nine years, having joined the Board in
January 2010, becoming Chairman in
March of that year. In recognition of the new
provisions of the recently revised Corporate
Governance Code, we have started a process
to identify and appoint my successor, led by
Vanda Murray, our Senior Independent
Director. Subject thereto, and taking into
account the guidance in the revised Code,
it is presently the Board’s intention that I
should remain as Chairman until the Annual
General Meeting to be held in 2020 in order
to provide sufficient time to complete this
process in an orderly and considered manner
and to oversee a successful handover.
Philip Rogerson
Chairman
25 February 2019
5
Financial statementsStrategic reportDirectors’ report Chief Executive’s review
We have once again demonstrated the strength
of our value proposition and shown our ability to
grow both organically and by acquisition across
our international portfolio of businesses.
Key highlights
• Good increases in revenue, adjusted
operating profit and adjusted profit
before income tax.
• Adjusted earnings per share
increased by 12% at constant
exchange rates to 129.6p.
• Strong organic revenue growth
of 4.3% with all business areas
contributing growth of 4% or more.
• Group operating margin of 6.8%,
down 10 basis points principally due
to decreases in North America and UK
& Ireland, partly offset by increases in
Continental Europe and Rest of the World.
• Committed acquisition spend of £183
million, following a record year in 2017.
• Continued strong cash conversion of 94%.
Operating performance
With 87% of the Group’s revenue generated
outside the UK, the strengthening of sterling
against many currencies, particularly the US
dollar, has had a negative translation impact
of approximately 3% on the Group’s reported
results. As in previous years, the operations,
including the relevant growth rates and
changes in operating margins, are therefore
reviewed 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 2017 at the average rates
used for 2018. Unless otherwise stated,
all references in this review and the
operating review to operating profit are to
adjusted operating profit while operating
margin refers to adjusted operating profit
as a percentage of revenue. Details of the
adjustments made to operating profit are set
out in Note 3 to the financial statements.
Revenue increased 9% (6% at actual
exchange rates) to £9,079.4 million due
to the benefit of acquisitions, partly offset
by the impact of disposals, as well as
strong organic growth of 4.3% with good
contributions from all business areas.
Operating profit was £614.0 million, an
increase of 7% (4% at actual exchange rates).
Operating margin of 6.8% was down 10
basis points at both constant and actual
exchange rates, principally due to decreases
in North America and UK & Ireland, partly
offset by increases in Continental Europe
and Rest of the World.
6
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report
87%
of the Group’s revenue was
generated outside the UK
As the global leader and
expert in our industry,
we are proactively working
with customers, suppliers
and other stakeholders
to promote and support
a sustainable approach
to the products we sell.
In North America revenue rose 8% (4% at
actual exchange rates) due to the impact of
organic growth together with the effect of
acquisitions, while operating profit increased
3% (unchanged at actual exchange rates)
as the operating margin declined 30 basis
points at both constant and actual exchange
rates to 6.0%, principally due to the impact of
the significant additional lower margin
grocery business which was fully absorbed
during the second quarter of 2018 and higher
operating costs. Revenue in Continental
Europe rose 12% at both constant and actual
exchange rates as a result of organic growth
and the impact of acquisitions, partly
offset by the disposal of OPM in France
in February 2018. Operating profit was up
18% (17% at actual exchange rates) as the
operating margin improved 50 basis points
at constant exchange rates (40 basis points
at actual exchange rates) to 9.8% principally
due to the impact of higher margin
acquisitions. In UK & Ireland revenue was
up 6% due to the impact of organic growth
and acquisitions, partly offset by the
disposal of the marketing services business
in June 2018, but operating profit decreased
2% with the operating margin reducing by
50 basis points to 6.9% principally due to
challenging market conditions in the UK.
In Rest of the World revenue increased 12%
(3% at actual exchange rates) and operating
profit was up 15% (5% at actual exchange
rates) as a result of both organic growth
and acquisitions, with the business area
operating margin increasing 20 basis
points (10 basis points at actual exchange
rates) to 7.6%.
Adjusted profit before income tax was
£559.0 million, up 6% (3% at actual
exchange rates) due to the growth in
operating profit, partly offset by an increase
in the net interest charge. Profit before
income tax was £424.8 million, an increase
of 7% (4% at actual exchange rates). Basic
earnings per share were 8% higher (4% at
actual exchange rates) at 98.4p. Adjusted
earnings per share were 129.6p, an increase
of 12% (9% at actual exchange rates),
principally due to the increase in adjusted
profit before income tax and a significantly
reduced effective tax rate largely caused by
the reduction in the US federal tax rate from
1 January 2018.
Operating cash flow remained strong with
cash conversion (the ratio of operating cash
flow to adjusted operating profit) at 94%.
The ratio of net debt to EBITDA calculated
at average exchange rates decreased from
2.3 times at the end of 2017 to 2.0 times.
Bunzl plc Annual Report 2018
7
Financial statementsStrategic reportDirectors’ report Chief Executive’s review continued
Over the course of the year, I am delighted
that we have been able to make significant
progress on investment in IT and digital
projects and have rolled out further digital
platforms which have enhanced our
customers’ experience when interacting with
our businesses. We have also continued to
focus on collaboration and sharing of best
practice around the world which has brought
additional benefits for our customers. Finally,
I am pleased that we have stepped up our
efforts to work in partnership with both
customers and suppliers to develop the
sustainability agenda by providing specialist
advice and assistance promoting alternatives
to plastic products and supporting the
development of innovative products to
increase the compostability and recyclability
of many of the items that we sell.
Acquisitions
During the year we agreed to purchase six
businesses for a total committed spend of
£183 million. These exclude Aggora and
Talge, which we agreed to purchase in 2017
and completed in early January 2018, but
include Volk do Brasil which we agreed to
acquire in October 2018 and completed in
January 2019.
In January 2018 we acquired Revco which
supplies workplace safety and personal
protection equipment to redistributors in
the US. Revenue in 2017 was £28 million.
QS, a provider of hygiene solution services
primarily for washrooms in the Netherlands
with a focus on customers operating in the
government, healthcare and foodservice
sectors, was acquired in March. Revenue
in 2017 was £5 million. Monte Package
Company, which was also purchased in
March, is engaged in the distribution of
a variety of packaging products to fresh
food growers and packers, principally in
the Eastern US. Revenue in 2017 was
£44 million.
Enor in Norway was purchased in July.
The business is engaged in the supply of a
broad range of catering equipment to end
user customers in Norway. Enor represents
our first step into the Norwegian market
and means that we now have businesses
operating in 31 countries globally. Revenue
in 2017 was £27 million.
During October we entered into an
agreement to acquire Volk do Brasil
which is a leading distributor of personal
protection equipment, principally gloves,
to redistributors and end users in Brazil.
As mentioned above, the acquisition was
completed in January 2019. Revenue in
2018 was £42 million.
In early December we purchased CM Supply
in Denmark. The business is engaged in
the supply of own brand and customised
foodservice products and packaging to
customers operating in the hotel, restaurant
and catering sector. Revenue in 2018 was
£4 million.
Today we are announcing the acquisition of
Liberty Glove & Safety, a supplier of safety
products to distributors based in the US. The
business supplies a full range of personal
protection equipment with a focus on gloves.
Revenue in 2018 was £70 million.
Disposals
During the year we sold OPM in France and
our marketing services business in the UK.
These were non-core businesses that
were no longer considered to be a strategic
fit within the Group. The aggregate revenue
of these businesses in 2017 was £94 million.
The total cash consideration received was
£59 million with a pre-tax profit on disposal
of £14 million and an associated tax charge
of £3 million which have not been included
in calculating adjusted profit before income
tax and adjusted earnings per share.
Prospects
Although we continue to face mixed
macroeconomic and market conditions,
including uncertainties concerning global
trade, our strong competitive position,
diversified and resilient businesses and
ability to consolidate our fragmented
markets further are expected to lead to
continued growth.
In North America, the combination of
organic revenue growth, which returned to
more normal levels during 2018, and the
impact of acquisitions should lead to growth.
We continue to face inflationary pressures
on operating costs but these will be
mitigated by our recently implemented,
more focused and streamlined organisation
structure. In Continental Europe, we expect
to develop further due to the benefit of
organic growth and acquisitions. Growth
in UK & Ireland will be impacted by the
disposal of the marketing services business
in June 2018 and by future economic
conditions in the UK, which at this time
are unclear. In Rest of the World, we expect
to see continued growth for the year.
Acquisitions are a key part of our strategy
and, with an active pipeline of opportunities
and ongoing discussions taking place, we
expect to complete further transactions
during 2019.
The Board believes that the prospects of
the Group are positive due to its strong
market position and well established and
successful strategy to grow the business
both organically and by acquisition.
Frank van Zanten
Chief Executive
25 February 2019
8
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report Investment case
A consistent and proven compounding strategy with a
long term track record of delivering sustainable growth.
A diversified, balanced
and resilient business
Group at a glance
pg 2
• Presence in 31 countries.
• Six customer focused market sectors.
• Fragmented markets.
• Long term relationships with customers
and suppliers.
A consistent and proven
compounding strategy
• Profitable organic growth.
• Continuous operating model improvements.
• Disciplined approach to self-funded acquisitions.
Our strategy
pg 13
Significant opportunities
for future growth
Our strategy
pg 13
• Significant opportunities to grow in
existing countries.
• Scope for further geographic expansion.
• Potential for expansion into new sectors.
Revenue from
resilient sectors
74%
RAOC*
50.7%
ROIC*
15.0%
Acquisitions
since 2004
157
Disciplined financial
management
Financial review
pg 20
• Consistently strong cash conversion.
• Efficient capital allocation.
• Strong balance sheet.
Average cash
conversion* since 2004
97%
A long term track
record of good returns
for our shareholders
• Sustained increases in revenue, adjusted
operating profit and adjusted earnings per share.
26
• Creation of shareholder value through long
term dividend and share price growth.
years of
dividend growth
Chairman’s statement
pg 4
* See ‘Key performance indicators’ on pages 18 and 19
Bunzl plc Annual Report 2018
9
Financial statementsStrategic reportDirectors’ report Our business model
We have a geographically diversified business portfolio
operating across more than 30 countries, serving six core,
fragmented market sectors, many of which are growing
and relatively resilient to challenging economic conditions.
This diversification and resilience allows us to mitigate
the impact of shifts and changes in demand across both
geographies and sectors.
We are a one-stop-shop
for non-food consumables
Our sources of
competitive advantage
We source
We source and procure branded, own brand and
unbranded products globally, working with suppliers
to give our customers access to the best and most
suitable products and solutions to meet their needs,
taking account of their increasing sustainability
requirements.
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 an
efficient one-stop-shop solution, thereby allowing them
to focus on their core businesses more effectively.
We deliver
Our delivery options include direct site delivery,
cross-dock and warehouse replenishment programmes
on a local, regional, national and international basis
to get products to our customers when and where they
are needed.
Across these sectors
Foodservice
Grocery
Safety
Cleaning
& Hygiene
Retail
Healthcare
Other
Unique service offering
Our unique service offering is at the heart of the Bunzl
business model and the reason our customers choose to buy
from us. Our customised solutions enable us to add value to
our customers’ operations ensuring they receive their orders
on-time and in-full whatever their requirements.
Our people
Our 3,000 expert sales people supported by 2,600 locally based
customer service specialists use their deep and detailed
knowledge to work with customers to ensure that they receive the
best possible advice on all product and service related matters.
Our dedicated warehouse teams ensure orders are picked to
a high degree of accuracy and our drivers represent Bunzl on a
daily basis as the main face-to-face contact with our customers.
Operational structure
With a decentralised operational structure, our enthusiastic,
experienced and knowledgeable management teams,
including many former business owners, are able to focus
on our customers’ needs in their local markets and create an
entrepreneurial environment, while retaining full responsibility
for the financial performance of their businesses.
Global sourcing
Our global sourcing capabilities, working with multinational
and local suppliers, together with the benefits of our Shanghai
sourcing office, including QA and QC, allow us to provide a
broad range of competitively priced products, including an
extensive range of own brand and environmentally friendly,
sustainable items.
International scale
With operations in more than 30 countries, our extensive
distribution networks mean we can deliver to customers on a
local, regional, national and international basis, giving them
complete flexibility.
Digital capabilities
Our e-commerce platforms increase the efficiency of our
operations while enhancing the experience for our customers.
These include options such as budgetary controls, closed
specific product lists and branded portals for our customers.
Acquisition track record
We have a strong track record of making and successfully
integrating acquisitions, helping us to extend our geographic
footprint while at the same time enabling our acquired
businesses to continue to feel ‘local’.
10
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report Our sources of
competitive advantage
Creating value
for stakeholders
Customers
Our customers benefit from a one-stop-shop for essential products with one
order, one delivery and one invoice, thereby lowering their cost of doing business
by reducing or eliminating many of the hidden costs of in-house procurement and
distribution and reducing carbon emissions.
Our unique
service offering
pg 14
Employees
We support equality and diversity throughout the organisation and have
policies and procedures which are designed to allow our employees to
meet their training needs, maximise their potential and provide career
opportunities for progression within the business.
Our people
pg 36
Shareholders
We seek to deliver good returns for our shareholders over time with
sustained improvement in profits and earnings which drive long term
growth in Bunzl’s share price and year-on-year increases in dividends.
Investment case
pg 9
Environment
Our continued focus on operational excellence allows us to reduce both
our own and our customers’ environmental impact by introducing more
sustainable products and business practices and providing our customers
with a single consolidated on-time and in-full delivery of multiple products.
Corporate
responsibility
pg 40
Suppliers
We partner with a variety of international, national and local suppliers,
on both an exclusive and non-exclusive basis, in order to provide our
customers with the broadest possible range of products across each
of our market sectors.
Corporate
responsibility
pg 40
Communities
We support charitable projects in the local communities where our
businesses are based through monetary and in-kind product donations
and sponsorship for fundraising activities carried out by our employees.
Corporate
responsibility
pg 40
Bunzl plc Annual Report 2018
11
Financial statementsStrategic reportDirectors’ report Purpose, values, strategy and culture
The successful implementation of our strategy is critical
to the delivery of the Group’s purpose and is underpinned
by the values and behaviours that shape our culture and
the way that we conduct our business.
Culture
Culture
C
u
lt
u
r
e
C
u
l
t
u
r
e
Purpose
To deliver essential business solutions
around the world and create long term sustainable
value for the benefit of our stakeholders
Organic
growth
Acquisition
growth
Operating
model
improvements
Strategy
Values and behaviours
ulture
C
Purpose
The Board defines the Group’s purpose, sets
the strategy for delivering it and identifies
the values that guide it. Our purpose states
what we do and why we do it and helps us to
articulate our business model.
Values and behaviours
Operating companies in our decentralised
organisational structure operate through
the application of their own sets of values
which are guided by the overriding
principles of reliability, customer focus,
respect and integrity, collaboration,
responsibility and sustainability.
Culture
Bunzl’s culture plays a fundamental role
in the execution of the Group’s strategy.
Our open, entrepreneurial, agile, hardworking
and empowered culture permeates and
drives our business and is an important
factor in creating and protecting long term,
sustainable value for stakeholders.
12
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report Our strategy
We are continuing to pursue our long established, consistent,
proven and successful compounding strategy in order to
create value for our stakeholders and through which we have
built leading positions in a number of market sectors in the
Americas, Europe and Asia Pacific.
KPIs
pg 18
Organic
growth
We are constantly looking to
grow Bunzl organically, both by
expanding and developing our
business with existing customers
and by gaining new business with
additional customers.
Acquisition
growth
We seek out 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.
Winning new customers
By showcasing our unique service
offering, our sales specialists are able to
show potential customers that we can
reduce or eliminate many of the hidden
costs of in-house procurement and
distribution or fulfil their needs more
effectively than their current suppliers.
Expanding our offering
Once we have established a good
relationship with a customer, by using
our knowledge of the customers’ needs,
we aim to deepen and develop that
relationship. This can be achieved by
expanding our product offering either
with branded or own brand products or
providing additional value added services.
Market leading customers
Our customers are often the market
leaders in their chosen sector and
therefore, as their businesses grow,
the need for our products and service
solutions also increases, thereby
contributing to our organic growth.
Key acquisition parameters
In considering acquisitions, we will
only target businesses which meet
specific parameters. These include
businesses: selling goods not for resale
to a fragmented customer base; whose
products represent a small percentage
of total customer spend; whose markets
have scope for further consolidation
and synergies; and with attractive
financial returns.
Growth in existing countries
Our markets are very fragmented and as
a result there are numerous opportunities
to develop through acquisition in the
countries where we already have a
presence. We do this by further
penetrating the sectors in which we
operate or by acquiring a business in
a sector in which we do not currently
operate within that country.
Growth in new countries
We are truly international, having grown
from a business with operations in 12
countries in 2003 to one with a presence
in more than 30 countries today. However,
there are a number of potentially
attractive countries where we do not
currently operate, which gives us
potential for further future growth.
Operating model
improvements
We continually strive to improve the
quality of our operations and to make
our businesses more efficient and
sustainable. We do this by investing
in new IT systems, digital capabilities,
warehouse facilities and routing systems
as well as implementing and sharing
best practice operational procedures.
Global purchasing
By using our global scale with suppliers,
we obtain purchasing synergies which
we share with our customers in the form
of competitive selling prices.
Consolidating warehouses
As leases come to an end we are able
to review our warehouse footprint.
Sharing best practice
We use our experience and expertise
from our international businesses to
share best practice across the Group.
Environment
We focus on environmental initiatives
such as energy efficient lighting and
reducing our waste packaging, which
also lead to cost savings.
Routing and safety systems
By installing routing and safety systems,
we are able to minimise distances
travelled and encourage safe and efficient
driving practices, thereby reducing fuel
and other transport costs.
IT systems
We are continually upgrading our IT
systems and increasing functionality
to improve our customer service through
areas such as management reporting
and customer budgetary controls.
Digital capabilities
Our state-of-the-art e-commerce
solutions have increased the efficiency
of our operations and the ease of doing
business for our customers.
Bunzl plc Annual Report 2018
13
Financial statementsStrategic reportDirectors’ report Our unique service offering
Bunzl’s unique service offering is at the very heart of our
approach to business and the reason our customers choose
to buy from us. By offering bespoke service solutions
we become an integrated part of our customers’ business
models. Not all customers require all elements of the service
offering but it is rather like a menu that they can select from,
with some taking more and some taking less.
One-stop-shop: this is the very essence of
the Bunzl business model. By providing our
customers with a broad range of essential
items, readily available from stock, they are
able to focus on their core businesses, achieve
purchasing efficiencies and savings and
minimise their working capital requirements.
On-time, in-full delivery: reliability is key
to our customers. We provide an on-time and
in-full service by maintaining high product
availability, together with customised
delivery slots and ‘beyond the back door’
delivery options.
One order, one delivery, one invoice:
by ensuring we ‘stock what we sell and sell
what we stock’ our customers receive all of
their ordered items in one consolidated delivery
with one invoice to pay, thereby reducing costs
and simplifying their internal administration.
Customised digital solutions: by using
our scale and investing in our IT
capabilities we are able to offer electronic
order processing through webshops
including customised versions, apps and
Electronic Data Interchange, together with
further enhancements such as budgetary
controls and business specific tools such
as asset tagging.
Competitively priced products: our strong
and long standing relationships with the
branded manufacturers combined with our
own brand products which are principally
sourced via our Shanghai purchasing office
allow us to offer our customers a complete
range of products at competitive prices.
Local and national distribution network:
due to our extensive branch network and a
combination of our own fleet and third party
delivery options, we are able to deliver to
national, regional and local customers
wherever their location.
Value
added
services
Read more
pg 16
One-stop-shop
On-time,
in-full delivery
Expert
knowledge
and advice
Read more
pg 15
Delivery
options
Customised
solutions
One order,
one delivery,
one invoice
Customised
digital
solutions
Read more
pg 17
Customised
management
information
Competitively
priced products
Local and
national
distribution
network
Customised management information:
by utilising our advanced IT systems we are
able to offer our customers a wide range of
management information tailored to their
needs ranging from consumption data
versus budget, compliant ordering, market
intelligence and supply chain studies.
Delivery options: we can adapt our
delivery options to suit our customers’
needs including direct to site, warehouse
replenishment and cross-dock delivery where
we deliver to a customer’s hub, directly on to
their truck for onward delivery to their sites.
Expert knowledge and advice: our industry
leading specialist sales force, together
with our locally based customer service
specialists, work with our customers to
ensure they receive the best possible advice
on their product and service needs including
sustainable alternatives, range rationalisation
options and health and safety requirements.
Value added services: our deep industry
knowledge enables us to offer extensive
value added services to our customers.
These include, but are not limited to,
bespoke and printed product management,
product training, design and installation
services and contract mobilisations.
14
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report Our unique service offering:
Expert
knowledge
and advice
Industry leading specialised sales force
and local customer service specialists
One of the most important aspects of our
offering is our comprehensive range of
innovative product and service solutions
that we are able to provide to our customers.
Our 3,000 expert sales people across the
Group, who are supported by 2,600 locally
based customer service specialists, use their
deep and detailed knowledge to work closely
with our customers to ensure that they
receive the best possible advice on a variety
of product and service related matters
including range rationalisation, sustainable
product solutions and product innovation.
In 2018 we have been holding Sustainable
Future customer forums, a collaborative
platform that helps both us and our
customers better understand our
environmental pressures and to find
new ways of working together for a more
sustainable future.
Supporting our customers to
reduce plastic use
We help our customers identify and trial innovative sustainable
products. We have worked closely with customers to understand
their packaging footprint and take beneficial action to reduce
its impact on the environment.
We work with customers with an objective of having a positive
impact on the way packaging is treated at the end of its life and
to encourage them to see it as a valuable resource capable of
having multiple lives as a useful product.
In the UK we have partnered with a leading contract caterer
to support one of their high profile customers in the media
sector on their sustainability journey. This has included
using our expert knowledge and advice to review their entire
product range, introduce compostable, recyclable and recycled
items, help with the introduction of a waste management
system and provide alternative plastic free packaging and
reusable items, working with a supplier to design an entire
new range of compostable products.
With the changing landscape for the future of more sustainable
items, we are especially well placed to support our customers
going forward.
Read more
pg 41
3,000
Sales specialists
2,600
Customer service specialists
Bunzl plc Annual Report 2018
15
Financial statementsStrategic reportDirectors’ report Our unique service offering:
Value added
services
Our services take many different
forms across each of our businesses
and geographies.
By providing value added services to our
customers we are able to enhance our
service offering beyond just the products
that we sell.
Within all of our businesses we are able
to offer product training including helping
our customers select the most sustainable
yet fit for purpose products. As an example,
within our cleaning & hygiene businesses,
we are able to assist with contract
mobilisations to ensure that our customers
have all the products they need in the
right locations when they take on new
contracts, thus allowing them to focus
on their core businesses.
Our business in the Netherlands
recently developed a new value added
service for the healthcare market.
Through our review of a particular hospital’s needs, we soon
understood that the time spent on dealing with their consumable
products was demanding too much from their own resources.
Since our products are essential to the everyday running of the
hospital, we offered them a total supply chain solution which
covered all aspects of the ordering and delivery process. Our
focused and dedicated teams were able to analyse the hospital’s
data – what products were being used, when and at what price.
Through a consultative workshop with the customer we have
been able to show where they can save money, but without
compromising on quality, by outsourcing the process to Bunzl.
We have rationalised their supplier base and now deliver the
products on a just-in-time basis. If required, we also put them
away in cabinets on the wards. We record product lot numbers
and expiry dates and store and transport the goods carefully so
items remain sterile.
To simplify the ordering process, we have a seamless interface
for the customer between their business and ours. The Bunzl
webshop branded for the customer is connected to their ERP
system. The hospital can ensure that only pre-approved
products are ordered and track what orders have been
placed and the scheduled delivery dates. They can also
access their management reports to review consumption
levels, authorisation limits and budgets by area in the hospital.
The overall outcome for the hospital is that they save
administration time, free up working capital and release
valuable storage space, leaving staff to work on clinical tasks.
After a successful trial, we have now rolled out the concept to
a number of other hospitals in the Netherlands.
16
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report Our unique service offering:
Customised
digital
solutions
State-of-the-art digital platforms
Over recent years we have rolled out
state-of-the-art digital platforms across
many of our businesses which give our
customers the tools that they need to
transact with us more easily. By improving
the efficiency of their order processing,
whether through specific, dedicated,
web platforms or the availability of data
analytics and budgetary controls, we build
strong and long lasting relationships
with our customers who recognise that
we are a specialist in our categories,
offering highly customised solutions.
Integrating e-commerce solutions
into customers’ IT procurement systems
for seamless ordering
Using our IT capabilities we are able to
integrate our e-commerce solutions into our
customers’ own IT systems. We dynamically
integrate our own catalogue of products and
related stock and pricing information directly
into our clients’ procurement systems, using
a protocol known as ‘punchout’. By doing
so, our customers only need to access one
system to place orders, thereby making the
whole procurement process simple, efficient
and seamless.
Digital tool helps customers manage
their sourcing requirements
One of our safety businesses, Bunzl EPI in Brazil, has recently
developed MOB (short for mobile), which is a digital tool that
manages the supply of personal protection equipment (‘PPE’)
to individuals working for a particular customer.
A customer’s employees can use MOB to order their PPE
requirements via a mobile phone or tablet. Bunzl EPI then
packs and distributes the relevant products directly to the
employee concerned.
MOB includes details of the technical specifications by
product, including training information and expiration dates,
and can inform employees when the products need replacing.
It also provides cost controls for the customer by notifying
them when products are ordered by employees and providing
appropriate records of PPE compliance from a legal
perspective.
The use of MOB has improved the operational efficiency of
our operations while also being instrumental in helping to win
new business. MOB has been implemented by a number of
customers including one of the largest telecom companies
in Brazil with 7,000 field employees using the tool to meet their
ordering requirements.
Bunzl plc Annual Report 2018
17
Financial statementsStrategic reportDirectors’ report 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. 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 growth
Organic revenue growth %
Increase in revenue for the year excluding
the impact of currency translation,
acquisitions during the first 12 months
of ownership and disposals made in 2018.
2.7
4.3
4.3
• Organic revenue growth of 4.3%
with each of the business areas
achieving growth of 4.0% or greater.
0.4
0.3
14
15
16
17
18
Reconciliation
of revenue
growth between
2017 and 2018 £m
• Revenue up 6% (9% at
constant exchange rates)
from organic growth of
4.3% and the impact of
acquisitions made in
2017 and 2018, net of
disposals made in 2018.
8,581
(226)
(73)
8,282
352
445
9,079
17
Currency
translation
Disposals
17#
Organic
growth
Acquisitions
18
Acquisition growth
Acquisition spend £m
Consideration paid and payable, together
with net debt assumed, in respect of
businesses acquired or agreed to be
acquired during the year.
• Committed acquisition spend of
£183 million on six businesses.
616
327
211
184
183
Annualised revenue from
acquisitions £m
Estimated revenue which would have been
contributed by acquisitions agreed during the
year if such acquisitions had been completed at
the beginning of the relevant year (see Note 25
on page 144).
14
15
16
17
18
• The six acquisitions agreed in 2018 will
add annualised revenue of £148 million.
621
324
223
201
148
14
15
16
17
18
Operating model improvements
Operating margin %∆
Ratio of adjusted operating profit∆
to revenue. Excluding the impact of
acquisitions during the first 12 months
of ownership and the impact of disposals
made in 2018, the 2018 operating margin∆
was 6.5% compared to 6.8% in 2017
(restated at constant exchange rates).
• Operating margin down 10bp to 6.8%
principally due to decreases in North
America and UK & Ireland.
7.0
7.0
7.1
6.9
6.8
14
15
16
17
18
Return on average
operating capital %∆
Ratio of adjusted operating profit∆ to the average
of the month end operating capital employed
(being property, plant and equipment and
software, inventories and trade and other
receivables less trade and other payables).
• RAOC down to 50.7% due to a lower
return in the underlying business,
partly offset by favourable impacts from
acquisitions net of disposals and exchange
rate movements.
57.7
55.5
55.9
53.1
50.7
14
15
16
17
18
18
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report Financial
Adjusted earnings
per share p∆
Adjusted profit∆ for the year divided by
the weighted average number of ordinary
shares in issue (see Note 8 on page 121).
• At constant exchange rates, adjusted
eps up 12% driven by a 7% increase in
adjusted operating profit∆ and the impact
of a lower effective tax rate, partly offset
by a higher net interest charge.
Cash conversion %∆
Operating cash flow∆ as a percentage of
adjusted operating profit∆ (see Consolidated
cash flow statement on page 106).
• Another strong year of cash generation
with cash conversion of 94% in 2018
and an average of 97% since 2004.
129.6
119.4
106.1
91.0
86.2
14
15
16
17
18
95
97
99
97
94
14
15
16
17
18
∆ Alternative performance measure
(see Note 3 on page 114).
# At 2018 average exchange rates and
adjusted for disposals.
† Included in the external auditors’
limited assurance scope referred to
on page 48.
◊ The data for 2014, 2015, 2016 and 2017
was also assured as detailed in the
Annual Reports from those years.
15.7◊
14.7◊
12.6◊
11.3◊
11.4†
14
15
16
17
18
5.4◊
5.2◊
4.5◊
3.7◊
3.6†
14
15
16
17
18
Non-financial
Scope 1 carbon
emissions
Tonnes of CO2e per £m revenue
Measured in accordance with the
Greenhouse Gas Protocol applying
Defra conversion factors.
• Scope 1 carbon emissions down 2%
at constant exchange rates (up 1% at
actual exchange rates) primarily due
to fuel efficiency improvements.
12 months to 30 September.
Scope 2 carbon
emissions
Tonnes of CO2e per £m revenue
Measured in accordance with the
Greenhouse Gas Protocol applying
Defra UK conversion factors and IEA
factors for overseas electricity.
• Scope 2 carbon emissions down 5%
at constant exchange rates (down 3%
at actual exchange rates) from the
continued implementation of low energy
lighting and also impacted by the
application of updated emission factors
for electricity.
12 months to 30 September.
17.6
17.1
16.7
16.0
15.0
Fuel usage
Litres per £000 revenue
Diesel, petrol and LPG used in the
Group’s own vehicles.
• Fuel usage down 6% at constant
exchange rates (down 3% at actual
exchange rates) driven by continued
fuel efficiency improvements.
12 months to 30 September.
14
15
16
17
18
5.0◊
4.8◊
4.1◊
3.7◊
3.6†
14
15
16
17
18
Return on invested
capital %∆
Ratio of adjusted operating profit∆ to the
average of the month end invested capital
(being equity after adding back net debt,
net defined benefit pension scheme
liabilities, cumulative customer
relationships amortisation, acquisition
related items and amounts written off
goodwill, net of the associated tax).
• ROIC down to 15.0% principally due
to a combination of the mix effect of
acquisitions net of disposals, a lower
return in the underlying business and
an adverse impact from exchange
rate movements.
Bunzl plc Annual Report 2018
19
Financial statementsStrategic reportDirectors’ report Financial review
Our long term record of strong profit growth and consistently high
cash conversion has supported our strategy of growing organically
and by acquisition while enabling us to pay dividends which have
grown every year for the past 26 years.
Highlights
Revenue
Up 6% at actual exchange rates
£9,079.4m
(2017: £8,580.9m)
+9%†
Profit for the year
Up 5% at actual exchange rates
£326.5m
(2017: £310.5m)
+8%†
Adjusted operating profit*
Up 4% at actual exchange rates
£614.0m
(2017: £589.3m)
+7%†
Cash conversion*
Continued strong cash conversion
94%
(2017: 97%)
Adjusted earnings per share*
Up 9% at actual exchange rates
129.6p
(2017: 119.4p)
+12%†
Dividend
Long track record of dividend
growth continues
50.2p
(2017: 46.0p)
+9%
2018
£m
2017
£m
Growth as
reported
Growth at
constant
exchange
Financial results
Revenue
Adjusted operating profit*
Adjusted profit before income tax*
Adjusted earnings per share*
Dividend for the year
Statutory results
Operating profit
Profit before income tax
Basic earnings per share
Balance sheet and Cash flow
Return on average operating capital %*
Return on invested capital %*
Cash conversion %*
9,079.4
614.0
559.0
129.6p
50.2p
8,580.9
589.3
542.6
119.4p
46.0p
466.2
424.8
456.0
409.3
98.4p
94.2p
50.7%
15.0%
94%
53.1%
16.0%
97%
6%
4%
3%
9%
9%
2%
4%
4%
9%
7%
6%
12%
5%
7%
8%
† At constant exchange rates.
* Alternative performance measure (see Note 3 on page 114).
20
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report
As in previous years this review refers to a number of alternative
performance measures which management uses to assess the
performance of the Group. Details of the Group’s alternative
performance measures are set out in Note 3 to the financial
statements on page 114.
Currency translation
Currency translation has had a negative impact on the Group’s
reported results, decreasing revenue, profits and earnings by
approximately 3%. The adverse exchange rate impact was
principally due to the strengthening of sterling against the US dollar,
Canadian dollar, Australian dollar and Brazilian real, partly offset by
the weakening of sterling against the euro.
Average exchange rates
US$
Euro
Canadian$
Brazilian real
Australian$
Closing exchange rates
US$
Euro
Canadian$
Brazilian real
Australian$
2018
1.33
1.13
1.73
4.87
1.79
2018
1.27
1.11
1.74
4.94
1.81
2017
1.29
1.14
1.67
4.11
1.68
2017
1.35
1.13
1.69
4.49
1.73
Revenue
Revenue increased to £9,079.4 million (2017: £8,580.9 million),
up 9% at constant exchange (up 6% at actual exchange rates),
reflecting the benefit of acquisitions, partly offset by the impact
of disposals, and organic growth of 4.3%.
Movement in revenue (£m)
9,500
9,000
8,500
8,580.9
(226.3)
(72.5)
8,282.1
445.3
9,079.4
352.0
8,000
7,500
2017
revenue
Currency
translation
Disposals
2017
revenue
rebased
Organic
growth
Acquisitions
2018
revenue
Operating profit
Adjusted operating profit increased to £614.0 million (2017: £589.3
million), an increase of 7% at constant exchange rates and 4% at
actual exchange rates.
At constant exchange rates the adjusted operating profit margin
decreased by 10 basis points from 6.9% to 6.8% (down 10 basis
points at actual exchange rates), with lower operating margins
in North America (down 30 basis points) and UK & Ireland
(down 50 basis points), partly offset by higher operating margins
in Continental Europe (up 50 basis points) and Rest of the World
(up 20 basis points).
Movement in adjusted operating profit (£m)
589.3
(16.5)
572.8
41.2
614.0
700
600
500
400
2017
adjusted
operating
profit
Currency
translation
2017
at constant
exchange
rates
2018
growth
2018
adjusted
operating
profit
Operating profit increased to £466.2 million (2017: £456.0 million),
an increase of 5% at constant exchange rates and 2% at actual
exchange rates.
Movement in operating profit (£m)
500
41.2
450
456.0
(13.3)
442.7
(14.4)
(3.3)
466.2
400
350
300
2017
operating
profit
Currency
translation
2017
at constant
exchange
rates
Growth in
adjusted
operating
profit
Customer
relationships
amortisation
& acquisition
related items
GMP
equalisation
charge
2018
operating
profit
The GMP equalisation charge in 2018 of £3.3 million (2017: £nil) is
the non-recurring cost of the equalisation of guaranteed minimum
pensions (‘GMP’) between male and female members of the Group’s
UK defined benefit pension scheme following the High Court
judgment during the year in the case of Lloyds Banking Group
Pensions Trustees Limited vs Lloyds Bank plc and others.
Customer relationships amortisation, acquisition related items and
the GMP equalisation charge are excluded from the calculation of
adjusted operating profit as they do not relate to the underlying
operating performance and distort comparability between
businesses and reporting periods. Accordingly, these items are not
taken into account by management when assessing the results of the
business and are removed in calculating adjusted operating profit
and other alternative performance measures by which management
assess the performance of the Group.
Interest
The net interest expense of £55.0 million was £8.3 million higher
than in 2017 at actual exchange rates and up £8.8 million at constant
exchange rates, mainly from a combination of a higher level of
average net debt during the year to fund acquisitions made in 2017
and 2018 and a higher effective interest rate due to increased market
interest rates, particularly for the US dollar, and additional long dated
fixed rate debt.
Profit before income tax
Adjusted profit before income tax was £559.0 million (2017: £542.6
million), up 6% at constant exchange rates (up 3% at actual exchange
rates), due to the growth in adjusted operating profit, partly offset by
the increase in net interest expense.
Bunzl plc Annual Report 2018
21
Financial statementsStrategic reportDirectors’ report Financial review continued
Movement in adjusted profit before income tax (£m)
542.6
(16.0)
526.6
41.2
(8.8)
559.0
600
500
400
300
2017
adjusted
profit before
income tax
Currency
translation
2017
at constant
exchange
rates
Growth in
adjusted
operating
profit
Increase in
net interest
expense
2018
adjusted
profit before
income tax
Profit before income tax increased to £424.8 million (2017: £409.3
million), an increase of 7% at constant exchange rates (up 4% at
actual exchange rates).
Movement in profit before income tax (£m)
500
450
32.4
400
409.3
(12.8)
396.5
(14.4)
(3.3)
13.6
424.8
350
300
2017
profit
before
income
tax
Currency
translation
2017
at constant
exchange
rates
Growth in
adjusted
profit before
income tax
Customer
relationships
amortisation
& acquisition
related items
GMP
equalisation
charge
Disposal of
businesses
2018
profit
before
income
tax
Disposal of businesses in 2018 of £13.6 million is the pre-tax profit
on disposal during the year of OPM in France and the marketing
services businesses in the UK. Disposal of businesses is a
non-recurring item resulting from the disposal of two non-core
businesses and does not relate to underlying operating performance
and is therefore not taken into account by management when
assessing the performance of the Group. Accordingly, it is removed
in calculating adjusted profit before income tax and other alternative
performance measures by which management assess the
performance of the Group.
Taxation
The Group’s tax strategy is to comply with tax laws in all of the
countries in which it operates and to balance its responsibilities for
controlling the tax costs with its responsibilities to pay tax where it
does business. Management of taxes is therefore carried out within
defined parameters. The Group’s tax strategy has been approved
by the Board and tax risks are regularly reviewed by the Audit
Committee. In accordance with UK legislation, the strategy relating
to UK taxation is published on the Bunzl plc website within the
Corporate governance section.
The effective tax rate (being the tax rate on adjusted profit before
income tax) for the year was 23.1% (2017: 27.5%) and has decreased
from the prior year principally due to the reduction in the US federal
tax rate effective from 1 January 2018 and also due to the positive
outcome of some previous tax uncertainties. The effective tax rate for
2019 is expected to be approximately 24%. The reported tax rate on
statutory profit before income tax also decreased in the year to 23.1%
(2017: 24.1%) mainly due to the reduction in the US federal tax rate
offset by the impact of a one-time deferred tax credit on intangible
assets last year due to the enactment of the lower US federal tax rate
before 31 December 2017.
As explained in the Principal risks and uncertainties section on
pages 51 to 55 the Group identifies tax as a principal risk, and notes
that the future tax rate could be affected by the resolution of
uncertain prior year tax liabilities. This would include the conclusion
of legal arguments between the European Commission and the UK
government over whether part of the UK’s tax regime is contrary
to European Union State Aid provisions.
Earnings per share
Profit after tax increased to £326.5 million (2017: £310.5 million),
up 8% and an increase of £25.3 million at constant exchange rates
(up 5% at actual exchange rates), due to a £28.3 million increase in
profit before income tax, partly offset by a £3.0 million increase in
the tax charge.
Adjusted profit after tax increased to £429.9 million (2017: £393.4
million), up 13% and an increase of £48.1 million at constant
exchange rates (up 9% at actual exchange rates), due to an increase
in adjusted profit before income tax of £32.4 million and a reduction
in the effective tax rate, with tax on adjusted profit before income tax
decreasing by £15.7 million at constant exchange rates.
The weighted average number of shares increased to 331.7 million
from 329.5 million in 2017 due to employee share option exercises,
partly offset by the full year impact of shares being purchased from
the market for the Group’s employee benefit trust in 2017.
Basic earnings per share were 98.4p (2017: 94.2p), up 8% at constant
exchange rates (up 4% at actual exchange rates). Adjusted earnings
per share were 129.6p, an increase of 12% at constant exchange
rates (up 9% at actual exchange rates).
Movement in adjusted eps (p)
140
130
120
110
100
90
7.4
9.1
(0.9)
129.6
(1.9)
119.4
(3.5)
115.9
2017
adjusted
eps
Currency
translation
2017 at
constant
exchange
rates
Increase in
adjusted
operating
profit
Increase
in net
interest
expense
Decrease
in effective
tax rate
2018
adjusted
eps
Increase
in weighted
average
number of
shares
22
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report 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.
2018
15.2
35.0
50.2
2.6
Growth
9%
9%
9%
2017
14.0
32.0
46.0
2.6
The Company’s practice has been to pay a progressive dividend,
delivering year-on-year increases with the dividend growing at
approximately the same rate as the growth in adjusted earnings
per share. The 2018 dividend is 9% higher than the 2017 dividend,
which compares with the adjusted earnings per share growth of
9% at actual exchange rates and 12% at constant exchange rates.
Before approving any dividends, the Board considers the level
of borrowings of the Group by reference to the ratio of net debt to
EBITDA, the ability of the Group to continue to generate cash and the
amount required to invest in the business, in particular into future
acquisitions. The Company’s long-term track record of strong cash
generation, coupled with the Group’s substantial borrowing facilities,
provides the Company with the financial flexibility to fund a growing
dividend. After the further growth in 2018, Bunzl has sustained a
growing dividend to shareholders over the past 26 years.
The risks and constraints to maintaining a growing dividend are
principally those linked to the Group’s trading performance and
liquidity, as described in the Principal risks and uncertainties on
pages 51 to 55. The Group has substantial distributable reserves
within Bunzl plc and there is a robust process of distributing profits
generated by subsidiary undertakings up through the Group to Bunzl
plc. At 31 December 2018 Bunzl plc had sufficient distributable
reserves to cover more than four years of dividends at the cost of the
2018 dividends, which is expected to be approximately £168 million.
Acquisitions
The Group completed seven acquisitions during the year ended
31 December 2018 with a total committed spend of £165.2 million.
The estimated annualised revenue and adjusted operating profit
of the acquisitions completed during the year were £162.0 million
and £20.7 million respectively.
Excluding the two acquisitions that had been agreed at 31 December
2017, but were completed during 2018, and including the acquisition
of Volk do Brasil that was agreed during 2018 but not completed until
2 January 2019, the estimated annualised revenue of the acquisitions
was £148.1 million, with committed acquisition spend of £182.7
million. Acquisition spend reflects the cash consideration paid,
which in certain instances includes amounts paid for the benefit of
tax deductions for amortisation of intangible assets and estimated
earnout consideration for future profit growth.
A summary of the effect of acquisitions is as follows:
Fair value of net assets acquired
Goodwill
Consideration
Satisfied by:
cash consideration
deferred consideration
Contingent payments relating to retention
of former owners
Net cash acquired
Transaction costs and expenses
Total committed spend in respect of acquisitions
completed in the current year
Spend on acquisitions committed but not completed at
the year end
Spend on acquisitions committed at prior year end but
completed in the current year
Total committed spend in respect of acquisitions
agreed in the current year
£m
116.7
33.9
150.6
148.5
2.1
150.6
12.7
(3.6)
5.5
165.2
39.5
(22.0)
182.7
The net cash outflow in the year in respect of acquisitions comprised:
Cash consideration
Net cash acquired
Deferred consideration in respect of prior year acquisitions
Net cash outflow in respect of acquisitions
Acquisition related items*
Total cash outflow in respect of acquisitions
£m
148.5
(3.6)
25.4
170.3
13.9
184.2
* Acquisition related items comprise £7.8 million of transaction costs and expenses paid and
£6.1 million of payments relating to retention of former owners
Disposals
During the year the Group completed the disposal of two businesses
which were no longer considered to be a strategic fit within the
portfolio of the Group’s businesses, these being OPM, which is a
distributor of SodaStream products to retailers throughout France,
and marketing services, which provides marketing services in the
UK with limited opportunities to expand overseas. The disposals
were completed on 2 February 2018 and 7 June 2018 respectively.
As a result, the net assets of the Group increased by £10.8 million,
representing the profit on disposal of £13.6 million partly offset by
an associated tax charge of £2.8 million, with a net cash inflow of
£55.1 million.
Bunzl plc Annual Report 2018
23
Financial statementsStrategic reportDirectors’ report
Financial review continued
Cash flow
A summary of the cash flow for the year is shown below:
Balance sheet
Summary balance sheet at 31 December:
Cash generated from operations†
Net capital expenditure
Operating cash flow†
Net interest
Tax
Free cash flow
Dividends
Acquisitions◊
Disposals
Employee share schemes
Net cash inflow/(outflow)
† Before acquisition related items.
◊ Including acquisition related items.
2018
£m
607.1
(28.6)
578.5
(49.1)
(113.2)
416.2
(152.2)
(184.2)
55.1
50.0
184.9
2017
£m
602.6
(32.9)
569.7
(44.5)
(113.1)
412.1
(138.2)
(588.5)
–
(19.4)
(334.0)
Movement
£m
4.5
4.3
8.8
(4.6)
(0.1)
4.1
(14.0)
404.3
55.1
69.4
518.9
The Group’s free cash flow of £416.2 million was £4.1 million higher
than in 2017, primarily due to the increase in operating cash flow of
£8.8 million, partly offset by increases in the cash outflows relating
to interest and tax. The Group’s free cash flow was primarily used
to finance dividend payments of £152.2 million in respect of 2017
(2017: £138.2 million in respect of 2016) and an acquisition cash
outflow of £184.2 million (2017: £588.5 million). Cash conversion
(being the ratio of operating cash flow to adjusted operating profit)
was 94% (2017: 97%).
Net debt
Net debt decreased by £137.1 million during the year to £1,386.5
million (2017: £1,523.6 million), principally due to the net cash
inflow of £184.9 million, partly offset by a £47.8 million increase
due to currency translation.
Movement in net debt (£m)
2,000
Intangible assets
Tangible assets
Working capital
Other net liabilities
Net pension deficit
Net debt
Equity
2018
£m
2,382.5
122.4
948.3
(333.7)
3,119.5
(38.5)
(1,386.5)
1,694.5
2017
£m
2,351.7
125.2
871.9
(325.6)
3,023.2
(51.0)
(1,523.6)
1,448.6
Return on average operating capital %
Return on invested capital %
50.7%
15.0%
53.1%
16.0%
Intangible assets increased by £30.8 million to £2,382.5 million due to
intangible assets arising on acquisitions in the year of £130.7 million,
a £32.4 million increase from exchange and software additions of
£9.2 million, partly offset by an amortisation charge of £119.2 million
and a decrease from disposal of businesses of £22.3 million.
Working capital increased by £76.4 million to £948.3 million
primarily from acquisitions net of disposals, an increase from
exchange rate movements and an increase from the underlying
business, broadly in line with organic revenue growth in the year.
The Group’s net pension deficit of £38.5 million at 31 December 2018
was £12.5 million lower than at 31 December 2017, principally due to
an actuarial gain of £11.0 million. The actuarial gain arose as a result
of a decrease in the present value of scheme liabilities from changes
in assumptions, principally higher discount rates applied to the UK
and US schemes, partly offset by lower than expected returns on
pension scheme assets.
Shareholders’ equity increased by £245.9 million during the year
to £1,694.5m.
1,500
1,523.6
47.8
(184.9)
1,386.5
Movement in shareholders’ equity (£m)
1,000
500
0
Net debt
at 1 January
2018
Net cash
inflow
Currency
translation
Net debt
at 31 December
2018
Net debt to EBITDA calculated at average exchange rates and in
accordance with the Group’s external banking covenants was
2.0 times (2017: 2.3 times).
1,900
1,700
1,500
1,300
1,100
900
1,448.6
2017
share-
holders’
equity
326.5
(152.2)
(3.8)
7.3
15.3
52.8
1,694.5
Profit for
the year
Dividends
Currency
(net of tax)
Actuarial
gain on
pension
schemes
(net of tax)
Share
based
payments
(net of tax)
Employee
share
options
(net of tax)
2018
share-
holders’
equity
Return on average operating capital decreased to 50.7% from 53.1%
in 2017, principally driven by a lower return in the underlying
business, partly offset by the positive impact of acquisitions net of
disposals and exchange rate movements. Return on invested capital
of 15.0% was down from 16.0% in 2017 due to a negative impact from
recent acquisitions and disposals, a lower return in the underlying
business and an adverse impact from exchange rate movements.
24
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report Underlying policy assumptions and activities are periodically
reviewed by the executive directors and the Board. Controls
over exposure changes and transaction authenticity are in place.
The Group continually monitors net debt and forecast cash flows
to ensure that sufficient facilities are in place to meet the Group’s
requirements in the short, medium and long term and, in order to
do so, arranges borrowings from a variety of sources. Additionally,
compliance with the Group’s biannual debt covenants is monitored
on a monthly basis and formally tested at 30 June and 31 December.
The principal covenant limits are net debt, calculated at average
exchange rates, to EBITDA of no more than 3.5 times and interest
cover of no less than 3.0 times. Sensitivity analyses using various
scenarios are applied to forecasts to assess their impact on covenants
and net debt. During 2018 all covenants were complied with and
based on current forecasts it is expected that such covenants will
continue to be complied with for the foreseeable future.
The Group has substantial funding available comprising multi-
currency credit facilities from the Group’s banks, US private placement
notes and the senior bond issued during 2017. At 31 December 2018
the nominal value of US private placement notes outstanding was
£1,120.6 million (2017: £1,107.6 million) with maturities ranging from
2019 to 2028. The £300 million senior bond matures in 2025 and the
Group’s committed bank facilities mature between 2019 and 2023.
At 31 December 2018 the available committed bank facilities totalled
£1,043.8 million (2017: £1,056.9 million) of which £104.3 million
(2017: £224.6 million) was drawn down, providing headroom of
£939.5 million (2017: £832.3 million).
Committed facilities maturity profile by year (£m)
600
500
400
300
200
100
0
373
300
246
128
153
87
20
40
68
19
84
21
33
161
71
119
171
130
124
138
22
23
24
25
26
27
39
28
Bank facilities – undrawn
Bank facilities – drawn
Senior bond
US private placement notes
Further details of the Group’s capital management and treasury
policies and controls are set out in Note 14 on pages 126 to 133.
Brian May
Finance Director
25 February 2019
IFRS 16
IFRS 16 ‘Leases’ is effective in the consolidated financial statements
for the year ending 31 December 2019 and has been adopted with
effect from 1 January 2019. The Group has used the modified
retrospective approach to transition utilising certain practical
expedients outlined in the standard, notably the exclusion of low
value and short term leases. The new standard requires that the
Group’s leased assets are recorded within property, plant and
equipment as right of use assets with a corresponding lease liability
which is based on the present value of the future payments required
under each lease. As shown in Note 1 on page 107, it is currently
estimated that the adoption of IFRS 16 will increase the carrying
value of property, plant and equipment at 1 January 2019 by between
£430 million and £450 million with liabilities increasing by between
£480 million and £500 million, and retained earnings decreasing by
between £20 million and £50 million.
Under the new standard, the existing operating lease expense
previously recorded in operating costs will be replaced by a
depreciation charge, which will be lower than the previous operating
lease expense, and a separate financing expense, which will be
recorded in interest expense. For 2019, based on the Group’s existing
lease portfolio, it is currently estimated that operating costs will
decrease by approximately £20 million and that finance expense
will increase by approximately £20 million such that the impact
of moving to the new standard on adjusted profit before income
tax and adjusted earnings per share will be immaterial. There
will be no net cash flow impact arising from the application of the
new standard. Net debt to EBITDA is expected to increase by
approximately 0.3 times compared to the ratio calculated under the
previous accounting standard but performance against current
banking covenants will not be affected because these continue to
be based on historical accounting standards. The Group does not
currently intend to alter its approach going forward as to whether
assets should be leased or bought.
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 funds its operations
through a mixture of shareholders’ equity and bank and capital
market borrowings. The Group’s approach to the balance sheet is to
maintain an investment grade credit rating and the Company’s
current credit rating with Standard & Poor’s is BBB+. 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 borrowings
have a range of maturities, are competitively priced and meet the
demands of the business over time. There were no changes to the
Group’s approach to capital management during the 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
and credit risks. Treasury policies have been approved by the Board
and cover the nature of the exposure to be hedged, the types of
financial instruments that may be employed and the criteria for
investing and borrowing cash. The Group uses derivatives to
manage its foreign currency and interest rate risks arising from
underlying business activities. No transactions of a speculative
nature are undertaken. The treasury department is subject to
periodic independent review by the internal audit department.
Bunzl plc Annual Report 2018
25
Financial statementsStrategic reportDirectors’ report Our management team
Managers from across the Group meet regularly to
review performance, discuss trends affecting our
businesses and seek further opportunities for growth
and competitive advantage.
Jim McCool
Chief Executive Officer, North America
Alberto Grau
Managing Director, Continental Europe
Diana Breeze
Director of Group Human Resources
Brian May
Finance Director
Andrew Mooney
Director of Corporate Development
Paul Hussey
General Counsel and Company Secretary
Andrew Tedbury
Managing Director, UK & Ireland
Jonathan Taylor
Managing Director, Latin America
Kim Hetherington
Managing Director, Asia Pacific
Board of directors
pg 56
26
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report Operating
review
28
30
32
34
North America
Continental Europe
UK & Ireland
Rest of the World
Bunzl plc Annual Report 2018
27
Financial statementsStrategic reportDirectors’ report Operating review
North America
Highlights
Revenue
Adjusted operating profit*
Operating margin*
• Revenue increase driven by strong organic
£5,277.8m
£317.1m
(2017: £5,061.1m)
(2017: £318.3m)
8%†
Market sectors
3%†
† At constant exchange rates.
* Alternative performance measure (see Note 3 on page 114).
6.0%
(2017: 6.3%)
Employees
6,531
Locations
202
growth and impact of acquisitions.
• Reduction in margin from significant
business previously won in grocery and
operating cost pressures.
• More focused and streamlined organisation
structure implemented in grocery and
redistribution.
• DDS successfully integrated with synergies
achieved.
• Strong growth in safety from improving market
conditions, boosted by acquisition of Revco.
• Growth in agriculture supported by acquisition
of Monte Package Company.
In North America, revenue increased
by 8% to £5,277.8 million due to strong
organic growth of more than 4% as
well as the impact of recent acquisitions,
with operating profit increasing by 3%
to £317.1 million.
Organic revenue growth was achieved
across all businesses with the largest
contribution from the significant additional
grocery business won, albeit at a below
average operating margin, towards the end
of 2016. This new business commenced in
the first half of 2017 and was fully absorbed
during the second quarter of 2018. Strong
organic sales growth was also delivered by
our businesses serving the redistribution,
safety and processor sectors. As anticipated,
the additional grocery business, combined
with inflationary pressures on our operating
costs across all sectors, particularly
against the backdrop of historically low
unemployment rates, contributed to a
reduction in the operating margin which
declined 30 basis points to 6.0%. During the
second half of the year we implemented a
more focused and streamlined organisation
structure across our two largest businesses,
grocery and redistribution, in order to
enhance our customer proposition and
improve our operational efficiency.
In our largest business serving the grocery
sector, as expected the underlying revenue
growth returned to more normal levels
during the second half of the year as the
additional business previously won was
fully absorbed. We continue to focus on
improving operating efficiencies, particularly
labour productivity and capacity, to help
offset operating cost inflation and to ensure
appropriate cost levels. Our national
distribution footprint and owned fleet are
particularly well suited to support the
continuing outsourcing trend and provide
our customers with the most cost-effective
solution for managing their spend on goods
not for resale.
Our retail supplies business has benefited
from the acquisition of DDS in May 2017
which has now been successfully integrated
into our existing business and which has
significantly increased the size of our
operations in this sector. Although revenue
growth was modest, the integration of DDS
and Schwarz provided both sourcing and
operational synergies in line with our
expectations, thereby enhancing our
operating margins. Our retail customers
are already benefiting from the scale,
service excellence and sector expertise
of our integrated retail teams.
Our redistribution business, serving the
foodservice and janitorial and sanitation
(‘jan-san’) sectors, grew well as we continued
to drive growth from our category
management programme for our larger
national and regional customers. As a
category manager for packaging and
supplies, we are able to provide category
assortment, sourcing and digital tools which
help our redistribution customers manage
their supply chain, extend their product and
category offerings and reduce their inventory
investment in high volume, low value
products. Our sales professionals, aided
by our digital and e-commerce capabilities,
provide our customers category expertise as
well as end user pull through. Our continued
investment in the jan-san category is also
driving new organic growth via expansion
with our existing foodservice distributor
customers as well as expanding our
presence with jan-san distributors.
The rebound of both the oil & gas and
industrial sectors drove strong growth
across our safety business, augmented by
contributions from ML Kishigo and Revco
which were acquired in March 2017 and
January 2018 respectively. In particular,
Revco has further strengthened our offering
to welding and industrial distributors and
has extended our product offering with
access to another quality, own label range
of hand protection products. We have
continued to focus on innovating and
developing our own brands of personal
protection equipment, which contribute
higher margins, while offering a broadening
range of safety equipment to our customers.
We expanded our presence in the agricultural
sector with the acquisition in March of Monte
Package Company, a regional supplier of
packaging to growers in the central and
south east of the US, which has enhanced
not only the geographies we serve, but also
the range of fruit and vegetable packaging
we provide. Our footprint continues to
evolve providing us with the infrastructure
needed to support our customers’ moves to
growing their produce in new geographies,
particularly Mexico.
28
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report Our deep understanding of
the fragmented markets in
which we operate and our
ability to offer total supply
solutions that provide
quantifiable benefits to our
customers have once again
contributed to our success.
Jim McCool
Chief Executive Officer, North America
The growth of our business in Canada
moderated compared to recent years,
principally due to a broad restructuring
and cost savings programme at our largest
customer. We continued to invest in the
safety and cleaning & hygiene sectors,
building a national platform capable of
serving customers locally, regionally and
nationally in a cost-effective and consistent
manner. Our industrial packaging
business also continued its strong growth.
The rationalisation and integration of
a number of IT systems for the many
acquisitions made over the last few years,
which will drive sourcing and operational
synergies as well as enhanced service
platforms for our customers, remains a
key focus for the coming year.
Our businesses serving the processor
sector once again experienced good growth,
although ongoing customer consolidation
continued to put margins under pressure.
A focus on own label and import item
alternatives allows our processor teams
to offer our customers high quality, cost-
effective solutions to manage their
packaging and facility management
programmes effectively. While our national
accounts continue to drive significant sales
volume, our growing e-commerce platform
provides an enhanced interactive customer
experience for our local and regional
customer bases. Our value lies in offering
a single source solution providing both
branded and own brand packaging, MRO,
safety and jan-san product categories.
Our convenience store business continued
its recent history of strong growth through
its wholesaler partners, deploying a sales
force focused on generating additional
sales with end user convenience store
customers. Revenue growth also came from
expanding our distribution offering to new
product categories, particularly those for
certain nationally branded grocery items.
Our value added management of our
customers’ categories and inventories
enables them to provide their customers
with an industry leading range while
minimising their investment in doing so.
Bunzl plc Annual Report 2018
29
Financial statementsStrategic reportDirectors’ report Operating review continued
Continental Europe
Highlights
Revenue
Adjusted operating profit*
Operating margin*
• Substantial increases in revenue and profit
£1,797.5m
£176.8m
(2017: £1,610.4m)
12%†
Market sectors
(2017: £151.1m)
18%†
† At constant exchange rates.
* Alternative performance measure (see Note 3 on page 114).
9.8%
(2017: 9.4%)
Employees
5,007
Locations
193
with operating margin up.
• Significant growth in France due to integration
of Hedis and strong performances in safety and
foodservice, partly offset by weaker performance
in cleaning & hygiene and disposal of OPM.
• Good performance in the Netherlands from
new customer wins and acquisition of QS.
• Expansion in Scandinavia with entry into
Norway through acquisition of Enor and
purchase of CM Supply in Denmark.
• Strong performances in Spain and Turkey
with increased levels of profitability.
Continental Europe continued to perform
strongly with revenue rising by 12% to
£1,797.5 million and operating profit up
18% to £176.8 million. Organic revenue
growth remained high at more than 4%
and was complemented by the full year
impact of the five acquisitions made in
2017 and the part year contribution of
the three acquisitions completed in 2018,
partly offset by the disposal of OPM in
France in February 2018. The impact of
higher margin acquisitions helped drive
an increase in the operating margin
which was up 50 basis points at constant
exchange rates to 9.8%.
Overall in France, our business grew
significantly. The Hedis cleaning & hygiene
business that was acquired in November
2017 has integrated well and the
combination with our original cleaning &
hygiene business has led to significant
synergy benefits. Revenue at our original
cleaning & hygiene business increased as a
significant customer win in the contract
catering sector more than offset the impact of
two larger account losses at the end of 2017.
Sales progressed in the hotel, restaurant and
catering (‘horeca’), industrial and food
processing sectors, offsetting more difficult
trading conditions in the contract cleaning,
healthcare and public sectors as the
government continued to push for further
national consolidation of purchasing
decisions in order to benefit from its buying
power. However, with a lower overall gross
margin, operating profit declined. Our safety
business continued to grow well, particularly
with national accounts, and export sales
were also ahead of last year. We won various
contracts with the government’s central
purchasing agency towards the end of 2017
and have therefore seen strong growth with
public sector customers. We have managed
to improve margins with a number of key
accounts and operating profit grew strongly.
Our foodservice businesses have also
enjoyed good sales and operating profit
growth as additional investment in headcount
and IT has borne fruit. In February 2018 we
disposed of OPM, a non-core business which
was involved in the sale of SodaStream
products to retailers in France.
In the Netherlands, sales grew in all areas of
activity with particularly strong performance
in the healthcare sector following a major
customer win in mid 2017. In light of the
growth in healthcare, we will relocate three
warehouses into one modern site in 2019 to
gain efficiencies and provide an enhanced
service to our customers. Sales in the
non-food retail sector increased significantly
due to growth of packaging sales for
e-commerce customers and the roll-out of
our full outsourcing concept for high street
retailers, including several sports clothing
chains. QS Nederland, a provider of hygiene
solution services primarily for washrooms,
was acquired in March and is trading ahead
of expectations. In Belgium, revenue was
ahead of the previous year as we continued
to grow in the cleaning & hygiene sector,
particularly with the larger accounts.
Our grocery and food processor business,
however, saw a decline in sales, despite
some recent customer gains, as its main
customers continue to seek cost reductions.
In Germany, sales were slightly lower
with an increase in the horeca sector, due
to winning new business with a chain of
petrol stations, offset by declines in safety
clothing and incontinence products due to
competitive pressure in these two specific
markets. In Switzerland, we have seen
further growth in the medical, retail and
industrial sectors although new business
won is at lower than average margins.
We continue to see pressure in the horeca
sector where numerous customers are
reducing their spend. In Austria, our
business enjoyed good sales and operating
profit growth.
In Denmark, revenue increased with
particularly strong performances in the
safety, food processor and horeca sectors.
We have won additional business with a
major Danish foodservice wholesaler and
continue to grow with a major chain of juice
bars as they expand internationally. A new
area of growth has come from supplying
goods to gyms and to third party transport
companies. In December we acquired CM
Supply which specialises in own brand
and customised foodservice products and
packaging for the horeca sector. In July
we acquired our first business in Norway,
Enor, which sells light catering equipment
to the horeca sector. Both businesses are
integrating well into the Group.
30
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report Sales have grown strongly in Spain.
The cleaning & hygiene business has seen
strong increases in revenue, in particular
with contract cleaners and in the horeca
sector, and has recorded higher sales with
most of its larger accounts. In the safety
sector, all businesses have seen sales
increases as our customers benefit from
the continued strength of the local economy.
Our medical business recorded another
year of above average growth due to new
product launches and the enhanced use
of e-marketing to increase online sales.
Tecnopacking, which is engaged in the
distribution of industrial and disposable
packaging and was acquired at the end
of May 2017, has also performed ahead
of expectations. Operating profit in Spain
as a whole was significantly higher than
last year. In Italy, our safety business Neri,
which was acquired at the end of March
2017, has performed well. While sales have
declined slightly, the business has improved
its margin such that operating profit is
ahead of expectations.
In Turkey, sales have grown strongly due
to both increased volumes and the positive
impact of price rises following the major
devaluation of the Turkish lira. Volume
growth has been highest in the healthcare
sector, with significant customer gains and
the launch of new products. The overall
operating profit increased substantially.
In Israel, sales were slightly lower in both
the horeca and bakery sectors but improved
margins have however led to an increase
in operating profit.
One of our key objectives is to improve the efficiency of
our customers’ operations by offering them greater choice,
competitively priced products and excellent service
throughout the supply chain from the initial order to the
final delivery.
Alberto Grau
Managing Director, Continental Europe
In central Europe, both Hungary and
Romania enjoyed strong sales growth but
revenue declined in the Czech Republic due
to lower sales to a major cash & carry chain
not being fully offset by good growth in
the safety sector. In Hungary sales grew
well in the grocery, industrial, horeca, food
processing and contract cleaning sectors
although declined in the agriculture sector.
In Romania sales were down in the grocery
sector but this was more than compensated
by gains in the safety and cleaning &
hygiene sectors. Overall the operating
profit was significantly ahead of last year.
Bunzl plc Annual Report 2018
31
Financial statementsStrategic reportDirectors’ report Operating review continued
UK & Ireland
Highlights
Revenue
Adjusted operating profit*
Operating margin*
£1,263.6m
£86.8m
(2017: £1,190.8m)
6%†
Market sectors
(2017: £88.5m)
2%†
† At constant exchange rates.
* Alternative performance measure (see Note 3 on page 114).
6.9%
(2017: 7.4%)
Employees
4,037
Locations
110
• Strong revenue growth but operating margin
impacted by challenging market conditions.
• Trading in safety affected by difficult market
but good performance in cleaning & hygiene.
• Strong revenue growth in grocery and retail
across all businesses, partly offset by sale of
non-core marketing services business.
• Growth in hospitality from existing customers
and the acquisition of Aggora.
• Growth in healthcare despite changing market
in NHS acute sector.
• Strong growth in Ireland.
In UK & Ireland, revenue increased by 6%
to £1,263.6 million as a result of organic
growth of 4% and the impact of recent
acquisitions, partly offset by the disposal
of our marketing services business in
June 2018. Organic growth slowed
during the second half of the year as
some major contract wins in the third
quarter of 2017 were fully absorbed.
Operating profit was down 2% to
£86.8 million with the operating margin
declining 50 basis points to 6.9% as
market conditions in the UK continue
to be challenging due to political and
economic uncertainty.
Although our safety business secured some
new customers in the second half of the year,
many of our construction and manufacturing
related customers themselves experienced
a slowdown in growth which in turn
affected demand for the products that we
supply, resulting in lower operating profit.
Nevertheless, we continued to invest in
our core product range availability, vehicle
telematics and our digital service offering
together with upgrading the quality and size
of two facilities during the year. Our cleaning
& hygiene business performed well with
a series of new customer wins within the
facilities management and government
sectors. Sustained development and
enhancement of our digital functionality,
together with innovative service solutions
and greater investment in product expertise
amongst our teams, have provided
improved levels of operational insight for
our customers helping them to run their
businesses more effectively.
All of our grocery and retail businesses saw
strong sales growth during the year as a
result of both new customers coming on
board and additional category wins with
existing customers. Retail Supplies has
continued to invest in both technology and
automation to strengthen its ‘goods not for
resale’ consolidation service to large retailers
while our packaging specialists, Keenpac,
Woodway and Lightning, have invested in
sustainable solutions for customers in both
traditional high street and e-commerce
channels during the year. The ability to
provide both in-store and online product
solutions for retail customers has helped
to secure extra business with existing
customers. The development of sophisticated
digital tools to provide our customers with
valuable information concerning usage and
compliance is further adding to our already
strong value proposition. In June we sold
our marketing services business as the
opportunities to expand overseas in the
short to medium term were limited and,
as a result, the business was no longer
considered to be a good strategic fit.
Despite challenging conditions within the
restaurant sector, our catering supplies
businesses have grown sales during 2018.
We have continued to invest in innovation
in terms of new products to provide more
variety and choice in the preparation
and presentation of food. In addition,
by providing data driven insights we have
been able to help our customers with greater
clarity and visibility on consumption,
conformity and control which enables them
to maximise the use of their assets. We have
also further developed our comprehensive
range of sustainable product alternatives to
satisfy the growing need for choice in this
area while at the same time providing our
customers with much needed expert advice
on product selection. The Aggora business,
which was acquired in January 2018,
has further enhanced our proposition
by adding a valuable suite of services for
our customers including full servicing of
catering equipment and asset tagging
capabilities that provide them with
invaluable management information through
a custom-built database. The business has
integrated well and a number of cross-selling
opportunities, involving the delivery of an
attractive bundle of products and services
to existing customers, have been identified
with several already actioned.
Our healthcare businesses have benefited
from the introduction of new product ranges,
in particular those associated with infection
prevention and control solutions. At the same
time, we have continued to grow by gaining
new customers in the private hospital,
nursing and care home markets and we have
continued to expand our product focused
business to reach customers outside of the
UK market, improving the breadth of product
offering and increasing our geographical
coverage. Our business serving the acute
sector faces some challenges as the UK
government works through its plans to
reform the current NHS supply chain, which
is due to go live in April 2019. Overall, despite
modest sales growth, the healthcare business
saw a strong improvement in profitability.
32
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report Our businesses in Ireland have continued
to grow strongly during the year and
profitability increased. We have launched
new digital capabilities to provide our
customers with more flexible ways to buy
our comprehensive range of products and
services that we are able to offer. Further
investment in new warehouse management
technologies is also creating greater
efficiencies and going forward will deliver
higher quality services to both our existing
and new customers. In addition, our
expanded range of sustainable products
has allowed us to satisfy the desire for more
eco-friendly options in the foodservice and
retail markets.
Given our size, expertise and position in
the supply chain, we are well placed to
advise our customers on their sustainability
strategies while using our strong
relationships with our extensive supplier
base in order to bring a broad range of
innovative, sustainable products to market.
Andrew Tedbury
Managing Director, UK & Ireland
Bunzl plc Annual Report 2018
33
Financial statementsStrategic reportDirectors’ report Operating review continued
Rest of the World
Highlights
Revenue
Adjusted operating profit*
Operating margin*
• Strong overall sales and profit growth with
£740.5m
£56.4m
(2017: £718.6m)
12%†
Market sectors
(2017: £53.9m)
15%†
† At constant exchange rates.
* Alternative performance measure (see Note 3 on page 114).
7.6%
(2017: 7.5%)
Employees
3,210
Locations
104
operating margin up.
• Strong performance in Latin America.
• Position in safety in Brazil further strengthened
through recent purchase of Volk do Brasil.
• Improvement in performance in Australasia.
In Rest of the World, revenue increased
12% to £740.5 million with operating profit
up 15% to £56.4 million as the operating
margin increased 20 basis points at
constant exchange rates to 7.6%.
Although trading conditions have
continued to improve as the economic
environments in the countries in which we
operate have stabilised, market conditions
remain variable across the business
area. Of the total increase in revenue,
4% was from organic growth with
acquisitions accounting for the balance.
Brazil’s political future became clearer
towards the end of the year with the election
of a new president. While most of the year
was characterised by uncertainty and a
sharp currency devaluation, the fourth
quarter saw a return to more stable
conditions. Despite a year of rising
unemployment and limited industrial activity,
our safety businesses saw strong growth
in revenue and operating profit as we
capitalised on the weakness of several key
competitors and maintained a high service
level to the market. We also invested in
further operational improvements and
digital channels to prepare ourselves for the
anticipated increases in industrial demand
following the election. The recent acquisition
of Volk do Brasil, which was announced in
October 2018 and completed in January
2019, has further extended our safety
business and strengthened our product
offering. A strong performance was also
seen in our foodservice business as our
recent acquisition, Talge, integrated very
smoothly into the Group and grew both
revenue and operating profit well ahead of
expectations. In contrast, our cleaning &
hygiene business experienced difficult
trading conditions such that sales were
down and margins contracted. A new
management team was appointed in the
fourth quarter and is implementing a
restructuring plan to improve operating
margins and return the business to growth.
Our Brazilian healthcare business saw a
mixed performance. Although the medical
business experienced some sales growth,
significant margin pressures led to lower
operating profit. Measures to grow sales
and improve profitability have now been
implemented. In contrast, our dental
business grew both sales and operating
profit as a result of improvement measures
taken last year.
In the rest of Latin America, we have seen
consistently good results across all our
businesses despite some political
uncertainty in Mexico, Colombia and
Argentina. In Chile, continued growth in the
mining sector has generated higher demand
for our safety products such that both our
safety businesses, Vicsa and Tecno Boga,
grew sales and operating profit. Growth
was particularly strong at Vicsa as operating
margins increased significantly while
further progress was achieved in its digital
channels. Our catering supplies business
grew sales well, while also improving
operating margins.
In Colombia, trading conditions softened
in the middle of the year, partly due to some
political uncertainty following presidential
elections, but improved towards the end of
the year. Our safety business, Solmaq, saw
strong sales growth and benefited from its
restructuring last year. A new IT system has
recently been implemented to prepare for
further growth. Both sales and operating
profit increased strongly at Vicsa despite
some pressure on operating margins.
In our other Vicsa operations we experienced
very strong sales and operating profit growth
in Argentina driven by high volume and
inflation driven price increases while in
Peru sales and operating profit were also
up despite gross margin pressures.
In Mexico, the market was also affected by
uncertainty surrounding the presidential
elections but was boosted by positive
developments regarding NAFTA. Our safety
business traded well throughout the year
and, despite experiencing a softening of
demand in the second half, recorded
good sales growth. More stable currency
conditions allowed margins to improve
such that, with good cost control, operating
profit grew strongly.
In Asia Pacific, market conditions varied
across the countries and business sectors
in which we operate.
In Australasia, business confidence
continues to improve with demand for
commodities in the resources sector, growth
in tourism and government investment in
infrastructure projects all helping to drive
the economy. Our businesses that operate
in these sectors have benefited from these
34
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report We are continually looking
to refine and develop our
processes and procedures
to make our operations more
efficient and enhance our
service offering for our
customers by offering them
more cost-effective solutions
and ways of doing business.
Jonathan Taylor
Managing Director, Latin America
We are able to obtain
a distinct competitive
advantage through
collaboration between, and
sharing best practice with,
other Bunzl businesses
and by using our global
purchasing scale combined
with the QA/QC capabilities
of our Asia Sourcing Centre.
Kim Hetherington
Managing Director, Asia Pacific
developments although the results have
been adversely impacted in part due to
increases in the cost of imports following
the weakening of the Australian dollar and
raw material price increases.
Our largest business continued to grow
in the healthcare, cleaning & hygiene and
hospitality sectors. In particular, the
business has developed well in the growing
aged care market which continues to deliver
good returns through the supply of medical
consumables and the provision of specialist
clinical support. We have also made
significant progress with our continued
focus on automation and digital trading
platform developments. As a result, our
customers are seeing the benefits of our
improved online capabilities and the ease
of doing business across the region.
Although our food processor business saw
some sales growth as a result of customer
wins, operating profit was down due to a
combination of below average margins in the
new business and increases in both product
and operating costs. We have developed a
number of specialist products that help to
deliver improved outcomes for our customers
and are continuing to innovate with food
packaging concepts for the produce sector.
In our safety business, sales growth has
been slower than expected. However, we
have been able to offset this with improved
margins from a better product mix and
by successfully introducing an extended
range of own brand products. The business
experienced some disruption following the
consolidation of several facilities in 2017
but this has now settled down with the
reorganisation delivering the anticipated
savings. Overall the business continues
to make improvements by streamlining its
operational platform and processes to drive
productivity, enhance our competitive position
and improve service levels to our customers.
Our speciality healthcare business continued
to perform strongly and delivered good
results. The business is a leading national
distributor of laboratory and healthcare
related consumables to the pathology,
medical research and life science markets.
Our business in Singapore, which
distributes personal protection equipment
and services into the oil & gas and
pharmaceutical sectors in the region,
has performed well. The business has
successfully leveraged the Group’s
global supply chain to help fast-track the
development of new product categories.
This will ensure that we are able to
consolidate our position within our
existing customer base and create new
growth opportunities in the region.
Our business in China, which also supplies
personal protection equipment, has been
adversely impacted by lower demand
for certain product lines. The business
is currently developing alternative
revenue streams into the large industrial
manufacturing base within China.
Our export business has developed a
comprehensive own brand glove range
which will be launched in 2019.
Bunzl plc Annual Report 2018
35
Financial statementsStrategic reportDirectors’ report Our people
People underpin everything we do and are the focus of our
business. Our decentralised organisation, can-do attitude
and talented, committed workforce are key to our success.
Investing in our people ensures that everyone can fulfil their
individual potential, while creating an inclusive and collaborative
environment means that all of our people can make a broader
contribution to our success.
We pride ourselves in being an employer
of choice and we work actively to develop
capability and create opportunities for
employee progression. We want our people
to feel empowered and be recognised
for their commitment, innovation and
contribution to Bunzl’s growth. Our aim is
to foster an environment that is inclusive
and diverse throughout, where each
individual is treated equally and fairly with
openness and encouragement. We invest
to attract and develop great people and our
acquisitions bring an additional rich pool
of talent to Bunzl.
The power of a global team
We are proud of our people’s personal and
professional achievements, both within
the Bunzl family and in the wider world,
as they represent us through their work
and involvement in their local communities.
We run our businesses locally and managers
are empowered to make a difference
accordingly. We have strong processes to
recruit great people and a system that gives
employees career progression opportunities
and help us to fill roles internally. In addition,
our acquisitions continue to be a valuable
source of management talent for the Group
bringing further skilled people into Bunzl.
Our people are talented individuals and our
culture enables them to be creative and
customer focused in their work.
Workforce engagement and investing
in our people
We take the engagement, well-being,
diversity and reward of our people seriously
and conduct regular surveys and research
across the Group. In our biennial employee
survey undertaken this year, our response
rate was 85% and our overall engagement
score was 74%, both significantly above
the relevant external benchmarks.
A particular area of focus following the
previous employee survey results was
refreshing our global employee newsletter,
the Source, which was also launched as an
app in 2018. We were therefore very pleased
that the number of people agreeing with
the statement ‘The Source gives a good
overview of the Group’s operations around
the world’ was one of the most improved
results in the survey. We use a range of other
methods to engage with our employees
including listening groups with frontline
workers, site visits, digital and online apps,
video messaging and holding meetings
with groups of workforce representatives.
In addition, regular daily and monthly team
briefings allow us to receive continuous
feedback from our workforce.
During the year we continued to demonstrate
our commitment to developing our people
through investment in various training and
apprenticeship programmes, helping people
start their careers. We also redesigned our
global leadership programme which brings
together leaders from different cultures,
backgrounds and nationalities and focuses
on innovation and external best practice,
introducing new thinking and ideas for the
business. The new programme will be
officially launched in the spring of 2019.
Total workforce
Gender split at 31 December 2018
36%
64%
Male
Female
12,164
6,842
Senior management
Gender split at 31 December 2018
13%
87%
Male
Female
379
55
Average number of employees
By business area
17%
21%
35%
27%
North America
6,531
Continental Europe 5,007
UK & Ireland
4,037
Rest of the World
3,210
36
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report We encourage employees to take charge of
their development and career growth and
look to appoint from within the organisation
wherever we can. It is our people who
continue to deliver the Group’s strategy for
the individual businesses and we will look
to continue to invest in our people to ensure
that we attract and retain the best talent.
Rewarding for performance
We aim to ensure that everyone who works
for Bunzl is treated and paid fairly. Locally
our businesses are empowered to run a
variety of recognition schemes to reward
‘going the extra mile’ and living the Bunzl
values. We have good employee benefits
throughout and are constantly seeking to
innovate. For example in our UK & Ireland
businesses, we have focused on overall
employee well-being with the introduction
of an Employee Assistance Programme,
broadening the life assurance provision to
employees outside of our pension plans
and piloting financial education solutions.
Equality and diversity
We believe that diversity across Bunzl drives
better performance and a stronger Company.
We recognise that diversity is essential for
introducing different perspectives into debate
and decision making. Our business culture is
underpinned by our corporate responsibility
framework which sets out the legal, ethical,
social and environmental standards of
behaviour we expect from our employees.
All of Bunzl’s policies seek to respect
human rights standards defined by both
internationally agreed principles and our own
cultural values. Given the decentralised
nature of the Group, actions to promote
diversity in the workforce are taken locally,
with a number of ongoing initiatives such as
an initiative in the Netherlands designed to
promote diversity of age ‘Young Bunzl’ (see
the case study on page 38 for more details).
Employee Information and Consultation Forum
(‘EICF’) – UK & Ireland and Continental Europe
A group of elected representatives have met annually since 1996 as part of the EICF.
In 2018, 10 representatives from the UK & Ireland and Continental Europe business
areas met in Amsterdam to share information on issues that are important to our
employees in these businesses. The business area Managing Directors, the Group
Finance Director and the Director of Group Human Resources also attended the meeting.
The most recent financial results of the Group were shared and discussed as well
as the achievements and plans from a regional perspective. In addition, the
representatives were updated on the developments in corporate responsibility and the
employee engagement survey plan for 2018 was shared. The representatives raised
questions that their colleagues wished to be discussed and gained input from all the
people present at the meeting. It was considered a successful meeting providing
another opportunity to build engagement with, and two-way communications
between, the Group’s senior management and the wider workforce.
During 2019, we will build on the successful EICF structure and look to establish
alternative arrangements in other business areas to ensure that the Board of directors
has an understanding of wider workforce engagement and areas of interest.
Bunzl plc Annual Report 2018
37
Financial statementsStrategic reportDirectors’ report Our people continued
In 2018 we reported for the first time our
gender pay gap relating to our relevant
employee population in Great Britain.
Our results showed, as in most companies,
that women are less well represented at the
top of the organisation. We also have an
over-representation of men at more junior
levels across the business. Gender balance
at the top changes slowly, as we have a
stable senior management team which is
mainly male and with long tenure. Across
our business we are investing in actions that
will help close the gap over time. We review
diversity data at Board level as part of the
talent review process.
Supporting community projects and
employee fundraising
We continue to encourage employees
to take part in community support and
sustainability programmes. We know that
community support makes a meaningful
difference to our colleagues. We provide
resources and opportunities for Bunzl
people to get involved in local community
projects and to contribute to social impact
causes. These fundraising activities
championed by our employees locally are
supplemented by donations made at Group
level. For example, in 2018 significant
donations were made to Macmillan Cancer
Care and St John Ambulance.
Health and wellness
Maintaining good health is crucial for our
employee well-being both at work and at
home and we actively encourage this by
providing health checks and sponsoring
exercise programmes. This gives our
workforce opportunities to maintain and
enhance their health, maximise their fitness
and improve their capacity to work safely
and effectively. This benefits both the
individual and our business.
Total workforce age profile
at 31 December 2018
20%
17%
24%
39%
Under 30
30 – 39
40 – 54
Over 55
3,250
4,632
7,398
3,726
Young Bunzl
In order to ensure we retain, as well as attract, younger people to our Dutch
businesses, the management team in the Netherlands has been strengthening the
network and opportunities to collaborate for those employees under 35 years old.
Events were held during 2018 to enable this target population from different
operating companies to meet and connect. Activities have included guest speakers
on relevant topics of interest and opportunities for people to share their ideas and
thoughts with the leadership team as well as talk to colleagues in other businesses.
This has been very well received from those taking part and more events are
planned for 2019.
I have really enjoyed
meeting others through
Young Bunzl and learning
about their businesses.
I now have a much wider
network of colleagues
to share and discuss ideas
and experiences with.
Dennis Roijakkers
Sales Account Manager at
Worldpack (the Netherlands)
38
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report Bunzl has always focused on my potential rather
than my existing experience and continues to
invest in my development. I am thrilled that my
career has found its home at Bunzl and excited
to continue to grow with the business.
Katy Vu
Chief Financial Officer, Bunzl North America
Talent management in action
Bunzl believes in developing and promoting talent from within
and, as a result, there were some significant senior leadership
changes during 2018. These recent changes demonstrate that
Bunzl supports the building of great careers across geographies
and sectors. When our people are prepared to move, they can
access unrivalled opportunities to experience different cultures
and build a great portfolio of skills.
Patrick Larmon retired as CEO of our North America business
area at the end of 2018 after 28 years of service at Bunzl.
Jim McCool, who joined Bunzl in 1998 and held a number of
senior management positions, most recently as Chief Financial
Officer for North America, was appointed his successor after
an extensive development and selection process. This gave rise
to an opportunity for a new Chief Financial Officer in North
America, a position filled by Katy Vu. Katy joined Bunzl plc in
2013 in a finance role and went on to head up the Internal Audit
team. Katy has most recently been Managing Director for our
Central and Eastern European part of the business. Following
Katy’s relocation to take up her new role in the US, Scot Gregory,
formerly General Manager for Bunzl Anaheim in California,
moved to lead the Central and Eastern Europe team, where he
has brought knowledge and expertise from the North America
business area.
These examples of senior leadership changes demonstrate
our commitment to identifying and, more importantly realising,
the talent and potential of people within the business.
Key performance indicators
Performance
2016
2017
2018
What we said we
would do in 2018
What we did
What we plan
to do in 2019
Employees
Engaging with our employees with clear communications and the provision of training and development opportunities
Employee turnover:
Voluntary
11.7% 13.0% 14.6% Continue to monitor
turnover and take
action where
necessary.
From our monitoring we are seeing an increase in voluntary
employee turnover in our business. The movement in the
levels of voluntary employee turnover tends to reflect the
economic conditions in the countries in which we operate
and low unemployment levels, particularly in North America,
rather than any intrinsic reasons related to the Group. Our
key employee and management populations remain stable.
Continue to
monitor turnover
and take action
where necessary.
Gender diversity:
Women at senior
management level
10% 11% 13% Extend the training
further and
encourage wider
participation.
We continued to promote women’s development and
training across the Group and use case studies to highlight
female role models.
Employee engagement
index score
76% –
74% Undertake an
employee survey
during 2018.
The results of the employee survey have been analysed
in detail and, as appropriate, working parties or local
forums and listening groups have been set up to address
the issues raised.
Raise awareness and
further develop
training and look
for opportunities for
wider participation.
Detailed action plans
to be devised to
address significant
issues raised and
celebrate successes.
Bunzl plc Annual Report 2018
39
Financial statementsStrategic reportDirectors’ report
Corporate responsibility
We are committed to ensuring that our business is
conducted in all respects according to rigorous ethical,
professional and legal standards. We are a responsible
employer that provides our employees with a safe working
environment and promotes a positive and supportive
culture which values commitment, openness, honesty
and respect for everyone.
Our extensive and flexible supply chain
offers our customers the opportunity to
choose from a wide range of goods and
services to meet their commercial needs.
Our supply chain management processes
ensure that those goods are responsibly
sourced, manufactured and delivered. We
offer a wide product range to our customers
and provide our support and expertise on
the sustainable aspects of our products,
enabling them to make informed choices,
taking into account sustainability, functional
and commercial criteria. Our efficient
one-stop-shop operating model allows
our customers to benefit from a lower cost
and environmental impact of doing business.
Business context
We are a focused and successful specialist
international distribution and services
Group with operations across the Americas,
Europe and Asia Pacific. 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.
We do not manufacture any products but
as part of our business strategy we source
and procure branded, own brand and
unbranded products globally. These
products are then consolidated into our
extensive global warehouse infrastructure,
giving our customers a one-stop-shop
solution to help reduce or eliminate the
hidden costs of self-distribution and reduce
their environmental impact. We also offer
several delivery options to ensure our
customers receive their products when
and where they are needed.
As well as day-to-day operations, our
business relies on developing solid
and stable relationships with all of our
stakeholders. We believe in managing
our business with integrity and making
sustainable, long term decisions.
Sourcing
We source everyday essential non-food items
for a number of market sectors including
foodservice, grocery, safety, cleaning &
hygiene, retail and healthcare. We are able
to offer a wide range of items which satisfy
our customers’ demands, including offering
alternative products which have a lower
environmental impact. Our quality
assurance/quality control team based in
Shanghai monitors and works with our
key direct suppliers in Asia and elsewhere
to ensure that appropriate corporate
responsibility (‘CR’) standards are in place.
Consolidation
We have an extensive operations footprint
across more than 30 countries. The products
available from our broad range are therefore
never far from where they need to be, allowing
us to meet our customers’ needs quickly and
easily, as well as reducing the number of
deliveries, thereby cutting fuel usage, carbon
emissions and internal administration.
Distribution
With our fleets of delivery vehicles and
third party carriers, we are able to get
products to our customers in a timely
manner. Our flexible delivery service allows
our customers to increase the efficiency
and competitiveness of their own operations.
Strategy, framework and materiality
We believe that positive actions with respect
to CR are not only desirable in their own
right but are also of potential economic and
commercial benefit to the Group. 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. Bunzl’s good practice in sustainability
has again been recognised by its
FTSE4Good listing and CDP (formerly
Carbon Disclosure Project) score. Details of
our strategy and framework in relation to CR
can be found on the Bunzl plc website in the
Responsibility section at www.bunzl.com.
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 to
ensure everyone understands our standards;
• supply chain: responsible sourcing,
working as partners with our suppliers to
encourage high levels of CR and ethical
trading initiatives;
• employees: engaging through clear
communication using a variety of
channels, as well as the provision of
training and development opportunities;
• health & safety: improving safety in our
warehouses and on our vehicles and
ensuring that everyone takes personal
responsibility for this;
40
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report 1
2
5
3
4
1 Reusable cups made from coffee husks
2 Food containers made from polylactic acid (‘PLA’), a renewable plastic
3 Cups made from recycled polyethylene terephthalate (‘PET’)
4 Compostable coffee cups
5 Paper based food packaging
• environment/climate change: reducing
our and our customers’ impacts on
the environment by reducing carbon
emissions, promoting the reduction of waste
and providing innovative products and
services to meet their sustainability needs;
• community: providing support by
encouraging employee fundraising and
donating to charitable projects and good
causes that benefit the communities we
work in; and
• customers: developing and offering a full
product range and delivering these products
to our customers efficiently, thereby
enabling them to benefit from a lower
environmental impact of doing business.
Where appropriate, we partner with
customers to identify products and services
to minimise waste and provide expert
advice on more sustainable alternatives.
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 2018.
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 HR policies and procedures. In
the reporting year 10 (2017: 13) calls or letters
A sustainable
approach to
single-use plastics
The environmental impact of single-
use plastics is an increasing priority
throughout society. It is a complex
issue as there are many plastic
products for which limited viable
alternatives exist today. Many of
our customers have ambitious
commitments to reduce their plastic
waste footprint.
As a leading distributor of a variety
of plastic-based products, Bunzl is
on the frontline and takes a proactive
approach. Our scale and unique
position at the centre of the distribution
system gives us a powerful
opportunity to be part of the solution
– working in partnership with our
customers and our suppliers to find
and promote alternatives to single-use
plastics when possible and to support
the development of innovative
products to increase compostability
and recyclability.
We are agile when it comes to
changing our product range and see
this as an opportunity for growth.
Many of our businesses have found
alternatives through innovation and
in close collaboration with suppliers.
We also pursue opportunities to
increase awareness about collection
and recycling – together with our
supply chain partners and the public.
Some examples of our work in this
area can be found in the Customers
section on page 47.
were received through our confidential
whistleblowing process, ‘Speak Up’, none of
which related to any issues of material concern.
All directors, managers, sales
representatives and purchasing staff
are required to undertake all of the CR
e-learning modules which have been
developed and enhanced since their original
launch. There are now a total of 11 modules
which provide an overview of the business
conduct/code of ethics policy and anti-
bribery issues such as facilitation payments,
gifts and entertainment and training
modules on competition law and identifying
and addressing modern slavery concerns,
the latter being rolled out in 2018.
Bunzl plc Annual Report 2018
41
Financial statementsStrategic reportDirectors’ report Corporate responsibility continued
Supply chain
Price is only one consideration in our
purchasing decisions and factors 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.
We work with our suppliers with the aim
of ensuring that the products we supply
are, wherever possible, manufactured from
sustainably sourced raw materials and seek
to increase the range of sustainable products
that are made from recycled materials or
are themselves recyclable or compostable.
We also continue to refine our processes to
ensure that imported paper and wood-based
products are manufactured from legally
sourced timber. To this end, we have
reviewed our Asian supplier audit process
in 2018 and we will add to our audit process
a review of the sources of wood fibres in our
products to try to ensure that paper-based
products are sourced sustainably.
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.
Our supplier code of conduct defines the
principles and standards that Bunzl expects
suppliers of goods and services to adhere to.
The supplier code is available in several
languages and is actively communicated to
key suppliers, particularly in those countries
with increased risk of modern slavery and
other social risks.
and the Ethical Trading Initiative. Our central
CR audit process covers the geographies
with high levels of social risks, which are
predominantly countries in Asia. Since 2017
we have also audited suppliers that are based
in geographies with medium risks. In 2018 we
have, in addition to our Asian audits, carried
out audits in Mexico, Turkey and Colombia.
Suppliers who are unable to meet all the
requirements after an initial assessment/
audit are given the opportunity to comply
fully within a period of time which is deemed
appropriate for the circumstances. If a serious
breach is identified following assessment, an
action plan is documented and the supplier
is expected to commit to addressing all
the areas where discrepancies have been
identified. The process of improvement
via this method is principally reliant on 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, forced or bonded labour, illegal
discrimination, wages not meeting local
minimum requirements, not providing
adequate days of rest and any other breach of
local or applicable international requirements
for workers’ welfare and conditions of
employment. Suppliers that are being
monitored and assessed due to identification
of a serious breach are periodically reported
to, and reviewed by, the Board.
Auditing
To assist the business areas, we have our
own quality assurance/quality control
department based in Shanghai which
performs regular audits of our direct suppliers
in Asia to ensure that they meet international
standards, as well as testing factories’
production capabilities and their quality
assurance and quality control systems.
Employees’ terms and conditions of work,
customer service capabilities, hygiene
management systems and their policies and
practices on environmental issues are also
checked. We expect our suppliers to meet
or exceed local legislative requirements
and applicable international requirements
for workers’ welfare and conditions of
employment, such as those set by the
International Labour Organization (‘ILO’)
In 2018 we carried out a total of 539 (2017:
503) audits of suppliers located in Asia,
and worked with those suppliers where
unacceptable standards were identified to
resolve any non-conformities. Five suppliers
did not make sufficient progress to address
the concerns and we have subsequently
ceased our relationship with those suppliers.
Social risk assessment of supply chain
In 2018 we completed a quantitative analysis
of material social risks in our worldwide
supply chain. Economic sector data and
social risk factors from a range of data
sources have been applied to our global
supplier data. The analysis allows us to
rank suppliers against human and labour
rights identified by internationally agreed
standards, taking account of geography and
product. The analysis included a review of
direct risks (the likelihood of a social issue
arising directly in the economic sector/
country of the supplier) as well as the
indirect risk (the likelihood of a social issue
arising in the supply chain of a supplier –
tier 2 and tier 3 suppliers).
The analysis confirmed that the vast
majority of Bunzl’s direct suppliers are based
in countries with comparatively low levels of
social risk. It has also deepened our insight
into the social risk factors in countries with
high relative risks such as China, India and
Indonesia, several other countries in Asia
and countries with medium social risks such
as Mexico, Turkey and a number of other
Eastern European countries. The industry
sector approach that we followed allowed
us to identify the sectors representing the
highest risks in our supply chain.
We have used the results of the analysis
to identify a number of actions to further
enhance mitigation of social risks in our
supply chain. These actions include more
in-depth audits in high risk countries,
use of enhanced checklists, further
enhancement of communication of our CR
standards to high risk suppliers and the
development of supplier management tools
for use by local Bunzl businesses.
Engagement with suppliers
We work with our suppliers to help them
prevent CR issues arising and to address
them if they are found. In 2018 we started
to expand our approach from audit and
monitoring to more collaborative solutions.
We believe that building relationships,
capacity and trust with suppliers is critical
when it comes to preventing and identifying
incidences of modern slavery. After a first
successful supplier training event in 2017,
we organised another supplier conference
in Shanghai to showcase examples of good
practice and build awareness of social
compliance issues. The focus of this year’s
conference was on discussing case studies
and establishing an active dialogue with
and between suppliers about practical and
effective approaches to deal with modern
slavery issues and other social risks.
The conference was attended by 32
suppliers and this year included six
prospective suppliers. The event helps
to develop local expertise and build the
business case for suppliers to achieve better
productivity, quality and employee retention.
42
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report Incidence rate
Average number of incidents per
month per 100,000 employees
123
110
101
95†
81
14
15
16
17
18
12 months to 30 September.
Severity rate
Average number of days lost per
month per 100,000 employees
7
0
3
,
4
3
0
6
3
,
9
0
4
,
2
†
0
7
3
,
2
0
9
8
1
,
14
15
16
17
18
12 months to 30 September.
† Included in the external auditors’ limited
assurance scope referred to on page 48.
The data for 2014, 2015, 2016 and 2017 was
also assured as detailed in the respective
Annual Reports. In 2018, the methodology of
reporting lost time accidents in France has
been improved. To ensure consistency and
comparability to data reported in previous
years, Group safety performance figures
in 2014, 2015, 2016 and 2017 have been
adjusted accordingly.
Training
We have rolled out a CR training module
which specifically covers social risks,
including modern slavery. This training
module is mandatory for all of our senior
management as well as senior sales
representatives and procurement employees.
The training has helped our employees to
understand and recognise social risks that
might occur in our supply chain and to
inform them of the appropriate actions that
should be taken if such risks materialise.
Employees/human rights
Bunzl adheres to the Universal Declaration of
Human Rights and upholds the Fundamental
Principles and Rights at Work policies,
defined by the ILO, as well as applicable local
laws. The countries in which Bunzl operates
have their own laws banning child and
forced labour and promoting human rights.
We monitor the age of our own workforce
across the world. Bunzl does not restrict its
employees in any of the countries in which
it operates from joining a trade union if
they wish to do so. More details about
our employees can be found in the Our
people section of this Annual Report on
pages 36 to 39.
The UK Modern Slavery Act 2015 requires
certain businesses to produce an annual
statement that sets out the steps these
businesses have taken during the financial
year to ensure that slavery and human
trafficking are not taking place in their
operations and supply chains. This
requirement affects Bunzl plc and a
number of operating companies in the UK.
The current Bunzl slavery and human
trafficking statement has been approved
by the Bunzl plc Board of directors and is
available on our website, www.bunzl.com.
Health & safety
Health and safety remains a priority for
Bunzl and it is our aim that no employee or
other person should be injured as a result
of our operations. Regrettably, in the 2018
reporting period there was one fatality
(2017: none). The incident took place at one
of our facilities in Australia and involved
a warehouse employee who was stung by a
bee on his face in the car park. This brought
on a severe allergic reaction, which after a
very short period led to his death.
After several years of solid improvement,
our incidence and severity rates in 2018 are
up by 17% and 25% respectively, although
they are still below the rates seen in 2016
and prior years. One factor that impacted
this increase is the challenging conditions
in the employment market worldwide.
Tight employment markets are leading to
increased employee turnover and shorter
job tenures. This has a negative impact on
injury rates as less experienced employees
have an increased risk of being involved
in a workplace injury. This impact is
particularly significant in North America
where unemployment is at a historical low
level. We have therefore improved our new
employee onboarding programmes in North
America. This included an increased focus
on ergonomics training for new employees.
In 2017 and 2018 the number of employees
increased significantly due to acquisitions.
It is our aim to help businesses acquired
to achieve the desired Group safety level
as soon as possible but in some cases this
process requires time. The acquisition of
Hedis in France had an impact on our Group
safety rates in 2018. Approximately 32% of
the increase in the incidence rate in 2018
was due to accidents that occurred at Hedis.
This year we have worked on increasing
environmental, health and safety (‘EHS’)
awareness by greater and improved
coordination of EHS matters in certain
regions through enhanced communication
of our EHS standards and by organising
various health and safety campaigns
across our business areas. As a result,
the completeness of accident reporting
in some areas has improved.
Bunzl plc Annual Report 2018
43
Financial statementsStrategic reportDirectors’ report Corporate responsibility continued
Waste
Tonnes per £m revenue
0.2
0.8
0.2
0.8
1.8
1.7
0.2
0.8
2.0
0.2
0.8
2.0
0.2
0.7
1.8
14
15
16
17
18
Incinerated waste
General waste
Recovered/recycled waste
12 months to 30 September.
Scope 3 carbon emissions
Tonnes of CO2e per £m revenue
0.2
0.4
1.6
13.0
0.2
0.3
1.2
11.7
0.2
0.4
1.3
11.5
0.1
0.2
1.0
12.5
0.1
0.3
1.1
9.6
14
15
16
17
18
Waste
Electricity transmission
Business travel
Third party carriers
12 months to 30 September.
We continue to invest in premises and
equipment to improve the safety of our
employees and others. Although we aim to
minimise the risks which occur, particularly
relating to the operation of our warehouses
and vehicles, incidents involving manual
handling, falling, slipping and tripping and
impact with equipment remain the highest
causes of accidents and days lost. Together
these hazards represent 75% of incidents
and 85% of days lost. All our businesses
are required to comply with Group policies
issued through the Corporate Responsibility
and Sustainability Committee which
reviews the Group’s safety performance
on a quarterly basis. In 2018 we reviewed
and updated our internal EHS standards
to ensure that they reflect the legal
requirements in the countries in which we
operate as well as industry best practices.
The implementation of Group policies is
audited by a team of safety professionals
and safety standards are also reviewed as
part of our internal audit process.
Our primary method for distributing the
goods that we sell is the use of delivery
vehicles. Consequently, geographical
regions have placed considerable emphasis
on training programmes for drivers. Each of
these programmes has its own specific focus
but all are aimed at reducing accidents and
injuries on the road. The UK & Ireland
businesses have fitted commercial vehicles
with multiple cameras, side proximity
sensors and audible left turn and reversing
warnings to improve road safety both for our
drivers and for other road users, as well as
to reduce vehicle damage. In North America,
where we have our largest fleet, we have
rolled out two new road safety training
programmes in 2018. Many fleet locations
now have their own certified trainer, who is
responsible for training new and existing
drivers and completing check rides with all
drivers on an annual basis. As a result of this
training, drivers have improved their hazard
perceptions, including reversing, lane
changes and proper use of mirrors leading to
a 12% reduction of preventable commercial
vehicle accidents per mile driven in North
America. In France Hygiene, where we have
our largest commercial fleet in Continental
Europe, all drivers – commercial, sales and
after-sales employees – were retrained in
safe driving and road risks.
hazards and the introduction of pre-shift
stretching programmes has also helped to
increase vigilance. France Hygiene, which
has the highest incidence and severity rate
in the Group, strengthened its training
programmes, specifically introducing
programmes for drivers (on handling
hazardous situations during product
deliveries) and after-sales technicians
(on chemical risks and electrical safety).
In 2019 we will be focusing our health and
safety priorities on mitigating the impact of
the tighter employment markets, bringing
businesses acquired to the desired Group
level and further embedding a proactive
safety culture across Bunzl, with the aim
of restoring the trend of improvement of our
incidence and severity rates.
Details of our performance from 2014 to 2018
are provided in the bar charts on page 43.
The accident data provided covers more than
99% of the Group by revenue.
Environment/climate change
We seek to minimise the contribution of
Bunzl’s operations to climate change and
to prevent other harmful effects on the
environment. Operational efficiency forms
part of a long-established and successful
strategy to develop the business and the
reduction of energy consumption is an
integral part of this. Our facilities worldwide
operate to Group standards and we promote
environmental awareness throughout the
business. Our policy of leasing premises
provides flexibility in the configuration of
our footprint to optimise the efficiency of
our distribution. Bunzl had no significant
environmental incidents in 2018.
Our reported environmental data includes all
businesses that are subsidiaries of the Group
for financial reporting purposes, with the
exception of those recent acquisitions where
there has been insufficient opportunity for the
businesses to adopt our reporting guidelines.
The revenue from these businesses is not
included when calculating the indexed
emissions. All acquisitions made prior to
the 2018 reporting year are now providing
environmental data. The reported data
covers around 98% of the Group by revenue.
Our warehouse safety observation
programmes in North America have led
to increased reporting of near misses and
have improved visibility of safety incidents.
We have seen increased engagement of our
business leaders, safety committees and
employees in identifying and correcting
We integrate our environmental reporting
with our financial reporting through the
annual budget review. Businesses provide
commentary on their environmental
performance and set targets for the following
year. Environmental data is reviewed and
agreed by the relevant Finance Directors.
44
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report Greenhouse gas emissions
Data for the 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
26.3
2017
92,687
30,451
123,138
15.0
2018†
99,848
31,615
131,463
15.0
† Included in the external auditors’ limited assurance scope referred to on page 48. The data for 2017 was also assured as detailed in the
2017 Annual Report.
A number of locations in UK & Ireland,
Asia Pacific and Continental Europe have
renewed their ISO 14001 certification.
Currently, measured by revenue,
approximately 24% of the Group’s operations
are certified to ISO 14001. Certification is
based on processes and practices which are
implemented Group wide through our EHS
management programme, although some
parts of the business have not elected to
become formally certified.
Natural gas is principally used for the
heating of buildings and depends strongly
on weather conditions. At Group level,
the consumption of natural gas increased
by 28% in 2018, primarily due to colder
weather conditions in North America and
the inclusion of natural gas usage of DDS
locations (an acquisition in 2017) in our
report. These locations are in relatively
colder geographical areas, leading to higher
building heating requirements.
Carbon emissions
Scope 1: Fuel for transportation remains
our highest source of CO2e emissions,
contributing 81% of Scope 1 and 61% of
combined Scope 1 and 2 emissions. Of those
emissions relating to transportation, almost
80% are generated by our fleet of commercial
vehicles. Fuel represents a significant cost
to the business and we are focused on
maximising the efficiency of our fleet through
regular replacement and maintenance of
vehicles, route optimisation, the use of vehicle
telematics and driver training programmes.
In North America, where we have our largest
commercial fleet, a new routing programme
has been implemented throughout 2017 and
2018. This has enabled us to utilise our own
fleet assets more efficiently and save fuel.
The purchase of more fuel efficient
commercial vehicles has also led to improved
fuel economy. The combination of these
measures provided a 5% improvement
in fuel efficiency during the year. This
has resulted in an annualised saving of
approximately 0.9 million litres of diesel fuel.
At Group level, diesel consumed by our
commercial fleet increased by 5% mainly
due to sales growth. We seek to minimise
the number of miles that our vehicles travel
empty on the road by backhauling, typically
using empty vehicles to collect stock from
suppliers. In France, the use of telematics
has contributed to the 12% decrease in
fuel usage by our commercial vehicles
(approximately 140,000 litres of diesel).
Scope 2: Electricity consumption has
increased by 9% as a result of an increase
in warehouse space due to acquisitions and
the organic growth of the business. Per £ of
revenue, our electricity consumption has
remained almost unchanged at constant
exchange rates. Lighting is our highest
category of electricity consumption and we
continue to review the return on investment
on low energy lighting at all our sites
worldwide as the technology progresses
and improves the efficiency of such lighting.
We also fit voltage optimisers where this is
beneficial. During the year new projects,
predominantly in Continental Europe,
have been carried out to upgrade lighting.
Together with projects carried out in 2017,
and taking full effect in 2018, the savings
provided by the upgrades represent
approximately 4% of our electricity
consumption. Other locations are being
considered for potential LED lighting projects
to determine the available incentives and
anticipated payback. In North America,
we are in the process of upgrading
fluorescent lighting to LED lighting in an
additional 15 warehouse locations and
further upgrades are also planned in other
business areas. All new buildings designed
as Bunzl warehouses have the specification
of LED lighting.
In addition, as energy contracts are renewed,
businesses are moving to low carbon
energy where this makes commercial sense
and is supported by the local infrastructure.
In the UK & Ireland we have moved to a
central electricity supply contract with low
carbon electricity.
Scope 3: We are continuing to refine the
data collection for our Scope 3 carbon
emissions. Our reporting comprises
emissions from third party carriers, business
flights, waste and electricity transmission
losses. The majority of the businesses which
have been acquired since 2010 do not have
their own fleet and, in addition, all our
businesses, irrespective of whether they
have their own fleet, will distribute a
proportion of goods by third party carriers
where it is more efficient and cost-effective
to do so. The bar graph on page 44 shows
that third party carriers produce the largest
proportion of our reported Scope 3 emissions.
Our Scope 3 emissions in 2018 increased
due to the acquisition of businesses without
commercial vehicle fleets in North America
and due to overall sales growth. Bunzl is an
international company and business flights
are essential for the effective management
and growth of our business. We increasingly
use alternative means of communication
such as video and telephone conferencing
and all flights are justified according
to business needs and are subject to
authorisation by senior management. In 2018
we have completed a quantitative analysis of
the environmental impact of our worldwide
supply chain. We used supplier data and
industry data (taking account of geographies
and products) to determine our supply chain
carbon emissions. Our estimated Scope
3 supply chain emissions are 6.3 million
tonnes of CO2 equivalents.
Bunzl plc Annual Report 2018
45
Financial statementsStrategic reportDirectors’ report Corporate responsibility continued
Waste
Reduction and segregation of waste
continues to be an area of focus and the data
provided covers approximately 94% of the
Group by revenue. Despite including this in
our Scope 3 emissions calculation, we have,
for transparency, continued to provide waste
data separately. In 2018 we carried out an
internal survey of our waste reporting
methodologies. This survey included a
systematic review of our processes to
measure, monitor and report on the waste
that is generated across our businesses.
We have identified various improvements
to our processes which will be implemented
in 2019.
This will help to improve consistency
and accuracy of waste measurement
and reporting, although accurate waste
measurement remains challenging in
geographies with less advanced waste
management infrastructures. We will also
work to enhance further the waste recycling
rates at our facilities.
Water
Direct water usage is not a significant
environmental impact for our business as it
is principally confined to staff hygiene and
workplace cleaning. Our estimated water
usage is 150,000 m3 of water per year.
As we do not manufacture any of the goods
we sell, water discharges, apart from internal
sanitation, are limited to rainwater run-off
from the yards of Group locations where the
water is treated by interceptors in accordance
with local legislation.
This is supplemented by donations made
at Group level to charities predominantly
in the fields of healthcare, disability,
environment and education, often in the
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 £607,000 to charitable
causes during 2018. This does not include
amounts donated by Bunzl in matching
funds raised by employees for local charities.
Community
Bunzl’s operations are international but
our strength lies in the local nature of our
businesses. We support the communities
where our employees live and work
and encourage fundraising activities
championed by our businesses and their
employees locally. For example, there have
been various charity runs in the UK, the
Netherlands, Switzerland and France
which raised money for charities including
Alzheimer’s research and those supporting
people with physical disabilities.
An example of an environmental charity
we supported in 2018, is #LeedsByExample,
an environmental research campaign
launched by a UK charity, Hubbub.
The charity has strong ties within the
packaging supply chain and a reputation
for delivering impactful research projects.
#LeedsByExample is a high profile six month
pilot project designed to boost the recycling
of disposable food and drink packaging in
Leeds. Supported by a collaboration of
companies from the food and drink sector,
the campaign will promote, test and evaluate
different methods of encouraging recycling
packaging ‘on the go’ using a range of
eye-catching communications and designs.
Thank you Bunzl for the
money raised by this
tremendous initiative which
will help many people with
a disability participate in
activities that simply would
not be possible without your
invaluable support.
Marc Damen
Director of charity ‘De Zonnebloem’
Tour de Bunzl – Continental Europe
The Tour de Bunzl is an annual fundraiser for a Dutch charity supporting people with
physical disabilities. On a beautiful summer day in 2018, 65 employees from Bunzl
Netherlands and its suppliers took to their bikes and completed a tough tour course
with a number of challenging climbs. The cyclists raised a total of €37,000 for charity
‘De Zonnebloem’. The charity helps create a society in which people with physical
disabilities can participate without restrictions through the organisation of social and
recreational activities.
46
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report
Research data will be independently
evaluated and openly shared with interested
parties in the UK government and the food
and drink, packaging and recycling industries.
In 2019, we aim to continue our charity
programme with an increased focus on
sustainability charities.
For more information on all of Bunzl’s
CR policies and activities please visit the
Responsibility section of our website,
www.bunzl.com.
Customers
As part of our policy to provide our
customers with high quality products and
services, businesses within the Group are
constantly developing and sourcing new
products. Our aim is not only to satisfy
changing customer requirements but also
to give ourselves a competitive advantage
in the marketplace. Bunzl works with its
customers in the development of new,
redesigned or substantially improved
products. Many Bunzl businesses adopt
partnerships and source innovative products
to help their customers be responsible users
of disposable packaging and reduce their
waste footprints. We aim to provide
customers with expert advice and answers
regarding sustainable products, through
customer ‘hotlines’, seminars, forums and
communication materials (e.g. brochures and
product factsheets). All products are delivered
to the customer by Bunzl’s one-stop-shop
service. This consolidated product offering
minimises the number of deliveries to
customers and fleet miles required.
Some examples of Bunzl businesses offering
products and services with increased
sustainability can be found below.
Earthwise is a brand of eco-friendly products
in North America. The reusable Earthwise
shopping bag is an environmentally friendly,
sustainable alternative to the plastic and
paper bags mostly found at grocery stores,
retail shops and department stores. By
supplying millions of reusable bags to
retailers nationwide, Earthwise supports
customers to achieve their sustainability
goals. Another example in North America
is our distribution business in the Seattle
area. This business has a long term
relationship with a large supermarket
customer with strict environmental
standards. Over the years the business
relationship between Bunzl Seattle and the
customer has grown, largely due to Bunzl
Seattle’s successful mission to supply
the customer with the most sustainable
products available on the market. Bunzl
Seattle’s partnership with this customer
is an excellent example of how a focus
on sustainability can give companies
a competitive edge. Another example can
be found in the case study on page 48.
Bunzl Catering Supplies (‘BCS’) is an
example of a business in UK & Ireland that
is working closely with customers to
understand better their plastic packaging
footprint and to reduce their environmental
impact. The business has been helping
customers by recommending alternative
material types and consolidating their
packaging ranges to either fully recyclable or
fully compostable materials. In November
2018, BCS hosted a Sustainable Future
customer forum in London. With 11 national
customers in attendance, the customer
forum provided an open platform for
education and discussion on the current
issues surrounding single-use packaging in
the catering and hospitality industry. This
event was one in a series of forum meetings,
aimed at bringing customers together to
share best practice and discuss innovation
opportunities in response to regulatory
changes. BCS has been spearheading
change for a more material responsible
future as part of its ongoing Sustainable
Future programme.
The Bunzl Netherlands BELIEVE
programme puts direct action on
sustainability at the heart of the business.
The programme’s five sub themes – Be
Sustainable, Be Fair, Be Green, Be Different
and Be Happy – are rolled out across all
businesses in the Netherlands and have
led to numerous operational improvements,
customer partnerships and sustainable
product offerings.
Multiline Denmark is one of our businesses
that has set up a customer ‘hotline’ for
responding to questions from customers
about sustainability aspects of our products.
Like many other Bunzl businesses,
the business has a ‘green’ catalogue that
was updated in 2018 and which includes
more than 50 pages with sustainable
alternatives to conventional products.
The catalogue also contains a comprehensive
list of terms, symbols and definitions of
sustainable products and behaviour.
Bunzl plc Annual Report 2018
47
Financial statementsStrategic reportDirectors’ report
Corporate responsibility continued
Earth Fare’s packaging
program is designed around
a focus on sustainability,
quality and cost-effectiveness.
We actively work with our
suppliers to support Earth
Fare’s desire to provide their
customers with eco-friendly
packaging options that align
with their natural, organic
food offerings.
Tom Emge
Sr Vice President, National Accounts
Bunzl North America
Earth Fare – North America
Several locations of Bunzl North America’s distribution network service Earth Fare,
a growing customer with 50 stores across 10 states. Earth Fare has an ambitious
sustainability mission to reduce the impact on the environment. Over the past nine
years, Bunzl has been partnering with Earth Fare to meet their sustainability goals
by providing packaging and store supply options that are recyclable, compostable or
made from post-consumer materials. For example, all hot food to-go containers are
made from plant-based, compostable materials.
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 CR
information contained in this Annual Report
in the context of PwC’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.
External assurance
We engaged PricewaterhouseCoopers LLP
(‘PwC’) to undertake a limited assurance
engagement, reporting to Bunzl plc only,
using International Standard on Assurance
Engagements (‘ISAE’) 3000 (Revised):
‘Assurance Engagements Other Than
Audits or Reviews of Historical Financial
Information’ and ISAE 3410: ‘Assurance
Engagements on Greenhouse Gas
Statements’ over the three non-financial
KPIs on page 19 and the data on pages
43 and 45, in each case that has been
highlighted with the symbol ‘†’. PwC has
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 Group website,
www.bunzl.com.
A limited assurance engagement is
substantially smaller in scope than a
reasonable assurance engagement in relation
to both the risk assessment procedures,
including an understanding of internal
control, and the procedures performed in
response to the assessed risks. In order to
reach their opinion, PwC performed a range
of procedures including making enquiries of
relevant Bunzl management, and evaluating
the design of the key structures, systems,
processes and controls for managing,
recording and reporting the selected
information. This included analysing and
testing over a number of sites selected on the
basis of their inherent risk and materiality to
the Group, to understand the key processes
and controls for reporting site performance
data and to obtain supporting information.
Finally, PwC performed limited substantive
testing on a selective basis of the selected
information in relation to two sites in UK &
Ireland, 24 sites in North America and six
sites in Continental Europe to check that
data had been appropriately measured,
included, collated and reported.
48
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report CR risks
CR risks are considered as part of the Group’s risk management process, as set out on pages 51 to 55, but none are considered to represent
principal risks to the Group. 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.
Principal CR risk
facing the Group
Description of risk and how it might affect the
Group’s prospects
How the risk is managed or mitigated
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 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. 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. Regular training in all areas of CR
takes place using our suite of e-training modules.
The Group often 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 multinational
organisations with high standards of operations. Suppliers
are monitored by the Group’s purchasing departments and
the quality assurance/quality control department based in
Shanghai audits key direct suppliers throughout Asia and
oversees audits carried out by third parties elsewhere. All
key suppliers and suppliers in countries with increased
social risk are made aware of the Group’s CR aspirations.
We have developed a supplier code of conduct that defines
the principles and standards that Bunzl expect suppliers of
goods and services to adhere to.
Reduction of demand
for certain single-use
plastic products
Legislation relating to certain plastic based products,
including the introduction of new taxes, is increasing,
particularly in Europe. Together with growing consumer
awareness of environmental concerns, these legislative
measures are likely to reduce demand for single-use
plastic disposable products.
Bunzl’s scale and unique position at the centre of the
distribution system should enable the Group to utilise the
opportunity to provide customers with more sustainable
solutions. Bunzl will continue to work proactively with
customers, suppliers and other stakeholders to promote and
support a more sustainable approach to single-use plastics.
At the same time, the demand for sustainably sourced,
recyclable or reusable alternatives will be increasing.
These risks are seen to be counterbalanced 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.
Key performance indicators
Performance
2016
2017
2018
What we said we
would do in 2018
What we did
What we plan
to do in 2019
Health & safety
Improving safety in our warehouses and on our vehicles
Reduction in accident
incidence rate
(% change year on year)
-8% -20% +17% Reduce the Group
accident incidence
rate by 5% from 2017.
Reduction in accident
severity rate
(% change year on year)
-33% -22% +25% Reduce the Group
accident severity rate
by 5% from 2017.
After years of solid improvement, the accident incidence rate
increased by 17% and the accident severity rate increased by 25%.*
In 2018 our incidence and severity rates have been negatively
impacted by increased employee turnover and shorter job tenures,
leading to a higher number of less experienced employees who
have an increased risk of being involved in a workplace injury.
Another factor is incidents taking place at recent acquisitions
which are in the process of implementing Group standards.
Reduce the
Group accident
incidence rate by
5% from 2018.
Reduce the
Group accident
severity rate by
5% from 2018.
Key initiatives in 2018 included improvement of new employee
onboarding programmes, refreshing of training programmes
for drivers, aimed at reducing accidents and injuries on the road,
and new safety awareness programmes. We also continued to
work with recent acquisitions to bring them up to Group standards.
* Included in the external auditors’ limited assurance scope referred to on page 48. The data for 2014, 2015, 2016 and 2017 was also assured as detailed in the respective Annual Reports. In 2018, the
methodology of reporting lost time accidents in France has been improved. To ensure consistency and comparability to data reported in previous years, Group safety performance figures in 2014, 2015,
2016 and 2017 have been adjusted accordingly.
Bunzl plc Annual Report 2018
49
Financial statementsStrategic reportDirectors’ report
Corporate responsibility continued
Key performance indicators continued
Performance
2016
2017
2018
What we said we
would do in 2018
What we did
Environment/climate change
Reducing our impact on the environment by reducing carbon emissions
Carbon emissions:
Scope 1 (tonnes of
CO2e/£m revenue)
12.6
11.3
11.4
Reduce emissions
by 1% against 2017.
(This reduction target
excludes any foreign
exchange translation
effect on revenue
numbers.)
The 2018 figure represents a 1% increase in Scope 1
emissions versus 2017, including the effect of foreign
exchange rate fluctuation. At constant exchange rates
the emissions reduced by 2%.
Fuel for transportation contributes c. 80% of Scope 1
emissions. Reduction of these emissions is primarily
driven by fuel efficiency improvements (including regular
replacement of vehicles, use of vehicle telematics and driver
training programmes). At a Group level, diesel consumed
by our commercial fleet per £m revenue decreased by 5%
at constant exchange rates.
Scope 1 emissions are also impacted by weather conditions
(influencing the fuel needed for heating of buildings). As a
result of the relatively cold winter in North America, and first
time reporting of acquisitions, our Group natural gas usage
increased by nearly 28%.
What we plan
to do in 2019
Reduce emissions by
1% against 2018.
(This reduction target
excludes any foreign
exchange translation
effect on revenue
numbers.)
Carbon emissions:
Scope 2 (tonnes of
CO2e/£m revenue)
4.5
3.7
3.6
Reduce emissions
by 2% against 2017.
(This reduction target
excludes any foreign
exchange translation
effect on revenue
numbers.)
The 2018 figure represents a 3% reduction in Scope 2
emissions versus 2017, including the effect of foreign
exchange rate fluctuation. At constant exchange rates the
reduction in emissions is 5%.
Our Scope 2 emissions take into account changes to the
average country specific emission factors, but do not take
into account low carbon electricity purchases (representing
approximately 15% of electricity purchased).
Reduce emissions by
2% against 2018.
(This reduction target
excludes any foreign
exchange translation
effect on revenue
numbers.)
Total Scope 1 & 2
emissions (tonnes of
CO2e/£m revenue)
17.1
15.0
15.0
Reduce emissions
by 1% against 2017.
(This reduction target
excludes any foreign
exchange translation
effect on revenue
numbers.)
The remaining improvement in the Scope 2 index has been
driven by the continued implementation of low energy lighting.
The 2018 figure represents no change in total Scope 1
and 2 emissions versus 2017, including the effect of foreign
exchange translation. At constant exchange rates the
reduction in emissions is 3%.
Reduce emissions by
1% against 2018.
(This reduction target
excludes any foreign
exchange translation
effect on revenue
numbers.)
Our Scope 1 and 2 emissions are represented as an index against £m revenue. The foreign exchange translation effect in the 2018 reporting year, caused by the movement in the exchange rates of sterling
against other currencies during the 2018 reporting year compared to the 2017 reporting year, was to decrease the reported reduction in emissions by approximately 3%.
Suppliers
Responsible sourcing, working as partners with our suppliers to encourage high levels of CR and ethical trading initiatives
449
503
539
Supplier CR audits and
assessments covering
environmental and
social standards
(number of audits/
assessments carried out)
Further expansion of
our CR audit
programme into
geographies with
medium levels of
social risk.
We have rolled out a CR training module which specifically
covers social risks, including modern slavery.
More in-depth audits
of high risk suppliers.
The CR audit programme was further expanded into
geographies outside Asia with medium levels of social risk
by carrying out audits in Mexico, Turkey and Colombia.
Continue to optimise
and expand our audit
programme.
We have completed a quantitative analysis of material social
risks in our worldwide supply chain.
Community
Providing support to our local communities through employee fundraising, matched funding and donations of stock and cash to
charitable organisations
Charity donations
(£000s)
712
742
607
Continue to support
relevant charities.
Bunzl supported a variety of projects for healthcare and
environment related charities. Donations to charities in 2018
were lower compared to 2017 as some businesses had fewer
opportunities to donate stock and some sales events, during
which donations were previously given, were not held in
2018. We expect that donations will return to previous levels
in 2019.
Continue charity
programme with
increased focus
on sustainability
charities.
50
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report
Principal risks and uncertainties
Bunzl operates in six core market sectors across more
than 30 countries which exposes it to many risks and
uncertainties. The Group sees the management of risk,
both positive and negative, as critical to achieving its
strategic objectives.
Risk management process
To deliver the Group’s strategic objectives successfully, and provide value for shareholders, customers and other stakeholders, it is critical
that Bunzl maintains an effective process for the management of risk. The Company has a risk management policy which ensures a
consistent process is followed by every business and business area as well as the Executive Committee and ultimately the Board, firstly to
assess and then subsequently to manage both current and emerging risks. These interrelated aspects of the Group’s risk management policy
are explained below*. Additional detail is also provided on the key risk management activities undertaken during 2018.
Risk assessment
Risk identification
Inherent risk assessment
• Every business, business area,
the Executive Committee and
the Board identify and
document risks in a consistent
way within the categories of
strategic, operational and
financial risks.
• This includes current risks
as well as emerging risks
which also need to be
carefully monitored.
• The inherent impact and probability of
risks are evaluated before considering
the effect of any mitigating activities:
– impact is assessed based on a
defined range of business continuity,
health and safety, environmental,
regulatory, reputational and financial
criteria; and
– probability is assessed as remote,
unlikely, possible or probable.
Risk response and residual
risk assessment
• The relevant mitigating activities and controls are
evaluated for each risk.
• The residual risk is assessed assuming that the
mitigating actions and internal controls operate as
intended in an effective way.
• If necessary to bring the residual risk within Bunzl’s
risk appetite, enhancements to risk mitigation
activities and controls are considered until the
residual risk is reduced to an acceptable level.
Risk management
The Board
Executive Committee
• Establishes the nature and extent of risk the Group is willing to accept
• Holds regular meetings with business area management to
(its ‘risk appetite’) in pursuit of Bunzl’s strategic objectives.
• Performs a robust assessment of the Group’s risks through a biannual
review of the Group’s risk register, focusing on the evolving risk
landscape, emerging risks and those risks considered to be significant
by management and the Executive Committee.
• Continuously monitors and oversees the Group’s risk management
and internal controls processes and procedures.
discuss strategic, operational and financial issues and ensures
policies and procedures are in place to identify and manage the
principal risks affecting each of the Group’s businesses.
• Considers the evolving risk landscape including reviewing
the results of the risk assessment process and assessing the
sufficiency of risk mitigation activities for current risks as
well as the threats and opportunities from emerging risks.
The Audit Committee
• Reviews the process for the management of risk, including the risk
assessment and risk response, and its effectiveness.
• Directs and oversees internal audit’s activities and reviews the results
of assurance over controls and risk mitigation activities.
• During 2017 the Audit Committee commissioned an external
assessment of the effectiveness of Bunzl’s risk management process
and procedures and considered and approved enhancements to the
risk management process.
Business area and business management
• The Group’s decentralised management structure allows for
the establishment of clear ownership of risk identification and
management at the business level within the framework of
Bunzl’s risk management policy.
• Businesses, with the support of business area management,
implement and monitor the effectiveness of controls, policies
and procedures designed to manage risk.
* The ‘Risk management and internal control’ section of the Corporate governance report on pages 64 and 65 includes further information on the specific procedures designed to identify, manage and mitigate
risks which could have a material impact on the Group’s business, financial condition or results of operations and for monitoring the Company’s risk management and internal control systems.
Bunzl plc Annual Report 2018
51
Financial statementsStrategic reportDirectors’ report The Board is also monitoring the developing
situation with respect to trade tariffs in the
United States of America (‘US’). During 2018
the impact of additional trade tariffs levied
on products imported into the US were
mitigated through price increases or by
identifying alternative sources of supply.
Based on these mitigations, and the
assessment of the potential risks associated
with Brexit explained above, the Group does
not consider that its principal risks and
uncertainties have changed as a result of
the Brexit or US trade tariff related risks.
One area of emerging risk that Bunzl is
proactively addressing relates to the increase
in legislation and changes in consumer
preferences discouraging the use of certain
single-use plastic products. The legislative
trend was most notably first seen in 2015
with the introduction of the plastic bag levy
in the UK, but this has been followed more
recently by further EU and UK regulations
announced in 2018 that target reductions
or prohibitions of certain plastic-based
products. This is likely to reduce demand
for single-use plastic products while,
at the same time, increasing demand for
sustainably sourced, recyclable or reusable
alternatives. Bunzl’s scale and unique
position at the centre of the supply chain
should give the Group an opportunity to
provide customers with these alternative
products and, as a result, the changes in
regulations and consumer preferences are
not considered to be a principal risk.
The directors confirm that they have carried
out a robust assessment of the principal risks
facing the Group, including those that would
threaten its business model, future
performance, solvency or liquidity.
Principal risks and uncertainties continued
Principal risks and uncertainties
The Group operates in six core market
sectors across more than 30 countries which
exposes it to many risks and uncertainties,
not all of which are necessarily within the
Group’s control. The risks summarised
below represent the principal risks and
uncertainties faced by the Group, being
those which are material to the development,
performance, position or future prospects of
the Group, and the steps taken to mitigate
such risks. However, these risks do not
comprise all of the risks that the Group may
face and accordingly this summary is not
intended to be exhaustive.
In addition, the Group’s financial
performance is partially dependent on
general global economic conditions, the
deterioration of which could have an adverse
effect on the Group’s business and results of
operations. Although this is not considered
by the Board to be a specific principal risk in
its own right, many of the risks referred to
below could themselves be impacted by the
economic environment prevailing in the
Group’s markets from time to time.
The risks are presented by category of risk
(Strategic, Operational and Financial) and
are not presented in order of probability
or impact. The relevant component of the
Group’s strategy that each risk impacts is
also noted:
Organic growth
Acquisition growth
Operating model improvements
During the year an analysis of the
interconnectivity of the principal and
non-principal risks as identified through
the Group’s risk assessment process was
performed internally, leveraging the results
of an external review that was performed
during 2017. This review looked at the
relationships, connections and
interdependencies between risks,
recognising that risks do not always occur
in isolation, and contributed to the Group’s
assessment of the adequacy of risk
management and mitigating activities.
Overall, the nature and type of the principal
risks and uncertainties affecting the Group,
and the likelihood and impact of each of the
principal risks crystallising, are considered
to be materially unchanged compared to the
2017 Annual Report. However, risk 3, which
was entitled Product cost inflation in the prior
year, was reconsidered and its description
broadened to include cost inflation more
generally. Although not a new risk, the name
change to Cost inflation reflects the fact that
to grow profit margins organically, increases
in selling prices and/or cost reduction
activity is required in order to mitigate
both product and operating cost inflation.
The Board is continuing to monitor the
potential risks associated with the UK leaving
the European Union (‘Brexit’). Although Bunzl
is a UK headquartered company, more than
85% of the Group’s revenue, profit and cash
flow is generated outside the UK. Bunzl is
highly decentralised, with each business
in the Group operating as a standalone
company, largely focused on customers in the
country in which it is incorporated. Within the
UK, less than 20% of the products purchased
are direct imports from overseas, of which
most are from countries outside of the
European Union (‘EU’). Accordingly, Bunzl’s
ability to service its customers’ needs,
whether they are inside or outside the EU, is
unlikely to be affected materially by Brexit.
Notwithstanding this assessment, as the
definitive arrangements for Brexit have not
yet been finalised, the final outcome remains
unclear and it is too early to understand fully
the impact that Brexit will have on the
Group’s operations. The risks to Bunzl
arising from Brexit will most likely be limited
to the following:
• foreign exchange volatility on the Group’s
translated results which, as noted in risk 8,
Currency translation, is not hedged.
Therefore, a strengthening or weakening
of sterling will result in a change in the
Group’s reported results;
• the imposition of trade tariffs could result
in an increase in product costs in the UK.
This is reflected in risk 3, Cost inflation,
and mitigated by the actions noted for that
risk; and
• supply chain disruption as UK ports are
unable to cope with additional border
checks leading to inventory shortages.
Selected UK warehouses are applying for
simplified customs freight procedures
authorisation (‘CFSP’) to attempt to
minimise port delays. Additional stocks
of certain items will be held to minimise
the risk of inventory shortages.
52
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report Principal risks
facing the
Group
Strategic risks
1. Competitive
pressures
Revenue and profits
are reduced as the
Group loses a
customer or lowers
prices due to
competitive
pressures
2. Product cost
deflation
Revenue and profits
are reduced due to
the Group’s need to
pass on cost price
reductions
3. Cost inflation
Profits are reduced
from the Group’s
inability to pass on
product or operating
cost increases
Description of risk and how it might
affect the Group’s prospects
How the risk is managed or mitigated
• The Group operates in highly competitive
markets and faces price competition from
international, national, regional and local
companies in the countries and markets in
which it operates.
• Unforeseen changes in the competitive
landscape could also occur such as an existing
competitor or new market entrant introducing
disruptive technologies or changes in routes
to market.
• Customers, especially large or growing
customers, could exert pressure on the Group’s
selling prices, thereby reducing its margins,
switch to a competitor or ultimately choose to
deal directly with suppliers.
• Any of these competitive pressures could lead
to a loss of market share and a reduction in the
Group’s revenue and profits.
• A reduction in the cost of products bought by
the Group, due to suppliers passing on lower
commodity prices (such as plastic or paper),
lower trade tariffs and/or foreign currency
fluctuations, coupled with actions of
competitors, may require the Group to pass on
such cost reductions to customers, especially
those on indexed or cost-plus pricing
arrangements, resulting in a reduction in the
Group’s revenue and profits.
• Operating profits may also be lower due to the
above factors if operating costs are not reduced
commensurate with the reduction in revenue.
• The Group’s geographic and market sector diversification allow it to
withstand shifts in demand, while this global scale across many markets
also enables the Group to provide the broadest possible range of customer
specific solutions to suit their exacting needs.
• The Group maintains high service levels and close contact with its
customers to ensure that their needs are being met satisfactorily.
This includes continuing to invest in e-commerce and digital platforms
to enhance further its service offering to customers.
• The Group maintains strong relationships with a variety of different
suppliers, thereby enabling the Group to offer a broad range of products to
its customers, including own brand products, in a consolidated one-stop-
shop offering at competitive prices.
• The Group uses its considerable experience in sourcing and selling
products to manage prices during periods of deflation in order to minimise
the impact on profits.
• Focus on the Group’s own brand products, together with the reinforcement
of the Group’s service and product offering to customers, helps to minimise
the impact of price deflation.
• The Group continually looks at ways to improve productivity and
implement other efficiency measures to manage and, where possible,
reduce its operating costs.
• Significant or unexpected cost increases by
suppliers, due to the pass through of higher
commodity prices (such as plastic or paper),
higher trade tariffs and/or foreign currency
fluctuations, could adversely impact profits if the
Group is unable to pass on such product cost
increases to customers.
• Operating profits may also be lower due to
the above factors if selling prices are not
increased commensurate with the increases
in operating costs.
• The Group sources its products from a number of different suppliers
based in different countries so that it is not dependent on any one source
of supply for any particular product, or overly exposed to a particular
country changing trade tariffs, and can purchase products at the most
competitive prices.
• The majority of the Group’s transactions are carried out in the functional
currencies of the Group’s operations, but for foreign currency transactions
some forward purchasing of foreign currencies is used to reduce the impact
of short term currency volatility.
• If necessary, the Group will, where possible, pass on price increases from
its suppliers to its customers.
4. Inability to make
further acquisitions
Profit growth is
reduced from the
Group’s inability to
acquire new
companies
• Acquisitions are a key component of the Group’s
growth strategy and one of the key sources of
the Group’s competitive advantage, having
made more than 150 acquisitions since 2004.
• Insufficient acquisition opportunities, through
a lack of availability of suitable companies to
acquire or an unwillingness of business owners
to sell their companies to Bunzl, could adversely
impact future profit growth.
• The Group continually looks at ways to improve productivity and
implement other efficiency measures to manage and, where possible,
reduce its operating costs.
• The Group maintains a large acquisition pipeline which continues to grow
with targets identified by managers of current Bunzl businesses, research
undertaken by the Group’s dedicated and experienced in-house corporate
development team and information received from banking and corporate
finance contacts.
• The Group has a strong track record of successfully making acquisitions.
At the same time the Group maintains a decentralised management
structure which facilitates a strong entrepreneurial culture and encourages
former owners to remain within the Group after acquisition, which in turn
encourages other companies to consider selling to Bunzl.
Organic growth
Acquisition growth
Operating model improvements
Bunzl plc Annual Report 2018
53
Financial statementsStrategic reportDirectors’ report
Principal risks and uncertainties continued
Principal risks
facing the
Group
5. Unsuccessful
acquisition
Profits are reduced,
including by an
impairment charge,
due to an unsuccessful
acquisition or
acquisition integration
Description of risk and how it might
affect the Group’s prospects
• Inadequate pre-acquisition due diligence related
to a target company and its market, or an
economic decline shortly after an acquisition,
could lead to the Group paying more for a
company than its fair value.
• Furthermore, the loss of key people or
customers, exaggerated by inadequate
post-acquisition integration of the business,
could in turn result in underperformance of the
acquired company compared to pre-acquisition
expectations which could lead to lower profits as
well as a need to record an impairment charge
against any associated intangible assets.
Operational risks
6. Cyber security
failure
Revenue and profits
are reduced as the
Group is unable to
operate and serve its
customers’ needs due
to being impacted by
a cyber-attack
• The frequency, sophistication and impact of
cyber-attacks on businesses are rising at the
same time as Bunzl is increasing its
connectivity with third parties and its digital
footprint through acquisition and investment
in e -commerce platforms and efficiency
enhancing IT systems.
• Weak cyber defences, both now and in the
future, through a failure to keep up with
increasing cyber risks and insufficient IT
disaster recovery planning and testing, could
increase the likelihood and severity of a
cyber-attack leading to business disruption,
reputational damage and loss of customers.
How the risk is managed or mitigated
• The Group has established processes and procedures for detailed
pre-acquisition due diligence related to acquisition targets and the
post-acquisition integration thereof.
• 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 endeavours to maximise the performance of its acquisitions
through the recruitment and retention of high quality and appropriately
incentivised management combined with effective strategic planning,
investment in resources and infrastructure and regular reviews of
performance by both business area and Group management.
• Concurrent with the Group’s IT investments, the Group is continuing to
improve information security policies and controls to improve its ability
to monitor, prevent, detect and respond to cyber threats.
• Cyber security awareness campaigns have been deployed across all
regions to enhance the knowledge of Bunzl personnel and their resilience
to phishing attacks.
• IT disaster recovery and incident management plans, which would be
implemented in the event of any such failure, are in place and periodically
tested. The Group CIO and Group Head of Information Security coordinate
activity in this area.
Financial risks
7. Availability of
funding
Insufficient liquidity
in financial markets
leading to insolvency
• Insufficient liquidity in financial markets could
• The Group arranges a mixture of borrowings from different sources and
lead to banks and institutions being unwilling to
lend to the Group, resulting in the Group being
unable to obtain necessary funds when required
to repay maturing borrowings, thereby reducing
the cash available to meet its trading obligations,
make acquisitions and pay dividends.
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.
8. Currency
translation
Significant change in
foreign exchange
rates leading to a
reduction in reported
results and/or a
breach of banking
covenants
• The majority of the Group’s revenue and profits
are earned in currencies other than sterling, the
Group’s presentation currency.
• As a result, a significant strengthening of
sterling against the US dollar and the euro in
particular could have a material translation
impact on the Group’s reported results and/or
lead to a breach of net debt to EBITDA
banking covenants.
• The Group does not hedge the impact of exchange rate movements
arising on translation of earnings into sterling at average exchange rates.
The Board believes that the benefits of its geographical spread outweigh
the risks.
• Results are reported at constant exchange rates so that investors can
observe the underlying performance of the Group excluding the translation
impact on the Group’s reported results.
• The Group’s borrowings are denominated in US dollars, sterling and
euros in similar proportions to the relative profit contribution of each of
these currencies to the Group’s EBITDA. This minimises the risk that
movements in foreign exchange rates will have a material impact on the
ratio of net debt to EBITDA, and therefore minimises the risk of a breach
of banking covenants caused by foreign currency fluctuations.
Organic growth
Acquisition growth
Operating model improvements
54
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report
Principal risks
facing the
Group
9. Increase in
taxation
Increases in Group
tax rate and/or
cash tax
Description of risk and how it might
affect the Group’s prospects
How the risk is managed or mitigated
• The resolution of uncertain prior year tax
• Oversight of the Group’s tax strategy is within the remit of the Board
matters or the introduction of legislative changes
could cause a higher tax expense and higher
cash tax payments, thereby adversely affecting
the Group’s profits and cash flows.
• In particular, changes could result from the legal
arguments between the European Commission
and the UK government over whether part of the
UK’s tax regime is contrary to European Union
State Aid provisions.
and tax risks are assessed by the Audit Committee.
• The Group seeks to plan and manage its tax affairs efficiently but also
responsibly with a view to ensuring that it complies fully with the relevant
legal obligations in the countries in which the Group operates while
endeavouring to manage its tax affairs to protect value for the Company’s
shareholders in line with the Board’s broader fiduciary duties.
• The Group manages and controls these risks through an internal tax
department made up of experienced tax professionals who exercise
judgement and seek appropriate advice from specialist professional firms.
• At the same time the Group monitors international developments in tax
law and practice, adapting its approach where necessary to do so.
Assessment of the prospects of the
Company and its viability statement
In accordance with provision C.2.2 of the
Corporate Governance Code, the directors
set out below how they have assessed the
prospects of the Company, over what period
the prospects have been assessed and the
Company’s formal viability statement.
The context for and period over which
the prospects of the Company have
been assessed
To consider the prospects of the Company
and determine an appropriate time frame
for the purpose of making a statement
on the Company’s longer term viability,
the directors have taken into account
various factors including the nature of the
Company’s business, its business model and
strategy and the existing planning periods.
In particular:
• Bunzl has a geographically balanced and
diversified business portfolio operating in
more than 30 countries;
• the Company operates across six core,
fragmented market sectors, many of which
are growing and resilient to challenging
economic conditions; and
• the business model and strategy minimise
the volatility of the Company’s results,
enabling Bunzl to deliver consistently good
results with high returns on capital and
cash conversion.
With regard to the time frame specifically, the
directors considered the above factors as well
as the Group’s strategic planning process.
Comprehensive budgets are prepared
annually by the business areas and approved
by the Board. Strategic plans covering a
period of two years beyond the forecast for the
current year are also prepared annually and
reviewed by the Board. While the directors
have no reason to believe the Company will
not be viable over a longer period, given the
inherent uncertainty involved, the period
over which the directors consider it possible
to form a reasonable expectation as to the
Group’s longer term viability is the three year
period to 31 December 2021.
How the prospects of the Company and its
longer term viability have been assessed
In making a viability statement, the directors
are required to consider the Company’s
ability to meet its liabilities as they fall due,
taking into account the Company’s current
position and principal risks. The Company
has significant financial resources including
committed and uncommitted banking
facilities, US private placement notes and
a senior unsecured bond, further details
of which are set out in Note 14 to the
consolidated financial statements. As a
result, the directors believe that the
Company is well placed to manage its
business risks successfully.
The resilience of the Group to a range of
possible scenarios, in particular the impact
on key financial ratios and its ongoing
compliance with financial covenants, was
factored into the directors’ considerations
through stress testing current financial
projections. These stress tests included
the following:
• the impact of the crystallisation of the
principal strategic risks to the Group’s
organic growth and a significant increase
in working capital;
• the impact of the crystallisation of the
principal strategic and operational risks to
the Group’s organic and acquisition growth
and significant increases in both working
capital and the effective tax rate, both
with and without mitigating actions; and
• a reverse stress test scenario which
identified what would need to happen to
cause the Company to fail, which for this
purpose is taken to mean an unavoidable
breach of financial covenants.
In all scenarios it has been assumed, based
on past experience and all current indicators,
that the Company will be able to refinance its
banking facilities and US private placement
notes as and when they mature. In the first
two stress tests it was found that the Group
was resilient and in particular it remained
in compliance with the relevant financial
covenants. The conditions required to create
the reverse stress test scenario, the third
stress test, were so severe that they were
considered to be implausible.
The directors consider that the stress testing
based assessment of the Company’s
prospects, building on the results of the
robust assessment of the principal risks to
the business and the financial implications of
them materialising, confirms the resilience of
the Group to severe but plausible scenarios
and provides a reasonable basis on which
to conclude on its longer term viability.
Confirmation of longer term viability
In accordance with the provisions of the
Corporate Governance Code, the directors
have taken account of the Group’s current
position and principal risks and
uncertainties referred to above in assessing
the prospects of the Company and they have
a reasonable expectation that the Company
will be able to continue in operation and
meet its liabilities as they fall due over the
three year period to 31 December 2021.
Bunzl plc Annual Report 2018
55
Financial statementsStrategic reportDirectors’ report
Board of directors
Promoting the Group’s long term success and delivering
sustained increases in stakeholder value, underpinned
by the highest standards of corporate governance,
continue to be key priorities for the Board.
Philip Rogerson
Chairman
Frank van Zanten
Chief Executive
Appointment
Appointed to the Board in January 2010 and became Chairman
in March 2010. Chairman of the Nomination Committee.
Appointment
Executive director since February 2016 and Chief Executive
and member of the Nomination Committee from April 2016.
Experience
He was an executive director of BG Group plc (formerly British Gas
plc) from 1992 to 1998, latterly as Deputy Chairman. Since then he
has been both a non-executive director and Chairman of a number
of companies and is currently Chairman of De La Rue plc and a
non-executive director of Blancco Technology Group plc.
Experience
He joined Bunzl in 1994 when Bunzl acquired his family owned
business in the Netherlands and he subsequently assumed
responsibility for a number of businesses in other countries.
In 2002 he became Chief Executive Officer of PontMeyer NV, a
listed company in the Netherlands, before rejoining Bunzl in 2005
as the Managing Director of the Continental Europe business area.
He is a non-executive director of Grafton Group plc.
Committee membership
Member of the Audit Committee
Member of the Remuneration Committee
Member of the Nomination Committee
Independent director
Brian May
Finance Director
Appointment
Finance Director since 2006.
Experience
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.
56
Bunzl plc Annual Report 2018
Financial statementsDirectors’ reportStrategic report Our Board continues to provide
independent scrutiny and challenge,
while promoting a strong culture of
openness and constructive debate.
Philip Rogerson,
Chairman
Lloyd Pitchford
Non-executive director
Appointment
Non-executive director since March 2017 and Chairman of the
Audit Committee.
Experience
Having previously held a number of senior finance positions with
BG Group plc, including five years as Group Financial Controller,
he subsequently joined Intertek Group plc where he was Chief
Financial Officer from 2010 to 2014. Since 2014 he has been Chief
Financial Officer of Experian plc.
Eugenia Ulasewicz
Non-executive director
Appointment
Non-executive director since 2011.
Experience
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,
Vince Holding Corp. and Hudson Group.
Vanda Murray OBE
Senior Independent Director
Appointment
Non-executive director since 2015, Senior Independent Director
and Chair of the Remuneration Committee.
Experience
Formerly Chief Executive Officer of Blick plc from 2001 to 2004,
she subsequently became UK Managing Director of Ultraframe PLC
from 2004 to 2006 and was appointed OBE in 2002 for Services to
Industry and Export. She is Chair of Marshalls plc and a non-
executive director of Redrow plc.
Stephan Nanninga
Non-executive director
Appointment
Non-executive director since May 2017.
Experience
After holding a number of positions with Sonepar and Royal Dutch
Shell, he subsequently became Managing Director, Distribution
Europe of CRH plc in 1999. He then joined SHV Holdings NV in
2007, where he was initially responsible for the Makro and Dyas
businesses, before becoming Chief Executive in 2014, a position he
held until 2016. He is an executive director of Dutch Star Companies
ONE N.V. and a non-executive director of IMCD N.V.
Bunzl plc Annual Report 2018
57
Financial statementsDirectors’ reportStrategic report
Corporate governance report
A robust governance framework
and a healthy corporate culture
are essential to the successful
delivery of the Group’s strategy
and the creation of sustainable
long term value for our
stakeholders.
Philip Rogerson
Chairman
Introduction from Philip Rogerson, Chairman of the Board
One of my key responsibilities as Chairman is to ensure that the Board delivers effective
leadership to secure the long term success and sustainability of the Group and the
creation of long term value for our stakeholders. The Board recognises that sustainable
business success is not possible without a clear corporate purpose and sound corporate
governance and that good governance is about more than just compliance with
rules and regulations; it is also about culture, behaviours and how we do business.
The Board is therefore committed to ensuring that the Company’s purpose, values,
culture and high standards are set from the top and embedded throughout the Group.
The executive directors and executive management team play an integral role in this
by promoting positive behaviour to ensure that our commonly held values are put
into practice every day and that our people understand how we expect to achieve our
purpose. I believe that this, together with our robust governance framework, allows
the Board to lead the Group in the right direction as we develop and pursue our future
strategy, while ensuring that good governance principles and practices are adhered to.
2018 proved to be another busy year for the Board and its Committees as we continued
to monitor developments in the legal and governance landscapes, including the
publication of The Companies (Miscellaneous Reporting) Regulations 2018 and the
2018 edition of the Financial Reporting Council’s (‘FRC’) UK Corporate Governance
Code (the ‘Code’), both of which apply to the Company from 1 January 2019. All
references to the Code in this report relate to the 2016 edition, which applied to the 2018
financial year. The Code 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. We will report formally
in accordance with the revised edition of the Code in the 2019 Annual Report but the
Company has already taken account of the changes required by the new Code, including
in respect of company purpose, values and culture, which are briefly referred to on
page 12 of the Strategic report and which will be covered in more detail in next year’s
Annual Report. A copy of the 2016 version of the Code is available at www.frc.org.uk.
As detailed on page 62, an externally facilitated evaluation of the Board and its
Committees was once again undertaken during 2018 and I am pleased to report that
as a result of the evaluation, the Board concluded that both it and its Committees
continue to operate effectively. The Board continues to work closely with the executive
management team and offers support and robust challenge as appropriate.
The reports that follow provide an overview of the work undertaken by the Board and
its Committees in fulfilling our governance responsibilities and describe how the
principles and provisions of the Code have been applied by the Company during the
year ended 31 December 2018. The Board will continue to strengthen the Group’s
governance processes to ensure that the business as a whole is aligned with best
practice and that our approach to disclosure remains understandable and transparent.
Philip Rogerson
Chairman
25 February 2019
Compliance statement
It is the Board’s view that, for the year ended
31 December 2018, the Company has been
fully compliant with all of the relevant
principles and provisions set out in the
2016 version of the Code. The Company’s
auditors, PricewaterhouseCoopers LLP,
are required to review whether this statement
reflects the Company’s compliance with
those provisions of the Code specified for
their review by the Financial Conduct
Authority’s Listing Rules and to report if it
does not reflect such compliance. No such
report has been made.
Board composition
As at 31 December 2018, the Board was
made up of seven members comprising
a Chairman, a Chief Executive, one other
executive director and four non-executive
directors. Patrick Larmon, an executive
director and President and Chief Executive
Officer of the North America business,
retired from the Board and the Company
with effect from 31 December 2018, having
served as an executive director from
December 2004. Jean-Charles Pauze, a
non-executive director, also retired from
the Board on 31 December 2018. Brief
biographical details of the current directors
are given on pages 56 and 57.
At the end of 2018, Philip Rogerson
completed his third three year term in office.
The Board has undertaken a thorough
review of Philip Rogerson’s performance
and has given due consideration to
evaluation feedback, shareholder opinion,
his knowledge and experience of the Group
and the amount of time that he devotes to
his duties at Bunzl and his other business
commitments. Having given due deliberation
to the matter, the Board has concluded that,
notwithstanding his length of service, Philip
Rogerson continues to be independent in
character and judgement and that there are
no relationships or circumstances which are
58
Bunzl plc Annual Report 2018
Financial statementsDirectors’ reportStrategic report likely to affect, or could appear to affect,
his judgement. Philip Rogerson is offering
himself for re-election at the forthcoming
Annual General Meeting (‘AGM’). However,
in recognition of the new provisions of the
2018 edition of the Code, which states that
the Chair of a listed company should not
remain in post beyond nine years from the
date of their first appointment to the Board,
a process, which is being led by Vanda
Murray, the Senior Independent Director,
is under way to identify and appoint Philip
Rogerson’s successor. Subject thereto, and
taking into account the guidance in the
revised Code, it is the Board’s present
intention that Philip Rogerson will retire from
the Board at the conclusion of the AGM to
be held in 2020 in order to provide sufficient
time to complete this process in an orderly
and considered manner and to oversee a
successful handover.
Our aim is to continue to refresh the Board
while ensuring stability and continuity.
Further information on the process that
has been followed in respect of succession
planning can be found in the Nomination
Committee report on pages 66 and 67.
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.
Each of the non-executive directors is
considered to have a breadth of strategic,
management and financial experience
gained in each of their own fields in a range
of multinational businesses and in
accordance with the terms of the Code,
each of the directors will be subject to
re-election at the forthcoming AGM.
Board activity in 2018
The Board meets formally at least seven
times a year and normally at least two of
these meetings are held at or near Group
locations in the UK and overseas where
the directors have the opportunity to meet
and interact with executives from different
businesses within the Group’s portfolio
as well as observe the operations in situ.
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, the Finance Director
and the heads of the business areas together
with the Director of Corporate Development.
Further details of the Board meetings that
were held overseas during 2018 can be found
in the adjacent case study.
During 2018, a number of the Group’s
executives made presentations to the Board
about a variety of different and diverse topics
including reviews of potential acquisition
opportunities, the post-acquisition
performance of businesses acquired in prior
years, the Group’s financing facilities and
treasury policies, tax risks, cyber security
risks and controls, supplier audits carried out
and health and safety performance metrics.
Following the publication of the 2018 edition
of the Code, the Board formally approved
schedules setting out its key responsibilities
and those of the Senior Independent Director,
together with some changes to the
responsibilities of the Chairman and the
Chief Executive and the terms of reference
of the Nomination, Audit and Remuneration
Committees. The schedule of responsibilities
of the Board, the Senior Independent
Director, the Chairman and the Chief
Executive, as well as the revised terms of
reference of the Board Committees became
effective on 1 January 2019 and are available
on the Company’s website, www.bunzl.com.
The Board also reviewed and formally
approved minor changes to its diversity
policy, which became effective on 1 January
2019. Further details of the diversity policy
that applied throughout 2018 are set out
in the Nomination Committee report on
page 67.
The Board calendar is planned to ensure
that the directors discuss a wide range of
topics throughout the year and the Board
has formally adopted a schedule of matters
which are required to be referred to it for
decision. A non-exhaustive list of such
matters can be found on page 60.
Meetings
The Board met on seven occasions during
2018. Directors’ attendance at those
meetings is set out below:
Philip Rogerson
Frank van Zanten
Patrick Larmon1
Brian May
Eugenia Ulasewicz
Jean-Charles Pauze2
Vanda Murray
Lloyd Pitchford
Stephan Nanninga
Meetings attended
7
7
7
7
7
6
7
7
7
1 Patrick Larmon retired as a director on 31 December 2018.
2 Jean-Charles Pauze retired as a director on 31 December 2018.
Board in action –
Board meetings in
Washington, US
and Paris, France
The Board held its June and October
2018 meetings in Washington, US and
Paris, France respectively.
During their visit to Washington, the
directors met with local business
managers and received presentations
on the performance of the different
businesses in the north east region
of the US. The presentations covered
topics such as key financial metrics
and information related to employees,
customers, suppliers and the markets
served. The directors were also
informed of the challenges and
opportunities faced by the businesses
during 2018 and the efforts and
initiatives undertaken to overcome
these challenges.
The meeting in Paris afforded
members of the management team in
France the opportunity to meet with
the directors and give presentations
on the performance, development
and strategic goals of Bunzl’s French
businesses, including some of the
more recent local acquisitions.
The directors believe that overseas
Board meetings play an important
role in enhancing further their
understanding of the Group’s
operations and give them better insight
into the Group’s businesses and the
environments in which they operate.
They also provide the Board with
an opportunity to meet with local
management and, in doing so, assess
and monitor the Group’s culture and its
alignment with the Group’s strategy and
values. Such meetings are also essential
in helping the Board to understand
better the broader long term impact of its
decisions on the Group’s stakeholders
both nationally and internationally,
including employees, customers,
suppliers and the communities in
which the Group operates.
Bunzl plc Annual Report 2018
59
Financial statementsDirectors’ reportStrategic report Corporate governance report continued
Governance structure
The Board has ultimate responsibility for the overall leadership of the Group. To ensure the directors maintain overall control over
strategic, financial, 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 consideration. Further details of the matters reserved for the Board can be found below.
The Board has established three 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. Further information relating to the Board Committees is set out below and in the
Committee reports which follow this Corporate governance report.
Board
Nomination Committee
Chairman
Philip Rogerson
Audit Committee
Chairman
Lloyd Pitchford
Remuneration Committee
Chair
Vanda Murray
Members
Frank van Zanten
Vanda Murray
Eugenia Ulasewicz
Lloyd Pitchford
Stephan Nanninga
Key responsibilities
Reviews the structure, size and
composition of the Board with regard
to diversity and to ensuring a balance
of skills, knowledge and experience.
Members
Vanda Murray
Eugenia Ulasewicz
Stephan Nanninga
Members
Eugenia Ulasewicz
Lloyd Pitchford
Stephan Nanninga
Key responsibilities
Reviews and monitors the integrity of
the Company’s financial reports, risk
processes and internal controls and the
effectiveness of the internal audit function
and external auditors.
Key responsibilities
Sets the remuneration policy for the
Chairman and executive directors and
monitors the policies and practices applied
to senior management remuneration.
For more information
see pages 66 and 67
For more information
see pages 68 to 72
For more information
see pages 73 to 97
Matters reserved for the Board
The table below summarises some of the matters which are required to be brought to the Board for consideration:
Shareholders
• Matters requiring shareholder
approval.
• Circulars and significant
shareholder communications.
Capital allocation
and structure
• Significant capital expenditure/disposals.
• Significant business acquisitions/disposals.
Policies and
statements
• Material Group policies and statements
and major changes thereto, for example:
• Material changes to the Group’s
capital structure.
• Major property leases.
– tax strategy;
– treasury policy;
– modern slavery statement;
• Material increases in borrowing
– equality and diversity policy; and
and loan facilities.
– risk appetite.
People and
leadership
• Appointment/removal of directors
and Company Secretary.
• Non-executive directors’ remuneration.
• Board Committee constitution and
terms of reference.
Strategy and
management
• The Group’s strategic aims and objectives.
• Annual budget and strategic plan.
Financial reporting,
risk and controls
• Financial results and announcements
relating thereto.
• Final and interim dividends.
• Auditor appointment/removal.
• Risk management and internal controls.
60
Bunzl plc Annual Report 2018
Financial statementsDirectors’ reportStrategic report Board roles and responsibilities
The following table summarises the role and responsibilities of the different members of the Board:
Role
Chairman
Responsibilities
The primary job of the Chairman is to be responsible for the leadership of the Board and
ensuring its effectiveness in all aspects of its role.
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 Chairman is also viewed by investors as the ultimate steward of the business and the
guardian of the interests of all the shareholders.
Chief Executive
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 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.
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.
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.
Finance Director
The Finance Director supports the Chief Executive and is responsible for managing the Group’s funding strategy,
financial reporting, risk management and internal controls, investor relations programme and the leadership of the
finance function.
Senior Independent Director
A key role of the Senior Independent Director is to be 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. The Senior Independent Director 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.
Independent non-executive
directors
The non-executive directors play an important 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 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.
Executive and non-
executive directors
Board gender
Non-executive
director tenure
2
2
5
5
Executive
Non-executive
(includes Chairman)
Male
Female
2
2
1
0 – 3 years
3 – 6 years
6+ years
Bunzl plc Annual Report 2018
61
Financial statementsDirectors’ reportStrategic report Corporate governance report continued
Governance in action – acquisition process
Expanding the Group through acquisition is an important part of Bunzl’s strategy to grow and develop. Our markets are very fragmented which
results in numerous opportunities to expand through purchasing businesses in both existing and new markets and countries.
The Board plays a critical role in ensuring that a robust and rigorous process is followed in respect of the more material acquisitions and those
involving the entry into new countries or market sectors to ensure that the proposals are carefully considered and challenged before being taken
forward. This process is summarised below and details of the acquisitions made by the Group during 2018 can be found on pages 144 to 145.
1
2
3
4
Presentation made to the
Board by management
regarding the relevant
potential acquisition, due to
its material size or because
it represents the Group’s
first step into a new country
or market sector.
The Board considers the
acquisition proposal,
including the financial
performance of the target
company, the projected
synergies, the regulatory,
political and competitor
landscapes, the Company’s
existing operations and
market presence in
the relevant country,
employee matters and
any potential risks and
management’s proposals
for mitigating these.
The Board agrees whether
to proceed with the
proposed acquisition
and sets any relevant
parameters concerning the
transaction, including in
relation to the purchase
price and any specific due
diligence requirements.
The Board undertakes a
post-acquisition review
approximately two years
after completion of the
transaction to evaluate
whether all desired
objectives and benefits
have been realised,
measured against the
relevant investment case
at the time the acquisition
was approved.
Performance evaluation
The Chairman is responsible, with support
from the Nomination Committee, for ensuring
that the Company has an effective Board
with a suitable range of skills, knowledge,
experience and diversity. The Company has a
formal performance evaluation process for the
Board, its Committees and individual directors
overseen by the Chairman. The evaluation
includes a detailed questionnaire and
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.
Key priorities identified in 2017
1. Continuing to keep the key strategic issues
facing the Group under review both as part of
the Board’s annual strategy meeting and at
other times of the year as appropriate.
2. Developing a greater understanding of the
relevant digital and technological developments
affecting the Group’s businesses.
3. Focusing on the operational initiatives required
in order to maintain or improve the Group’s
operating margins.
4. Continuing the focus of the Nomination
Committee on the management succession
plans for the Group, including in particular
maintaining the Board’s exposure to the
Group’s senior management below Board level.
Key priorities identified in 2018
1. Continuing to develop a greater understanding
of the relevant digital and technological
developments affecting the Group’s businesses.
2. Increasing the emphasis on human resources,
people and management of succession
planning at both Board and senior
management levels.
3. Further engagement with executives who are
not on the Board to increase the Board’s
exposure to the Group’s senior management
below Board level.
4. Focusing on the operational initiatives required
in order to maintain or improve the Group’s
operating margins with a particular focus on
North America.
The Board is satisfied that
the priorities identified
following the evaluation
carried out in 2017 have
been adequately addressed
during 2018.
As a result of the
performance evaluation
process carried out in 2018,
the Board concluded that
both it and its Committees
are operating effectively.
62
Bunzl plc Annual Report 2018
Financial statementsDirectors’ reportStrategic report Although the Code only requires that the
evaluation of the Board and its Committees
should be externally facilitated at least every
three years, the Board has decided to carry
out an annual performance evaluation.
By doing so, the Board is able to ensure
that there is consistency and continuity in
the evaluation process and the presentation
of the results from one year to the next.
Following the evaluation, the Board identifies
a number of key priorities in order to improve
the Board’s performance. The facilitator of
the external evaluation, Lintstock, does not
provide any other services to, or have any
other connection with, the Company.
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.
Induction, training and 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 plc’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 deemed appropriate, authorised
accordingly. A director is not however
permitted to participate in such considerations
or to vote in relation to their own conflicts.
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.
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 155 and the auditors’ report
on pages 156 to 161 includes a statement by
the external auditors about their reporting
responsibilities. As set out on page 107,
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:
• comprehensive reviews undertaken at
different levels of the Group in order to
ensure the accuracy, consistency and
overall balance of the Annual Report; and
• procedures to verify the factual accuracy
of the Annual Report.
The Board considered whether the 2018
Annual Report, taken as a whole, was fair,
balanced and understandable and provided
sufficient information to enable the reader
to assess the Group’s position and
performance, business model and strategy.
In carrying out its review, the Board
considered the information and assurance
provided by the ongoing work of the internal
audit department, the reviews conducted by
the external auditors 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
also took account of the preparation and
verification processes that had been
undertaken, including the review that had
been carried out by one of the Company’s
senior executives who had not been
involved in the Annual Report’s preparation.
As a result of its deliberations the Board
concluded that, taken as a whole, the
2018 Annual Report is fair, balanced and
understandable.
Bunzl plc Annual Report 2018
63
Financial statementsDirectors’ reportStrategic report Corporate governance report continued
Relations with stakeholders
The Board recognises the importance of
maintaining regular, open and constructive
dialogue with our shareholders and wider
stakeholders and it achieves this through
the following engagement methods:
Half year and full year announcements
As required by the relevant laws and
regulations, 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,
during the year the Company has published,
on a voluntary basis, two quarterly trading
statements and two other trading updates
prior to entering its close periods at the end
of June and the end of December in order to
keep the Company’s shareholders and the
financial markets periodically updated on the
Company’s trading performance outside of the
regulatory announcements made in relation to
the half year and annual results.
Meetings with institutional
shareholders
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, 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.
Annual General Meeting
Notice of the AGM is sent to shareholders at
least 20 working days before the meeting. All
shareholders are encouraged to participate in
the AGM, 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 AGM each of the
resolutions put to the meeting will be taken
on a poll rather than on a show of hands as
the 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 AGM.
Site visits and overseas meetings
As referred to above, Board meetings are
periodically held at or near Group locations
where the directors have the opportunity to
meet and interact with local management
from different businesses within the Group’s
portfolio. Such meetings are an important part
of the directors’ development and give them
the opportunity to observe the operations in
situ and enhance further their understanding
of the Group’s businesses. More information
on the Board meetings that have been held
overseas during 2018 can be found on page 59.
Surveys
A biennial, global all-employee engagement
survey is undertaken to help the Board
understand what areas matter most to
our employees. The surveys also play an
important role in helping the Board to assess
and monitor the extent to which our values and
culture are embedded throughout the Group
and identify any areas of misalignment with
the Group’s strategy. More information on
workforce engagement can be found in the
Our people section on pages 36 to 39.
Supplier conferences and audits
We actively work with our suppliers to build
relationships, capacity and trust, to increase
sustainability within our supply chain and
to provide products and solutions to our
customers that are sourced and delivered
efficiently, safely and sustainably. Supplier
conferences are held to showcase examples
of good practice and build awareness of social
compliance issues. Our quality assurance/
quality control department based in Shanghai
also monitors and works with our key direct
suppliers in Asia and elsewhere to ensure that
they meet international standards. During
2017, a specific supplier code of conduct was
adopted and has been rolled out across our
supplier base. More information on supplier
engagement can be found in the Corporate
responsibility section on pages 40 to 50.
Relationship building
We build strong relationships with our
customers, using the expertise of our
commercial teams, to gain a deep
understanding of their needs and to identify
where we can support them. In addition, we
work with our customers in the development
of new, redesigned or substantially improved
products and host launch days to engage with
customers and increase their awareness of
sustainability matters. More information on
customer engagement can be found in the
Corporate responsibility section on pages
40 to 50.
Risk management and internal control
The directors acknowledge that they have
overall responsibility for identifying,
evaluating, managing and mitigating the
principal risks faced by the Group and for
monitoring the Group’s risk management
and internal control systems. However,
such systems are 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 the principal risks faced by the
Group and for determining the nature and
extent of the principal risks it is willing to
take to achieve its strategic objectives (its
‘risk appetite’). The directors confirm that
such procedures have been in place for the
year ended 31 December 2018 and up to the
date of approval of these financial statements
and that the Group’s risk management and
internal control systems have been
monitored during the year.
Further information about the Group’s
approach to risk management and the
principal risks and uncertainties facing
the Group can be found on pages 51 to 55.
A summary of the principal control
processes and procedures in place to
manage such risks is set out below.
The Board has delegated to an Executive
Committee, consisting of the Chief
Executive, Finance Director and other
functional managers, the initial
responsibility for identifying, evaluating,
managing and mitigating the risks facing
the Group and for deciding how these are
best managed, as well as responsibility for
establishing a system of internal control
appropriate to the business environments
in which the Group operates. The principal
features of this system include:
64
Bunzl plc Annual Report 2018
Financial statementsDirectors’ reportStrategic report • a procedure for monitoring the
• the Board in turn reviews the outcome
• regular meetings are held with insurance
effectiveness of the internal control system
through a tiered management structure
with clearly defined lines of responsibility
and delegation of authority;
of the Executive Committee discussions
on internal control and risk management
issues which ensures a documented and
auditable trail of accountability;
• 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
whistleblowing 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.
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:
• central management holds regular
meetings with business area management
to discuss strategic, operational and
financial issues including a review of
the principal risks affecting each of the
business areas and the policies and
procedures by which these risks are
managed;
• 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;
• 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 implements the
recommendations made. The internal audit
department’s work is determined on a risk
assessment basis and its findings are
reported to Group and business area
management as well as to the Audit
Committee and the external auditors;
• 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 68 to 72;
and risk advisers to assess the risks
throughout the Group;
• a management committee, known as
the Corporate Responsibility and
Sustainability Committee, which oversees
issues relating principally to environment,
health and safety and business continuity
planning matters, sets relevant policies
and practices and monitors their
implementation;
• health and safety 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.
The directors confirm that they have
reviewed the effectiveness of the Company’s
risk management and internal control
systems in operation during 2018.
The external auditors are engaged to express
an opinion on the financial statements.
The audit includes a review and evaluation
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.
Assessment of the prospects of the
Company and its viability statement
In accordance with provision C.2.2 of the
Code, details of how the directors have
assessed the prospects of the Company,
over what period the prospects have been
assessed and the Company’s formal viability
statement are included in the Strategic report
on page 55.
On behalf of the Board
Paul Hussey
Secretary
25 February 2019
Bunzl plc Annual Report 2018
65
Financial statementsDirectors’ reportStrategic report Nomination Committee report
Ensuring that the Board has
the appropriate balance of skills,
experience, knowledge and
diversity is a key role of the
Committee which is essential
for the long term sustainability
and success of the Company.
Philip Rogerson
Chairman and Chairman of
the Nomination Committee
Principal responsibilities
of the Committee
Board structure
• Reviewing the structure, size and
composition of the Board with regard
to maintaining a balance of skills,
experience, knowledge and diversity.
Succession
• Considering succession planning,
taking into account the challenges and
opportunities facing the Company and
the skills and expertise required by the
Board in the future.
• Reviewing annually a succession
planning presentation in relation to
the Company’s key management.
Appointments
• Identifying and nominating appropriate
individuals to fill Board vacancies as
they arise.
• Making recommendations to the Board
as to the continuation in office and/or
re-appointment of directors.
Evaluation
• Considering the commitment required
of non-executive directors and
reviewing their performance.
Meetings
The Committee met on five occasions
during 2018. Members’ attendance at
those meetings is set out below:
Philip Rogerson
Frank van Zanten
Eugenia Ulasewicz
Jean-Charles Pauze1
Vanda Murray
Lloyd Pitchford
Stephan Nanninga
Meetings attended
5
5
5
5
5
5
5
• Approving the appointment of any
31 December 2018.
1 Jean-Charles Pauze retired as a director on
senior executive who is to report directly
to the Chief Executive.
Introduction from Philip Rogerson
As Chairman of the Nomination Committee,
I am pleased to present the Committee’s
report for the financial year ended
31 December 2018.
This report explains the Committee’s
activities during the year, including the work
undertaken in relation to succession planning,
which continues to be a key focus of the
Committee. I believe that the Committee has
an important role to play in ensuring that the
size, composition and structure of the Board
is appropriate for the delivery of the Group’s
strategy and that all relevant provisions of the
UK Corporate Governance Code (the ‘Code’)
continue to be met.
As mentioned on page 58 of the Corporate
governance report, I myself have been a
director of the Company for nine years and,
in recognition of the new provisions of
the recently revised Code, we have started
a process to identify and appoint my
successor, led by Vanda Murray, our Senior
Independent Director. Subject thereto, and
taking into account the guidance in the
revised Code, it is presently the Board’s
intention that I should remain as Chairman
until the Annual General Meeting (‘AGM’)
to be held in 2020 in order to provide
sufficient time to complete this process
in an orderly and considered manner and
to oversee a successful handover.
Our aim is to continue to refresh the Board
to further enhance the range of skills,
breadth of knowledge and experience and
diversity on the Board while ensuring
stability and continuity. Information about
the Committee’s approach to succession
planning more generally can be found below.
Philip Rogerson
Chairman and Chairman of the
Nomination Committee
25 February 2019
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 independent
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
the 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 meets as
necessary throughout the year to discharge
its responsibilities. The Committee’s terms
of reference, which were reviewed by
both the Committee and the Board in 2018,
are available on the Company’s website,
www.bunzl.com.
66
Bunzl plc Annual Report 2018
Financial statementsDirectors’ reportStrategic report talented people from succeeding. There is
also a range of initiatives within the Group
to help provide learning and development
opportunities for female executives and
to ensure unbiased career progression
opportunities. The Board has formally
approved an equality and diversity policy,
which applies to the wider workforce of the
Group, further details of which are included
in the Our people section on pages 36 to 39.
Monitoring and reporting
The Nomination Committee is responsible
for regularly reviewing the structure, size
and composition of the Board, including the
skills, knowledge, experience and diversity
of the directors. It is also responsible for
identifying and nominating appropriate
individuals to fill Board vacancies as they
arise. The Committee will report annually,
in the Company’s Annual Report, on the
process followed in relation to any Board
appointments made during the relevant
period. The Board is responsible for keeping
its diversity policy under review and making
changes thereto when appropriate to do so.
Further information about the Company’s
workforce diversity is set out on pages 36
to 39.
Activities
The Committee recognises that having the
right directors and senior management is
crucial for the Group’s success and a key
task of the Committee is to ensure that there
is a robust and rigorous succession planning
process, over both the medium and long term,
to ensure that there is the right mix of skills
and experience as the Company evolves.
In addition to the proposed appointment of a
successor to the Chairman, the Committee
has also started a process to recruit a further
non-executive director. Having taken
account of the challenges and opportunities
facing the Company currently and in the
future and after identifying the background,
skills, knowledge and experience that will be
required of the Chairman and non-executive
directors in the future, the Committee
prepared and agreed detailed specifications
for the roles and appointed an external
search consultancy, Russell Reynolds
Associates, to assist it in the recruitment
processes. Russell Reynolds Associates
does not provide any other services to, or
have any connection with, the Company.
The Committee has agreed that the search
criteria for candidates should include,
in particular, successful senior business
executives with extensive international
management experience across a range
of businesses, ideally operating in the
distribution or service sectors, with detailed
knowledge of digital technologies and
processes which will be invaluable to
the future development of the Group. It is
important that the chosen candidates are
able to play a supportive role to the executive
management team, while at the same
time providing strategic input into the
Company’s direction and development.
It is also a requirement that the prospective
directors can provide wise counsel and
independence of mind and challenge
management constructively by offering
impartial, independent and objective advice.
In addition, 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 performance
evaluation process which was carried out
when considering and recommending the
nomination of directors for re-election at
the 2018 AGM.
The Committee also continues to take
an active interest in the quality and
development of talent and capabilities below
Board level. In this connection, during the
year the Chief Executive presented his
annual management succession plan
to the Committee for its consideration.
This process helps to ensure that appropriate
opportunities are in place to develop high
performing individuals and to increase
diversity in senior roles across the Group.
As part of the 2018 review of its terms of
reference, the Committee also approved
(for formal ratification by the Board)
appropriate amendments to ensure that such
terms of reference are fully compliant with
the 2018 edition of the Code, which applies
to the Company from 1 January 2019.
Diversity policy
Within the Group’s businesses, the Board is
committed to greater diversity, in its broadest
sense, whether in terms of ideas, skills,
knowledge, experience, education, ethnicity,
gender, or any other relevant measure.
When considering director appointments,
one of the objectives is to maintain a diverse
Board. While the Board will continue to
follow a policy of ensuring that the best
people are appointed for the relevant roles,
based on merit by assessing candidates
against objective criteria, the directors
recognise the benefits of greater diversity and
will take account of this when considering
any particular appointment. However, the
primary responsibility when making new
appointments is to ensure the strength of the
Board’s composition. The overriding aim is
to select and recommend the best candidate
for the position, having regard to all of the
different stakeholders that Bunzl has as a
global organisation, while ensuring that the
Board members are able to provide a range of
perspectives, insights and challenge required
to support effective decision making.
Looking beyond the Board to the Group’s
wider workforce, Bunzl is committed to
treating people fairly and equally by
accepting and embracing their diversity and
ensuring there is an inclusive and positive
working environment for all employees.
For a number of years in the annual
succession planning reviews there has been
a particular focus on diversity within the
business areas and one of the key objectives
is to ensure there are no barriers preventing
Bunzl plc Annual Report 2018
67
Financial statementsDirectors’ reportStrategic report Audit Committee report
Providing rigorous oversight and
challenge of the effectiveness of the
Group’s internal controls and risk
management processes and procedures
continues to be an important part of
the Committee’s role and an essential
aspect of the Group’s robust
corporate governance framework.
Lloyd Pitchford
Chairman of the Audit Committee
Principal responsibilities
of the Committee
Financial reporting
• Monitoring and reviewing the integrity
of the Group’s financial results and the
significant judgements contained therein.
Risk management and internal
control
• Reviewing:
– the Group’s risk management
processes, procedures and controls;
– the effectiveness of the Company’s
internal financial controls; and
– the Group’s whistleblowing
arrangements (going forward, this
review will be undertaken by the Board).
Internal audit
• Overseeing the Company’s internal
audit activities.
• Monitoring and reviewing the
effectiveness of the internal audit function.
External audit
• Making recommendations to the
Board in relation to the appointment/
re-appointment/removal of the
external auditors.
• Reviewing the Company’s relationship
with the external auditors and
monitoring their independence and
objectivity.
• Agreeing the scope, terms of
engagement and fees for the statutory
audit.
• Initiating and supervising a competitive
tender process for the external audit as
required from time to time.
• Developing and implementing a policy
on the engagement of the external
auditors to supply non-audit services.
Meetings
The Committee met on four occasions
during 2018. Members’ attendance at
those meetings is set out below:
Lloyd Pitchford
Eugenia Ulasewicz
Jean-Charles Pauze1
Vanda Murray
Stephan Nanninga
Meetings attended
4
4
3
4
4
1 Jean-Charles Pauze retired as a director on
31 December 2018.
Introduction from Lloyd Pitchford
I am pleased to present the Audit
Committee’s report for the year ended
31 December 2018. During 2018, the
Committee continued to apply rigorous
scrutiny and challenge to the Group’s audit,
assurance and risk management processes
and I believe that this, together with the
Board’s efforts in harnessing and promoting
a strong risk focused culture, play an
essential role in safeguarding the interests
of stakeholders and assuring the long term
viability of the Company.
This report reflects the requirements placed
on committees by the Financial Reporting
Council’s (‘FRC’) UK Corporate Governance
Code (the ‘Code’) and applicable guidance,
laws and regulations. The Code includes a
number of provisions relating to the role and
reporting requirements of audit committees
and accordingly this report has been
prepared in compliance with the relevant
provisions of the 2016 edition of the Code
which applied to the financial year ended
31 December 2018. In carrying out its duties,
the Committee also operated in accordance
with the recommendations set out in the
FRC’s Guidance on Audit Committees,
which was published in April 2016. As
mentioned in the Corporate governance
report, an updated version of the Code
was published in July 2018 and applies
to the Company from 1 January 2019.
The Committee has already taken account of
the changes required and will report formally
in accordance with the revised edition of the
Code in the 2019 Annual Report.
The principal responsibilities of the
Committee include monitoring and
reviewing the integrity of the Company’s
financial reporting, together with the related
internal controls, and ensuring that the
assumptions and judgements made by
management in preparing the financial
results are challenged as appropriate.
The significant accounting matters
considered by the Committee in relation
to the 2018 financial statements were the
accounting for business combinations,
the carrying value of goodwill and customer
relationships intangible assets, defined
benefit pension schemes and taxation.
These are discussed in detail in the report
that follows and the Committee is satisfied
that these matters have been properly
recorded in the Company’s books and
records and accounted for appropriately.
In fulfilling its oversight responsibilities
in respect of the Group’s risk management
and control environment, during 2018 the
Committee reviewed the process by which
current and emerging risks had been
identified by management and the Board
and the processes and controls in place to
manage and mitigate these risks. Further
information on the Committee’s activities
in relation to risk management can be found
later in this report.
The Committee will continue to review its
activities in the light of regulatory and best
practice developments to ensure that we are
able to maintain high standards of financial
governance going forward.
68
Bunzl plc Annual Report 2018
Financial statementsDirectors’ reportStrategic report By providing an overview of the Committee’s
role and a meaningful insight into its activities
during the past year, this report demonstrates
how the Committee has discharged its
responsibilities effectively and I hope that
you will find it useful in understanding the
work that we have undertaken.
Lloyd Pitchford
Chairman of the Audit Committee
25 February 2019
Composition
The Committee members are all of the
independent non-executive directors who
were appointed to the Committee by the
Board following recommendations by the
Nomination Committee. While the other
directors, being the Chairman of the
Company and the executive directors,
are not members of the Committee, they
normally attend meetings of the Committee
by invitation together with the Head of
Internal Audit, representatives from
the external auditors and members of the
Group finance team. The Secretary to
the Committee is the Company Secretary.
The Committee members bring an
appropriate balance of financial and
commercial experience in multinational
organisations, combined with a good
understanding of the Company’s business
and are therefore considered by the Board
to be collectively competent in the sector in
which the Company operates. As the serving
Chief Financial Officer of Experian plc, the
Chairman of the Committee, Lloyd Pitchford,
is considered by the Board to have recent and
relevant financial experience. The Committee
considers independent thinking to be crucial
in assessing the work of management and
the assurance provided by the internal and
external audit functions and believes that
each of the Committee members brings an
appropriate mindset to their role.
Role
Audit committees have a clearly defined role
in the corporate governance framework of
listed companies. The Audit Committee
acts independently of management to
ensure that the interests of the Company’s
stakeholders are properly protected through
the Committee’s oversight, review and
challenge of the Company’s financial
management and its reporting processes
and procedures. There are a number of
key aspects to this, including the use of
appropriate accounting policies and
practices and the implementation of a robust
assurance framework. This framework
comprises a number of important elements,
including the Company’s risk management
and internal control systems, the internal
and external audit functions and the
regular reporting of the Company’s
performance against budgets, forecasts
and prior year results.
The Committee ensures that the Company
has effective governance over the Group’s
financial reporting, including the adequacy
of related disclosures, the performance
of both the internal and external audit
functions and the management of the
Group’s systems of internal control and
business risk management and related
compliance activities. The Committee’s
terms of reference, which were reviewed by
both the Committee and the Board in 2018,
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 auditors and
may obtain outside professional advice as
necessary. Both the Head of Internal Audit
and the external auditors have direct access
to the Chairman of the Committee who held
a number of meetings with each of them
during the year outside formal Committee
meetings. The Chairman of the Committee
also liaises with the Finance Director as
necessary to ensure robust oversight and
challenge in relation to financial control and
risk management.
The Committee’s performance and
effectiveness is reviewed annually by both
the Committee and as part of the Board
performance evaluation. The Chairman of the
Committee also meets with each Committee
member independently to ensure that their
individual views about the operation of the
Committee are taken into account.
Activities
The Chairman of the Committee holds
preparatory discussions with the Company’s
senior management, the Head of Internal
Audit and the external auditors prior to
Committee meetings to discuss the items
to be considered at the meetings. In addition,
separate discussions are held during
Committee meetings between the
Committee and the Head of Internal
Audit and the external auditors without
management present. The Chairman of
the Committee also attends the Annual
General Meeting (‘AGM’) to respond to
any shareholder questions that might
be raised on the Committee’s activities.
The Committee’s activities in 2018 included:
• making recommendations to the Board
concerning the re-appointment of the
external auditors and approving the
remuneration and terms of engagement
of the auditors, including the audit strategy
and planning process for the current
financial year;
• receiving and considering a proposal
from the external auditors concerning
the rotation of the lead audit partner
following the conclusion of the audit of
the Company’s financial statements for
the year ended 31 December 2018;
• receiving and, where appropriate,
challenging reports from management
and the external auditors in relation to
the half yearly financial report and the
annual financial statements;
• reviewing the half yearly financial report
and the annual financial statements and
the formal announcements relating thereto;
• receiving and considering a presentation
on the adoption of IFRS 16 ‘Leases’, which
will apply for the 2019 financial year, and
the potential impact thereof on the Group;
• reviewing the effectiveness of the risk
management process;
• receiving and considering reports from
the Head of Internal Audit concerning
the work undertaken by the internal audit
function, including in relation to the
function’s ongoing quality assurance
and improvement programme;
• reviewing and approving the internal audit
work programme for the coming year;
• receiving and considering a report from
the Head of Internal Audit relating to an
analysis of trends in internal audit findings;
• reviewing the effectiveness of both the
external auditors and the internal audit
function following completion of detailed
questionnaires by both the Board and
senior management within the Company;
• reviewing the effectiveness of the
Company’s internal financial controls and
the assurance procedures relating to risk
management systems, including receiving
and considering a Risk and Assurance Map;
• reviewing the Company’s annual controls
self-assessment process;
• reviewing the arrangements by which
staff may, in confidence, raise concerns
about possible improprieties in matters of
financial reporting or other matters and
making recommendations in relation to
the improvement thereof, receiving periodic
Bunzl plc Annual Report 2018
69
Financial statementsDirectors’ reportStrategic report Audit Committee report continued
reports relating to the matters raised
through the arrangements and undertaking
a benchmarking process with a view to
outsourcing the administration of such
arrangements to a third party provider;
• reviewing the Committee’s terms of
reference;
• reviewing the Committee’s effectiveness
following an externally facilitated
performance evaluation;
• reviewing the policy for the provision of
non-audit services by the external auditors;
• reviewing and approving the level and
nature of non-audit work which the
external auditors performed during the
year, including the fees paid for such work;
• reviewing the principal tax risks
applicable to the Company and the
steps taken to manage such risks; and
• reviewing the Company’s internal
audit charter.
In addition, during the year the Committee
considered the impact of the adoption by
the Company of new accounting standards
IFRS 9 ‘Financial Instruments’ and IFRS 15
‘Revenue from Contracts with Customers’,
which applied for the first time in the
2018 financial year.
As part of the 2018 review of its terms of
reference, the Committee also approved
(for formal ratification by the Board)
appropriate amendments to ensure that
such terms of reference are fully compliant
with the 2018 edition of the Code, which
applies to the Company from 1 January
2019. One of the changes introduced by
the revised Code is that, going forward,
the Group’s whistleblowing arrangements
will be overseen by the Board as a whole
rather than the Committee.
Following each Committee meeting, any
significant findings are reported to the Board
and copies of the minutes of the Committee
meetings are circulated to all of the directors
and to the external auditors.
The Committee will continue to keep its
activities under review and focused on the
audit, assurance and risk processes within
the business. By doing so, the Committee
will ensure that in the future it is able to
maintain high standards of financial
governance in line with the regulatory
framework as well as market practice for
audit committees.
Financial statements and significant
accounting matters
During the year and prior to the publication
of the Group’s results for 2018, the
Committee reviewed the 2018 half yearly
financial report and related news release, the
2018 Annual Report (including the financial
statements), the 2018 annual results news
release and the reports from the external
auditors on the outcomes of their half year
review and their audit relating to 2018.
As part of its work, the Committee considered
the following significant accounting matters
in relation to the Company’s financial
statements and challenged the judgements
being made in relation thereto.
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 auditors the methodology
and assumptions used to value the assets
and liabilities of the acquisitions completed
in 2018. 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. Details of the Company’s
approach to accounting for acquisitions
are set out in Note 25 to the consolidated
financial statements.
The carrying value of goodwill and other
customer relationships intangible assets
Goodwill is allocated to cash generating
units (‘CGUs’) and is tested annually for
impairment. During the year the Committee
critically reviewed and discussed
management’s report on the impairment
testing of the carrying value of goodwill of
each of the CGUs and customer relationships
intangible assets (including the sensitivity
of the outcome of impairment testing to the
use of different assumptions) and considered
the external auditors’ testing thereof. 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 or customer
relationships intangible assets. Details of
the key assumptions and judgements used
are set out in Note 10 to the consolidated
financial statements.
Defined benefit pension schemes
The Committee considered reports from
management and the external auditors 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 experts. Details of the
key assumptions used are set out in Note 21
to the consolidated financial statements.
Taxation
The Committee reviewed a report and
received a presentation from the Head of Tax
highlighting the principal tax risks that the
Group faces and a detailed risk assessment
relating to the tax risks identified including
the judgements underpinning the provisions
for potential tax liabilities. The Committee
also reviewed the results of the external
auditors’ assessment of provisions for
income taxes. Having done so, the
Committee was satisfied with the key
judgements and proposed disclosures
related to tax made by management.
70
Bunzl plc Annual Report 2018
Financial statementsDirectors’ reportStrategic report The Committee is satisfied that each of the
above mentioned significant accounting
matters have been properly recorded in
the Company’s books and records and
accounted for appropriately, including
relevant disclosure in the Annual Report.
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
monitored the effectiveness of the internal
financial controls framework through
reports from the Finance Director, the Head
of Internal Audit and the external auditors.
In particular the Committee considered the
scope and results of the work of the internal
audit function, the findings of the external
auditors 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,
in addition to considering the results of the
external assessment referred to above, the
Committee reviewed the process by which
significant current and emerging 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 auditors and other
oversight from management and the Board.
Internal audit
The Company has an internal audit
department which comprises nine in-house
auditors, including the Head of Internal Audit
who reports jointly to the Chairman of the
Audit Committee and the Finance Director.
The scope of work of the internal audit
Auditors’ effectiveness reviews
During 2018 the Committee undertook reviews of the effectiveness of both the Company’s
external audit process for the 2017 financial statements and the Company’s internal audit
function. Each of the reviews followed a broadly similar process, as summarised below:
Detailed
questionnaires
of different
aspects of
external audit
process/internal
audit function.
Questionnaires
completed by:
• directors; and
• senior managers
at Group and
business
area levels.
Internal audit function
The questionnaire covered a total of 35
different aspects of the internal audit
function including: purpose, authority and
responsibility; independence and objectivity;
quality assurance processes; adequacy of
resources; auditors’ skills and capabilities;
and the quality of reporting.
External audit process
The questionnaire covered a total of 24
different aspects of the external audit process,
grouped under four separate headings: the
robustness of the audit process; the quality
of delivery; the quality of people and service;
and the quality of reporting.
Results of
questionnaires
considered and
discussed by
the Committee.
Action plan and
implementation
time frames
agreed.
Following these assessments,
the Committee concluded
that it was satisfied with the
effectiveness of the external
audit process relating to the
2017 financial statements
and that the internal audit
function continued to be
effective, efficient and
appropriately resourced.
The Committee will carry
out similar effectiveness reviews
in 2019 in respect of the audit of
the 2018 financial statements
and the internal audit function.
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. These reports
include details of the audit findings, and the
relevant management actions required
in order to address any issues arising, 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. Overall, 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.
External auditors’ independence
The Committee ensures that the external
auditors remain independent of the
Company and receives written confirmation
from the external auditors as to whether
they consider themselves independent
within the meaning of their 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.
Bunzl plc Annual Report 2018
71
Financial statementsDirectors’ reportStrategic report Audit Committee report continued
In order to ensure that the objectivity and
independence of the external auditors is not
compromised, the Company has a detailed
policy relating to the provision of non-audit
services by the external auditors which is
overseen by the Committee. As reported last
year, this policy was updated following the
implementation of the EU Audit Directive
and Regulation which changed the rules
relating to the provision of non-audit services
by the external auditors. Under the revised
policy the only non-audit services that have
been pre-approved by the Committee are
those which are not prohibited or otherwise
restricted and which are considered to
be trivial due to the value of the services.
Apart from such pre-approved services,
a permitted service requires specific
authorisation from the Committee or the
Committee Chairman. It is the Company’s
policy to assess the non-audit services to be
performed by the Company’s auditors on a
case-by-case basis to ensure adherence to
the prevailing ethical standards and
regulations. In the main, other firms are
used by the Company to provide non-audit
services. However, if the provision of a
service by the Company’s auditors is not
prohibited and adequate safeguards are in
place, it is sometimes appropriate for this
additional work to be carried out by the
Company’s auditors. Details of the fees paid
to the external auditors in 2018 in respect of
the audit and for non-audit services are set
out in Note 5 to the consolidated financial
statements. The ratio of the fees relating to
non-audit services to audit services in 2018
was 6%.
External auditors’ re-appointment
In considering whether to recommend to the
Board the appointment or re-appointment of
the external auditors, the Committee takes
into account the tenure of the auditors in
addition to the results of its review of the
effectiveness of the external auditors and
considers whether there should be a full
tender process either as a result of that
review or as may be required by the relevant
regulations. There are no contractual
obligations restricting the Committee’s
choice of external auditors.
As previously reported, following a detailed
tender process, PricewaterhouseCoopers
LLP (‘PwC’) were first appointed as the
Company’s external auditors in 2014. While
the Company has no current retendering
plans, in accordance with The Statutory
Audit Services for Large Companies Market
Investigation (Mandatory Use of Competitive
Tender Processes and Audit Committee
Responsibilities) Order 2014 (‘CMA Order’)
the Company will be required to put the
external audit contract out to tender by 2024.
In addition, PwC will be required to rotate the
audit partner responsible for the Company’s
audit every five years and, in accordance
with the CMA Order, the current lead audit
partner, Paul Cragg, will shortly rotate off the
audit following the completion of the external
audit of the Company’s financial statements
for the year ended 31 December 2018 and
his successor is in the process of being
appointed to oversee the external audit of the
Company’s financial statements for the year
ending 31 December 2019. Accordingly, the
Company confirms that it has complied with
the provisions of the CMA Order for the 2018
financial year.
As a consequence of its satisfaction with the
results of its review of the external auditors’
activities during the year, the Committee
has again recommended to the Board that a
resolution proposing the re-appointment of
PwC as external auditors for the year ending
31 December 2019 be put to shareholders at
the forthcoming AGM.
72
Bunzl plc Annual Report 2018
Financial statementsDirectors’ reportStrategic report Directors’ remuneration report
Given the backdrop of variable
macroeconomic and market
conditions, the Group has performed
well and executive directors’ pay
has been fully aligned with the
strategic and operational focus
of the business.
Vanda Murray OBE
Chair of the Remuneration Committee
Introduction from Vanda Murray
I am pleased to present the Directors’
remuneration report for the year ended
31 December 2018 which has been prepared
by the Remuneration Committee and
approved by the Board.
Context of remuneration
The Company has produced another good
set of results in 2018 against the background
of variable macroeconomic and market
conditions. Operationally we outperformed
against our budget and made continued
progress against our strategic objectives.
Remuneration policy
Our Directors’ remuneration policy was
approved by shareholders at the 2017 AGM,
and we were delighted to receive strong
support from our shareholders with
92% of votes cast in favour. After further
consultation with shareholders, and
in line with the approved policy for 2018,
we introduced a balanced scorecard of
bonus performance measures which were
designed to drive Company performance
and provide a more rounded assessment
against our business Key Performance
Indicators. The Directors’ remuneration
report for 2017 received 96% of votes cast
in favour at the 2018 AGM.
A summary of the remuneration policy
is presented at the end of this report.
Principal responsibilities
of the Committee
Remuneration
• Setting and reviewing directors’
remuneration and benefits including,
but not limited to, base salary, bonus,
long term incentive plans and retirement
benefits.
• Ensuring that all remuneration paid to
the directors is in accordance with the
Company’s previously approved
remuneration policy.
• Ensuring all contractual terms on
termination, and any payments made,
are fair to the individual and the
Company.
• Monitoring the policies and practices
applied in respect of the remuneration of
senior executives directly below Board
level and making recommendations as
appropriate.
Long term incentive plans
• Overseeing the Company’s long term
incentive plans for all employees.
Governance and compliance
• Ensuring that provisions relating to
disclosure of remuneration as set out in
the relevant legislation, the UK Listing
Rules and the Corporate Governance
Code (the ‘Code’) are fulfilled.
Meetings
The Committee met on three occasions
during 2018. Members’ attendance at
those meetings is set out below:
Vanda Murray
Eugenia Ulasewicz
Jean-Charles Pauze1
Lloyd Pitchford
Stephan Nanninga
Meetings attended
3
3
2
3
3
1 Jean-Charles Pauze retired as a director on
31 December 2018.
Compliance statement
• This report has been prepared on
behalf of, and has been approved by,
the Board. It complies with the Large and
Medium-sized Companies and Groups
(Accounts and Reports) (Amendment)
Regulations 2013 (the ‘Regulations’),
the Code and the Financial Conduct
Authority’s Listing Rules and takes into
account the accompanying Directors’
Remuneration Reporting Guidance
and the relevant policies of shareholder
representative bodies.
In accordance with the Regulations,
at the 2019 Annual General Meeting
(‘AGM’) the Company will be asking
shareholders to vote on an advisory
vote on the Annual report on directors’
remuneration as set out on pages 76
to 97 which provides details of the
remuneration earned by directors
for performance in the year ended
31 December 2018. As the directors’
remuneration policy was approved by
shareholders in a binding vote at the
2017 AGM there was not a requirement
to resubmit to a shareholder vote at the
2018 AGM.
Bunzl plc Annual Report 2018
73
Financial statementsDirectors’ reportStrategic report Directors’ remuneration report continued
Developments in 2018
As announced in April 2018, Patrick Larmon
(executive director and President and Chief
Executive Officer of Bunzl North America)
retired from the Board on 31 December 2018
after a long and successful tenure of more
than 28 years with the Company. During
this time, North America, the largest
Bunzl business area, achieved strong and
sustained performance. The agreed leaving
terms for his retirement, in line with the
approved remuneration policy, are set out
on page 83. His successor, an internal
appointment, is not a member of the Board.
The Committee is considering the
implications for the remuneration policy
of changes recently made to the Code and
the recent guidance issued by the main
institutional investor bodies. We intend
to reflect any changes required at the next
binding policy vote at the 2020 AGM.
However, many of the Code’s new
requirements are already in line with the
direction of changes that we made to our
policy in 2017:
• two year post-vesting holding
requirements for long term incentives
have been introduced;
• on-target bonus levels are set at 50%
of the maximum bonus opportunity;
• the pension allowance rate was reduced
when our current Chief Executive Frank
van Zanten was appointed in 2016,
compared to that of his predecessor;
• we strengthened the malus and clawback
provisions for both the Long Term
Incentive Plan (‘LTIP’) and annual bonus,
including for the cash element of the bonus;
and
• we increased the share ownership
requirements for the Chief Executive in
2017 to 250% of base salary. During 2018,
this increased share ownership
requirement was met only two years
following his appointment, ahead of the
time specified in the policy.
We will continue to ensure our remuneration
policy takes into account the best practice
expectations of institutional investors.
As required by the relevant regulations,
we will be disclosing in the Directors’
remuneration report for 2019 the ratio
between the Chief Executive’s remuneration
and the median, lower quartile and upper
quartile of UK employees.
Performance and reward for 2018
The business strategy has remained
constant during 2018 with the Group
continuing to grow both organically and by
acquisition, while continuously improving
the quality of our operating model. This year
Group revenue was up 9% and adjusted
operating profit increased by 7% in each
case at constant exchange rates.
The variable pay outcomes are consistent
with the assessment of outturns against the
performance pay metrics. The Committee
has not exercised discretion to amend the
payout or vesting outcomes for any of the
executive directors.
Bonus
In setting our incentive targets, we have
regard to the performance potential of the
different parts of the business and of the
whole Group. The on-target performance
level for the bonus is set at, or close to,
the budgeted level of performance. The
Committee sets a range around the target
to incentivise the delivery of a stretching
performance. Annual bonus payments are
based on a combination of key financial
targets, with a minority based on personal
objectives. A good financial performance
in 2018 resulted in an annual bonus for the
Chief Executive of 70.4% of his maximum
opportunity, which equates to 126.7% of
salary. The annual bonuses for the Finance
Director, Brian May and Patrick Larmon
are 70.4% and 52.6% of their maximum
opportunities, which equates to 105.6% and
78.9% of their respective annual salaries.
In line with the remuneration policy, 50%
of the annual bonuses will be delivered
in shares, subject to a three year deferral
period, with the exception of the bonus for
Patrick Larmon whose deferred element
of bonus for 2018 will be settled in cash
in March 2019.
LTIP
The Committee assessed the performance
for the LTIP awards vesting in 2018.
The share options were subject to adjusted
earnings per share (‘eps’) growth targets
and the performance shares were subject
to both eps growth and relative total
shareholder return (‘TSR’) targets.
The strong eps growth of 42.4% over
the three year performance period was
reflected in 100% of executive share options
vesting for the performance period ending
31 December 2018. In addition, eps growth
of 38.5% over the three years to 31 December
2017 and slightly weaker relative TSR
performance resulted in 46.6% and
61.8% of performance shares vesting for
performance periods that ended in April
and October 2018, respectively.
The remuneration policy allows maximum
grants under the LTIP of 250% of base
salary for share options and 150% of base
salary for performance shares. However,
in 2018 award levels were held below these
maximum levels at 200% of base salary for
share options and 112.5% for performance
shares for the Chief Executive and 105% for
the Finance Director. This is consistent with
the approach taken in 2017 and 2016.
Remuneration arrangements for the
2019 financial year
Base salary
The base salaries for the executive directors,
Frank van Zanten and Brian May have been
increased by 3% effective from 1 January
2019. This is broadly in line with that of
the workforce average across the business.
Bonus
For the 2019 financial year, the Chief
Executive’s maximum annual bonus
opportunity continues to be 180% of base
salary. For the Finance Director, the
maximum annual bonus opportunity will
continue to be 150% of base salary. The
on-target bonus is 50% of the maximum,
namely 90% of base salary for the Chief
Executive and 75% of base salary for the
Finance Director.
74
Bunzl plc Annual Report 2018
Financial statementsDirectors’ reportStrategic report Composition
The Committee comprises all of the
independent non-executive directors of the
Company. While neither the Chairman 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 Director of Group Human Resources
also attends meetings.
Role
The primary role of the Committee is to
determine the framework or broad policy
for the remuneration of the Chairman,
the executive directors of the Board and
senior management (directly below Board
level). The Committee’s terms of reference,
which were reviewed by both the Committee
and the Board in 2018, are available on the
Company’s website, www.bunzl.com.
Activities
The Committee proposes the directors’
remuneration policy for shareholder approval.
It also governs the implementation of the
policy, ensuring that the remuneration for the
executive directors and senior management
supports the sustainable performance of the
business and that it is aligned with the
Company’s shareholders’ interests. The
Committee considers market practice,
shareholders’ views and the Group’s broader
remuneration arrangements when setting
the Group’s performance related incentives
and ensures compliance with UK corporate
governance good practice.
The annual bonus performance measures
continue to be: balanced scorecard of eps;
return on average operating capital (‘RAOC’);
operating cash flow; and, personal
performance linked to certain specified
strategic non-financial goals. These metrics
are all key to the successful implementation
of the business strategy.1
If eps performance falls below the threshold
level, no bonus will be payable for any
element of the scorecard. This ensures that
strong financial performance underpins
bonus payouts.
We will continue to set robust and
challenging performance conditions for
the LTIP awards. These awards are subject
to eps growth targets and, in addition, in the
case of the performance shares, a relative
TSR condition.
LTIP awards are subject to a two year
post-vesting holding period which was
introduced for awards granted on or after
the 2017 AGM for the executive directors.
The holding period continues to apply to
any awards retained where an executive
director leaves employment.
Threshold, target and stretch levels for
all financial measures are disclosed in
the relevant year’s remuneration report.
We have disclosed the performance
ranges that apply to our bonus plans on
a retrospective basis since 2016. We will
continue to do so going forward.
When setting the target levels, the Committee
conducts an analysis of the challenges and
growth opportunities across the Group and
sets targets that are stretching without
encouraging inappropriate levels of risk.
The range itself varies each year taking into
account the risks and opportunities facing
the business. The principles followed are
that target setting, year by year, results in
stretching ambition, while ensuring that the
scale of reward on offer is proportionate and
always linked to performance.
LTIP
The normal annual award limit for share
options is 200% of base salary and 150%
of base salary for the performance share
element of the LTIP. Award levels of share
options for 2019 will once again be held at
the same levels as 2016, 2017 and 2018, at up
to 200% of base salary. Performance shares
will be held at 105% of base salary for Brian
May, with 130% of base salary for Frank van
Zanten, as he has now clearly established
himself in the Chief Executive’s role. The
resulting LTIP award levels for 2019 are
materially lower than the FTSE 100 mid-
market levels and below the maximum levels
permitted by the remuneration policy.
Priorities for 2019
A review of our executive remuneration
policy, taking into account the recent
changes to the Code and institutional
shareholder guidelines, will be a focus
for the work of the Committee in 2019.
The Committee will continue to seek to
drive and reward performance and maintain
alignment with shareholders’ interests.
The review will cover all aspects of the
policy, including short and long term
incentives. I look forward to having
constructive dialogue with shareholders
as part of this process.
We will review the operation of the
remuneration policy in relation to the
performance shares, in addition to any other
changes that we may wish to make, for the
next binding vote at the 2020 AGM.
Conclusions
2018 was a successful year, supported by
the Company’s remuneration policy, and the
level of payout for the annual bonus and
vesting of the LTIP awards reflects this. In
the following pages you will find details of:
• the annual report on remuneration for 2018;
• our approach to the application of the
remuneration policy in 2019; and
• our current directors’ remuneration policy
(as approved at the 2017 AGM).
I hope that you will find this report to be
clear and helpful in understanding our
remuneration policy and practices.
Vanda Murray OBE
Chair of the Remuneration Committee
25 February 2019
1 For further details on the performance metrics used in bonus calculations please see page 77 of the Remuneration policy.
Bunzl plc Annual Report 2018
75
Financial statementsDirectors’ reportStrategic report Directors’ remuneration report continued
Annual report on directors’ remuneration for 2018
This report sets out the elements of remuneration paid to, or earned by, the directors in respect of the financial year 2018.
Single total figure of remuneration 2018 (audited information)
Executive directors
Salary
£000
Taxable
benefits
£000
Bonus
£000
Frank van Zanten
Brian May
Patrick Larmon
Total
2018
836.4
554.0
829.2
2017
816.0
540.6
838.1
2,219.6 2,194.7
2018
402.1
17.1
37.0
456.2
2017
389.4
17.1
38.9
2017
2018
891.1
1,059.7
513.0
584.9
705.7
654.3
445.4 2,298.9 2,109.8
2018
308.7
450.8
611.3
1,370.8
LTIP
£000
2017
511.5
729.3
884.1
2,124.9
Pension
£000
2017
204.0
195.0
17.2
416.2
Total
£000
2017
2018
2,812.0
2,816.0
1,995.0
1,806.4
2,148.6 2,484.0
7,291.0
6,771.0
2018
209.1
199.6
16.8
425.5
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 Deferred Annual Share Bonus Scheme (‘DASBS’). Shares relating to the 2017
deferred bonus were awarded in 2018 as shown in the table on page 86 and the shares relating to the 2018 deferred bonus will be awarded in 2019.
b) The annual bonus for 2018 was determined according to a formulaic calculation in respect of eps, RAOC and operating cash flow measures, while the Committee used its judgement to assess performance
of individual objectives (20% of the bonus).
c) 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, Frank van Zanten’s benefits include £385,040 for an
international relocation package from Amsterdam to London following his appointment as Chief Executive in April 2016, together with any associated tax liability relating to such package. This includes
assistance with accommodation, removal costs and school fees. In addition Patrick Larmon’s club fees were paid by the Company.
d) The long term incentives are in the form of awards under the 2014 LTIP granted in April and October 2015 and February and August 2016. Long term incentive figures exclude any gain from the purchase
of shares by Patrick Larmon through the ESPP described on page 92. The performance metrics for LTIP A were eps growth and for LTIP B were eps growth and TSR, further details are on page 79.
e) 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$1.33 in respect of 2018 and £1: US$1:29 in respect
of 2017.
f) The figures shown in relation to 2017 for the LTIP have been restated from those figures shown in the 2017 Annual Report to reflect the difference between the relevant grant price and the value of the LTIP
share option awards on the actual date of vesting on 26 February 2018 and 27 August 2018 at the closing mid-market share price of 1,975p and 2,330p respectively.
g) Patrick Larmon retired from the Board on 31 December 2018. Details of his departure terms are set out on page 83.
Non-executive directors
Philip Rogerson – Chairman
Eugenia Ulasewicz
Jean-Charles Pauze
Vanda Murray
Lloyd Pitchford
Stephan Nanninga
David Sleath
Total
Board fees
£000
2017
340.0
68.9
68.9
68.9
57.4
45.9
20.7
670.7
2018
357.0
70.4
70.4
70.4
70.4
70.4
–
709.0
Committee
Chair/SID fees
£000
2017
–
–
–
28.8
11.8
–
10.2
50.8
2018
–
–
–
36.0
18.0
–
–
54.0
Taxable
payments/
expenses
£000
2017
0.2
70.5
7.0
7.4
0.2
4.2
4.5
94.0
2018
1.0
71.2
6.7
5.8
0.2
9.6
–
94.5
Total
£000
2017
340.2
139.4
75.9
105.1
69.4
50.1
35.4
815.5
2018
358.0
141.6
77.1
112.2
88.6
80.0
–
857.5
Notes
a) Vanda Murray became Senior Independent Director on 19 April 2017.
b) Lloyd Pitchford and Stephan Nanninga joined the Board on 1 March 2017 and 1 May 2017 respectively.
c) David Sleath retired from the Board on 19 April 2017 and received fees of £30,855 from 1 January 2017 until this date.
d) Taxable payments/expenses for non-executive directors are costs incurred for travel and accommodation in order to attend Board meetings. These costs have been grossed up to include the tax payable.
Payments for loss of office (audited information)
No payments were or are to be made to former directors in respect of loss of office. The payments made to Patrick Larmon as he stepped down
from the Board are detailed on page 83.
Payments to past directors (audited information)
No other payments were made to former directors during the year, with the exception of the amounts paid to Michael Roney in respect of the
exercise of executive share options and performance share awards granted prior to his retirement as referred to in the Directors’ remuneration
report for 2016.
76
Bunzl plc Annual Report 2018
Financial statementsDirectors’ reportStrategic report Executive directors’ annual salary (audited information)
Executive directors’ salaries were reviewed with effect from 1 January 2018 in accordance with normal policy and were increased taking into
account the average salary increases for employees across the Group.
Frank van Zanten
Brian May
Patrick Larmon
Salary
from
1 January
2018
£836,400
£554,000
US$1,102,800
Salary
from
1 January
2017
£816,000
£540,600
US$1,081,200
Increase
in salary
2017 to
2018
2.5%
2.5%
2.0%
Executive directors’ salaries were also reviewed with effect from 1 January 2019 and the increases awarded are shown on page 86.
Executive directors’ external appointments
Frank van Zanten served as a non-executive director of Grafton Group plc in 2018 and during the year retained fees of €70,000. Brian May
served as a non-executive director of United Utilities Group PLC in 2018 and during the year retained fees of £82,033. Patrick Larmon
served as a non-executive director of Bodycote plc in 2018 and retained fees of £55,000. In addition, he served as a non-executive director
of Huttig Building Products, Inc. in 2018 and retained fees of US$109,000 and US$39,748 worth of deferred shares which vested in 2018.
Non-executive directors’ fees (audited information)
The Chairman’s fee is reviewed every two years with the most recent review having taken place with effect from 1 January 2018. The fees for
the non-executive directors were reviewed with effect from 1 January 2018 in accordance with the normal fees policy.
Chairman’s fee
Non-executive director fee
Supplements:
Senior Independent Director
Audit Committee Chairman
Remuneration Committee Chairman
With effect from
January 2018
£357,000
£70,400
£18,000
£18,000
£18,000
Fees paid
in 2017
£340,000
£68,850
£17,000
£17,000
£17,000
Increase in fees
2017 to 2018
5.0%
2.3%
5.9%
5.9%
5.9%
The non-executive directors’ fees were reviewed again with effect from 1 January 2019 and the increases awarded are shown on page 86.
Performance against annual bonus targets (audited information)
The annual bonus plan and DASBS currently operate as set out in the policy section on pages 90 and 91. All of Frank van Zanten’s and Brian
May’s and 25% of Patrick Larmon’s bonus potential in 2018 related to the Group’s eps, RAOC, operating cash flow performance and personal
performance on individual objectives. For Patrick Larmon, the remaining 75% of his bonus potential related to the profit before interest, tax,
customer relationships amortisation and acquisition related items (‘PBITA’) performance of North America (‘NA’) which was modified by the
achievement of NA’s RAOC relative to the target set and measured on a constant exchange rate basis. The results for 2018 against the targets
set were as follows and the committee did not exercise any discretion over these formulaic outturns:
Group performance
Weighting
50%
15%
15%
20%
Scorecard performance metric
Eps (p)
% of target
RAOC %
% of target
Operating cash flow (£m)
% of target
Non-financial strategic goals
Threshold
119.9
93%
47.9%
96%
526.6
95%
Target
128.9
100%
49.9%
100%
554.3
100%
see details below
Stretch
144.4
112%
51.9%
104%
582.0
105%
Actual outturn calculated
at constant exchange rates
132.0
102.4%
50.4%
101.0%
584.1
105.4%
Note
The actual outturn calculated at constant exchange rates is the actual result of the relevant measures retranslated at the exchange rates used in setting the target for that measure.
There is an eps underpin to retain focus on eps growth such that if eps threshold is not met, there is no pay-out under any element of the scorecard.
Bunzl plc Annual Report 2018
77
Financial statementsDirectors’ reportStrategic report Directors’ remuneration report continued
Non-financial strategic goals
Following a review of performance against specific personal objectives for 2018, the Committee determined the bonus percentages payable
to the executive directors in relation to the non-financial strategic goals. Frank van Zanten will receive 28.8% of salary for the personal
objectives element of the annual bonus. His personal objectives were the development of the company’s investment case for shareholders;
improvement in underlying profit growth and internal succession transition in the largest business area, NA, following the retirement of
Patrick Larmon. Brian May will receive 24% of base salary for the personal objectives element of the annual bonus. His objectives were
improvement in the performance on working capital, increasing digital transactions, and the development of talent in the finance function.
Patrick Larmon, for whom achievement against personal objectives represents a small proportion of the overall opportunity, will receive
6.4% of base salary for the personal objectives element of the annual bonus for the delivery of personal objectives that included the successful
integration of key new acquisitions, the delivery of a related IT project and delivering a successful handover to his successor.
North America performance
On-target
bonus opportunity
as % of salary
Target NA
PBITA (constant
exchange rate US$)
Patrick Larmon
56.25
US$421.6m
% PBITA of
NA businesses
relative to target
100% of target
performance
Bonus as %
of salary before
modifier applied
RAOC for the
NA businesses
relative to target
2018 bonus award
as % of salary
56.4
0.924
52.1
Notes
a) The annual on-target bonus opportunity for Frank van Zanten is 90% of salary with a threshold award of 49% of salary and a maximum award of 180%. For Brian May and Patrick Larmon the annual
on-target bonus opportunity is 75% of salary with a threshold award of 49% of salary for Brian May and 31% of salary for Patrick Larmon and a maximum award of 150% of salary for both Brian May
and Patrick Larmon.
b) The actual PBITA of North America relative to target was just over 100% at 100.03%.
Accordingly the total payments under the annual bonus plans were:
Frank van Zanten
Brian May
Patrick Larmon
Total bonus payment (cash and deferred shares) as a % of salary
2018
%
126.7
105.6
78.9
2017
%
109.2
94.9
84.2
2016
%
75.3
76.6
65.7
2015
%
–
73.8
54.5
2014
%
–
98.0
69.7
Note
Patrick Larmon did not receive deferred shares as part of his bonus payment for 2018. See page 83 for the departure terms for Patrick Larmon.
The monetary values of the bonus payments for 2018 and 2017 are included in the table on page 76. The deferred shares portion of the bonus
is required to be held for a period of three years.
LTIP grants/awards with performance periods ending in 2018 (audited information)
Executive share option awards – LTIP Part A
Executive share option awards, granted three years previously, are due to vest on 3 March 2019 and 2 September 2019. The Committee
assessed the performance of the Company against the relevant performance condition and no discretion was exercised:
LTIP Part A – 3 March 2016 and 2 September 2016 awards
Performance measure
Eps growth (over three year
period to 31 December 2018)
Vesting schedule
25% vesting for threshold performance,
100% vesting for maximum performance
Frank van Zanten
Brian May
Patrick Larmon
Date of grant
3 March 2016
2 September 2016
3 March 2016
2 September 2016
3 March 2016
2 September 2016
Threshold target
(5% p.a. compounded)
Maximum target
(8% p.a. compounded)
Actual eps
growth
% vesting
(max 100%)
15.8%
26.0%
42.4%
100%
Number of
shares granted
16,135
42,636
25,887
21,553
36,810
32,411
Vesting outcome
100%
100%
100%
100%
100%
100%
Estimated value of
award vesting
£59,629
£0
£95,668
£0
£136,035
£0
Note
The estimated values of awards vesting are based on the difference between the exercise price and the average of the Company’s closing mid-market share price for the three month period ended 31 December
2018 (2,315p) and is the same as the figures included in the single total remuneration table on page 76.
78
Bunzl plc Annual Report 2018
Financial statementsDirectors’ reportStrategic report Performance shares – LTIP Part B
Awards of performance shares were made to the executive directors on 2 April 2015 and 5 October 2015 under the 2014 LTIP and vested
during 2018. The Committee assessed the performance of the Company against the relevant performance conditions and no discretion
was exercised:
LTIP Part B – 2 April and 5 October 2015 awards
Performance measure
Eps growth (over three year period
to 31 December 2017)
Vesting schedule
25% vesting for threshold
performance, 100% vesting for
maximum performance
Threshold target
(6% p.a. compounded)
Maximum target
(12% p.a. compounded)
Actual eps
growth
% vesting
(max 50%)
19.1%
40.5%
38.5%
46.6%
Performance measure
TSR relative to
comparator group of
bespoke peer companies
Performance
period
1 April 2015 to
31 March 2018
1 October 2015 to
30 September 2018
Vesting
schedule
25% vesting for
threshold performance,
100% vesting for
maximum performance
Threshold target
(median)
27.1%
16 out of 31
37.7%
16 out of 31
Maximum target
(upper quartile)
74.2%
8.25 out of 31
64.1%
8.25 out of 31
Actual TSR
14.9%
17.79 out of 31
39.3%
15.42 out of 31
% vesting
(max 50%)
0.0%
15.3%
Frank van Zanten
Brian May
Patrick Larmon
Date of grant
2 April 2015
5 October 2015
2 April 2015
5 October 2015
2 April 2015
5 October 2015
Number of
shares granted
10,200
10,587
14,700
14,988
20,000
19,834
Vesting
outcome – eps
46.6%
46.6%
46.6%
46.6%
46.6%
46.6%
Vesting
outcome – TSR
0%
15.3%
0%
15.3%
0%
15.3%
Value of
award vesting
£98,568
£150,493
£142,040
£213,048
£193,276
£281,949
Note
Included in the single total figure of remuneration on page 76 is the value of these vested awards at the closing mid-market share price on the dates of vesting, 5 April 2018 (being the closest day three years
after the grant date of 2 April 2015) and 5 October 2018, which were 2,076p and 2,299p respectively.
Total pension entitlements (audited information)
Frank van Zanten
Brian May
Patrick Larmon
Pension plan’s normal
retirement age
–
60
65
Additional value of
pension on early retirement
–
–
–
Pension value in the
year from DB scheme
–
£81,178
–
Notes
a) As Chief Executive Frank van Zanten receives a pension allowance of 25% of base salary.
Value of cash allowance
including any company DC
and/or 401k contributions
in 2018
£209,100
£118,455
£16,800
Total pension
2018
£209,100
£199,633
£16,800
b) Brian May, who joined the Group in the UK prior to the closure of the defined benefit (‘DB’) sections of the Bunzl Pension Plan (‘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. The pensionable salary cap is notionally £160,800 for tax year 2018/19 and £154,200 for tax year 2017/18.
c) 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. Until his retirement Patrick Larmon was a member of a defined contribution (‘DC’) 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 2018 of £7,519 (2017: £7,752).
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. No further SERA payments were made in 2018 and 2017.
f) Patrick Larmon also participated in the Bunzl USA, LLC Deferred Savings (401k) Plan. The Company made matching contributions to this Plan. During 2018 contributions for Patrick Larmon amounted to
£9,305 (2017: £9,419).
Bunzl plc Annual Report 2018
79
Financial statementsDirectors’ reportStrategic report Directors’ remuneration report continued
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. Executive share
options were granted in March and August 2018 and performance share awards were granted in April and October 2018 under the 2014 LTIP
in accordance with the policy and performance conditions as approved at the 2017 AGM.
LTIP interests awarded during the financial year (audited information)
Frank van Zanten
Brian May
Patrick Larmon
Plan
2014 LTIP Part A
2014 LTIP Part B
2014 LTIP Part A
2014 LTIP Part B
2014 LTIP Part A
2014 LTIP Part B
2014 LTIP Part A
2014 LTIP Part B
2014 LTIP Part A
2014 LTIP Part B
Date of grant
01.03.18
09.04.18
31.08.18
08.10.18
01.03.18
09.04.18
31.08.18
08.10.18
01.03.18
09.04.18
Basis of award
100% of salary
56.25% of salary
100% of salary
56.25% of salary
95% of salary
52.5% of salary
95% of salary
52.5% of salary
95% of salary
52.5% of salary
Face value
£000
836.4
470.5
836.4
470.5
526.3
290.9
526.3
290.9
759.2
410.6
Number of shares
42,782
22,510
35,010
20,464
26,920
13,916
22,030
12,651
38,832
19,646
Performance
period end date
31.12.20
31.03.21
31.12.20
30.09.21
31.12.20
31.03.21
31.12.20
30.09.21
31.12.20
31.03.21
Notes
a) 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 the 2014 LTIP Part A on 1 March 2018 and on 31 August
2018 at a value of 1,955p and 2,389p per share respectively. Performance shares were awarded under the 2014 LTIP Part B on 9 April 2018 and 8 October 2018 at a value of 2,090p and 2,299p per share respectively.
b) No LTIP awards were granted to Patrick Larmon after the date of his retirement was announced on 18 April 2018. See page 83 for the departure terms for Patrick Larmon.
Performance conditions for 2018 awards
The performance conditions for the executive share options and performance shares awarded under the 2014 LTIP to the Company’s
executive directors, Executive Committee members and selected key employees in 2018 were as detailed below.
Executive share option awards – 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 share awards – 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 applicable comparator group for the 2018 awards were those companies in the FTSE 50 – 150 with significant international operations,
excluding companies in the financial services, oil & gas and natural resources sectors.
80
Bunzl plc Annual Report 2018
Financial statementsDirectors’ reportStrategic report Shareholder dilution
In accordance with The Investment Association Principles of Remuneration, 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 92. Newly issued shares are currently
used to satisfy the exercise of options under the Sharesave Scheme and the International and Irish Sharesave Plans. 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 2018
2.2%
1.2%
Statement of directors’ shareholding and share interests (audited information)
As at 31 December 2018, each of the executive directors and their connected persons have a shareholding as follows:
Frank van Zanten
Brian May
Patrick Larmon
Requirement for share ownership as a
percentage of salary
250%
200%
200%
Actual share ownership as a percentage of salary at
31 December 2018 at the closing mid-market price
(2,369p)
266%
450%
380%
Note
The shareholding requirement for the Chief Executive, Frank van Zanten increased to 250% of salary under the new remuneration policy approved at the 2017 AGM. In his previous role, he was not required to
meet a shareholding requirement. This target was met on 10 May 2018.
Interests in shares and share options
The interests of the directors, and their connected persons, in the Company’s ordinary shares and share options to 31 December 2018 were:
Unvested
and subject
to holding
period
(DASBS)
42,483
31,952
39,764
–
–
–
–
–
–
Shares
Unvested
and subject to
performance
conditions
(LTIP Part B)
116,223
76,494
53,599
–
–
–
–
–
–
Owned
Outright
93,991
105,240
132,993
10,000
4,000
2,500
3,000
4,000
–
Options (LTIP Part A and Sharesave)
Total
interests held
Unvested
and subject to
performance
conditions
206,833
140,616
178,278
–
–
–
–
–
–
Unvested
subject to
continued
employment
1,923
2,173
–
–
–
–
–
–
–
Vested
but not
exercised
32,696
0
0
–
–
–
–
–
–
494,149
356,475
404,634
10,000
4,000
2,500
3,000
4,000
–
Frank van Zanten
Brian May
Patrick Larmon
Philip Rogerson
Eugenia Ulasewicz
Jean-Charles Pauze
Vanda Murray
Lloyd Pitchford
Stephan Nanninga
Note
Since 31 December 2018 Frank van Zanten has acquired interests in 57 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 2019. No other changes to the directors’ ordinary share interests shown in this remuneration report have taken place between 31 December 2018 and 25 February 2019.
Bunzl plc Annual Report 2018
81
Financial statementsDirectors’ reportStrategic report Directors’ remuneration report continued
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 10 year period. The
Company’s TSR performance against
the FTSE 350 Support Services Sector,
considered to be the most appropriate
comparator group, over a 10 year period
commencing on 1 January 2009 is shown
to the right.
)
d
e
s
a
b
e
r
(
)
£
(
e
u
l
a
V
550
500
450
400
350
300
250
200
150
100
Bunzl
FTSE 350 Support Services
Source: Thomson Reuters Datastream
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Chief Executive’s pay in last 10 years
The table below summarises the Chief Executive’s single total figure of remuneration, annual bonus and long term incentive pay out as a
percentage of maximum opportunity for 2018 and the previous nine years.
Single total figure of
remuneration £000
Annual variable element
award rates against
maximum opportunity
Long term incentive
vesting rates against
maximum opportunity
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
1,943.2 2,314.2 3,394.1 3,502.9 4,387,6 4,766.8 3,937.9 3,845.3 2,812.0 2,816.0
LTIP Part A (options)
LTIP Part B
(performance shares)
45%
71% 99%
67%
91%
85%
64%
45%
73%
70%
100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
84%
65%
29%
45%
62%
89%
69%
82%
69%
54%
Notes
a) The data for 2016 includes the amounts relating to Michael Roney from 1 January 2016 to 19 April 2016 and also includes the LTIP awards made to him that vested in the period from 20 April to
31 December 2016. There was no bonus award for Michael Roney in relation to 2016.
b) The data for 2016 also includes the amounts relating to Frank van Zanten from 20 April to 31 December 2016 including the bonus award for that period and the international relocation package with
accommodation benefit support, but excludes the LTIP awards made to him in his previous role that vested during the period from 20 April to 31 December 2016.
c) All years prior to 2016 relate to Michael Roney.
d) The single total figure of remuneration in relation to 2017 has been restated from the figure shown in the 2017 Annual Report to reflect the difference between the grant price and the value of the relevant
LTIP awards on the actual date of vesting as detailed in Note f to the table of the single total figure of remuneration 2018 on page 76.
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 2018 and leavers and joiners in either year have been removed from the data to prevent distortion.
Salary
Benefits
Bonus
Notes
a) Benefits are annualised and exclude the international relocation package benefit for Frank van Zanten of £385,040.
b) US and UK management population includes any promotional increases that occurred during either year.
c) Bonus relates to the performance targets of the companies for which the relevant individuals work.
Chief Executive
Percentage change
(2018 vs 2017)
3%
0%
19%
UK and US
management population
Percentage change
(2018 vs 2017)
3%
5%
7%
82
Bunzl plc Annual Report 2018
Financial statementsDirectors’ reportStrategic report
Relative importance of spend on pay
The table below shows a comparison between the overall expenditure on pay and dividends paid to shareholders for 2018 and 2017 (as stated
in Note 22 and Note 18 to the consolidated financial statements on pages 142 and 137 respectively).
£m
Overall expenditure on pay
Dividend paid in the year
Notes
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.
2018
772.0
152.2
2017
725.8
138.2
Percentage change
6.4%
10.1%
c) The percentage change in overall expenditure on pay includes the impact of changes in exchange rates from 2017 to 2018, details of which are referred to in the Chief Executive’s review on page 6 and in the
Financial review on page 21.
Departure terms of Patrick Larmon (executive director and President and Chief Executive Officer of Bunzl North America)
As announced on 18 April 2018, Patrick Larmon retired as President and Chief Executive Officer of the Bunzl North America business area
and as a director of Bunzl plc and left the Group on 31 December 2018. Full details of his departure terms are set out in the statement required
by section 430(2B) of the Companies Act 2006 which can be found on www.bunzl.com in the Investors section under Corporate Governance
(Remuneration). The Remuneration Committee determined the following treatment within the terms of the Company’s approved remuneration
policy approved by shareholders at the 2017 AGM and published in the 2017 Annual Report:
• salary, benefits and pension allowance was paid as usual until 31 December 2018 (the ‘Leaving Date’);
• no payment in lieu of notice was made;
• annual cash bonus for the 2018 financial year will be paid in March 2019 subject to performance over this period and as determined by the
Committee in accordance with the rules of the bonus plan (any part of his bonus payment that would otherwise have been allocated to him
under the DASBS in relation to the 2018 financial year will be satisfied in cash);
• any deferred shares outstanding at the Leaving Date, which were awarded under the DASBS in relation to the 2016 and 2017 financial years,
will vest in full on 1 March 2019;
• no grants or awards under the LTIP were made after 18 April 2018, the date of the 2018 AGM;
• any grants and awards outstanding at the Leaving Date, which were made under the LTIP Parts A and B in 2016, 2017 and earlier in 2018,
will vest on the normal vesting date subject to satisfaction of (i) the existing performance conditions and (ii) his outstanding awards under
the LTIP Part B (performance shares) being time pro-rated and reduced in proportion to the amount of the relevant three years vesting
period that has elapsed since the relevant grant date up to the Leaving Date. This is provided that prior to the relevant vesting date Patrick
Larmon has not worked in any capacity for a competitor organisation. Malus and clawback provisions will continue to apply; and
• the grants and awards outstanding at the Leaving Date which were made under the LTIP Part A and Part B after 19 April 2017 will also be
subject to a two year post-vesting holding requirement in accordance with the relevant rules of the LTIP (with the exception of any shares
sold to meet any income tax and other withholding obligations).
Committee remit and membership
The following independent non-executive directors were members of the Committee during 2018:
Eugenia Ulasewicz
Jean-Charles Pauze
Vanda Murray
Lloyd Pitchford
Stephan Nanninga
Note
Jean-Charles Pauze retired from the Board on 31 December 2018.
Date of appointment to the Committee
20 April 2011
1 January 2013
1 February 2015
1 March 2017
1 May 2017
Meetings eligible to attend
3
3
3
3
3
Meetings attended
3
2
3
3
3
The Director of Group Human Resources also attends the meetings. No director plays any part in determining his or her remuneration.
During the year ended 31 December 2018, 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.
Bunzl plc Annual Report 2018
83
Financial statementsDirectors’ reportStrategic report Directors’ remuneration report continued
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 interests of 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 their responsibilities, the Committee seeks external remuneration advice as necessary. During the year the Committee
received advice from Willis Towers Watson (‘WTW’) and Aon Hewitt. WTW provided external survey data on directors’ remuneration
and benefit levels. Aon Hewitt 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 LTIP had been satisfied and in addition advised the Committee on the
changes to the remuneration policy. The fees payable to each adviser, based on hourly rates, were: £10,560 (WTW) and £85,569 (Aon Hewitt)
respectively for such work undertaken in 2018. Advisors are appointed by the Committee and reviewed periodically. The Committee conducts
regular reviews of the effectiveness of the advisors.
Statement of voting at the 2018 AGM for the remuneration report and at the 2017 AGM for the remuneration policy
The remuneration report and remuneration policy received the following shareholder votes in 2018 and 2017 respectively, being the years that
they were last voted on by shareholders:
Remuneration report (2018 AGM)
Remuneration policy (2017 AGM)
Notes
a) The votes ‘For’ include votes given at the Company Chairman’s discretion.
Votes
cast
272,183,608
259,865,084
Votes
For
261,909,933
239,494,126
% of
shares voted
96.23
92.16
Votes
Against
10,273,675
20,370,958
% of
shares voted
3.77
7.84
Votes
Withheld
46,916
11,215,438
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.
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*
Eugenia Ulasewicz
Jean-Charles Pauze**
Vanda Murray
Lloyd Pitchford
Stephan Nanninga
Date of
appointment
1 January 2010
1 April 2011
1 January 2013
1 February 2015
1 March 2017
1 May 2017
Date of last
re-appointment
at AGM
18 April 2018
18 April 2018
18 April 2018
18 April 2018
18 April 2018
18 April 2018
Length of
service as at
2019 AGM
9 years 3 months
8 years
6 years 3 months
4 years 2 months
2 years 1 month
1 year 11 months
* The Board has started a process, led by the Senior Independent Director, to identify and appoint a successor to Philip Rogerson as Chairman. It is presently the Board’s intention that Philip Rogerson should
remain as Chairman until the 2020 AGM in order to provide sufficient time to complete this process in an orderly and considered manner and to oversee a successful handover.
** Jean-Charles Pauze retired as a director on 31 December 2018.
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.
84
Bunzl plc Annual Report 2018
Financial statementsDirectors’ reportStrategic report 2019 remuneration
The current remuneration policy was implemented with effect from the 2017 AGM and continues to apply for 2019.
2019 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 two executive directors for 2019, in line with the remuneration policy, is illustrated in the bar charts below.
Frank van Zanten
Below threshold performance
(Total £1,149,594)
Target performance
(Total £2,667,988)
Stretch performance
(Total £4,186,382)
Brian May
Below threshold performance
(Total £787,292)
Target performance
(Total £1,677,428)
Stretch performance
(Total £2,567,564)
82%
18%
35%
8%
29%
28%
22%
5%
37%
36%
75%
35%
12%
25%
25%
28%
23%
8%
33%
36%
Salary and benefits
Pension
Bonus (Cash/DASBS)
LTIP
Notes
a) For 2019 there are two executive directors, following the retirement of Patrick Larmon on 31 December 2018.
b) Salary represents annual salary for 2019. Benefits such as a car or car allowance and private medical insurance have been included based on 2018 figures. In the case of Frank van Zanten, benefits also
include certain outstanding elements of the international relocation package including accommodation, which are gross amounts before taxes, referred to on page 76.
c) Pension represents the cost of pension accrued in 2018 in the Defined Benefit section of the Bunzl Pension Plan for Brian May and the value of the annual pension allowance for Frank van Zanten and Brian May.
d) Below threshold performance comprises salary, benefits and pension only with no bonus awarded and no LTIP awards vested.
e) Target performance comprises annual bonus awarded at target level (i.e. for 2019 an on-target bonus of 90% of base salary for Frank van Zanten and 75% of base salary for Brian May comprised of half
cash and half 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.
f) Stretch performance comprises annual bonus awarded at maximum level (i.e. for 2019, the maximum annual bonus will be 180% of base salary for Frank van Zanten and 150% of base salary for Brian May
comprised of half cash and half 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 and deliver 30% of their face value in gain to the executives.
Bunzl plc Annual Report 2018
85
Financial statementsDirectors’ reportStrategic report Directors’ remuneration report continued
Salary (audited information)
The salary increases for the executive directors for 2019, which are in line with increases that have been implemented for other employees in
the Group as discussed on page 97, are as follows:
Frank van Zanten
Brian May
Salary from
1 January
2019
£861,500
£570,600
Salary from
1 January
2018
£836,400
£554,000
Increase
in salary
2018 to 2019
3.0%
3.0%
2019 bonus targets
The structure for Frank van Zanten’s and Brian May’s annual bonus for 2019 is described on pages 90 and 91. The balanced scorecard of
performance measures, based on eps, RAOC, operating cash flow and specified strategic goals and with an eps underpin continues as outlined
for 2018. If eps performance falls below the threshold level there will be no bonus paid. 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 annual budget. No elements of the bonus are guaranteed.
As in previous years, financial performance measures including profit targets are commercially sensitive and therefore are not disclosed until
the following year.
Performance measures for long term incentives to be awarded in 2019
Grants of executive share options and performance shares awarded to executive directors and senior executives in 2019 will be subject to the
same performance conditions as those executive share options and performance share awards granted in 2018 as detailed on page 80.
Chairman’s and non-executive directors’ fees for 2019
The Chairman’s fee is reviewed every two years with the most recent review taking effect from 1 January 2018. The non-executive directors’
fees are reviewed annually and were most recently reviewed with effect from 1 January 2019. The current fee structure for the Chairman and
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
With effect from
1 January 2019
£357,000
£71,800
£18,000
£19,000
£19,000
Fees paid
in 2018
£357,000
£70,400
£18,000
£18,000
£18,000
Increase in fees
2018 to 2019
–
2.0%
–
5.6%
5.6%
Additional information on directors’ interests
Details of the executive directors’ 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 2018
The awards granted to each director of the Company and any director with an interest in the Company under the DASBS are set out in the
table below. Further information relating to the deferred bonus is provided on page 90.
Frank van Zanten
Brian May
Patrick Larmon
Awards
(shares) held at
1 January
2018
7,976
8,190
11,504
12,921
9,831
9,001
12,061
10,478
12,415
Shares
awarded
during
2018
22,789
13,120
16,871
Shares
vested
during
2018
7,976
12,921
12,061
Total number
of awards
(shares) at
31 December
2018
–
8,190
11,504
22,789
–
9,831
9,001
13,120
–
10,478
12,415
16,871
Normal
vesting
date
01.03.18
01.03.19
01.03.20
01.03.21
01.03.18
01.03.19
01.03.20
01.03.21
01.03.18
01.03.19
01.03.20
01.03.21
Share
price
at grant
p
1,896
1,933
2,255
1,955
1,896
1,933
2,255
1,955
1,896
1,933
2,255
1,955
Market
price
at vesting
p
1,936
Monetary
value of
vested
awards
£000
154
1,936
250
1,936
234
Note
The deferred element of the 2018 annual bonus plan as shown on page 76 is not included in the table above as the appropriate number of shares have not yet been awarded. No shares lapsed during the year.
Patrick Larmon’s awards due to vest in 2020 and 2021 will vest in line with his departure terms as set out on page 83.
86
Bunzl plc Annual Report 2018
Financial statementsDirectors’ reportStrategic report LTIP
The tables below show the number of executive share options and performance shares held by the executive directors under the LTIP during
2018.
Executive share options – LTIP Part A
Frank van Zanten
Total
Brian May
Total
Patrick Larmon
Total
Notes
a) Executive share options were exercised during 2018 by:
Options held at
1 January
2018
18,800
15,300
17,396
16,135
42,636
34,946
35,324
–
–
180,537
24,500
22,500
29,000
25,500
29,001
25,887
21,553
21,994
22,232
–
–
222,167
34,000
31,500
28,500
25,500
35,500
33,300
37,639
36,810
32,411
35,716
34,509
–
365,385
Grant
date
29.08.14
26.02.15
27.08.15
03.03.16
02.09.16
02.03.17
01.09.17
01.03.18
31.08.18
30.08.13
27.02.14
29.08.14
26.02.15
27.08.15
03.03.16
02.09.16
02.03.17
01.09.17
01.03.18
31.08.18
31.08.12
28.02.13
30.08.13
27.02.14
29.08.14
26.02.15
27.08.15
03.03.16
02.09.16
02.03.17
01.09.17
01.03.18
Exercise
price
p
1,641
1,920
1,687
1,945
2,336
2,335
2,310
1,955
2,389
1,375
1,566
1,641
1,920
1,687
1,945
2,336
2,335
2,310
1,955
2,389
1,116
1,240
1,375
1,566
1,641
1,920
1,687
1,945
2,336
2,335
2,310
1,955
Options
exercisable
between
29.08.17–28.08.24
26.02.18–25.02.25
27.08.18–26.08.25
03.03.19–02.03.26
02.09.19–01.09.26
02.03.20–01.03.27
01.09.20–31.08.27
01.03.21–29.02.28
31.08.21–30.08.28
30.08.16–29.08.23
27.02.17–26.02.24
29.08.17–28.08.24
26.02.18–25.02.25
27.08.18–26.08.25
03.03.19–02.03.26
02.09.19–01.09.26
02.03.20–01.03.27
01.09.20–31.08.27
01.03.21–29.02.28
31.08.21–30.08.28
31.08.15–30.08.22
28.02.16–27.02.23
30.08.16–29.08.23
27.02.17–26.02.24
29.08.17–28.08.24
26.02.18–25.02.25
27.08.18–26.08.25
03.03.19–02.03.20
02.09.19–01.09.20
02.03.20–01.03.21
01.09.20–31.08.21
01.03.21–29.02.22
Options held at
31 December
2018
–
15,300
17,396
16,135
42,636
34,946
35,324
42,782
35,010
239,529
–
–
–
–
–
25,887
21,553
21,994
22,232
26,920
22,030
140,616
–
–
–
–
–
–
–
36,810
32,411
35,716
34,509
38,832
178,278
(i)
Frank van Zanten on 8 May 2018 in respect of 18,800 ordinary shares at an exercise price of 1,641p, at a market price of 2,188p, resulting in a gain of £102,836;
(ii) Brian May on 29 August 2018 in respect of 24,500 ordinary shares at an exercise price of 1,375p, 22,500 ordinary shares at an exercise price of 1,566p, 29,000 ordinary shares at an exercise price
of 1,641p, 25,500 ordinary shares at an exercise price of 1,920p and 29,001 ordinary shares at an exercise price of 1,687p, at a market price of 2,383p, resulting in a total gain of £966,275; and
(iii) Patrick Larmon on 9 May 2018 in respect of 34,000 ordinary shares at an exercise price of 1,116p, at a market price of 2,197p; on 24 May 2018 in respect of 31,500 ordinary shares at an exercise price
of 1,240p, at a market price of 2,274p; on 26 September 2018 in respect of 28,500 ordinary shares at an exercise price of 1,375p, at a market price of 2,404p; on 28 November 2018 in respect of 25,500
ordinary shares at an exercise price of 1,566p and 35,500 ordinary shares at an exercise price of 1,641p, at a market price of 2,400p; and on 5 December 2018 in respect of 33,300 ordinary shares at an
exercise price of 1,920p and 37,639 ordinary shares at an exercise price of 1,687p, at a market price of 2,371p; resulting in a total gain of £1,876,241.
b) The mid-market price of a share on 31 December 2018 was 2,369p and the range during 2018 was 1,936p to 2,452p.
c) Executive share options granted in February 2014 and earlier have been granted under the 2004 LTIP Part A. Executive share options granted since then have been granted under the 2014 LTIP Part A.
d) The performance conditions have been satisfied in relation to options granted under the 2004 LTIP Part A.
Bunzl plc Annual Report 2018
87
Financial statementsDirectors’ reportStrategic report
Directors’ remuneration report continued
Performance shares – LTIP Part B
Awards
(shares)
held at
1 January
2018
6,864
10,200
10,587
10,369
23,428
19,565
19,887
–
–
100,900
14,700
14,988
13,566
11,967
12,097
12,297
–
–
79,615
20,000
19,834
19,235
19,338
19,525
18,834
–
116,766
Conditional
shares
awarded
during
2018
–
–
–
–
–
–
–
22,510
20,464
42,974
–
–
–
–
–
–
13,916
12,651
26,567
–
–
–
–
–
–
19,646
19,646
Market price
per share
at award
p
1,597
1,840
1,804
2,051
2,325
2,346
2,308
2,090
2,299
1,840
1,804
2,051
2,325
2,346
2,308
2,090
2,299
1,840
1,804
2,051
2,325
2,346
2,308
2,117
Award
date
06.10.14
02.04.15
05.10.15
11.04.16
11.10.16
10.04.17
09.10.17
09.04.18
08.10.18
02.04.15
05.10.15
11.04.16
11.10.16
10.04.17
09.10.17
09.04.18
08.10.18
02.04.15
05.10.15
11.04.16
11.10.16
10.04.17
09.10.17
09.04.18
Lapsed
awards
(shares)
during
2018
–
5,452
4,041
–
–
–
–
–
–
9,493
7,858
5,721
–
–
–
–
–
–
13,579
10,690
7,570
2,138
5,372
8,678
11,510
15,281
61,239
Exercised
awards
(shares)
during
2018
6,864
4,748
6,546
–
–
–
–
–
–
18,158
6,842
9,267
–
–
–
–
–
–
16,109
9,310
12,264
–
–
–
–
–
21,574
Market
price
per share
at exercise
p
2,172
2,172
2,346
–
–
–
–
–
–
2,069
2,346
–
–
–
–
–
–
2,071
2,318
–
–
–
–
–
Value at
exercise
£000
149
103
154
–
–
–
–
–
–
142
217
–
–
–
–
–
–
193
284
–
–
–
–
–
Awards
(shares)
held at 31
December
2018
–
–
–
10,369
23,428
19,565
19,887
22,510
20,464
116,223
–
–
13,566
11,967
12,097
12,297
13,916
12,651
76,494
–
–
17,097
13,966
10,847
7,324
4,365
53,599
Frank van Zanten
Total
Brian May
Total
Patrick Larmon
Total
All employees share scheme
The table below shows the number of share options granted to the executive directors under the Sharesave Schemes. Details of the
Sharesave Schemes are set out on page 92.
Sharesave schemes
Frank van Zanten
Brian May
Vanda Murray OBE
Chair of the Remuneration Committee
25 February 2019
Options at
1 January
2018
678
964
–
1,197
976
Grant
date
01.04.15
29.03.16
27.03.18
21.03.14
20.03.15
Exercise
Price
p
1,536
1,556
1,564
1,253
1,536
Options
exercisable
between
01.05.18–31.10.18
01.05.21–31.10.21
01.05.23–31.10.23
01.05.19–31.10.19
01.05.20–31.10.20
Options at
31 December
2018
–
964
959
1,197
976
88
Bunzl plc Annual Report 2018
Financial statementsDirectors’ reportStrategic report The Committee’s overall policy, having had
due regard to the factors above, continues
to be for a substantial proportion of total
remuneration to be based on variable pay.
This is achieved by setting base pay and
benefits up to mid-market levels, with annual
bonus and long term incentive opportunities
linked to the achievement of demanding
performance targets which will be disclosed
in the relevant year’s remuneration report. In
this way the Committee facilitates alignment
between the interests of shareholders
and the total remuneration paid to the
executive directors.
Engagement with shareholders
The Committee engages with, and seeks
the views of, its major investors and investor
representative bodies on any significant
changes to the Company’s remuneration
policy. The Committee also engages from
time to time with shareholders when
considering important questions about
the implementation of the policy. Views
expressed by shareholders are considered
by the Committee as part of any review of
remuneration policy or sooner if appropriate.
Directors’ remuneration policy
The full Directors’ remuneration policy,
as approved by shareholders at the
2017 Annual General Meeting (‘AGM’), is
set out in the 2017 Annual Report which can
be found on our website (www.bunzl.com).
We continue to pursue our well defined
strategy of developing the business through
organic growth, consolidating our position
in the markets in which we compete through
focused acquisitions in both existing
and new geographies and continuously
improving our operating model. 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 while
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 adjusted earnings per share (‘eps’) and
total shareholder return (‘TSR’). In setting
such targets, the Committee takes due
account of the potential effect on the
attitude of executives toward risk within
the business. In addition the Committee
has the discretion to take into account
performance on environmental, social and
governance matters.
As reported in the 2017 Annual Report
(the application of the remuneration policy)
the metrics and targets for the annual bonus
plan were updated for the 2018 financial year
and in addition to eps and return on average
operating capital (‘RAOC’), operating cash
flow and personal objectives were added as
performance measures. The weighting is
50% eps growth, 15% RAOC, 15% operating
cash flow and 20% strategic personal
objectives (non-financial metrics). The eps
metric has an underpin attached which has
to be achieved before any of the other metrics
can lead to any bonus being paid.
The directors’ remuneration policy was
approved by shareholders at the 2017
Annual General Meeting (‘AGM’) and is
not subject to a vote at the 2019 AGM.
Objectives of the policy
The current directors’ remuneration policy,
effective from the date of the 2017 AGM,
with the exception of the annual bonus
where the policy applied for the full financial
year in 2017, has been designed to meet the
following objectives:
• to support the next phase of the Group’s
growth and development;
• to bring the policy in line with current best
practice principles;
• to provide flexibility to take better account
of market remuneration levels;
• to ensure remuneration reflects the
performance of the Group in the relevant
year and the longer term;
• to ensure that the targets set each year
result in stretching ambitions and that the
scale of the reward is proportionate; and
• to align pay with the strategic objectives
of the Company and the interests of its
shareholders.
In setting the remuneration policy for the
executive directors, the Committee also
takes into consideration a number of
different factors:
• the Committee applies the principles set
out in the UK Corporate Governance Code
and also takes into account best practice
guidance issued by the major UK
institutional investor bodies, the Financial
Conduct Authority (including the
provisions of any applicable remuneration
codes) and other relevant organisations;
• the Committee has overall responsibility
for the remuneration policies and structures
for employees of the Group as a whole and
it reviews remuneration policy on a Group
wide basis. When the Committee
determines and reviews the remuneration
policy for the executive directors it
considers and compares it against the pay,
policy and employment conditions of the
rest of the Group to ensure that there is
alignment between the two; and
• the Committee considers the external
market in which the Group operates and
uses comparator remuneration data from
time to time to inform its decisions.
However, the Committee recognises that
such data should be used as a guide only
(data can be volatile and may not be directly
relevant) and that there is often a need to
phase-in changes over a period of time.
Bunzl plc Annual Report 2018
89
Financial statementsDirectors’ reportStrategic report Directors’ remuneration report continued
Remuneration policy for executive directors
The following table summarises each element of the remuneration policy for the executive directors, explaining how each element operates
and links to the corporate strategy.
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
Maximum
potential value
• 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 2018 and 2019 are set out on pages 76 and 86 respectively
Performance metrics
• while there are no performance conditions attached to the payment of base salary, 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
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’)
• malus and clawback provisions apply under DASBS to allow the recoupment of bonus for three years from the end of the
relevant performance year in the event of material misstatement of performance, a significant failure of risk control or serious
misconduct. Malus and clawback also apply to the cash element of the bonus award
• non-pensionable
• the annual bonus policy maximum is 180% of base salary
• the annual target bonus opportunity is capped at 50% of the maximum, where the maximum exceeds 140% of base salary
• for Frank van Zanten the maximum annual bonus is 180% of base salary with the on-target award at 50% of the maximum,
equating to an on-target bonus of 90% of base salary
• for Brian May and Patrick Larmon the maximum annual bonus is 150% of base salary with the on-target award at 50% of the
maximum, equating to an on-target bonus of 75% of base salary
• the current threshold levels of bonus are 49% of base salary for Frank van Zanten and Brian May and was 31% of base salary
for Patrick Larmon
Maximum potential
value
90
Bunzl plc Annual Report 2018
Financial statementsDirectors’ reportStrategic report Annual bonus continued
Performance metrics
Metrics will be set each year by the Committee aligned to the Company’s key strategic objectives.
The principal bonus metrics are as follows:
• growth at constant exchange rates in the Company’s eps against a relevant target
• the Company’s RAOC performance
• the Company’s operating cash flow, being cash generated from operations before acquisition related items less net capital
expenditure
• personal objectives linked to certain specified strategic goals
• the use of eps, RAOC and operating cash flow measures are seen as appropriate as they are, or form part of, three of the
Company’s financial Key Performance Indicators (‘KPIs’). The use of eps growth aligns the executive directors’ interests
with those of the shareholders, RAOC ensures the continued focus on the management of capital employed together with
profitability and cash flow ensures the focus on cash generation. Operating cash flow is a measure that forms part of the
Company’s cash conversion KPI. The use of operating cash flow ensures the focus on cash generation enabling the Group
to pay dividends and to support the growth strategy by making acquisitions and reinvesting in the underlying business
• strategic non-financial goals reward individual contribution to the success of the Company linked to certain specified
strategic goals
• bonus awards are at the Committee’s discretion and may take into account performance on environmental, social and
governance matters as appropriate
• 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 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
The weighting of these metrics is as follows:
• eps – 50%
• RAOC – 15%
• operating cash flow – 15%, and
• strategic non-financial goals – 20%
There will be an eps underpin, such that if eps is below threshold there is no bonus payout.
This combination of performance measures provides a 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.
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
• a malus and clawback facility is in operation under which part or the full amount of a vested award may be recovered, by a
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, for a period of three years from the relevant performance year, 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
performance or there has been a significant failure of risk control or serious misconduct
• two year post-vesting holding requirement for shares that vest, net of sales to settle tax or other withholding due on vesting or
exercise of awards
• all awards are subject to the discretions contained in the relevant plan rules
Bunzl plc Annual Report 2018
91
Financial statementsDirectors’ reportStrategic report Directors’ remuneration report continued
Long term incentives continued
Maximum
potential value
Executive share options
• maximum annual award of 250% of base salary
• normal annual grant levels for executive directors are expected to be between 167% and 200% of base salary and the
Committee would not normally grant above 200% of salary to incumbent executive directors without further consultation
with shareholders
Performance shares
• maximum annual award of 150% of base salary
• normal annual grant levels for executive directors are expected to be between 94% and 150% of base salary
• for the 2019 grants, awards will not exceed 130% of base salary
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 for the 2014 LTIP are shown on page 78
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.
It also aligns the rewards received by executives with the returns received by shareholders
• 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 for the 2014 LTIP are shown on page 79
All employee share plans
Purpose
Operation
• 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’) tax advantaged Sharesave Scheme and the Internal Revenue Service
(‘IRS’) approved Employee Stock Purchase Plan (US) (‘ESPP’) in the US
• the Sharesave Scheme has standard terms under which participants can normally enter into 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 £500 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
92
Bunzl plc Annual Report 2018
Financial statementsDirectors’ reportStrategic report 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 25% of
base salary for new executive directors and 30% of base salary under legacy arrangements
• benefits under the legacy UK defined benefit pension plan accrue at a rate of 2.4% per annum on salary up to the notional
pensionable salary cap (from 6 April 2019 £166,200 per annum)
Performance metrics
• not applicable
Other benefits
Purpose
Operation
• provision of competitive benefits which helps to recruit and retain executive directors
• 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 accommodation, children’s schooling, home leave, tax equalisation and professional
advice etc
Maximum
potential value
• 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
Performance metrics
• not applicable
Shareholding requirement
Purpose
Operation
• strengthen the alignment between the interests of the executive directors and those of shareholders
• executives will normally be expected to retain shares, net of sales to settle tax, 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
• the Chief Executive’s shareholding requirement is 250% of base salary. The requirement for other executive directors is 200% of
base salary. This does not include any holdings of deferred shares or vested but unexercised share options or performance shares
Performance metrics
• not applicable
Bunzl plc Annual Report 2018
93
Financial statementsDirectors’ reportStrategic report Directors’ remuneration report continued
Fees policy for Chairman and non-executive directors (the ‘NEDs’)
The following table summarises the fees policy for the Chairman and the NEDs.
Fees
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 latest review
being with effect from January 2018
• 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
Maximum
potential value
• determined within the overall aggregate annual limit of £1,000,000 authorised by shareholders with reference to the
Company’s Articles of Association
Performance metrics
• not eligible to participate in any performance related elements of remuneration
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. The Committee consulted with major shareholders and proxy voting groups on the remuneration policy that was approved at the 2017
AGM and the performance measures for the annual bonus plan for executive directors in 2018.
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;
• 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.
94
Bunzl plc Annual Report 2018
Financial statementsDirectors’ reportStrategic report Legacy arrangements
The directors’ remuneration policy approved by shareholders at the 2017 AGM gave authority 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.
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, any variable pay awards for new executive director appointments will not exceed the maximum
limits set out in the policy table above. However, in addition, for an external appointment the Committee may consider offering additional cash
and/or share based elements to replace deferred awards forfeited by the individual on leaving their existing employment 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 would take account of the nature, time horizons and performance requirements attaching to the awards forfeited.
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
Frank van Zanten’s service contract provides for an equal notice period from the Company and the executive of a maximum 12 months’
notice and any contracts for newly appointed executive directors will provide for equal notice in the future. Brian May is employed on a
contract that provides for 12 months’ notice from the Company and six months’ notice from the executive. The date of each service contract
is noted in the table below:
Frank van Zanten
Brian May
Patrick Larmon retired on 31 December 2018.
Date of service contract
13 January 2016
9 December 2005
Bunzl plc Annual Report 2018
95
Financial statementsDirectors’ reportStrategic report 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
Base salary,
pension and
benefits
Voluntary resignation or
termination for cause
Paid for the proportion of the
notice period worked and
any untaken holidays
pro-rated to the leaving date
Death, ill health, disability (excluding redundancy)
Departure on agreed terms
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
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.
However in the case of
retirement of an executive
director unvested
performance shares will
normally be subject to
time proration based on
the proportion of the
performance period that
has expired
Annual bonus
cash
Cessation of employment
during a bonus year will
normally result in no cash
bonus being paid
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
Annual bonus
deferred
shares
Unvested deferred shares
will lapse
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
Executive
share options
Unvested executive share
options will lapse
Tax advantaged 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
Performance
shares
Unvested performance
shares will lapse
Subject to the discretion of the Committee, unvested non-tax
advantaged 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 to which the
unvested options may be exercised 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 but may be subject to time proration. However in the case
of the death of an executive, the Committee will determine the extent
to which the unvested performance shares may be exercised within
12 months of the date of death
Options under
Sharesave
As per HMRC regulations
As per HMRC regulations
Other
None
Disbursements such as legal costs and outplacement fees
Note
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.
96
Bunzl plc Annual Report 2018
Financial statementsDirectors’ reportStrategic report 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 28 people) are
granted both executive share option and performance share awards. Approximately 440 senior managers are granted executive share option
awards on an annual basis, which helps to provide a common focus for 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 may be offered. Currently plans are offered to all employees based in Australia, Canada, Germany, Ireland, the
Netherlands, the US and the 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 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 options and performance share awards.
In 2019 the majority of employees across the Group have received average salary increases ranging from 2.5%–5%, dependent on
geographical location with the principal exception being those employees based in parts of Latin America, China and Turkey where current
market salary increases are 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 Committee considers the general basic salary increase within the geographical regions for the broader employee population when
determining the annual salary increases for the executive directors and is cognisant of the Group’s overall employment arrangements when
reviewing and implementing the executive directors’ remuneration policy. Although the Committee did not consult with employees with
regard to the remuneration policy of the executive directors, the Company does monitor employees’ views through regular employee surveys.
Bunzl plc Annual Report 2018
97
Financial statementsDirectors’ reportStrategic report Other statutory information
Annual General Meeting
The Notice convening the Company’s
Annual General Meeting (‘AGM’), to be held
at The Park Suite, The Dorchester, Park
Lane, London W1K 1QA on Wednesday
17 April 2019 at 11.00 am, is set out in
a separate letter from the Chairman
to shareholders.
Dividends
An interim dividend of 15.2p was paid on
2 January 2019 in respect of 2018 and the
directors recommend a final dividend of
35.0p, making a total for the year of 50.2p
per share (2017: 46.0p). Dividend details are
given in Note 18 to the consolidated financial
statements. Subject to shareholder approval
at the 2019 AGM, the final dividend will be
paid on 1 July 2019 to those shareholders
on the register at the close of business on
24 May 2019.
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 market in the
form of American Depositary Receipts.
Details of changes to the issued share capital
during the year are set out in Note 17 to the
consolidated financial statements.
Bunzl Group General Employee
Benefit Trust
The trustee of the Bunzl Group General
Employee Benefit Trust (‘the EBT’) holds
shares in respect of employee share
options and awards that have not been
exercised or vested. 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 17 to the consolidated
financial statements.
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 2018 AGM to allot
shares in the Company up to approximately
one third of the Company’s issued share
capital or two thirds in respect of a rights
issue. The directors were also given the
power to allot ordinary shares for cash up
to a limit representing approximately 10%
of the Company’s issued share capital as
at 12 March 2018, without regard to the
pre-emption provisions of the Companies
Act 2006 (however, more than 5% can only
be used in connection with an acquisition
or specified capital investment).
No such shares were issued or allotted under
these authorities in 2018, 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 AGM and the
directors again propose to seek equivalent
authorities at such AGM.
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, any persons closely associated with
them, are subject to the Company’s Share
Dealing Code.
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 share; 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.
98
Bunzl plc Annual Report 2018
Financial statementsDirectors’ reportStrategic report Biographical details of all of the current
directors are set out on pages 56 and 57.
Notwithstanding the retirement by rotation
provisions in the Articles, each of the
directors will retire and offer themselves
for re-election at the forthcoming AGM
in accordance with the UK Corporate
Governance Code.
Directors’ interests in the Company’s
ordinary shares are shown in Note 20 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 2018. 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 73 to 97.
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
Indemnities were in force throughout 2018
and remain in force as at the date of this
report 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.
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 failing 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 2018 AGM, shareholders gave
the Company authority to purchase up
to a maximum amount equivalent to
approximately 10% of its issued share
capital. During the year ended 31 December
2018, the Company did not purchase any of
its own shares pursuant to this authority or
the authority granted at the 2017 AGM and
no shares have been purchased between
31 December 2018 and 25 February 2019.
As a result, directors again propose to seek
the equivalent authority at the 2019 AGM.
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 AGM
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 AGM 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 AGM 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.
Substantial shareholdings
As at 31 December 2018, the Company had been notified of the following significant
interests in the issued share capital of the Company, in accordance with rule 5 of the
Financial Conduct Authority’s Disclosure Guidance and Transparency Rules.
Shareholder
FMR LLC
BlackRock, Inc.
Massachusetts Financial Services Company
APG Asset Management N.V.
Date of
Number of
notification
shares
09.11.18 22,177,887
06.03.17
17,257,793
21.03.18 16,351,046
24.06.15 10,265,263
% of issued
share capital
6.59
5.14
4.87
3.06
No other notifications have been received between 31 December 2018 and
25 February 2019.
Bunzl plc Annual Report 2018
99
Financial statementsDirectors’ reportStrategic report 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 40 to 50.
Greenhouse gas emissions
Information relating to greenhouse gas
emissions has been set out in the Corporate
responsibility report on pages 40 to 50.
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 the 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 employee 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.
Further information relating to the Group’s
employees can be found in the Our people
section of this Annual Report on pages
36 to 39.
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 repayable 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, sterling and euro
US private placement notes and the senior
unsecured bond (which is listed on the
London Stock Exchange), all of which have
been entered into by Bunzl Finance plc and
the Company and are also guaranteed by
the Company.
Political donations
During 2018, no contributions were made
for political purposes.
Use of financial instruments
Information on the use of financial
instruments can be found in the Financial
review on pages 20 to 25 and in the Notes to
the financial statements on pages 107 to 147.
Disclosures required under UK Listing
Rule 9.8.4
Apart from the dividend waiver which
has been issued in respect of shares held
by the EBT referred to in Note 17 to the
consolidated financial statements on page
135, there are no disclosures required to be
made under UK Listing Rule 9.8.4.
External auditors
Each of the directors in office 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
Group and the Company’s auditors are
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 Group and the Company’s auditors
are 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 AGM for the re-appointment
of PricewaterhouseCoopers LLP as auditors
of the Company, at a rate of remuneration
to be determined by the directors.
Future developments within the Group
An indication of likely future developments
in the Group’s business can be found in the
Strategic report on pages 1 to 55.
Strategic report and Directors’ report
Pages 1 to 55 inclusive consist of the
Strategic report and pages 56 to 100
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.
The Company has chosen, in accordance
with section 414C(11) of the Companies
Act 2006, to include certain matters in its
Strategic report that would otherwise be
required to be disclosed in this Directors’
report. These matters are referred to above
and are explained in more detail in the
Strategic report on pages 1 to 55.
Under the Companies Act 2006, a safe
harbour limits the liability of directors in
respect of statements in and omissions
from a strategic report and a 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
25 February 2019.
On behalf of the Board
Paul Hussey
Secretary
25 February 2019
100
Bunzl plc Annual Report 2018
Financial statementsDirectors’ reportStrategic report Financial
statements
102
103
104
105
106
107
148
149
150
155
156
162
169
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated cash flow statement
Notes
Company balance sheet
Company statement of changes in equity
Notes to the Company financial statements
Statement of directors’ responsibilities
Independent auditors’ report to the members of Bunzl plc
Shareholder information
Five year review
Bunzl plc Annual Report 2018
101
Directors’ reportFinancial statementsStrategic report Consolidated income statement
for the year ended 31 December 2018
Revenue
Operating profit
Finance income
Finance expense
Disposal of businesses
Profit before income tax
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
Alternative performance measures†
Operating profit
Adjusted for:
Customer relationships amortisation
Acquisition related items
GMP equalisation charge
Adjusted operating profit ◊
Finance income
Finance expense
Adjusted profit before income tax ◊
Tax on adjusted profit
Adjusted profit for the year ◊
Adjusted earnings per share ◊
Notes
4
4
6
6
26
7
8
8
4
4
4
5
6
6
7
8
2018
£m
9,079.4
466.2
11.6
(66.6)
13.6
424.8
(98.3)
326.5
2017
£m
8,580.9
456.0
10.6
(57.3)
–
409.3
(98.8)
310.5
98.4p
97.8p
94.2p
93.5p
466.2
456.0
111.1
33.4
3.3
614.0
11.6
(66.6)
559.0
(129.1)
429.9
96.6
36.7
–
589.3
10.6
(57.3)
542.6
(149.2)
393.4
129.6p
119.4p
† See Note 3 on page 114 for further details of the alternative performance measures.
◊ Excluding the profit on disposal of businesses and associated tax where relevant.
The Accounting policies and other Notes on pages 107 to 147 form part of these consolidated financial statements.
102
102
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report
Consolidated income statement
for the year ended 31 December 2018
Profit for the year attributable to the Company’s equity holders
Earnings per share attributable to the Company’s equity holders
Revenue
Operating profit
Finance income
Finance expense
Disposal of businesses
Profit before income tax
Income tax
Basic
Diluted
Alternative performance measures†
Operating profit
Adjusted for:
Customer relationships amortisation
Acquisition related items
GMP equalisation charge
Adjusted operating profit ◊
Finance income
Finance expense
Adjusted profit before income tax ◊
Tax on adjusted profit
Adjusted profit for the year ◊
Adjusted earnings per share ◊
Notes
4
4
6
6
7
26
2018
£m
2017
£m
9,079.4
8,580.9
466.2
11.6
(66.6)
13.6
424.8
(98.3)
326.5
456.0
10.6
(57.3)
–
409.3
(98.8)
310.5
8
8
4
4
4
5
6
6
7
8
98.4p
97.8p
94.2p
93.5p
466.2
456.0
111.1
33.4
3.3
614.0
11.6
(66.6)
559.0
(129.1)
429.9
96.6
36.7
–
589.3
10.6
(57.3)
542.6
(149.2)
393.4
129.6p
119.4p
† See Note 3 on page 114 for further details of the alternative performance measures.
◊ Excluding the profit on disposal of businesses and associated tax where relevant.
The Accounting policies and other Notes on pages 107 to 147 form part of these consolidated financial statements.
Strategic report
Directors’ report
Financial statements
Consolidated statement of comprehensive income
for the year ended 31 December 2018
Profit for the year
Other comprehensive income/(expense)
Items that will not be reclassified to profit or loss:
Actuarial gain on defined benefit 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 on foreign operations
Movement from translation reserve to income statement on disposal of foreign operation
(Loss)/gain taken to equity as a result of effective net investment hedges
Gain recognised in cash flow hedge reserve
Movement from cash flow hedge reserve to inventory/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 income/(expense) for the year
Total comprehensive income attributable to the Company’s equity holders
Notes
2018
£m
326.5
2017
£m
310.5
21
7
7
11.0
(3.7)
7.3
3.0
(2.4)
(7.5)
7.9
(4.4)
(0.4)
(3.8)
3.5
330.0
27.0
(9.6)
17.4
(53.3)
–
7.2
2.4
(7.0)
1.3
(49.4)
(32.0)
278.5
102
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
103
103
Financial statementsStrategic reportDirectors’ report
Consolidated balance sheet
at 31 December 2018
Assets
Property, plant and equipment
Intangible assets
Defined benefit pension assets
Derivative financial assets
Deferred tax assets
Total non-current assets
Inventories
Trade and other receivables
Income tax receivable
Derivative financial assets
Cash at bank and in hand
Assets classified as held for sale
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
Defined benefit pension liabilities
Other payables
Income tax payable
Provisions
Derivative financial liabilities
Deferred tax liabilities
Total non-current liabilities
Bank overdrafts
Interest bearing loans and borrowings
Trade and other payables
Income tax payable
Provisions
Derivative financial liabilities
Liabilities classified as held for sale
Total current liabilities
Total liabilities
Total equity and liabilities
Notes
2018
£m
2017
£m
9
10
21
16
11
12
24
27
17
24
21
15
16
24
24
13
15
27
122.4
2,382.5
3.4
5.9
4.0
2,518.2
1,213.6
1,330.0
4.0
12.6
477.7
–
3,037.9
5,556.1
108.1
178.5
(24.6)
20.2
1,412.3
1,694.5
1,456.3
41.9
29.4
2.9
41.3
5.1
153.7
1,730.6
333.5
74.9
1,613.6
91.9
6.1
11.0
–
2,131.0
3,861.6
5,556.1
125.2
2,351.7
–
10.0
3.4
2,490.3
1,064.9
1,258.4
4.4
10.3
333.6
27.7
2,699.3
5,189.6
108.0
171.4
(17.9)
17.3
1,169.8
1,448.6
1,499.2
51.0
30.7
3.0
39.0
0.9
158.0
1,781.8
221.3
145.1
1,468.4
90.5
6.2
12.4
15.3
1,959.2
3,741.0
5,189.6
Approved by the Board of directors of Bunzl plc (Company registration number 358948) on 25 February 2019 and signed on its behalf by
Frank van Zanten, Chief Executive and Brian May, Finance Director.
104
104
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report
Consolidated balance sheet
at 31 December 2018
Strategic report
Directors’ report
Financial statements
Consolidated statement of changes in equity
for the year ended 31 December 2018
Assets
Property, plant and equipment
Intangible assets
Defined benefit pension assets
Derivative financial assets
Deferred tax assets
Total non-current assets
Inventories
Trade and other receivables
Income tax receivable
Derivative financial assets
Cash at bank and in hand
Assets classified as held for sale
Total current assets
Total assets
Equity
Share capital
Share premium
Translation reserve
Other reserves
Retained earnings
Liabilities
Interest bearing loans and borrowings
Defined benefit pension liabilities
Other payables
Income tax payable
Provisions
Derivative financial liabilities
Deferred tax liabilities
Total non-current liabilities
Bank overdrafts
Interest bearing loans and borrowings
Trade and other payables
Income tax payable
Provisions
Derivative financial liabilities
Liabilities classified as held for sale
Total current liabilities
Total liabilities
Total equity and liabilities
Total equity attributable to the Company’s equity holders
Notes
2018
£m
2017
£m
2,518.2
2,490.3
9
10
21
16
11
12
24
27
17
24
21
15
16
24
24
13
15
27
122.4
2,382.5
3.4
5.9
4.0
1,213.6
1,330.0
4.0
12.6
477.7
–
3,037.9
5,556.1
108.1
178.5
(24.6)
20.2
1,412.3
1,694.5
41.9
29.4
2.9
41.3
5.1
333.5
74.9
91.9
6.1
11.0
–
2,131.0
3,861.6
5,556.1
125.2
2,351.7
–
10.0
3.4
1,064.9
1,258.4
4.4
10.3
333.6
27.7
2,699.3
5,189.6
108.0
171.4
(17.9)
17.3
1,169.8
1,448.6
51.0
30.7
3.0
39.0
0.9
221.3
145.1
90.5
6.2
12.4
15.3
1,959.2
3,741.0
5,189.6
1,456.3
1,499.2
153.7
1,730.6
158.0
1,781.8
1,613.6
1,468.4
At 1 January 2018
Profit for the year
Actuarial gain on defined benefit
pension schemes
Foreign currency translation differences
on foreign operations
Movement from translation reserve to
income statement on disposal of
foreign operation
Loss taken to equity as a result of
effective net investment hedges
Gain recognised in cash flow hedge
reserve
Movement from cash flow hedge reserve
to inventory/income statement
Income tax credit/(charge) on other
comprehensive income
Total comprehensive income
2017 interim dividend
2017 final dividend
Issue of share capital
Employee trust shares
Movement on own share reserves
Share based payments
At 31 December 2018
At 1 January 2017
Profit for the year
Actuarial gain on defined benefit
pension schemes
Foreign currency translation differences
on foreign operations
Gain taken to equity as a result of
effective net investment hedges
Gain recognised in cash flow hedge
reserve
Movement from cash flow hedge reserve
to income statement
Income tax credit/(charge) on other
comprehensive income
Total comprehensive income
2016 interim dividend
2016 final dividend
Issue of share capital
Employee trust shares
Movement on own share reserves
Share based payments
At 31 December 2017
Approved by the Board of directors of Bunzl plc (Company registration number 358948) on 25 February 2019 and signed on its behalf by
Frank van Zanten, Chief Executive and Brian May, Finance Director.
Share
capital
£m
108.0
Share
premium
£m
171.4
Translation
reserve
£m
(17.9)
Capital
redemption
£m
16.1
Other reserves
Cash flow
hedge
£m
(1.3)
Merger
£m
2.5
3.0
(2.4)
(7.5)
0.2
(6.7)
7.9
(4.4)
(0.6)
2.9
0.1
7.1
108.1
178.5
(24.6)
2.5
16.1
1.6
Share
capital
£m
107.9
Share
premium
£m
167.5
Translation
reserve
£m
27.7
Merger
£m
2.5
(53.3)
7.2
0.5
(45.6)
Other reserves
Cash flow
hedge
Capital
redemption
£m
16.1
£m
2.5
2.4
(7.0)
0.8
(3.8)
0.1
3.9
108.0
171.4
(17.9)
2.5
16.1
(1.3)
Retained earnings
Own
shares
£m
Total
equity
£m
(122.9) 1,292.7 1,448.6
326.5
Earnings
£m
326.5
11.0
11.0
3.0
(2.4)
(7.5)
7.9
(4.4)
(3.7)
333.8
(46.2)
(4.1)
330.0
(46.2)
(106.0) (106.0)
7.2
45.6
–
15.3
(63.9) 1,476.2 1,694.5
(13.4)
15.3
45.6
13.4
Retained earnings
Own
shares
£m
Total
equity
£m
(132.4) 1,120.7 1,312.5
310.5
Earnings
£m
310.5
27.0
27.0
(53.3)
7.2
2.4
(7.0)
(9.6)
327.9
(42.8)
(95.4)
(8.3)
278.5
(42.8)
(95.4)
4.0
(20.8)
–
12.6
(122.9) 1,292.7 1,448.6
(20.8)
30.3
(30.3)
12.6
104
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
105
105
Financial statementsStrategic reportDirectors’ report
Consolidated cash flow statement
for the year ended 31 December 2018
Cash flow from operating activities
Profit before income tax
Adjusted for:
net finance expense
customer relationships amortisation
acquisition related items
disposal of businesses
GMP equalisation charge
Adjusted operating profit
Adjustments:
non-cash items
working capital movement
Cash generated from operations before acquisition related items
Cash outflow from acquisition related items
Income tax paid
Cash inflow from operating activities
Cash flow from investing activities
Interest received
Purchase of property, plant and equipment and software
Sale of property, plant and equipment
Purchase of businesses
Disposal of businesses
Cash outflow from investing activities
Cash flow from financing activities
Interest paid
Dividends paid
Increase in borrowings
Repayment of borrowings
Realised gains/(losses) on foreign exchange contracts
Proceeds from issue of ordinary shares to settle share options
Proceeds from exercise of market purchase share options
Purchase of employee trust shares
Cash (outflow)/inflow from financing activities
Notes
2018
£m
2017
£m
424.8
409.3
6
10
4
26
28
28
25
9,10
25
26
18
55.0
111.1
33.4
(13.6)
3.3
614.0
31.8
(38.7)
607.1
(13.9)
(113.2)
480.0
2.0
(31.1)
2.5
(170.3)
55.1
(141.8)
(51.1)
(152.2)
71.6
(228.5)
3.3
7.2
42.8
–
(306.9)
46.7
96.6
36.7
–
–
589.3
28.9
(15.6)
602.6
(13.9)
(113.1)
475.6
2.3
(33.8)
0.9
(574.6)
–
(605.2)
(46.8)
(138.2)
418.7
(87.3)
(10.2)
4.0
24.7
(48.1)
116.8
Increase/(decrease) in cash and cash equivalents
31.3
(12.8)
Cash and cash equivalents at start of year
Increase/(decrease) in cash and cash equivalents
Currency translation
Cash and cash equivalents at end of year
Alternative performance measures†
Cash generated from operations before acquisition related items
Purchase of property, plant and equipment and software
Sale of property, plant and equipment
Operating cash flow
24
112.3
31.3
0.6
144.2
607.1
(31.1)
2.5
578.5
126.7
(12.8)
(1.6)
112.3
602.6
(33.8)
0.9
569.7
Cash conversion % (operating cash flow to adjusted operating profit)
94%
97%
† See Note 3 on page 114 for further details of the alternative performance measures.
106
106
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report
Consolidated cash flow statement
for the year ended 31 December 2018
Cash flow from operating activities
Profit before income tax
Adjusted for:
net finance expense
customer relationships amortisation
acquisition related items
disposal of businesses
GMP equalisation charge
Adjusted operating profit
Adjustments:
non-cash items
working capital movement
Cash generated from operations before acquisition related items
Cash outflow from acquisition related items
Income tax paid
Cash inflow from operating activities
Cash flow from investing activities
Interest received
Purchase of property, plant and equipment and software
Sale of property, plant and equipment
Purchase of businesses
Disposal of businesses
Cash outflow from investing activities
Cash flow from financing activities
Interest paid
Dividends paid
Increase in borrowings
Repayment of borrowings
Realised gains/(losses) on foreign exchange contracts
Proceeds from issue of ordinary shares to settle share options
Proceeds from exercise of market purchase share options
Purchase of employee trust shares
Cash (outflow)/inflow from financing activities
Cash and cash equivalents at start of year
Increase/(decrease) in cash and cash equivalents
Currency translation
Cash and cash equivalents at end of year
Alternative performance measures†
Cash generated from operations before acquisition related items
Purchase of property, plant and equipment and software
Sale of property, plant and equipment
Operating cash flow
Notes
2018
£m
2017
£m
424.8
409.3
6
10
4
26
28
28
25
9,10
25
26
18
24
55.0
111.1
33.4
(13.6)
3.3
614.0
31.8
(38.7)
607.1
(13.9)
(113.2)
480.0
2.0
(31.1)
2.5
(170.3)
55.1
(141.8)
(51.1)
(152.2)
71.6
(228.5)
3.3
7.2
42.8
–
(306.9)
112.3
31.3
0.6
144.2
607.1
(31.1)
2.5
578.5
46.7
96.6
36.7
–
–
589.3
28.9
(15.6)
602.6
(13.9)
(113.1)
475.6
2.3
(33.8)
0.9
(574.6)
–
(605.2)
(46.8)
(138.2)
418.7
(87.3)
(10.2)
4.0
24.7
(48.1)
116.8
126.7
(12.8)
(1.6)
112.3
602.6
(33.8)
0.9
569.7
Increase/(decrease) in cash and cash equivalents
31.3
(12.8)
Cash conversion % (operating cash flow to adjusted operating profit)
94%
97%
† See Note 3 on page 114 for further details of the alternative performance measures.
Strategic report
Directors’ report
Financial statements
Notes
1 Basis of preparation
Bunzl plc (the ‘Company’) is a public company, which is limited by shares and is listed on the London Stock Exchange. The Company
is incorporated and domiciled in the United Kingdom and is registered in England and Wales.
(i) Basis of accounting
The consolidated financial statements for the year ended 31 December 2018 have been approved by the Board of directors of Bunzl plc.
They are prepared in accordance with (i) EU endorsed International Financial Reporting Standards (‘IFRS’) and interpretations of the IFRS
Interpretations Committee (‘IFRS IC’) and those parts of the Companies Act 2006 as applicable to companies using IFRS and (ii) IFRS as
issued by the International Accounting Standards Board (‘IASB’). They are prepared under the historical cost convention with the exception
of certain items which are measured at fair value as described in the accounting policies below. The directors consider that it is appropriate
to adopt the going concern basis of accounting in preparing the financial statements.
(ii) New accounting standards and interpretations
The Group has adopted all relevant amendments to existing standards and interpretations issued by the IASB that are effective from
1 January 2018 with no material impact on its consolidated results or financial position. In addition, the Group has adopted the two new
standards issued by the IASB that are applicable to the Group for the year ended 31 December 2018, these being IFRS 15 ‘Revenue from
Contracts with Customers’ and IFRS 9 ‘Financial Instruments’.
The Group has adopted IFRS 15 ‘Revenue from Contracts with Customers’ retrospectively from 1 January 2018. IFRS 15 requires
companies to apportion revenue from customer contracts to separate performance obligations and recognise revenue as these performance
obligations are satisfied. The vast majority of the Group’s revenue is generated from the delivery of goods to customers representing
a single performance obligation which is satisfied upon delivery of the relevant goods. The Group’s other revenue generating activities
represent approximately 1% of total revenue. The majority of this other revenue relates to design and fit out services for foodservice
customers and fulfilment services where the Group does not take title to inventory. For these and other services performed by the Group,
the recognition of revenue under IFRS 15 does not differ materially from the previous accounting practices. Accordingly, the adoption of
IFRS 15 has not had a material impact on the timing of revenue recognition and has not had a material impact on the Group’s operating
profit or financial position. Prior year comparatives have not been restated because the transition adjustment was not material.
The Group has adopted IFRS 9 ‘Financial Instruments’ retrospectively from 1 January 2018 except where prospective application is
required as specified in the standard. The adoption of IFRS 9 resulted in a change to the Group’s accounting estimates to reflect the new
expected credit loss impairment model for financial assets, particularly in relation to the provision for trade receivables, but did not have a
material impact on the Group’s operating profit or financial position. Prior year comparatives have not been restated because the transition
adjustment was not material.
In September 2017 an agenda decision of the IFRS IC was issued which provided clarity over the treatment of interest and penalties related
to income taxes. This confirmed that entities do not have an accounting policy choice between applying IAS 12 ‘Income Taxes’ and IAS 37
‘Provisions, Contingent Liabilities and Contingent Assets’ and that the treatment should be determined on a case-by-case basis. As a result,
the Group’s finance expense now includes a charge for interest related to income tax and acquisition related items include interest on
acquisition related income tax whereas in prior years all such items were shown in income tax. The amounts involved are not material
and prior year comparatives have not been restated.
There are no other new standards or amendments to existing standards and interpretations that are effective for the year ended
31 December 2018 that have had a material impact on the Group.
IFRS 16 ‘Leases’ is effective in the consolidated financial statements for the year ending 31 December 2019 and will have a material impact
on the consolidated financial statements. The Group has adopted IFRS 16 with effect from 1 January 2019 and intends to use the modified
retrospective approach to transition utilising certain practical expedients outlined in the standard, notably the exclusion of low value (less
than £5,000) and short term leases (less than 12 months). Data has been collated on all of the Group’s leases for which IFRS 16 is
applicable, of which there are more than 5,000, and these are principally for warehouses, offices and vehicles. This data has been used in
conjunction with a lease accounting tool specifically developed for the Group by third party experts to calculate the impact of transitioning
to IFRS 16 as at 1 January 2019.
The new standard requires that the Group’s leased assets are recorded within property, plant and equipment as ‘Right of use assets’ with
a corresponding lease liability which is based on the present value of the future payments required under each lease discounted at the
incremental borrowing rate. It is currently estimated that the adoption of IFRS 16 will increase the carrying value of property, plant and
equipment at 1 January 2019 by between £430m and £450m with liabilities increasing by between £480m and £500m and retained earnings
decreasing by between £20m and £50m. Under the new standard, the existing operating lease expense previously recorded in operating
costs will be replaced by a depreciation charge, which will be lower than the previous operating lease expense by approximately £20m,
and a separate financing expense, which will be recorded in finance expense, of approximately £20m. There will be no net cash flow
impact arising from the adoption of the new standard. Net debt to EBITDA is expected to increase by approximately 0.3 times compared
to the previous accounting standard but performance against current banking covenants will not be affected because these are based
on historical accounting standards. The Group does not currently intend to alter its approach going forward as to whether assets should
be leased or bought.
106
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
107
107
Financial statementsStrategic reportDirectors’ report
Notes continued
1 Basis of preparation continued
Apart from this standard, the Group does not anticipate that any other new or revised standards and interpretations currently issued
by the IASB that are effective from 1 January 2019 and beyond will have a material impact on its consolidated results or financial position.
2 Accounting policies
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in the consolidated
financial statements.
a Basis of consolidation
(i) Subsidiaries
Subsidiaries are entities controlled by the Group. Control exists when the Group is either 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. A list of all of Bunzl plc’s
subsidiary undertakings is included in the Related undertakings note in the Shareholder information section on pages 162 to 164 and
is subject to audit. The results of all of the subsidiary undertakings are included in full in these consolidated financial statements.
(ii) Business combinations
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 and deferred consideration, excluding 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.
When less than 100% of the issued share capital of a subsidiary is acquired, and the acquisition includes an option to purchase the
remaining share capital of the subsidiary, the anticipated acquisition method is applied, where judged appropriate to do so, meaning that no
non-controlling interest is recognised. A liability is carried on the balance sheet equal to the fair value of the option and this is revised to fair
value at each reporting date with differences being recorded in acquisition related items in the income statement.
(iii) Disposal of businesses
Where a subsidiary undertaking is sold, the profit or loss on disposal is calculated as the difference between the aggregate of the fair value
of the consideration received and the carrying amount of the assets and liabilities of the subsidiary on the date of disposal less any
transaction costs relating to the disposal. On the disposal of a subsidiary with assets and liabilities denominated in foreign currency,
the cumulative translation difference associated with that subsidiary in the translation reserve is credited or debited to the profit or loss
on disposal recognised in the income statement. Cash received on disposal of businesses is shown within investing activities in the
Consolidated cash flow statement, net of cash and cash equivalents disposed of and transaction costs.
(iv) 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 other comprehensive income.
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 balances, are recognised directly in other
comprehensive income and accumulated in the translation reserve. Differences that have arisen since 1 January 2004, the date of transition
to IFRS, are presented in this separate component of equity.
c Revenue
The Group is principally engaged in the delivery of goods to customers representing a single performance obligation which is satisfied upon
delivery of the relevant goods. Revenue related to the provision of services is recognised when the service is provided, which for the majority
of the Group’s service revenue represents a single performance obligation. Revenue is not recognised if there is significant uncertainty
regarding recovery of the consideration due.
Revenue is valued at invoiced amounts, excluding sales taxes and including estimates for variable consideration where relevant, such as
returns and trade discounts. Returns provisions and early settlement discounts are based on experience over an appropriate period whereas
volume discounts are based on agreements with customers and expected volumes. There has been no significant change to the Group’s
accounting policy for revenue as a result of the adoption of IFRS 15 from 1 January 2018.
108
108
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report Notes continued
2 Accounting policies
financial statements.
a Basis of consolidation
(i) Subsidiaries
1 Basis of preparation continued
Apart from this standard, the Group does not anticipate that any other new or revised standards and interpretations currently issued
by the IASB that are effective from 1 January 2019 and beyond will have a material impact on its consolidated results or financial position.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in the consolidated
Subsidiaries are entities controlled by the Group. Control exists when the Group is either 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. A list of all of Bunzl plc’s
subsidiary undertakings is included in the Related undertakings note in the Shareholder information section on pages 162 to 164 and
is subject to audit. The results of all of the subsidiary undertakings are included in full in these consolidated financial statements.
(ii) Business combinations
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 and deferred consideration, excluding 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.
When less than 100% of the issued share capital of a subsidiary is acquired, and the acquisition includes an option to purchase the
remaining share capital of the subsidiary, the anticipated acquisition method is applied, where judged appropriate to do so, meaning that no
non-controlling interest is recognised. A liability is carried on the balance sheet equal to the fair value of the option and this is revised to fair
value at each reporting date with differences being recorded in acquisition related items in the income statement.
(iii) Disposal of businesses
Where a subsidiary undertaking is sold, the profit or loss on disposal is calculated as the difference between the aggregate of the fair value
of the consideration received and the carrying amount of the assets and liabilities of the subsidiary on the date of disposal less any
transaction costs relating to the disposal. On the disposal of a subsidiary with assets and liabilities denominated in foreign currency,
the cumulative translation difference associated with that subsidiary in the translation reserve is credited or debited to the profit or loss
on disposal recognised in the income statement. Cash received on disposal of businesses is shown within investing activities in the
Consolidated cash flow statement, net of cash and cash equivalents disposed of and transaction costs.
Intragroup balances and any unrealised gains and losses or income and expenses arising from intragroup transactions are eliminated in
(iv) Transactions eliminated on consolidation
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 other comprehensive income.
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 balances, are recognised directly in other
comprehensive income and accumulated in the translation reserve. Differences that have arisen since 1 January 2004, the date of transition
to IFRS, are presented in this separate component of equity.
c Revenue
The Group is principally engaged in the delivery of goods to customers representing a single performance obligation which is satisfied upon
delivery of the relevant goods. Revenue related to the provision of services is recognised when the service is provided, which for the majority
of the Group’s service revenue represents a single performance obligation. Revenue is not recognised if there is significant uncertainty
regarding recovery of the consideration due.
Revenue is valued at invoiced amounts, excluding sales taxes and including estimates for variable consideration where relevant, such as
returns and trade discounts. Returns provisions and early settlement discounts are based on experience over an appropriate period whereas
volume discounts are based on agreements with customers and expected volumes. There has been no significant change to the Group’s
accounting policy for revenue as a result of the adoption of IFRS 15 from 1 January 2018.
Strategic report
Directors’ report
Financial statements
2 Accounting policies continued
d Cost of goods sold
Cost of goods sold consists of the cost of the inventories sold or disposed of in the period where the cost of inventories is net of supplier
rebate income related to those inventories.
e Supplier rebates
The Group has various rebate arrangements with a number of suppliers. Some of these arrangements are based on the volume of products
purchased and others are based on the volume of products sold. Supplier rebate income is recognised in cost of goods sold concurrent
with the sale of the inventories to which it relates and is calculated by reference to the expected consideration receivable from each rebate
arrangement. Substantially all supplier rebate income is unconditional and non-judgemental. Supplier rebate income is not recognised
if there is significant uncertainty regarding recovery of the amount due. Supplier rebate income accrued but not yet received is included
in other receivables.
f Share based payments
The Group operates a number of equity settled share based payment compensation plans. Details of these plans are outlined in Note 17 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.
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 Income tax
Income tax in the income statement comprises current and deferred tax. Income tax is recognised in the income statement except to the
extent that it relates to items recognised directly in equity or other comprehensive income.
Current tax is the expected tax payable or recoverable on the taxable income or loss for the year using tax rates enacted or substantively
enacted at the balance sheet date and any adjustments in respect of prior years. Current tax payable is recognised when it is probable that
the Group will be required to settle the obligation. The Group’s policy for accounting for current tax payable or receivable where it is
uncertain is described in more detail in Note 2y – Sources of estimation uncertainty part (iv) – Taxation.
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 and where the Company controls the timing of the reversal. A deferred tax asset
is recognised only to the extent that it is probable that future taxable profit will be available against which the temporary difference can
be utilised.
i Property, plant and equipment
Property, plant and equipment are stated at historical cost less accumulated depreciation and any impairment losses. The carrying values of
property, plant and equipment are periodically reviewed for impairment when events or changes in circumstances indicate that the carrying
values may not be recoverable. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as
separate items.
j Depreciation
Depreciation is charged to profit or loss on a straight line basis to write off cost less estimated residual value over the assets’ estimated
remaining useful lives. The estimated useful lives are as follows:
Buildings
Plant and machinery
Fixtures, fittings and equipment
Freehold land
50 years (or depreciated over life of lease if shorter than 50 years)
3 to 12 years
3 to 12 years
Not depreciated
Assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each balance sheet date.
108
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
109
109
Financial statementsStrategic reportDirectors’ report
Notes continued
2 Accounting policies continued
k 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 chose to apply IFRS 3 ‘Business Combinations’ from 1 January 2004 and elected not to restate previous
business combinations. For acquisitions made before 1 January 2004, goodwill represents the amount previously recorded under UK
Generally Accepted Accounting Practice (‘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 transaction costs and expenses) in excess of the fair value of the identifiable
assets, liabilities and contingent liabilities acquired. Goodwill is allocated to cash generating units (‘CGUs’) and is tested annually for
impairment. Negative goodwill arising on acquisition is recognised immediately in the income statement.
(ii) Customer relationships
Customer relationships intangible assets acquired in a business combination are recognised on acquisition and recorded at fair value.
Subsequent to initial recognition, customer relationships intangible assets 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.
(iii) Software
Software is stated at historical cost less accumulated amortisation and any impairment losses. The carrying values of software are
periodically reviewed for impairment when events or changes in circumstances indicate that the carrying values may not be recoverable.
Amortisation is charged to the income statement on a straight line basis over the estimated useful economic lives which range from three
to seven years.
l 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 of disposal 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 CGU exceeds its recoverable amount, with impairment losses being recognised in the income statement.
m Inventories
Inventories are valued at the lower of cost and net realisable value. The cost of inventories is based on the first-in first-out principle and
comprises the purchase price, net of any related supplier volume rebates, plus import duties and other taxes, inbound freight and haulage
costs and other related costs incurred to bring the product into its present location and condition. Net realisable value is the estimated
selling price in the ordinary course of business, less the estimated cost of completion and estimated cost necessary to make the sale.
Provision is made for obsolete, slow moving or defective items where appropriate.
n Trade and other receivables
Trade and other receivables are initially measured at fair value, which for trade receivables is equal to the consideration expected to be
received from the satisfaction of performance obligations, plus any directly attributable transaction costs. Subsequent to initial recognition
these assets are measured at amortised cost less any provision for impairment losses including expected credit losses. In accordance with
IFRS 9 the Group applies the simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all
trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics
such as the ageing of the debt and the credit risk of the customers. An historical credit loss rate is then calculated for each group and then
adjusted to reflect expectations about future credit losses. The Group does not have any significant contract assets.
o Trade and other payables
Trade and other payables are initially measured at fair value including any directly attributable transaction costs. Subsequent to initial
recognition these liabilities are measured at amortised cost. The Group has contract liabilities in the form of deferred income which arises
from consideration received in advance of the satisfaction of performance obligations.
110
110
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report
Notes continued
2 Accounting policies continued
k 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 chose to apply IFRS 3 ‘Business Combinations’ from 1 January 2004 and elected not to restate previous
business combinations. For acquisitions made before 1 January 2004, goodwill represents the amount previously recorded under UK
Generally Accepted Accounting Practice (‘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 transaction costs and expenses) in excess of the fair value of the identifiable
assets, liabilities and contingent liabilities acquired. Goodwill is allocated to cash generating units (‘CGUs’) and is tested annually for
impairment. Negative goodwill arising on acquisition is recognised immediately in the income statement.
Customer relationships intangible assets acquired in a business combination are recognised on acquisition and recorded at fair value.
Subsequent to initial recognition, customer relationships intangible assets 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
(ii) Customer relationships
range from 10 to 19 years.
(iii) Software
to seven years.
l Impairment
m Inventories
Software is stated at historical cost less accumulated amortisation and any impairment losses. The carrying values of software are
periodically reviewed for impairment when events or changes in circumstances indicate that the carrying values may not be recoverable.
Amortisation is charged to the income statement on a straight line basis over the estimated useful economic lives which range from three
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 of disposal 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 CGU exceeds its recoverable amount, with impairment losses being recognised in the income statement.
Inventories are valued at the lower of cost and net realisable value. The cost of inventories is based on the first-in first-out principle and
comprises the purchase price, net of any related supplier volume rebates, plus import duties and other taxes, inbound freight and haulage
costs and other related costs incurred to bring the product into its present location and condition. Net realisable value is the estimated
selling price in the ordinary course of business, less the estimated cost of completion and estimated cost necessary to make the sale.
Provision is made for obsolete, slow moving or defective items where appropriate.
n Trade and other receivables
Trade and other receivables are initially measured at fair value, which for trade receivables is equal to the consideration expected to be
received from the satisfaction of performance obligations, plus any directly attributable transaction costs. Subsequent to initial recognition
these assets are measured at amortised cost less any provision for impairment losses including expected credit losses. In accordance with
IFRS 9 the Group applies the simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all
trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics
such as the ageing of the debt and the credit risk of the customers. An historical credit loss rate is then calculated for each group and then
adjusted to reflect expectations about future credit losses. The Group does not have any significant contract assets.
o Trade and other payables
Trade and other payables are initially measured at fair value including any directly attributable transaction costs. Subsequent to initial
recognition these liabilities are measured at amortised cost. The Group has contract liabilities in the form of deferred income which arises
from consideration received in advance of the satisfaction of performance obligations.
Strategic report
Directors’ report
Financial statements
2 Accounting policies continued
p Financial instruments
Classification and measurement
Under IFRS 9 ‘Financial Instruments’, financial instruments are initially measured at fair value with subsequent measurement depending
upon the classification of the instrument. IFRS 13 ‘Fair Value Measurement’ 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.
All non-derivative financial assets and liabilities are subsequently held at amortised cost unless they are in a fair value hedge relationship.
Financial assets and liabilities held in a fair value hedge relationship are classified at fair value through profit or loss and are initially
measured at fair value with subsequent changes in fair value recorded in the income statement.
Derivatives and hedging activities
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their
fair value at the end of each reporting period. The accounting for subsequent changes in fair value depends on whether the derivative is
designated as a hedging instrument and, if so, the nature of the item being hedged. The Group designates certain derivatives as either:
• a hedge of the fair value of recognised assets or liabilities or a firm commitment (‘fair value hedge’);
• a hedge of a particular risk associated with the cash flows of recognised assets and liabilities and highly probable forecast transactions
(‘cash flow hedge’); or
• a hedge of a net investment in a foreign operation (‘net investment hedge’).
The Group documents its risk management objectives and strategy for undertaking its hedge transactions. At inception of hedge
relationships, the Group documents the economic relationship between the hedging instruments and the hedged items.
The fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is more
than 12 months and as a current asset or liability when the remaining maturity of the hedged item is 12 months or less.
(i) Fair value hedge
Where a derivative 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 within finance expense. 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, also within finance
expense. The gain or loss relating to any ineffective portion of the hedging arrangement is recognised immediately in the income statement.
(ii) Cash flow hedge
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in the cash
flow hedge reserve within equity. The gain or loss relating to any ineffective portion is recognised immediately in the income statement.
Where a derivative instrument is designated and qualifies as a hedge of a forecast transaction, only the change in fair value of the forward
contract related to the spot component is designated as the hedging instrument. Gains or losses relating to the effective portion of the
change in the spot component of the forward contract are initially recognised in the cash flow hedge reserve within equity. The change
in the forward element of the contract that relates to the hedged item is recognised in the income statement.
Gains or losses accumulated in equity are reclassified to the income statement when the hedged item affects profit or loss or to the non-
financial asset when the hedged item results in the recognition of a non-financial asset with the deferred gains or losses ultimately being
recognised in the income statement as the non-financial asset affects profit or loss.
When a hedging instrument expires, any cumulative deferred gain/loss in equity relating to that instrument remains in equity until the
forecast transaction occurs at which point it is reclassified to the income statement. When the forecast transaction is no longer expected
to occur, the cumulative deferred gain/loss recorded in equity is immediately reclassified to the income statement.
(iii) Net investment hedge
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 and are accumulated in a separate reserve within equity.
To the extent that the hedge is ineffective such differences are recognised in the income statement.
110
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
111
111
Financial statementsStrategic reportDirectors’ report
Notes continued
2 Accounting policies continued
(iv) Other derivative instruments
Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that do not qualify
for hedge accounting are immediately recognised in the income statement.
q Cash and cash equivalents
Cash and cash equivalents, as reported in the cash flow statement, comprises cash at bank and in hand and bank overdrafts. Cash at bank
and in hand includes cash balances and short term deposits with maturities of three months or less from the date the deposit is made.
r Net debt
Net debt is defined as interest bearing loans and borrowings adjusted for the fair value of interest rate swaps on fixed interest rate
borrowings and other derivatives managing the interest rate risk and currency profile less cash and cash equivalents.
s Provisions
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event that
can be reliably measured and 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 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.
t 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.
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 the 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.
u Retirement benefits
(i) Defined contribution pension schemes
A defined contribution pension scheme is a post-employment benefit scheme under which the Company pays fixed contributions into
a separate fund and will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to
pay all employee benefits relating to employee service in the current and prior periods. Obligations for contributions to defined contribution
pension schemes are recognised as an expense in the income statement in the periods during which services are rendered by employees.
(ii) Defined benefit pension schemes
A defined benefit pension scheme is a post-employment benefit plan other than a defined contribution pension scheme. Defined benefit
pension schemes are recognised on the balance sheet as a defined benefit pension asset or a defined benefit pension liability based on the
difference between the fair value of pension scheme assets and the present value of pension scheme liabilities.
The present value of pension scheme liabilities is calculated by a qualified actuary using the projected unit method by estimating the
amount of future benefit that employees have earned in return for their service in the current and prior periods, discounted using the rate
applicable to AA rated corporate bonds that have a similar maturity and currency to the pension scheme liabilities. The fair value of any
pension scheme assets (at bid price) is deducted from the present value of pension scheme liabilities to determine the net deficit or surplus
of each scheme. Remeasurements arising from defined benefit pension schemes comprise actuarial gains and losses on pension scheme
liabilities and the actual return on pension scheme assets excluding amounts already included in net interest. The net actuarial gain or loss
for the year is recorded in full in the statement of comprehensive income.
Current service cost, past service cost or gain 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 pension liability or asset is calculated by applying the discount rate used to measure the defined benefit pension scheme deficit
or surplus at the beginning of the year to the net defined benefit pension liability or asset at the beginning of the year. Net interest is
recorded within finance expense or income in the income statement.
When the valuation of a defined benefit pension scheme results in a surplus, the recognised defined benefit pension asset is limited to the
present value of benefits available in the form of any future refunds from the pension scheme or reductions in future contributions and takes
into account the adverse effect of any minimum funding requirements.
112
112
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report
Notes continued
2 Accounting policies continued
(iv) Other derivative instruments
Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that do not qualify
for hedge accounting are immediately recognised in the income statement.
2 Accounting policies continued
v Dividends
The interim dividend is recognised in the 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.
q Cash and cash equivalents
Cash and cash equivalents, as reported in the cash flow statement, comprises cash at bank and in hand and bank overdrafts. Cash at bank
and in hand includes cash balances and short term deposits with maturities of three months or less from the date the deposit is made.
w Hyperinflationary economies
Where the Group has operations in countries to which hyperinflation accounting applies, the financial statements of the business concerned
are accounted for under IAS 29 ‘Financial Reporting in Hyperinflationary Economies’.
Strategic report
Directors’ report
Financial statements
r Net debt
s Provisions
Net debt is defined as interest bearing loans and borrowings adjusted for the fair value of interest rate swaps on fixed interest rate
borrowings and other derivatives managing the interest rate risk and currency profile less cash and cash equivalents.
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event that
can be reliably measured and 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 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.
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
t Investment in own shares
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 the 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.
u Retirement benefits
(i) Defined contribution pension schemes
A defined contribution pension scheme is a post-employment benefit scheme under which the Company pays fixed contributions into
a separate fund and will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to
pay all employee benefits relating to employee service in the current and prior periods. Obligations for contributions to defined contribution
pension schemes are recognised as an expense in the income statement in the periods during which services are rendered by employees.
(ii) Defined benefit pension schemes
A defined benefit pension scheme is a post-employment benefit plan other than a defined contribution pension scheme. Defined benefit
pension schemes are recognised on the balance sheet as a defined benefit pension asset or a defined benefit pension liability based on the
difference between the fair value of pension scheme assets and the present value of pension scheme liabilities.
The present value of pension scheme liabilities is calculated by a qualified actuary using the projected unit method by estimating the
amount of future benefit that employees have earned in return for their service in the current and prior periods, discounted using the rate
applicable to AA rated corporate bonds that have a similar maturity and currency to the pension scheme liabilities. The fair value of any
pension scheme assets (at bid price) is deducted from the present value of pension scheme liabilities to determine the net deficit or surplus
of each scheme. Remeasurements arising from defined benefit pension schemes comprise actuarial gains and losses on pension scheme
liabilities and the actual return on pension scheme assets excluding amounts already included in net interest. The net actuarial gain or loss
for the year is recorded in full in the statement of comprehensive income.
Current service cost, past service cost or gain 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 pension liability or asset is calculated by applying the discount rate used to measure the defined benefit pension scheme deficit
or surplus at the beginning of the year to the net defined benefit pension liability or asset at the beginning of the year. Net interest is
recorded within finance expense or income in the income statement.
When the valuation of a defined benefit pension scheme results in a surplus, the recognised defined benefit pension asset is limited to the
present value of benefits available in the form of any future refunds from the pension scheme or reductions in future contributions and takes
into account the adverse effect of any minimum funding requirements.
x Judgements made in applying the Group’s accounting policies
In the course of preparing the financial statements, other than judgements involved in determining estimates and assumptions (see Note 2y
below), no judgements have been made in the process of applying the Group’s accounting policies that have had a significant effect on the
amounts recognised in the financial statements.
y Sources of estimation uncertainty
In applying the Group’s accounting policies various transactions and balances are valued using estimates or assumptions. Should these
estimates or assumptions prove incorrect, there may be an impact on the following year’s financial statements. As at 31 December 2018,
sources of estimation uncertainty where there was a significant risk of material adjustment to the carrying amounts of assets and liabilities
within the next financial year were limited to the following items:
(i) Accounting for business combinations
Part of the Company’s strategy is to grow through acquisitions. Acquisitions are accounted for using the acquisition method as described in
the business combinations accounting policy, Note 2 a(ii), and the goodwill accounting policy, Note 2 k(i). This includes the determination of
fair values for assets and liabilities acquired, including the separate identification of intangible assets, which use assumptions and estimates
and are therefore subjective. The Group has developed a process to meet the requirements of IFRS 3 including the separate identification of
customer relationships intangible assets based on estimated future performance and customer attrition rates. External valuation specialists
are used where appropriate. The process applied is described in Note 25.
(ii) Recoverability of goodwill and customer relationships intangible assets
As noted above, part of the Company’s strategy is to grow through acquisitions which has led to material goodwill and customer
relationships intangible assets being recognised on the balance sheet. Goodwill, which is allocated across CGUs, is tested annually to
determine if there is any indication of impairment by comparing the carrying amount of the goodwill to the recoverable amount of the CGU
to which it has been allocated. Assumptions and estimates are used to determine the recoverable amount of each CGU, principally based
on the present value of estimated future cash flows. Actual performance may differ from management’s expectations. The estimates and
assumptions used in performing impairment testing are described in Note 10. Customer relationships assets are also reviewed annually
for indicators of impairment and if an indicator of impairment exists then similar recoverability testing, involving the use of estimates
and assumptions, is performed for the business to which the customer relationships asset relates. The useful economic lives of customer
relationships intangible assets are also reviewed at least annually, with any revisions to the original estimated useful economic lives
accounted for prospectively. The goodwill balance at the end of 31 December 2018 was £1,420.4m (2017: £1,378.0m) and the amount
of customer relationships intangible assets as at 31 December 2018 was £941.2m (2017: £954.6m).
(iii) Defined benefit pension schemes
The measurement of the present value of defined benefit pension scheme liabilities involves the use of various actuarial assumptions.
The Group uses independent actuarial experts to assist with the estimation of the discount rates, inflation rates and longevity assumptions
used for the measurement of defined benefit pension scheme liabilities but the actual liabilities could be materially different. The main risks
to which the Group is exposed in relation to the valuation of the defined benefit pension schemes are described in Note 21. The Group’s net
pension deficit balance as at 31 December 2018 was £38.5m (2017: £51.0m).
(iv) Taxation
The Group operates in many countries and is therefore subject to tax laws in a number of different tax jurisdictions. The amount of tax
payable or receivable on profits or losses for any period is subject to the agreement of the tax authority in each respective jurisdiction and
the tax liability or asset position is open to review for several years after the relevant accounting period ends. In determining the provisions
for income taxes, management is required to make assumptions based on interpretations of tax statute and case law, which it does after
taking account of professional advice and prior experience.
The majority of the Group’s tax payable balance of £94.8m (2017: £93.5m) relates to provisions for uncertain tax matters. Uncertainties
in respect of enquiries and additional tax assessments raised by tax authorities are measured using management’s single best estimate
of the likely outcome and the amounts ultimately payable or receivable may differ from the amounts of any provisions recognised in the
consolidated financial statements as a result of the estimates and assumptions used.
The principal uncertainty relates to the legal arguments between the European Commission and the UK government over whether part of
the UK’s tax regime is contrary to European Union State Aid provisions. Other than the risk relating to this, management does not consider
there to exist a significant risk of material adjustment within the next financial year because tax provisions cover a range of matters across
multiple tax jurisdictions with a variety of timescales before such matters are expected to be concluded.
112
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
113
113
Financial statementsStrategic reportDirectors’ report
Notes continued
3 Alternative performance measures
In addition to the various performance measures defined under IFRS, the Group reports a number of other measures that are designed
to assist with the understanding of the underlying performance of the Group and its businesses. These measures are not defined under
IFRS and are therefore known as ‘alternative performance measures’. Accordingly, these measures, which are not designed to be a
substitute for any of the IFRS measures of performance, may not be directly comparable with other companies’ alternative performance
measures. The principal alternative performance measures used within the consolidated financial statements and the location of the
reconciliations to equivalent IFRS measures are shown and defined in the table below:
Operating profit before customer relationships amortisation, acquisition related items, the GMP equalisation
charge and disposal of businesses (reconciled in the table below and in the Consolidated income statement)
Adjusted operating
profit
Operating margin % Adjusted operating profit as a percentage of revenue
Adjusted profit
before income tax
Adjusted profit for
the year
Effective tax rate
Profit before income tax, customer relationships amortisation, acquisition related items, the GMP equalisation
charge and disposal of businesses (reconciled in the table below)
Profit for the year before customer relationships amortisation, acquisition related items, the GMP equalisation
charge, disposal of businesses and the associated tax (reconciled in the table below)
Tax on adjusted profit before income tax as a percentage of adjusted profit before income tax (reconciled in
Note 7)
Adjusted profit for the year divided by the weighted average number of ordinary shares in issue (reconciled in
the table below and in Note 8)
Adjusted profit for the year divided by the diluted weighted average number of ordinary shares (reconciled in
Note 8)
Adjusted earnings
per share
Adjusted diluted
earnings per share
Operating cash flow Cash generated from operations before acquisition related items after deducting purchases of property, plant
Cash conversion %
Return on average
operating capital %
Return on invested
capital %
EBITDA
Constant exchange
rates
and equipment and software and adding back the proceeds from the sale of property, plant and equipment and
software (as shown in the Consolidated cash flow statement)
Operating cash flow as a percentage of adjusted operating profit (as shown in the Consolidated cash
flow statement)
The ratio of adjusted operating profit to the average of the month end operating capital employed
(being property, plant and equipment, software, inventories and trade and other receivables less trade
and other payables)
The ratio of adjusted operating profit to the average of the month end invested capital (being equity after
adding back net debt, net defined benefit pension scheme liabilities, cumulative customer relationships
amortisation, acquisition related items and amounts written off goodwill, net of the associated tax)
Adjusted operating profit before depreciation of property, plant and equipment and software amortisation and
after adjustments as permitted by the Group’s banking covenants, principally to exclude share option charges
and to annualise for the effect of acquisitions and disposals of businesses
Growth rates at constant exchange rates are calculated by retranslating the results for the year ended
31 December 2017 at the average rates for the year ended 31 December 2018 so that they can be compared
without the distorting impact of changes caused by foreign exchange translation. The principal exchange rates
used for 2018 and 2017 can be found in the Financial review on page 21
These alternative performance measures exclude the charge for customer relationships amortisation, acquisition related items, the GMP
equalisation charge, disposal of businesses and any associated tax, where relevant. The definitions of these measures are similar to
those used in the prior year but this year have been updated to exclude disposal of businesses and the GMP equalisation charge, these
being items impacting the reported results for 2018 (no impact in 2017) which do not relate to the underlying operating performance
of the business.
Acquisition related items comprise deferred consideration payments relating to the retention of former owners of businesses acquired,
transaction costs and expenses, adjustments to previously estimated earn outs and interest on acquisition related income tax. Customer
relationships amortisation, acquisition related items and any associated tax are considered by management to form part of the total spend
on acquisitions or are non-cash items resulting from acquisitions. The GMP equalisation charge is a non-recurring cost of the equalisation
of guaranteed minimum pensions between male and female members of the Group’s UK defined benefit pension scheme following the
High Court judgment during 2018 in the case of Lloyds Banking Group Pensions Trustees Limited vs Lloyds Bank plc and others.
Disposal of businesses represents the profit or loss on disposal of non-core businesses. None of these items relate to the underlying
operating performance of the business and, as a result, they distort comparability between businesses and reporting periods. Accordingly,
these items are not taken into account by management when assessing the results of the business and are removed in calculating the
profitability measures by which management assesses the performance of the Group.
114
114
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report
Notes continued
3 Alternative performance measures
In addition to the various performance measures defined under IFRS, the Group reports a number of other measures that are designed
to assist with the understanding of the underlying performance of the Group and its businesses. These measures are not defined under
IFRS and are therefore known as ‘alternative performance measures’. Accordingly, these measures, which are not designed to be a
substitute for any of the IFRS measures of performance, may not be directly comparable with other companies’ alternative performance
measures. The principal alternative performance measures used within the consolidated financial statements and the location of the
reconciliations to equivalent IFRS measures are shown and defined in the table below:
Adjusted operating
Operating profit before customer relationships amortisation, acquisition related items, the GMP equalisation
profit
charge and disposal of businesses (reconciled in the table below and in the Consolidated income statement)
Operating margin % Adjusted operating profit as a percentage of revenue
Adjusted profit
Profit before income tax, customer relationships amortisation, acquisition related items, the GMP equalisation
before income tax
charge and disposal of businesses (reconciled in the table below)
Adjusted profit for
Profit for the year before customer relationships amortisation, acquisition related items, the GMP equalisation
the year
charge, disposal of businesses and the associated tax (reconciled in the table below)
Effective tax rate
Tax on adjusted profit before income tax as a percentage of adjusted profit before income tax (reconciled in
Note 7)
Adjusted earnings
Adjusted profit for the year divided by the weighted average number of ordinary shares in issue (reconciled in
per share
the table below and in Note 8)
Adjusted diluted
Adjusted profit for the year divided by the diluted weighted average number of ordinary shares (reconciled in
earnings per share
Note 8)
Operating cash flow Cash generated from operations before acquisition related items after deducting purchases of property, plant
and equipment and software and adding back the proceeds from the sale of property, plant and equipment and
software (as shown in the Consolidated cash flow statement)
Cash conversion %
Operating cash flow as a percentage of adjusted operating profit (as shown in the Consolidated cash
Return on average
The ratio of adjusted operating profit to the average of the month end operating capital employed
operating capital %
(being property, plant and equipment, software, inventories and trade and other receivables less trade
flow statement)
and other payables)
Return on invested
The ratio of adjusted operating profit to the average of the month end invested capital (being equity after
capital %
adding back net debt, net defined benefit pension scheme liabilities, cumulative customer relationships
amortisation, acquisition related items and amounts written off goodwill, net of the associated tax)
EBITDA
Adjusted operating profit before depreciation of property, plant and equipment and software amortisation and
after adjustments as permitted by the Group’s banking covenants, principally to exclude share option charges
and to annualise for the effect of acquisitions and disposals of businesses
Constant exchange
Growth rates at constant exchange rates are calculated by retranslating the results for the year ended
rates
31 December 2017 at the average rates for the year ended 31 December 2018 so that they can be compared
without the distorting impact of changes caused by foreign exchange translation. The principal exchange rates
used for 2018 and 2017 can be found in the Financial review on page 21
These alternative performance measures exclude the charge for customer relationships amortisation, acquisition related items, the GMP
equalisation charge, disposal of businesses and any associated tax, where relevant. The definitions of these measures are similar to
those used in the prior year but this year have been updated to exclude disposal of businesses and the GMP equalisation charge, these
being items impacting the reported results for 2018 (no impact in 2017) which do not relate to the underlying operating performance
of the business.
Acquisition related items comprise deferred consideration payments relating to the retention of former owners of businesses acquired,
transaction costs and expenses, adjustments to previously estimated earn outs and interest on acquisition related income tax. Customer
relationships amortisation, acquisition related items and any associated tax are considered by management to form part of the total spend
on acquisitions or are non-cash items resulting from acquisitions. The GMP equalisation charge is a non-recurring cost of the equalisation
of guaranteed minimum pensions between male and female members of the Group’s UK defined benefit pension scheme following the
High Court judgment during 2018 in the case of Lloyds Banking Group Pensions Trustees Limited vs Lloyds Bank plc and others.
Disposal of businesses represents the profit or loss on disposal of non-core businesses. None of these items relate to the underlying
operating performance of the business and, as a result, they distort comparability between businesses and reporting periods. Accordingly,
these items are not taken into account by management when assessing the results of the business and are removed in calculating the
profitability measures by which management assesses the performance of the Group.
Strategic report
Directors’ report
Financial statements
3 Alternative performance measures continued
Other alternative performance measures, including the Group’s key performance indicators which are set out and defined on pages 18
and 19, are used to monitor the performance of the Group and a number of these are based on, or derived from, the alternative performance
measures noted above. All alternative performance measures have been calculated consistently with the methods applied in the
consolidated financial statements for the year ended 31 December 2017 with the exception of the amendments made to the alternative
performance measures for the year ended 31 December 2018 relating to the GMP equalisation charge and disposal of businesses which
were not applicable in the prior year.
The principal profit related alternative performance measures, these being adjusted operating profit, adjusted profit before income tax,
adjusted profit for the year and adjusted earnings per share, are reconciled to the most directly reconcilable IFRS measures in the
table below.
Reconciliation of alternative performance measures to IFRS measures
Adjusting items
2018
Adjusted operating profit
Finance income
Finance expense
Disposal of businesses
Adjusted profit before income tax
Tax on adjusted profit
Adjusted profit for the year
Customer
relationships
amortisation
£m
(111.1)
Alternative
performance
measures
£m
614.0
11.6
(66.6)
Acquisition
related
items
£m
(33.4)
GMP
equalisation
charge
£m
(3.3)
Disposal of
businesses
£m
IFRS
measures
£m
559.0
(129.1)
429.9
(111.1)
29.6
(81.5)
(33.4)
3.5
(29.9)
(3.3)
0.5
(2.8)
466.2 Operating profit
11.6 Finance income
(66.6) Finance expense
13.6 Disposal of businesses
13.6
13.6 424.8 Profit before income tax
(98.3) Income tax
(2.8)
10.8 326.5 Profit for the year
Adjusted earnings per share
129.6p
(24.6)p
(9.0)p
(0.9)p
3.3p
98.4p Basic earnings per share
Adjusting items
2017
Adjusted operating profit
Finance income
Finance expense
Disposal of businesses
Adjusted profit before income tax
Tax on adjusted profit
Adjusted profit for the year
Customer
relationships
amortisation
£m
(96.6)
Alternative
performance
measures
£m
589.3
10.6
(57.3)
Acquisition
related
items
£m
(36.7)
GMP
equalisation
charge
£m
–
542.6
(149.2)
393.4
(96.6)
44.7
(51.9)
(36.7)
5.7
(31.0)
Adjusted earnings per share
119.4p
(15.8)p
(9.4)p
Disposal of
businesses
£m
IFRS
measures
£m
456.0 Operating profit
10.6 Finance income
(57.3) Finance expense
–
–
–
–
– Disposal of businesses
409.3 Profit before income tax
(98.8) Income tax
310.5 Profit for the year
–
94.2p Basic earnings per share
–
–
–
–
114
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
115
115
Financial statementsStrategic reportDirectors’ report
Notes continued
4 Segment analysis
Year ended 31 December 2018
Revenue
Adjusted operating profit/(loss)
Customer relationships amortisation
Acquisition related items
GMP equalisation charge
Operating profit/(loss)
Finance income
Finance expense
Disposal of businesses
Profit before income tax
Adjusted profit before income tax
Income tax
Profit for the year
North
America
£m
5,277.8
317.1
(34.1)
(11.8)
Continental
Europe
£m
1,797.5
176.8
(51.0)
(14.5)
UK &
Ireland
£m
1,263.6
86.8
(9.4)
(3.0)
Rest of the
World
£m
740.5
56.4
(16.6)
(4.1)
271.2
111.3
74.4
35.7
Corporate
£m
(23.1)
(3.3)
(26.4)
Purchase of property, plant and equipment
Depreciation of property, plant and equipment
Purchase of software
Software amortisation
6.6
9.1
4.2
1.9
8.0
8.2
2.9
3.6
4.0
4.1
1.3
1.2
3.1
3.0
0.7
1.2
North
America
£m
5,061.1
Continental
Europe
£m
1,610.4
UK &
Ireland
£m
1,190.8
Rest of the
World
£m
718.6
318.3
(28.1)
(15.6)
274.6
151.1
(41.0)
(12.7)
97.4
88.5
(10.5)
(4.2)
73.8
53.9
(17.0)
(4.2)
32.7
Year ended 31 December 2017
Revenue
Adjusted operating profit/(loss)
Customer relationships amortisation
Acquisition related items
Operating profit/(loss)
Finance income
Finance expense
Profit before income tax
Adjusted profit before income tax
Income tax
Profit for the year
Purchase of property, plant and equipment
Depreciation of property, plant and equipment
Purchase of software
Software amortisation
11.0
9.1
1.6
1.6
6.0
7.5
3.1
3.4
5.6
4.0
0.9
1.0
3.6
3.2
1.8
1.2
Acquisition related items
Deferred consideration payments relating to the retention of former owners of businesses acquired
Transaction costs and expenses
Adjustments to previously estimated earn outs
Interest on acquisition related income tax
0.2
0.1
0.1
0.2
Corporate
£m
(22.5)
(22.5)
0.1
0.1
0.1
0.2
2018
£m
19.1
5.5
8.3
0.5
33.4
Total
£m
9,079.4
614.0
(111.1)
(33.4)
(3.3)
466.2
11.6
(66.6)
13.6
424.8
559.0
(98.3)
326.5
21.9
24.5
9.2
8.1
Total
£m
8,580.9
589.3
(96.6)
(36.7)
456.0
10.6
(57.3)
409.3
542.6
(98.8)
310.5
26.3
23.9
7.5
7.4
2017
£m
28.5
12.1
(3.9)
–
36.7
The Group results are reported as four business areas based on geographic regions which are reviewed regularly by the Company’s
chief operating decision maker, the Board of directors. The principal results reviewed for each business area are revenue and adjusted
operating profit.
Reportable segments are determined based on quantitative thresholds in accordance with IFRS 8 ‘Operating Segments’. The three business
areas of North America, Continental Europe and UK & Ireland are operating segments that meet the quantitative thresholds for reportable
116
116
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report
Notes continued
4 Segment analysis
Year ended 31 December 2018
Revenue
Adjusted operating profit/(loss)
Customer relationships amortisation
Acquisition related items
GMP equalisation charge
Operating profit/(loss)
Finance income
Finance expense
Disposal of businesses
Profit before income tax
Adjusted profit before income tax
Income tax
Profit for the year
Purchase of property, plant and equipment
Depreciation of property, plant and equipment
Purchase of software
Software amortisation
Year ended 31 December 2017
Revenue
Adjusted operating profit/(loss)
Customer relationships amortisation
Acquisition related items
Operating profit/(loss)
Finance income
Finance expense
Profit before income tax
Adjusted profit before income tax
Income tax
Profit for the year
Purchase of property, plant and equipment
Depreciation of property, plant and equipment
Purchase of software
Software amortisation
Acquisition related items
Transaction costs and expenses
Adjustments to previously estimated earn outs
Interest on acquisition related income tax
North
America
£m
5,277.8
317.1
(34.1)
(11.8)
Continental
Europe
£m
1,797.5
176.8
(51.0)
(14.5)
UK &
Ireland
£m
1,263.6
86.8
(9.4)
(3.0)
Rest of the
World
£m
740.5
56.4
(16.6)
(4.1)
271.2
111.3
74.4
35.7
Corporate
£m
(23.1)
(3.3)
(26.4)
6.6
9.1
4.2
1.9
8.0
8.2
2.9
3.6
North
America
£m
5,061.1
318.3
(28.1)
(15.6)
274.6
Continental
Europe
£m
1,610.4
151.1
(41.0)
(12.7)
97.4
4.0
4.1
1.3
1.2
UK &
Ireland
£m
1,190.8
88.5
(10.5)
(4.2)
73.8
3.1
3.0
0.7
1.2
Rest of the
World
£m
718.6
53.9
(17.0)
(4.2)
32.7
0.2
0.1
0.1
0.2
Corporate
£m
(22.5)
(22.5)
11.0
9.1
1.6
1.6
6.0
7.5
3.1
3.4
5.6
4.0
0.9
1.0
3.6
3.2
1.8
1.2
0.1
0.1
0.1
0.2
2018
£m
19.1
5.5
8.3
0.5
33.4
Total
£m
9,079.4
614.0
(111.1)
(33.4)
(3.3)
466.2
11.6
(66.6)
13.6
424.8
559.0
(98.3)
326.5
21.9
24.5
9.2
8.1
Total
£m
8,580.9
589.3
(96.6)
(36.7)
456.0
10.6
(57.3)
409.3
542.6
(98.8)
310.5
26.3
23.9
7.5
7.4
2017
£m
28.5
12.1
(3.9)
–
36.7
Deferred consideration payments relating to the retention of former owners of businesses acquired
The Group results are reported as four business areas based on geographic regions which are reviewed regularly by the Company’s
chief operating decision maker, the Board of directors. The principal results reviewed for each business area are revenue and adjusted
Reportable segments are determined based on quantitative thresholds in accordance with IFRS 8 ‘Operating Segments’. The three business
areas of North America, Continental Europe and UK & Ireland are operating segments that meet the quantitative thresholds for reportable
operating profit.
116
Strategic report
Directors’ report
Financial statements
4 Segment analysis continued
segments and are therefore disclosed separately above. The Rest of the World business area contains businesses in Latin America and
Asia Pacific which individually do not meet the quantitative thresholds for separate disclosure as reportable segments. Rest of the World
is therefore an ‘other’ segment that is disclosed above as a reportable segment as this information is considered to be useful to users of
the financial statements and it also helps to reconcile the results of the reportable segments to the Group’s consolidated results.
Information related to each reportable segment is set out above. 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, safety, cleaning & hygiene, retail and healthcare market sectors but results are not monitored on this basis. The performance of
the four business areas is assessed by reference to adjusted operating profit 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 the year ended 31 December 2018 the Group had one customer with revenue of £926.6m (2017: one customer with revenue of £876.7m)
across North America, UK & Ireland and Rest of the World, representing 10% (2017: 10%) of total Group revenue.
Revenue generated in the parent company’s country of domicile, the UK, for the year ended 31 December 2018 was £1,168.9m (2017: £1,103.1m).
As noted above, the businesses within each operating segment operate in a number of different countries and sell products across a range
of market sectors, with the vast majority of revenue generated from the delivery of goods to customers. The table below provides a
breakdown of revenue by market sector. The other category covers a wide range of market sectors, none of which is sufficiently material
to warrant separate disclosure.
Revenue by market sector
Foodservice
Grocery
Safety
Cleaning & hygiene
Retail
Healthcare
Other
2018
£m
2,656.5
2,388.5
1,090.8
1,065.3
1,001.6
618.3
258.4
9,079.4
2017
£m
2,470.8
2,323.0
1,011.8
996.5
897.0
599.0
282.8
8,580.9
The table below reconciles segment assets and liabilities to the Group’s total assets and total liabilities. Unallocated assets and liabilities
include corporate assets and liabilities, tax assets and liabilities, cash at bank and in hand, bank overdrafts, interest bearing loans and
borrowings, derivative financial assets and liabilities and defined benefit pension assets and liabilities. Non-current assets (other than
derivative financial assets and deferred tax assets) in the parent company’s country of domicile, the UK, at 31 December 2018 were £334.4m
(2017: £361.1m).
At 31 December 2018
Segment assets
Unallocated assets
Total assets
Segment liabilities
Unallocated liabilities
Total liabilities
At 31 December 2017
Segment assets
Unallocated assets
Total assets
Segment liabilities
Unallocated liabilities
Total liabilities
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
North
America
£m
2,125.4
Continental
Europe
£m
1,594.0
UK &
Ireland
£m
727.3
Rest of the
World
£m
595.7
Unallocated
£m
2,125.4
1,594.0
727.3
595.7
745.5
444.0
327.8
126.2
745.5
444.0
327.8
126.2
513.7
513.7
2,218.1
2,218.1
North
America
£m
1,885.7
Continental
Europe
£m
1,580.6
UK &
Ireland
£m
753.6
Rest of the
World
£m
600.1
Unallocated
£m
1,885.7
1,580.6
753.6
600.1
651.7
409.8
329.3
124.8
651.7
409.8
329.3
124.8
369.6
369.6
2,225.4
2,225.4
Total
£m
5,042.4
513.7
5,556.1
1,643.5
2,218.1
3,861.6
Total
£m
4,820.0
369.6
5,189.6
1,515.6
2,225.4
3,741.0
117
117
Financial statementsStrategic reportDirectors’ report
Notes continued
5 Analysis of operating income and expenses
Cost of goods sold
Employee costs (Note 22)
GMP equalisation charge
Depreciation of property, plant and equipment (Note 9)
Amortisation of intangible assets (Note 10)
Acquisition related items (Note 4)
Impairment losses on trade receivables (Note 12)
(Profit)/loss on disposal of property, plant and equipment
Rentals payable under operating leases and subleases
Lease and sublease income
Other operating expenses
Net operating expenses
2018
£m
6,851.8
859.4
3.3
24.5
119.2
33.4
3.5
(1.4)
145.4
(0.9)
575.0
8,613.2
2017
£m
6,490.6
800.4
–
23.9
104.0
36.7
2.9
0.5
138.0
–
527.9
8,124.9
The GMP equalisation charge in 2018 of £3.3m is the non-recurring cost of the equalisation of guaranteed minimum pensions between male
and female members of the Group’s UK defined benefit pension scheme following the High Court judgment during the year in the case of
Lloyds Banking Group Pensions Trustees Limited vs Lloyds Bank plc and others.
Auditors’ remuneration
Audit of these financial statements
Amounts receivable by the Company’s auditors and
their associates in respect of:
audit of financial statements of subsidiaries of the
Company
audit related assurance services
tax advisory services
all other services
Total auditors’ remuneration
UK
£m
0.4
Overseas
£m
–
0.4
0.1
–
0.1
1.0
2.5
–
–
–
2.5
2018
Total
£m
0.4
2.9
0.1
–
0.1
3.5
UK
£m
0.4
Overseas
£m
–
0.4
0.1
–
0.1
1.0
2.3
–
0.1
–
2.4
2017
Total
£m
0.4
2.7
0.1
0.1
0.1
3.4
Audit related assurance services comprise the review of the half yearly financial report for the six months ended 30 June. Tax advisory
services and all other services comprise other non-audit work which was permissible in accordance with the Company’s policy and the
prevailing regulations concerning the provision of non-audit services by the Company’s external auditors. It is the Company’s policy to
assess the non-audit services to be performed by the Company’s auditors on a case by case basis to ensure adherence to the prevailing
ethical standards and regulations. In the main, other firms are used by the Company to provide non-audit services. However, if the provision
of a service by the Company’s auditors is not prohibited and adequate safeguards are in place, it is sometimes appropriate for this additional
work to be carried out by the Company’s auditors.
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 auditors perform, including the fees paid for such work, to ensure that the auditors’ objectivity and independence
are not compromised. Further information is set out in the Audit Committee’s report on pages 68 to 72.
118
118
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report
5 Analysis of operating income and expenses
6 Finance income/(expense)
Strategic report
Directors’ report
Financial statements
Interest on cash and cash equivalents
Interest income from foreign exchange contracts
Net interest income on defined benefit pension schemes in surplus
Other finance income
Finance income
Interest on loans and overdrafts
Interest expense from foreign exchange contracts
Net interest expense on defined benefit pension schemes in deficit
Fair value gain on US private placement notes 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 and foreign exchange forward contracts
Interest related to income tax
Other finance expense
Finance expense
Net finance expense
2018
£m
5.3
5.7
0.1
0.5
11.6
(59.8)
(3.6)
(1.4)
8.3
(8.2)
43.5
(43.5)
(1.2)
(0.7)
(66.6)
(55.0)
2017
£m
4.1
5.2
–
1.3
10.6
(50.9)
(1.6)
(2.3)
2.3
(2.9)
(46.0)
44.7
–
(0.6)
(57.3)
(46.7)
The foreign exchange gain or loss on intercompany funding arises as a result of the retranslation of foreign currency intercompany loans.
The gain or loss on intercompany funding is substantially matched by the foreign exchange loss or gain on external debt and foreign
exchange forward contracts which minimises the foreign currency exposure in the income statement.
As explained in Note 1 on page 107, as a result of an agenda decision of the IFRS IC, the Group now determines on a case-by-case basis
whether interest related to income tax is classified within finance expense or income tax. In the year ended 31 December 2018, finance
expense includes £1.2m of interest related to income tax. In previous years all interest related to income tax was classified as income tax.
7 Income tax
Current tax on profit
current year
adjustments in respect of prior years
Deferred tax on profit
current year
adjustments in respect of prior years
Income tax on profit
2018
£m
122.8
(6.9)
115.9
(16.6)
(1.0)
(17.6)
98.3
2017
£m
134.8
(8.0)
126.8
(28.5)
0.5
(28.0)
98.8
In assessing the underlying performance of the Group, management uses adjusted profit before income tax. The tax effect of the adjusting
items (see Note 3) is excluded in monitoring the effective tax rate (being the tax rate on adjusted profit before income tax) which is shown in
the table below. The Group’s expectations for the effective tax rate in 2019 are included in the Financial review on pages 20 to 25.
Notes continued
Cost of goods sold
Employee costs (Note 22)
GMP equalisation charge
Depreciation of property, plant and equipment (Note 9)
Amortisation of intangible assets (Note 10)
Acquisition related items (Note 4)
Impairment losses on trade receivables (Note 12)
(Profit)/loss on disposal of property, plant and equipment
Rentals payable under operating leases and subleases
Lease and sublease income
Other operating expenses
Net operating expenses
2018
£m
6,851.8
859.4
2017
£m
6,490.6
800.4
3.3
24.5
119.2
33.4
3.5
(1.4)
145.4
(0.9)
575.0
8,613.2
8,124.9
–
23.9
104.0
36.7
2.9
0.5
138.0
–
527.9
2017
Total
£m
0.4
2.7
0.1
0.1
0.1
3.4
The GMP equalisation charge in 2018 of £3.3m is the non-recurring cost of the equalisation of guaranteed minimum pensions between male
and female members of the Group’s UK defined benefit pension scheme following the High Court judgment during the year in the case of
Lloyds Banking Group Pensions Trustees Limited vs Lloyds Bank plc and others.
Auditors’ remuneration
Audit of these financial statements
Amounts receivable by the Company’s auditors and
their associates in respect of:
audit of financial statements of subsidiaries of the
Company
audit related assurance services
tax advisory services
all other services
Total auditors’ remuneration
UK
£m
0.4
Overseas
£m
–
0.4
0.1
–
0.1
1.0
2.5
–
–
–
2.5
2018
Total
£m
0.4
2.9
0.1
–
0.1
3.5
UK
£m
0.4
Overseas
£m
–
0.4
0.1
–
0.1
1.0
2.3
0.1
–
–
2.4
Audit related assurance services comprise the review of the half yearly financial report for the six months ended 30 June. Tax advisory
services and all other services comprise other non-audit work which was permissible in accordance with the Company’s policy and the
prevailing regulations concerning the provision of non-audit services by the Company’s external auditors. It is the Company’s policy to
assess the non-audit services to be performed by the Company’s auditors on a case by case basis to ensure adherence to the prevailing
ethical standards and regulations. In the main, other firms are used by the Company to provide non-audit services. However, if the provision
of a service by the Company’s auditors is not prohibited and adequate safeguards are in place, it is sometimes appropriate for this additional
work to be carried out by the Company’s auditors.
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 auditors perform, including the fees paid for such work, to ensure that the auditors’ objectivity and independence
are not compromised. Further information is set out in the Audit Committee’s report on pages 68 to 72.
118
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Income tax on profit
Tax associated with adjusting items
Tax on adjusted profit
Profit before income tax
Adjusting items
Adjusted profit before income tax
Reported tax rate
Effective tax rate
2018
£m
98.3
30.8
129.1
424.8
134.2
559.0
2017
£m
98.8
50.4
149.2
409.3
133.3
542.6
23.1%
23.1%
24.1%
27.5%
119
119
Financial statementsStrategic reportDirectors’ report
Notes continued
7 Income tax continued
The effective tax rate for 2018 has significantly decreased from 2017 principally due to the reduction in the US federal tax rate from 35% to
21% effective from 1 January 2018 and also due to the positive outcome of some previous tax uncertainties. The reported tax rate for 2018
is also lower than in 2017 due to the reduction in the US federal tax rate but to a lesser degree as a result of a one-time deferred tax credit
on intangible assets in 2017 from enactment of the new rate before 31 December 2017.
Tax on other comprehensive income/(expense)
and equity
Actuarial gain on defined benefit pension schemes
Foreign currency translation differences on foreign
operations
Movement from translation reserve to income statement
on disposal of foreign operation
(Loss)/gain taken to equity as a result of effective net
investment hedges
Gain recognised in cash flow hedge reserve
Movement from cash flow hedge reserve to inventory/
income statement
Other comprehensive income/(expense)
Dividends
Issue of share capital
Employee trust shares
Share based payments
Other comprehensive income/(expense) and equity
Gross
£m
11.0
Tax (charge)/
credit
£m
(3.7)
2018
Net
£m
7.3
Gross
£m
27.0
Tax (charge)/
credit
£m
(9.6)
3.0
(2.4)
(7.5)
7.9
(4.4)
7.6
(152.2)
7.2
45.6
12.9
(78.9)
–
–
0.2
(1.3)
0.7
(4.1)
–
–
–
2.4
(1.7)
3.0
(53.3)
(2.4)
(7.3)
6.6
–
7.2
2.4
(3.7)
3.5
(152.2)
7.2
45.6
15.3
(80.6)
(7.0)
(23.7)
(138.2)
4.0
(20.8)
11.8
(166.9)
–
–
0.5
(0.4)
1.2
(8.3)
–
–
–
0.8
(7.5)
2017
Net
£m
17.4
(53.3)
–-
7.7
2.0
(5.8)
(32.0)
(138.2)
4.0
(20.8)
12.6
(174.4)
Factors affecting the tax charge for the year
The Group operates in many countries and is subject to different rates of income tax in those countries. The expected tax rate is calculated
as a weighted average of the tax rates in the tax jurisdictions in which the Group operates, most of which are higher than the UK statutory
rate for the year of 19.0% (2017: 19.25%). 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 (2018: 25.1%; 2017: 29.5%)
Effects of:
non-deductible expenditure
impact of intercompany finance
change in tax rates
prior year adjustments
other
Income tax on profit
Deferred tax in the income statement
Property, plant and equipment
Defined benefit pension schemes
Goodwill and customer relationships
Provisions
Inventories
Other
Deferred tax on profit
2018
£m
424.8
2017
£m
409.3
106.5
120.6
7.5
(5.1)
(2.3)
(7.9)
(0.4)
98.3
2018
£m
–
0.8
(14.3)
(0.5)
0.7
(4.3)
(17.6)
8.5
(3.7)
(20.1)
(7.5)
1.0
98.8
2017
£m
(2.0)
4.4
(30.9)
0.9
(2.9)
2.5
(28.0)
120
120
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report
Strategic report
Directors’ report
Financial statements
8 Earnings per share
Profit for the year
Adjusted for:
customer relationships amortisation
acquisition related items
GMP equalisation charge
disposal of businesses
tax credit on adjusting items
Adjusted profit for the year
Basic weighted average number of ordinary shares in issue (million)
Dilutive effect of employee share plans (million)
Diluted weighted average number of ordinary shares (million)
Basic earnings per share
Adjustment
Adjusted earnings per share
Diluted basic earnings per share
Adjustment
Adjusted diluted earnings per share
2018
£m
326.5
111.1
33.4
3.3
(13.6)
(30.8)
429.9
2018
331.7
2.2
333.9
98.4p
31.2p
129.6p
97.8p
31.0p
128.8p
2017
£m
310.5
96.6
36.7
–
–
(50.4)
393.4
2017
329.5
2.6
332.1
94.2p
25.2p
119.4p
93.5p
25.0p
118.5p
Notes continued
7 Income tax continued
The effective tax rate for 2018 has significantly decreased from 2017 principally due to the reduction in the US federal tax rate from 35% to
21% effective from 1 January 2018 and also due to the positive outcome of some previous tax uncertainties. The reported tax rate for 2018
is also lower than in 2017 due to the reduction in the US federal tax rate but to a lesser degree as a result of a one-time deferred tax credit
on intangible assets in 2017 from enactment of the new rate before 31 December 2017.
Gross
£m
11.0
Tax (charge)/
credit
£m
(3.7)
Gross
£m
27.0
Tax (charge)/
credit
£m
(9.6)
Tax on other comprehensive income/(expense)
and equity
operations
Actuarial gain on defined benefit pension schemes
Foreign currency translation differences on foreign
Movement from translation reserve to income statement
on disposal of foreign operation
(Loss)/gain taken to equity as a result of effective net
investment hedges
Gain recognised in cash flow hedge reserve
Movement from cash flow hedge reserve to inventory/
income statement
Other comprehensive income/(expense)
Dividends
Issue of share capital
Employee trust shares
Share based payments
3.0
(2.4)
(7.5)
7.9
(4.4)
7.6
(152.2)
7.2
45.6
12.9
–
–
–
–
–
0.2
(1.3)
0.7
(4.1)
2.4
(1.7)
Other comprehensive income/(expense) and equity
(78.9)
2018
Net
£m
7.3
(2.4)
(7.3)
6.6
3.0
(53.3)
–
7.2
2.4
(3.7)
3.5
(7.0)
(23.7)
(152.2)
(138.2)
7.2
45.6
15.3
4.0
(20.8)
11.8
(80.6)
(166.9)
Factors affecting the tax charge for the year
The Group operates in many countries and is subject to different rates of income tax in those countries. The expected tax rate is calculated
as a weighted average of the tax rates in the tax jurisdictions in which the Group operates, most of which are higher than the UK statutory
rate for the year of 19.0% (2017: 19.25%). The adjustments to the tax charge at the weighted average rate to determine the income tax on
Tax charge at weighted average rate (2018: 25.1%; 2017: 29.5%)
profit are as follows:
Profit before income tax
Effects of:
non-deductible expenditure
impact of intercompany finance
change in tax rates
prior year adjustments
other
Income tax on profit
Deferred tax in the income statement
Property, plant and equipment
Defined benefit pension schemes
Goodwill and customer relationships
Provisions
Inventories
Other
Deferred tax on profit
2017
Net
£m
17.4
(53.3)
–-
7.7
2.0
(5.8)
(32.0)
(138.2)
4.0
(20.8)
12.6
(174.4)
8.5
(3.7)
(20.1)
(7.5)
1.0
98.8
2017
£m
(2.0)
4.4
(30.9)
0.9
(2.9)
2.5
(28.0)
–
–
0.5
(0.4)
1.2
(8.3)
–
–
–
0.8
(7.5)
7.5
(5.1)
(2.3)
(7.9)
(0.4)
98.3
2018
£m
–
0.8
(14.3)
(0.5)
0.7
(4.3)
(17.6)
2018
£m
424.8
2017
£m
409.3
106.5
120.6
120
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
121
121
Financial statementsStrategic reportDirectors’ report
Notes continued
9 Property, plant and equipment
2018
Cost
Beginning of year
Acquisitions
Additions
Disposals
Disposal of business
Currency translation
End of year
Accumulated depreciation
Beginning of year
Charge in year
Disposals
Disposal of business
Currency translation
End of year
Land and
buildings
£m
Plant and
machinery
£m
Fixtures,
fittings and
equipment
£m
93.3
0.2
1.8
(2.8)
(4.8)
2.4
90.1
45.3
3.5
(2.4)
(3.0)
1.8
45.2
148.5
1.3
10.1
(6.4)
(2.0)
5.5
157.0
97.7
12.0
(5.8)
(1.6)
3.1
105.4
103.9
1.6
10.0
(4.5)
(6.4)
0.5
105.1
77.5
9.0
(4.4)
(4.2)
1.3
79.2
Total
£m
345.7
3.1
21.9
(13.7)
(13.2)
8.4
352.2
220.5
24.5
(12.6)
(8.8)
6.2
229.8
Net book value at 31 December 2018
44.9
51.6
25.9
122.4
2017
Cost
Beginning of year
Acquisitions
Additions
Disposals
Transfer to assets held for sale
Currency translation
End of year
Accumulated depreciation
Beginning of year
Charge in year
Disposals
Transfer to assets held for sale
Currency translation
End of year
Land and
buildings
£m
Plant and
machinery
£m
Fixtures,
fittings and
equipment
£m
92.3
–
4.1
(3.1)
–
–
93.3
44.7
3.6
(2.5)
–
(0.5)
45.3
145.6
2.5
12.4
(5.2)
(0.5)
(6.3)
148.5
93.0
11.6
(4.8)
(0.4)
(1.7)
97.7
97.2
2.3
9.8
(2.9)
(0.3)
(2.2)
103.9
74.1
8.7
(2.5)
(0.2)
(2.6)
77.5
Total
£m
335.1
4.8
26.3
(11.2)
(0.8)
(8.5)
345.7
211.8
23.9
(9.8)
(0.6)
(4.8)
220.5
Net book value at 31 December 2017
48.0
50.8
26.4
125.2
Commitments for capital expenditure not provided for at 31 December 2018 were £0.2m (2017: £0.7m).
122
122
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report
Notes continued
9 Property, plant and equipment
2018
Cost
Beginning of year
Acquisitions
Additions
Disposals
Disposal of business
Currency translation
End of year
Beginning of year
Charge in year
Disposals
Disposal of business
Currency translation
End of year
Accumulated depreciation
2017
Cost
Beginning of year
Acquisitions
Additions
Disposals
Transfer to assets held for sale
Currency translation
End of year
Accumulated depreciation
Beginning of year
Charge in year
Disposals
Transfer to assets held for sale
Currency translation
End of year
Land and
buildings
£m
Plant and
machinery
£m
Fixtures,
fittings and
equipment
£m
148.5
103.9
157.0
105.1
93.3
0.2
1.8
(2.8)
(4.8)
2.4
90.1
45.3
3.5
(2.4)
(3.0)
1.8
45.2
92.3
–
4.1
(3.1)
–
–
44.7
3.6
(2.5)
–
(0.5)
45.3
1.3
10.1
(6.4)
(2.0)
5.5
97.7
12.0
(5.8)
(1.6)
3.1
105.4
145.6
2.5
12.4
(5.2)
(0.5)
(6.3)
93.0
11.6
(4.8)
(0.4)
(1.7)
97.7
Land and
buildings
£m
Plant and
machinery
£m
Fixtures,
fittings and
equipment
£m
93.3
148.5
103.9
1.6
10.0
(4.5)
(6.4)
0.5
77.5
9.0
(4.4)
(4.2)
1.3
79.2
97.2
2.3
9.8
(2.9)
(0.3)
(2.2)
74.1
8.7
(2.5)
(0.2)
(2.6)
77.5
Total
£m
345.7
3.1
21.9
(13.7)
(13.2)
8.4
352.2
220.5
24.5
(12.6)
(8.8)
6.2
229.8
Total
£m
335.1
4.8
26.3
(11.2)
(0.8)
(8.5)
345.7
211.8
23.9
(9.8)
(0.6)
(4.8)
220.5
Strategic report
Directors’ report
Financial statements
10 Intangible assets
2018
Cost
Beginning of year
Acquisitions
Additions
Disposals
Disposal of business
Currency translation
End of year
Accumulated amortisation
Beginning of year
Charge in year
Disposals
Disposal of business
Currency translation
End of year
Goodwill
£m
Customer
relationships
£m
Software
£m
Total
£m
1,378.0
33.9
(10.1)
18.6
1,420.4
1,613.8
96.7
–
–
(15.9)
24.6
1,719.2
659.2
111.1
–
(3.9)
11.6
778.0
64.5
0.1
9.2
(0.3)
(2.7)
1.7
72.5
45.4
8.1
(0.3)
(2.5)
0.9
51.6
3,056.3
130.7
9.2
(0.3)
(28.7)
44.9
3,212.1
704.6
119.2
(0.3)
(6.4)
12.5
829.6
Net book value at 31 December 2018
44.9
51.6
25.9
122.4
Net book value at 31 December 2018
1,420.4
941.2
20.9
2,382.5
2017
Cost
Beginning of year
Acquisitions
Additions
Disposals
Transfer to assets held for sale
Currency translation
End of year
Accumulated amortisation
Beginning of year
Charge in year
Disposals
Currency translation
End of year
Goodwill
£m
Customer
relationships
£m
Software
£m
Total
£m
1,191.5
217.8
(4.1)
(27.2)
1,378.0
1,306.4
338.3
–
–
–
(30.9)
1,613.8
568.7
96.6
–
(6.1)
659.2
57.3
0.5
7.5
(0.7)
–
(0.1)
64.5
38.9
7.4
(0.7)
(0.2)
45.4
2,555.2
556.6
7.5
(0.7)
(4.1)
(58.2)
3,056.3
607.6
104.0
(0.7)
(6.3)
704.6
Net book value at 31 December 2017
48.0
50.8
26.4
125.2
Commitments for capital expenditure not provided for at 31 December 2018 were £0.2m (2017: £0.7m).
Net book value at 31 December 2017
1,378.0
954.6
19.1
2,351.7
Both goodwill and customer relationships have been acquired as part of business combinations. Further details of acquisitions made in the
year are set out in Note 25 together with details of an acquisition committed to be acquired in 2018 which was completed in 2019.
122
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
123
123
Financial statementsStrategic reportDirectors’ report
Notes continued
10 Intangible assets continued
Impairment tests
The carrying amount of goodwill is allocated across CGUs and is tested annually for impairment.
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 the business is managed and monitored on a
geographical basis, taking into account the generation of cash flows and the sharing of synergies. 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 of disposal. 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 consisting of detailed cash flow
forecasts for the first two years and CGU specific growth assumptions for years three, four and five. For periods after this five year period,
the methodology applies a long term growth rate specific to the CGU 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 profit margins and the discount rates 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 information is used to determine 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 discount rates used are
determined with assistance provided by external valuation specialists.
The Group last reviewed the composition of the Group’s CGUs in 2016. To reflect more appropriately the way that the Group is now
structured, including recent changes to management oversight and responsibility, the allocation of goodwill to CGUs for impairment testing
purposes was updated for the 2018 impairment testing exercise, with goodwill allocated across 11 CGUs in 2018 (2017: 12). Impairment
testing was also performed in 2018 based on the previous CGUs to ensure that no potential impairments were avoided as a result of the
change to the composition of the CGUs. Based on impairment testing using both the previous and updated CGUs, no impairments were
identified to the carrying value of goodwill within the Group.
At 31 December 2018 North America, France and Rest of Continental Europe carried a significant amount of goodwill in comparison with
the total value of the Group’s goodwill. At 31 December 2018 the carrying value of goodwill in respect of North America was £417.7m
(2017: £388.6m), France was £262.7m (2017: £257.3m) and Rest of Continental Europe was £195.0m (2017: £186.5m). At 31 December 2018
the aggregate amount of goodwill attributable to the Group’s CGUs, excluding North America, France and Rest of Continental Europe, was
£545.0m (2017: £545.6m), none of which is individually significant.
For North America, France and Rest of Continental Europe, the weighted average long term growth rate used in 2018 was in the range
of 2.5%–3.5% (2017: 2.5%–3.5%) reflecting anticipated revenue and profit growth. A pre-tax discount rate in the range of 7%–9%
(2017: 7%–10%) has been applied to the value in use calculations 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 CGUs with long term growth rates ranging from 2.5%–6.5%
(2017: 2.5%–6.5%) and discount rates ranging from 6%–16% (2017: 7%–15%).
As part of the annual impairment testing for goodwill, the Group also considered whether there were any indicators that individual customer
relationships assets were impaired and concluded that there was no such impairment.
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, expected long term growth rates and the discount rates selected. 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.
124
124
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report
Notes continued
10 Intangible assets continued
Impairment tests
The carrying amount of goodwill is allocated across CGUs and is tested annually for impairment.
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 the business is managed and monitored on a
geographical basis, taking into account the generation of cash flows and the sharing of synergies. 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 of disposal. 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 consisting of detailed cash flow
forecasts for the first two years and CGU specific growth assumptions for years three, four and five. For periods after this five year period,
the methodology applies a long term growth rate specific to the CGU 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 profit margins and the discount rates 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 information is used to determine 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 discount rates used are
determined with assistance provided by external valuation specialists.
The Group last reviewed the composition of the Group’s CGUs in 2016. To reflect more appropriately the way that the Group is now
structured, including recent changes to management oversight and responsibility, the allocation of goodwill to CGUs for impairment testing
purposes was updated for the 2018 impairment testing exercise, with goodwill allocated across 11 CGUs in 2018 (2017: 12). Impairment
testing was also performed in 2018 based on the previous CGUs to ensure that no potential impairments were avoided as a result of the
change to the composition of the CGUs. Based on impairment testing using both the previous and updated CGUs, no impairments were
identified to the carrying value of goodwill within the Group.
At 31 December 2018 North America, France and Rest of Continental Europe carried a significant amount of goodwill in comparison with
the total value of the Group’s goodwill. At 31 December 2018 the carrying value of goodwill in respect of North America was £417.7m
(2017: £388.6m), France was £262.7m (2017: £257.3m) and Rest of Continental Europe was £195.0m (2017: £186.5m). At 31 December 2018
the aggregate amount of goodwill attributable to the Group’s CGUs, excluding North America, France and Rest of Continental Europe, was
£545.0m (2017: £545.6m), none of which is individually significant.
For North America, France and Rest of Continental Europe, the weighted average long term growth rate used in 2018 was in the range
of 2.5%–3.5% (2017: 2.5%–3.5%) reflecting anticipated revenue and profit growth. A pre-tax discount rate in the range of 7%–9%
(2017: 7%–10%) has been applied to the value in use calculations 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 CGUs with long term growth rates ranging from 2.5%–6.5%
(2017: 2.5%–6.5%) and discount rates ranging from 6%–16% (2017: 7%–15%).
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, expected long term growth rates and the discount rates selected. 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.
Strategic report
Directors’ report
Financial statements
11 Inventories
Goods for resale
2018
£m
1,213.6
2017
£m
1,064.9
During the year £6.0m (2017: £8.2m) was written off from inventories due to obsolescence or damage. The provision for slow moving,
obsolete or defective inventories at 31 December 2018 was £84.4m (2017: £79.8m).
12 Trade and other receivables
Trade receivables
Prepayments
Other receivables
The Group does not have any significant contract assets.
The ageing of trade receivables at 31 December was:
Current
0–30 days overdue
31–90 days overdue
Over 90 days overdue
2018
£m
1,083.1
74.2
172.7
1,330.0
2017
£m
1,029.6
73.9
154.9
1,258.4
Gross
£m
847.5
186.4
55.6
19.2
1,108.7
2018
Provision
£m
3.4
1.8
2.2
18.2
25.6
Gross
£m
824.1
166.3
46.1
18.3
1,054.8
2017
Provision
£m
4.7
0.7
1.5
18.3
25.2
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
2018
£m
25.2
0.8
3.5
(3.8)
(0.1)
25.6
2017*
£m
20.8
6.1
2.9
(4.1)
(0.5)
25.2
As part of the annual impairment testing for goodwill, the Group also considered whether there were any indicators that individual customer
relationships assets were impaired and concluded that there was no such impairment.
13 Trade and other payables – current
* The provision amounts shown for 2017 are calculated in accordance with IAS 39 and have not been restated for the requirements of
IFRS 9 because the value of the differences involved was not significant.
Trade payables
Other tax and social security contributions
Other payables
Accruals and contract liabilities
2018
£m
1,143.9
25.9
161.1
282.7
1,613.6
2017*
£m
1,032.1
24.2
158.5
253.6
1,468.4
The Group’s contract liabilities are limited to deferred income of £5.5m (2017: £3.1m). This arises from contracts with customers in the form
of consideration that has been received in advance of the satisfaction of performance obligations.
* Following a review of the Group’s payable balances, the amounts disclosed for 2017 have been revised to reclassify £27.1m from other
payables to accruals and contract liabilities to ensure that balances are classified consistently between years.
124
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
125
125
Financial statementsStrategic reportDirectors’ report
Notes continued
14 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 defined on page 114) as well as the level of total shareholders’ equity and the amount of dividends paid to ordinary shareholders.
The principal covenant limits are net debt, calculated at average exchange rates, to EBITDA of no more than 3.5 times and interest cover
of no less than 3.0 times. Sensitivity analyses using various scenarios are applied to forecasts to assess their impact on covenants and net
debt. Additionally, compliance with the Group’s biannual debt covenants is monitored on a monthly basis and formally tested at 30 June
and 31 December. During 2018 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. Banking covenants are based on historical accounting standards.
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 borrowings have a range of maturities, are competitively priced and 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.
Derivatives and 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 and derivatives is set out in the financial instruments’ accounting
policy in Note 2p. The Group tests the effectiveness of hedges on a prospective basis to ensure compliance with IFRS 9. Information about
the methods and assumptions used in determining the fair value of derivatives is provided under the ‘Financial instruments’ section on
page 132.
Hedge effectiveness
For hedges of foreign currency purchases and sales, the Group enters into cash flow hedge relationships where the critical terms of
the hedging instrument are similar to those of the hedged item, such as notional amount, expected maturity date and currency. Hedge
ineffectiveness may arise if the timing of the forecast transaction changes from what was originally estimated. The Group therefore
performs a quantitative hedge effectiveness assessment to calculate any ineffectiveness during the period.
Part of the Group’s fixed rate debt portfolio is swapped to floating using interest rate swaps where the hedged items are individual tranches
of fixed rate debt. These interest rate swaps are held in fair value hedges with critical terms exactly matching those of the underlying hedged
items, such as notional amounts, payment dates, reset dates, maturity dates and currencies. As all critical terms matched during the year,
the economic relationship was 100% effective. The Group therefore performs a qualitative assessment of effectiveness. If changes in
circumstances affect the terms of the hedged item such that the critical terms no longer match exactly with the critical terms of the hedging
instrument, the Group will perform a quantitative assessment of effectiveness. Hedge ineffectiveness may arise due to a change in credit
risk of the counterparty or if there is a change in timings or amounts of the hedged cash flows.
There was no material ineffectiveness during 2018 or 2017 in relation to the interest rate swaps or the forward currency contracts.
126
126
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report
Notes continued
14 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 defined on page 114) as well as the level of total shareholders’ equity and the amount of dividends paid to ordinary shareholders.
The principal covenant limits are net debt, calculated at average exchange rates, to EBITDA of no more than 3.5 times and interest cover
of no less than 3.0 times. Sensitivity analyses using various scenarios are applied to forecasts to assess their impact on covenants and net
debt. Additionally, compliance with the Group’s biannual debt covenants is monitored on a monthly basis and formally tested at 30 June
and 31 December. During 2018 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. Banking covenants are based on historical accounting standards.
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 borrowings have a range of maturities, are competitively priced and 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
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
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 and derivatives is set out in the financial instruments’ accounting
policy in Note 2p. The Group tests the effectiveness of hedges on a prospective basis to ensure compliance with IFRS 9. Information about
the methods and assumptions used in determining the fair value of derivatives is provided under the ‘Financial instruments’ section on
imposed capital requirements.
Treasury policies and controls
are in place.
Derivatives and hedge accounting
page 132.
Hedge effectiveness
For hedges of foreign currency purchases and sales, the Group enters into cash flow hedge relationships where the critical terms of
the hedging instrument are similar to those of the hedged item, such as notional amount, expected maturity date and currency. Hedge
ineffectiveness may arise if the timing of the forecast transaction changes from what was originally estimated. The Group therefore
performs a quantitative hedge effectiveness assessment to calculate any ineffectiveness during the period.
Part of the Group’s fixed rate debt portfolio is swapped to floating using interest rate swaps where the hedged items are individual tranches
of fixed rate debt. These interest rate swaps are held in fair value hedges with critical terms exactly matching those of the underlying hedged
items, such as notional amounts, payment dates, reset dates, maturity dates and currencies. As all critical terms matched during the year,
the economic relationship was 100% effective. The Group therefore performs a qualitative assessment of effectiveness. If changes in
circumstances affect the terms of the hedged item such that the critical terms no longer match exactly with the critical terms of the hedging
instrument, the Group will perform a quantitative assessment of effectiveness. Hedge ineffectiveness may arise due to a change in credit
risk of the counterparty or if there is a change in timings or amounts of the hedged cash flows.
There was no material ineffectiveness during 2018 or 2017 in relation to the interest rate swaps or the forward currency contracts.
Strategic report
Directors’ report
Financial statements
14 Risk management and financial instruments continued
Risk management
(a) 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.
The Group has substantial funding available comprising multi-currency credit facilities from the Group’s banks, US private placement notes
and a senior unsecured bond.
Loans, borrowings and net debt
Bank overdrafts
Bank loans
US private placement notes
Finance lease creditors
Borrowings due within one year
Bank loans
US private placement notes
Senior bond
Finance lease creditors
Borrowings due after one year
Derivatives managing the interest rate risk and currency profile of the debt
Gross debt
Cash at bank and in hand
Net debt
Further information on the movement in net debt is shown in Note 24.
2018
£m
(333.5)
(6.9)
(67.8)
(0.2)
(408.4)
(104.3)
(1,054.3)
(297.6)
(0.1)
(1,456.3)
0.5
(1,864.2)
477.7
(1,386.5)
2017
£m
(221.3)
(107.4)
(37.3)
(0.4)
(366.4)
(121.5)
(1,080.3)
(297.2)
(0.2)
(1,499.2)
8.4
(1,857.2)
333.6
(1,523.6)
The total available committed funding at 31 December 2018 was £2,464.4m (2017: £2,464.5m). The committed funding maturity profile at
31 December 2018 is set out in the chart below.
Committed funding maturity profile by year
£m
153
87
20
40
68
19
246
84
21
128
71
119
22
373
33
161
300
171
130
124
138
23
24
25
26
27
39
28
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
Bank facilities – undrawn
Senior bond
Bank facilities – drawn
US private placement notes
2018
£m
40.0
152.6
746.9
939.5
2017
£m
50.0
100.0
682.3
832.3
In addition, the Group maintains overdraft and uncommitted facilities to provide short term flexibility. At 31 December 2018 there were no
loans secured by fixed charges on property (2017: none).
126
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
127
127
Financial statementsStrategic reportDirectors’ report
Notes continued
14 Risk management and financial instruments continued
Contractual maturity profile
The contractual maturity profile of the Group’s financial 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. Foreign currency cash flows have been translated using spot rates as at 31 December.
2018
Financial liabilities
Bank overdrafts
Bank loans
US private placement notes
Senior bond
Finance lease creditors
Trade and other payables
Derivative financial instruments
Net settled:
Interest rate swaps
Gross settled:
Foreign exchange inflows
Foreign exchange outflows
Total
2017
Financial liabilities
Bank overdrafts
Bank loans
US private placement notes
Senior bond
Finance lease creditors
Trade and other payables
Derivative financial instruments
Net settled:
Interest rate swaps
Gross settled:
Foreign exchange inflows
Foreign exchange outflows
Total
128
128
Contractual cash (outflows)/inflows
Total
contractual
cash flows
£m
Within one
year
£m
After
one year
but within
two years
£m
After
two years
but within
five years
£m
(333.5)
(117.1)
(1,338.0)
(347.4)
(0.3)
(1,643.0)
(3,779.3)
(333.5)
(8.5)
(106.9)
(6.8)
(0.2)
(1,613.6)
(2,069.5)
–
(1.5)
(121.7)
(6.8)
(0.1)
(29.4)
(159.5)
–
(107.1)
(451.1)
(20.3)
–
–
(578.5)
After
five years
£m
–
–
(658.3)
(313.5)
–
–
(971.8)
(3.5)
(0.3)
(0.3)
(0.8)
(2.1)
1,741.9
(1,738.2)
0.2
1,741.5
(1,737.8)
3.4
0.4
(0.4)
(0.3)
–
–
(0.8)
–
–
(2.1)
(3,779.1)
(2,066.1)
(159.8)
(579.3)
(973.9)
Contractual cash (outflows)/inflows
Total
contractual
cash flows
£m
Within one
year
£m
After
one year
but within
two years
£m
After
two years
but within
five years
£m
(221.3)
(234.9)
(1,355.3)
(350.6)
(0.6)
(1,499.1)
(3,661.8)
(221.3)
(109.2)
(78.1)
(3.4)
(0.4)
(1,468.4)
(1,880.8)
32.2
4.0
2,019.4
(2,020.2)
31.4
(3,630.4)
2,019.0
(2,019.8)
3.2
(1,877.6)
–
(1.3)
(102.8)
(6.8)
(0.2)
(30.7)
(141.8)
3.6
0.4
(0.4)
3.6
–
(124.4)
(368.6)
(20.2)
–
–
(513.2)
10.8
–
–
10.8
After
five years
£m
–
–
(805.8)
(320.2)
–
–
(1,126.0)
13.8
–
–
13.8
(138.2)
(502.4)
(1,112.2)
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report
14 Risk management and financial instruments continued
Contractual maturity profile
The contractual maturity profile of the Group’s financial 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. Foreign currency cash flows have been translated using spot rates as at 31 December.
Total
contractual
cash flows
£m
Within one
year
£m
(333.5)
(117.1)
(1,338.0)
(347.4)
(0.3)
(1,643.0)
(3,779.3)
(333.5)
(8.5)
(106.9)
(6.8)
(0.2)
(1,613.6)
(2,069.5)
Contractual cash (outflows)/inflows
After
one year
but within
two years
£m
After
two years
but within
five years
£m
After
five years
£m
–
(1.5)
(121.7)
(6.8)
(0.1)
(29.4)
(159.5)
(107.1)
(451.1)
(20.3)
(658.3)
(313.5)
(578.5)
(971.8)
(3.5)
(0.3)
(0.3)
(0.8)
(2.1)
1,741.9
1,741.5
(1,738.2)
(1,737.8)
0.2
3.4
0.4
(0.4)
(0.3)
(3,779.1)
(2,066.1)
(159.8)
(0.8)
(579.3)
(2.1)
(973.9)
Total
contractual
cash flows
£m
Within one
year
£m
(221.3)
(234.9)
(1,355.3)
(350.6)
(0.6)
(1,499.1)
(3,661.8)
(221.3)
(109.2)
(78.1)
(3.4)
(0.4)
(1,468.4)
(1,880.8)
Contractual cash (outflows)/inflows
After
one year
but within
two years
£m
After
two years
but within
five years
£m
After
five years
£m
–
(1.3)
(102.8)
(6.8)
(0.2)
(30.7)
(141.8)
(124.4)
(368.6)
(20.2)
(805.8)
(320.2)
(513.2)
(1,126.0)
32.2
4.0
3.6
10.8
13.8
2,019.4
2,019.0
(2,020.2)
(2,019.8)
31.4
3.2
0.4
(0.4)
3.6
(3,630.4)
(1,877.6)
(138.2)
(502.4)
(1,112.2)
10.8
13.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Notes continued
2018
Financial liabilities
Bank overdrafts
Bank loans
US private placement notes
Senior bond
Finance lease creditors
Trade and other payables
Derivative financial instruments
Net settled:
Interest rate swaps
Gross settled:
Foreign exchange inflows
Foreign exchange outflows
Total
2017
Financial liabilities
Bank overdrafts
Bank loans
US private placement notes
Senior bond
Finance lease creditors
Trade and other payables
Derivative financial instruments
Net settled:
Interest rate swaps
Gross settled:
Foreign exchange inflows
Foreign exchange outflows
Total
128
Strategic report
Directors’ report
Financial statements
14 Risk management and financial instruments continued
(b) Interest rate risk
The Group is funded by a mixture of fixed and floating rate debt with the Group’s main interest rate risk arising on its floating rate debt.
Interest rate swaps and interest rate caps are used to manage the interest rate risk profile.
The table below shows the fixed/floating rate debt mix after interest rate swaps. Of the US private placement notes of £1,122.1m (2017:
£1,117.6m), there are US dollar denominated amounts totalling £377.1m (2017: £353.3m), with maturities ranging from 2025 to 2028, which
have been swapped to floating rates using interest rate swaps which reprice every three or six months. 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 £104.3m were
capped at 31 December 2018 (31 December 2017: £150.0m). 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 and are repriced every three months.
Fixed vs floating interest rate table
Fixed rate debt
US private placement notes
Senior bond
Total fixed rate debt
Interest rate swaps (fixed leg)
Fixed rate liability
Floating rate debt
Bank overdrafts
Bank loans
Total floating rate debt
Interest rate swaps (floating leg)
Floating rate liability
Derivatives managing the interest rate risk and currency profile of the debt
Finance lease creditors
Gross debt
Effects of hedge accounting on the financial position and performance
The effects of the interest rate swaps on the Group’s financial position and performance are as follows:
Interest rate swaps
Net carrying amount (asset/(liability)) (£m)
Notional amount (£m)
Maturity date range
Hedge ratio
Fair value gain on US private placement notes in a hedge relationship (£m)
Fair value loss on interest rate swaps in a hedge relationship (£m)
2018
£m
2017
£m
(1,122.1)
(297.6)
(1,419.7)
377.1
(1,042.6)
(1,117.6)
(297.2)
(1,414.8)
353.3
(1,061.5)
(333.5)
(111.2)
(444.7)
(377.1)
(821.8)
(221.3)
(228.9)
(450.2)
(353.3)
(803.5)
0.5
(0.3)
(1,864.2)
8.4
(0.6)
(1,857.2)
2018
0.7
375.6
2025 – 2028
1:1
8.3
(8.2)
Sensitivity to movements in interest rates
After taking account of hedge relationships, a change of 1% in the interest rate forward curves on 31 December would have affected profit
before income tax for the year and equity as at the year end by the amounts shown below as a result of changes in the fair values of
derivative assets and liabilities at that date:
2018
2017
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Impact on profit before tax
–1%
£m
+1%
£m
1.3
1.4
–
(0.1)
Impact on equity
–1%
£m
–
(0.1)
+1%
£m
1.3
1.4
129
129
Financial statementsStrategic reportDirectors’ report
Notes continued
14 Risk management and financial instruments continued
(c) 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
2018
1.33
1.13
2017
1.29
1.14
2018
1.27
1.11
2017
1.35
1.13
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 exposures of highly probable forecast
transactions using forward foreign exchange contracts and these are designated as cash flow hedges. During the year the Group hedged
highly probable forecast transactions for periods of up to 18 months. 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 the resulting price increases on to customers.
For the year ended 31 December 2018, all foreign exchange cash flow hedges were effective with a cumulative pre-tax gain of £1.9m
(2017: loss of £1.6m) recognised in equity at the end of the year and this will affect the income statement during 2019 and 2020.
Effects of hedge accounting on the financial position and performance
Forward foreign currency hedges in relation to inventory purchases
Net carrying amount (asset/(liability)) (£m)
Notional amount (£m)
Maturity date range
Hedge ratio
Change in value of hedged items since 1 January (£m)
Change in fair value of outstanding foreign currency forward contracts since 1 January (£m)
2018
1.9
140.5
2019 – 2020
1:1
(3.6)
3.6
The majority of the Group’s borrowings are effectively denominated in US dollars, sterling 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 and foreign currency debt, which are designated as hedging instruments to achieve net investment hedge accounting at a Group
level. This currency composition minimises the impact of movements in foreign exchange rates on the ratio of net debt to EBITDA. No
ineffectiveness was recorded from net investments in foreign entity hedges.
The currency profile of the Group’s net debt at 31 December is set out in the table below:
US dollar
Sterling
Euro
Other
2018
£m
598.4
351.4
375.2
61.5
1,386.5
2017
£m
604.7
437.8
373.0
108.1
1,523.6
The Group also enters into foreign currency derivatives to hedge intercompany loans economically although these do not qualify for hedge
accounting and therefore gains and losses are recorded in the income statement. These currency derivatives are subject to the same risk
management policies as all other derivative contracts.
130
130
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report
Notes continued
14 Risk management and financial instruments continued
(c) 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:
Average rate
Closing rate
2018
1.33
1.13
2017
1.29
1.14
2018
1.27
1.11
2017
1.35
1.13
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 exposures of highly probable forecast
transactions using forward foreign exchange contracts and these are designated as cash flow hedges. During the year the Group hedged
highly probable forecast transactions for periods of up to 18 months. 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 the resulting price increases on to customers.
For the year ended 31 December 2018, all foreign exchange cash flow hedges were effective with a cumulative pre-tax gain of £1.9m
(2017: loss of £1.6m) recognised in equity at the end of the year and this will affect the income statement during 2019 and 2020.
Effects of hedge accounting on the financial position and performance
Forward foreign currency hedges in relation to inventory purchases
Net carrying amount (asset/(liability)) (£m)
Notional amount (£m)
Maturity date range
Hedge ratio
Change in value of hedged items since 1 January (£m)
Change in fair value of outstanding foreign currency forward contracts since 1 January (£m)
The majority of the Group’s borrowings are effectively denominated in US dollars, sterling 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 and foreign currency debt, which are designated as hedging instruments to achieve net investment hedge accounting at a Group
level. This currency composition minimises the impact of movements in foreign exchange rates on the ratio of net debt to EBITDA. No
ineffectiveness was recorded from net investments in foreign entity hedges.
The currency profile of the Group’s net debt at 31 December is set out in the table below:
2019 – 2020
2018
1.9
140.5
1:1
(3.6)
3.6
2018
£m
598.4
351.4
375.2
61.5
2017
£m
604.7
437.8
373.0
108.1
1,386.5
1,523.6
US dollar
Euro
US dollar
Sterling
Euro
Other
The Group also enters into foreign currency derivatives to hedge intercompany loans economically although these do not qualify for hedge
accounting and therefore gains and losses are recorded in the income statement. These currency derivatives are subject to the same risk
management policies as all other derivative contracts.
Strategic report
Directors’ report
Financial statements
14 Risk management and financial instruments continued
Sensitivity to movements in foreign exchange rates
For the year ended 31 December 2018, a movement of one cent in the US dollar and euro average exchange rates would have changed profit
before income tax by £1.5m and £0.7m respectively (2017: £1.6m and £0.6m) and adjusted profit before income tax by £1.8m and £1.2m
respectively (2017: £1.9m and £1.0m).
If a 10% strengthening or weakening of sterling had taken place on 31 December it would have increased/(decreased) profit before income
tax and (decreased)/increased 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 income tax since equity is translated using the closing exchange rates at the year end and profit before income 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
income tax to a movement in exchange rates on 31 December and the resulting movement in profit before income tax is due solely to the
translation effect on monetary items. This analysis assumes that all other variables, in particular interest rates, remain constant.
2018
2017
Impact on profit before tax
–10%
£m
(1.0)
(0.9)
+10%
£m
0.8
0.7
Impact on equity
–10%
£m
96.5
84.4
+10%
£m
(82.0)
(74.3)
(d) Credit risk
Credit risk is the risk of loss in relation to a financial asset due to non-payment by the relevant 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 financial assets are cash at bank and in hand, 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 at bank and in
hand, derivative financial assets (see page 133) and trade and other receivables (see Note 12) is their respective carrying amounts.
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 any impairment losses measured using the
expected credit loss model. Note 12 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 (2017: none).
130
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
131
131
Financial statementsStrategic reportDirectors’ report
Notes continued
14 Risk management and financial instruments continued
Financial instruments
Financial assets and liabilities
Financial assets held at amortised cost
Cash at bank and in hand
Trade and other receivables
Financial assets held at fair value
Interest rate derivatives in fair value hedges
Foreign exchange derivatives in cash flow hedges
Foreign exchange derivatives in net investment hedges
Other foreign exchange and interest rate derivatives
Total financial assets
Financial liabilities held at amortised cost
Bank overdrafts
Bank loans
US private placement notes
Senior bond
Finance lease creditors
Trade and other payables
Financial liabilities held at fair value
US private placement notes
Interest rate derivatives in fair value hedges
Foreign exchange derivatives in cash flow hedges
Foreign exchange derivatives in net investment hedges
Other foreign exchange derivatives
Total financial liabilities
2018
£m
2017
£m
477.7
1,330.0
5.8
3.8
4.9
4.0
1,826.2
(333.5)
(111.2)
(745.0)
(297.6)
(0.3)
(1,643.0)
(377.1)
(5.1)
(1.9)
(2.1)
(7.0)
(3,523.8)
333.6
1,258.4
10.1
0.6
5.8
3.8
1,612.3
(221.3)
(228.9)
(754.5)
(297.2)
(0.6)
(1,499.1)
(363.1)
(0.9)
(2.3)
(7.3)
(2.8)
(3,378.0)
All financial assets and liabilities stated as being measured at fair value in the tables above (including all derivative financial instruments)
have carrying amounts where the fair value 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 financial assets and liabilities stated at fair value have been determined by discounting expected future cash flows, translated at
the appropriate balance sheet date exchange rates and adjusted for counterparty or own credit risk as applicable. There were no transfers
between levels for recurring fair value measurements during the year.
At 31 December 2018 the fair values, based on unadjusted market data, of the US private placement notes was £1,132.1m (2017: £1,158.2m)
and of the senior unsecured bond was £290.1m (2017: £304.4m).
For other financial assets and financial liabilities not measured at fair value, including cash at bank and in hand, bank loans and overdrafts,
trade and other receivables and trade and other payables, their carrying amount is a reasonable approximation of fair value due to their
short term nature. Bank loans are priced based on floating interest rates and the credit spread has not changed since the inception of the
loan. However, within other payables there is £14.1m (2017: £12.0m) related to earn outs on businesses acquired which are recorded at fair
value. This is a level three fair value which is initially measured based on the expected future profitability of the businesses acquired at the
acquisition date and subsequently reassessed at each reporting date based on the most recent data available on the expected profitability
of the businesses acquired.
132
132
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report
Notes continued
14 Risk management and financial instruments continued
Financial instruments
Financial assets and liabilities
Financial assets held at amortised cost
Cash at bank and in hand
Trade and other receivables
Financial assets held at fair value
Interest rate derivatives in fair value hedges
Foreign exchange derivatives in cash flow hedges
Foreign exchange derivatives in net investment hedges
Other foreign exchange and interest rate derivatives
Total financial assets
Financial liabilities held at amortised cost
Bank overdrafts
Bank loans
US private placement notes
Senior bond
Finance lease creditors
Trade and other payables
Financial liabilities held at fair value
US private placement notes
Interest rate derivatives in fair value hedges
Foreign exchange derivatives in cash flow hedges
Foreign exchange derivatives in net investment hedges
Other foreign exchange derivatives
Total financial liabilities
All financial assets and liabilities stated as being measured at fair value in the tables above (including all derivative financial instruments)
have carrying amounts where the fair value 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 financial assets and liabilities stated at fair value have been determined by discounting expected future cash flows, translated at
the appropriate balance sheet date exchange rates and adjusted for counterparty or own credit risk as applicable. There were no transfers
between levels for recurring fair value measurements during the year.
At 31 December 2018 the fair values, based on unadjusted market data, of the US private placement notes was £1,132.1m (2017: £1,158.2m)
and of the senior unsecured bond was £290.1m (2017: £304.4m).
For other financial assets and financial liabilities not measured at fair value, including cash at bank and in hand, bank loans and overdrafts,
trade and other receivables and trade and other payables, their carrying amount is a reasonable approximation of fair value due to their
short term nature. Bank loans are priced based on floating interest rates and the credit spread has not changed since the inception of the
loan. However, within other payables there is £14.1m (2017: £12.0m) related to earn outs on businesses acquired which are recorded at fair
value. This is a level three fair value which is initially measured based on the expected future profitability of the businesses acquired at the
acquisition date and subsequently reassessed at each reporting date based on the most recent data available on the expected profitability
of the businesses acquired.
2018
£m
2017
£m
477.7
1,330.0
333.6
1,258.4
5.8
3.8
4.9
4.0
10.1
0.6
5.8
3.8
1,826.2
1,612.3
(333.5)
(111.2)
(745.0)
(297.6)
(0.3)
(221.3)
(228.9)
(754.5)
(297.2)
(0.6)
(1,643.0)
(1,499.1)
(377.1)
(363.1)
(5.1)
(1.9)
(2.1)
(7.0)
(0.9)
(2.3)
(7.3)
(2.8)
(3,523.8)
(3,378.0)
Strategic report
Directors’ report
Financial statements
14 Risk management and financial instruments continued
Offsetting of financial assets and liabilities
The following table sets out the Group’s derivative financial assets and liabilities that are subject to counterparty offsetting or master netting
agreements. The master netting agreements regulate settlement amounts in the event either party defaults on their obligations.
2018
Derivative financial assets
Derivative financial liabilities
2017
Derivative financial assets
Derivative financial liabilities
15 Provisions
Current
Non-current
Beginning of year
Charge
Acquisitions
Disposal of business
Utilised or released
Currency translation
End of year
Gross
amounts
offset in the
balance sheet
£m
–
–
Net amounts
recognised
in the
balance sheet
£m
18.5
(16.1)
Amounts not
offset in the
balance sheet
£m
–
–
Gross
amounts
£m
18.5
(16.1)
Net
amounts
£m
18.5
(16.1)
20.5
(13.5)
(0.2)
0.2
20.3
(13.3)
Properties
£m
20.8
0.5
0.9
(1.0)
(2.6)
0.1
18.7
Other
£m
24.4
6.0
4.4
–
(6.2)
0.1
28.7
2018
Total
£m
45.2
6.5
5.3
(1.0)
(8.8)
0.2
47.4
Properties
£m
18.5
1.4
4.7
–
(3.5)
(0.3)
20.8
–
–
2018
£m
6.1
41.3
47.4
Other
£m
20.8
0.9
9.9
–
(6.9)
(0.3)
24.4
20.3
(13.3)
2017
£m
6.2
39.0
45.2
2017
Total
£m
39.3
2.3
14.6
–
(10.4)
(0.6)
45.2
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, which typically extend from
one to 10 years, up to the earliest possible termination date.
Other provisions include expected legal and environmental claims, onerous contracts and other liabilities based on management’s best
estimate of the liability at the balance sheet date, determined by reference to known factors and past experience of similar items.
Management expects these amounts to 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 actual outcome of any such proceedings, either individually or in the aggregate, will be materially
different to the amounts provided.
132
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
133
133
Financial statementsStrategic reportDirectors’ report
Notes continued
16 Deferred tax
Property, plant and equipment
Defined benefit pension schemes
Goodwill and customer relationships
Share based payments
Provisions
Inventories
Other
Deferred tax asset/(liability)
Set-off of tax
Net deferred tax asset/(liability)
Asset
£m
1.3
6.3
3.2
8.6
12.2
7.1
19.4
58.1
(54.1)
4.0
Liability
£m
(10.0)
(0.7)
(183.5)
–
(0.2)
(10.2)
(3.2)
(207.8)
54.1
(153.7)
2018
Net
£m
(8.7)
5.6
(180.3)
8.6
12.0
(3.1)
16.2
(149.7)
–
(149.7)
Asset
£m
0.9
11.9
–
8.9
11.4
6.8
14.6
54.5
(51.1)
3.4
Liability
£m
(8.2)
–
(190.6)
–
(0.3)
(5.8)
(4.2)
(209.1)
51.1
(158.0)
2017
Net
£m
(7.3)
11.9
(190.6)
8.9
11.1
1.0
10.4
(154.6)
–
(154.6)
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 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
£16.7m (2017: £12.7m).
No deferred tax has been recognised in respect of unutilised capital losses of £96.1m (2017: £96.1m) as it is not considered probable that
there will be suitable future taxable profits against which they can be utilised.
The movement in the net deferred tax liability is shown below:
Beginning of year
Acquisitions
Credit to income statement
Recognised in other comprehensive income and equity
Reclassified to current tax
Currency translation
End of year
2018
£m
154.6
4.2
(17.6)
4.6
2.5
1.4
149.7
2017
£m
122.6
55.6
(28.0)
12.3
(2.8)
(5.1)
154.6
134
134
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report
Strategic report
Directors’ report
Financial statements
2018
493,758
2018
£m
108.1
2017
£m
108.0
2017
335,931,546 335,607,091
324,455
336,425,304 335,931,546
17 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
Issued – option exercises
End of year
Notes continued
16 Deferred tax
Property, plant and equipment
Defined benefit pension schemes
Goodwill and customer relationships
Share based payments
Provisions
Inventories
Other
of operation.
Deferred tax asset/(liability)
Set-off of tax
Net deferred tax asset/(liability)
Asset
£m
1.3
6.3
3.2
8.6
12.2
7.1
19.4
58.1
(54.1)
4.0
Liability
£m
(10.0)
(0.7)
(183.5)
–
(0.2)
(10.2)
(3.2)
(207.8)
54.1
(153.7)
2018
Net
£m
(8.7)
5.6
8.6
12.0
(3.1)
16.2
(180.3)
(149.7)
–
(149.7)
(190.6)
(190.6)
Asset
£m
0.9
11.9
–
8.9
11.4
6.8
14.6
54.5
(51.1)
3.4
Liability
£m
(8.2)
–
–
(0.3)
(5.8)
(4.2)
(209.1)
51.1
(158.0)
2017
Net
£m
(7.3)
11.9
8.9
11.1
1.0
10.4
(154.6)
–
(154.6)
Except as noted below, deferred tax is calculated in full on temporary differences under the liability method using the tax rate of the country
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 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
£16.7m (2017: £12.7m).
No deferred tax has been recognised in respect of unutilised capital losses of £96.1m (2017: £96.1m) as it is not considered probable that
there will be suitable future taxable profits against which they can be utilised.
The movement in the net deferred tax liability is shown below:
Recognised in other comprehensive income and equity
Beginning of year
Acquisitions
Credit to income statement
Reclassified to current tax
Currency translation
End of year
2018
£m
154.6
4.2
(17.6)
4.6
2.5
1.4
149.7
2017
£m
122.6
55.6
(28.0)
12.3
(2.8)
(5.1)
154.6
The Company operates a number of share plans for the benefit of employees of the Company and its subsidiaries. Further details of the
share plans as they relate to the directors of the Company are set out in the Directors’ remuneration report.
Sharesave Scheme, International Sharesave Plan and Irish Sharesave Plan
For many years, the Company has operated all employee savings related share option schemes. The existing scheme in the UK, the
Sharesave Scheme (2011), was approved by shareholders at the 2011 Annual General Meeting. It is an HM Revenue & Customs (‘HMRC’)
tax advantaged scheme and is open to all UK employees, including UK based executive directors.
The Irish Sharesave Plan, which is approved by the Irish Revenue Commissioners, and the International Sharesave Plan, were first
introduced in 2006 and have since been extended, most recently following the approval of the Sharesave Scheme (2011).
The Sharesave Scheme, International Sharesave Plan and Irish Sharesave Plan operate on a similar basis with options granted to
participating employees who have completed at least three months of continuous service at a discount of up to 20% of the market price
prevailing shortly before the invitation to apply for the options. Depending on the scheme, options are normally exercisable either three
or five years after they have been granted with employees saving up to £500 (2017: £500) per month (or the equivalent value in other
currencies under the International Sharesave Plan) or €500 (2017: €500) per month under the Irish Sharesave Plan.
Long Term Incentive Plan 2004 (‘2004 LTIP’) and 2014 (‘2014 LTIP’)
The 2004 LTIP was approved by shareholders at the 2004 Annual General Meeting and expired in May 2014. No further share options
or performance share awards have been granted under the 2004 LTIP since that date. The 2014 LTIP was approved by shareholders
at the 2014 Annual General Meeting and replaced the 2004 LTIP. The operation of both LTIPs is overseen by the Remuneration Committee
of the Board and each is divided into two parts.
Part A of the LTIP relates to the grant of market priced executive share options. In normal circumstances options granted under Part A are
only exercisable if the relevant performance condition has been satisfied. The performance condition is based on the Company’s adjusted
earnings per share growth exceeding UK RPI inflation over three financial years by a specified margin (for the 2004 LTIP) or meeting certain
specified targets (for the 2014 LTIP).
Part B of the LTIP relate to the grant of performance share awards which are conditional rights to receive shares in the Company for nil
consideration. A performance share award will usually vest (i.e. become exercisable) on the third anniversary of its grant. The extent to
which a performance share award will vest is usually subject to the extent to which the applicable performance conditions have been
satisfied, based partly on the Company’s total shareholder return performance, relative to a comparator group of companies over a three
year period, and partly subject to the Company’s adjusted earnings per share growth exceeding UK RPI inflation over three years by a
specified margin (for the 2004 LTIP) or meeting certain specified targets (for the 2014 LTIP).
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 in relation to options granted and awards
made under the LTIPs and the Deferred Annual Share Bonus Scheme (‘DASBS’) over market purchase shares. Details of these 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 expenses and administration charges are included in the income statement on an accruals
basis. At 31 December 2018 the trust held 2,698,287 (2017: 5,930,284) shares, upon which dividends have been waived, with an aggregate
nominal value of £0.9m (2017: £1.9m) and market value of £63.9m (2017: £122.9m).
134
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
135
135
Financial statementsStrategic reportDirectors’ report
Notes continued
17 Share capital and share based payments continued
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 (£)
Number of 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 (£)
2018
01.03.18–19.12.18
19.36–24.04
nil–24.01
3,179,752
3–5
17–18
2–10
2.2–6.3
0.9–1.3
1.9–2.4
1.91–13.38
2017
02.03.17–09.10.17
22.71–23.38
nil–23.35
3,121,549
3–5
17–18
3–10
3.0–6.5
0.1–0.9
1.8–2.1
1.84–11.07
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 £23.04
(2017: £23.27). The total charge for the year relating to share based payments was £12.9m (2017: £11.8m). After tax the total charge was
£10.6m (2017: £9.5m).
Details of share options and awards which have been granted and exercised, those which have lapsed during 2018 and those outstanding and
available to exercise at 31 December 2018, whether over new issue or market purchase shares, under the Sharesave Scheme (2011), International
Sharesave Plan, Irish Sharesave Plan, the 2004 LTIP Part A and Part B and 2014 LTIP Part A and Part B, are set out in the following table:
Options
outstanding
at 01.01.18
Number
749,074
Number
338,609
Grants/
awards
2018
Price (£)
15.64
Exercises
2018
Lapses*
2018
Price (£) Number
9.92-18.68 105,461
Number
275,438
Options
outstanding
Number
at 31.12.18
Price (£)
706,784 12.53-18.68
Options
available
to exercise
at 31.12.18
Number
9,006
15.64
15.64
125,175
29,197
–
–
281,777
40,833
2,550,743
18,943
–
278,536 15.56-18.68
–
46,032 15.56-18.68
2,500 1,436,140 5.85-15.97 1,436,140
14,796
4,147
8,204,493 2,296,404 19.55-24.01 1,865,237 16.38-23.36 138,717 8,496,943 16.38-24.01 2,033,394
33,762
1,270,302
3,527,098
94,638 15.36-18.68 33,778
13,134 15.36-15.56 10,864
5.64-15.66
–
nil 369,595 1,063,142
665,062 12,042,373
390,367
13,116,165 3,179,752
– 1,112,103
–
–
227,932
3,588,482
14,796
nil
nil
nil
Sharesave Scheme (2011)
International Sharesave
Plan
Irish Sharesave Plan
2004 LTIP Part A
2004 LTIP Part B
2014 LTIP Part A
2014 LTIP Part B
* Share option lapses relate to those which have either been forfeited or have expired during the year.
For the options outstanding at 31 December 2018, the weighted average fair values and the weighted average remaining contractual lives
(being the time period from 31 December 2018 until the lapse date of each share option) are set out below:
Sharesave Scheme (2011)
International Sharesave Plan
Irish Sharesave Plan
2004 LTIP and 2014 LTIP Part A
2004 LTIP and 2014 LTIP Part B
Weighted
average
fair value of
options
outstanding
(£)
4.42
4.70
4.64
2.81
15.68
Weighted
average
remaining
contractual
life
(years)
2.22
1.96
2.12
7.46
4.43
The outstanding share options and performance share awards are exercisable at various dates up to September 2028.
136
136
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report
Strategic report
Directors’ report
Financial statements
17 Share capital and share based payments continued
IFRS 2 disclosures
assumptions used in the calculations are as follows:
Options granted during the year have been valued using a stochastic model. The fair value per option granted during the year and the
18 Dividends
2016 interim
2016 final
2017 interim
2017 final
Total
Number of options granted during the year (shares)
Total dividends per share for the year to which they relate are:
Interim
Final
Total
2018
£m
46.2
106.0
152.2
2018
15.2p
35.0p
50.2p
2017
£m
42.8
95.4
138.2
Per share
2017
14.0p
32.0p
46.0p
The 2018 interim dividend of 15.2p per share was paid on 2 January 2019 and comprised £50.7m of cash. The 2018 final dividend of 35.0p
per share will be paid on 1 July 2019 to shareholders on the register at the close of business on 24 May 2019. The 2018 final dividend will
comprise approximately £117m of cash.
19 Contingent liabilities
Bank guarantees
2018
£m
2.5
2017
£m
1.5
20 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
Frank van Zanten
Patrick Larmon*
Brian May
Eugenia Ulasewicz
Jean-Charles Pauze*
Vanda Murray
Lloyd Pitchford
Stephan Nanninga
2018
10,000
93,991
132,993
105,240
4,000
2,500
3,000
4,000
–
355,724
2017
10,000
81,478
130,896
105,240
4,000
2,500
3,000
4,000
–
341,114
* Patrick Larmon and Jean-Charles Pauze both retired as directors on 31 December 2018.
Details of the directors’ options and awards over ordinary shares made under the 2004 LTIP, 2014 LTIP, Sharesave Scheme (2011) and
DASBS are set out in the Directors’ remuneration report. Since 31 December 2018 Frank van Zanten has acquired interests in 57 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 2019. No other changes to the directors’ ordinary share interests shown in this note and the Directors’ remuneration report
have taken place between 31 December 2018 and 25 February 2019.
Notes continued
Grant date
Share price at grant date (£)
Exercise price (£)
Vesting period (years)
Expected volatility (%)
Option life (years)
Expected life (years)
Risk free rate of return (%)
Fair value per option (£)
Expected dividends expressed as a dividend yield (%)
2018
2017
01.03.18–19.12.18
02.03.17–09.10.17
19.36–24.04
22.71–23.38
nil–24.01
3,179,752
3–5
17–18
2–10
2.2–6.3
0.9–1.3
1.9–2.4
nil–23.35
3,121,549
3–5
17–18
3–10
3.0–6.5
0.1–0.9
1.8–2.1
1.91–13.38
1.84–11.07
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 £23.04
(2017: £23.27). The total charge for the year relating to share based payments was £12.9m (2017: £11.8m). After tax the total charge was
£10.6m (2017: £9.5m).
Details of share options and awards which have been granted and exercised, those which have lapsed during 2018 and those outstanding and
available to exercise at 31 December 2018, whether over new issue or market purchase shares, under the Sharesave Scheme (2011), International
Sharesave Plan, Irish Sharesave Plan, the 2004 LTIP Part A and Part B and 2014 LTIP Part A and Part B, are set out in the following table:
Options
outstanding
at 01.01.18
Grants/
awards
2018
Exercises
Lapses*
2018
2018
Options
outstanding
at 31.12.18
Options
available
to exercise
at 31.12.18
Sharesave Scheme (2011)
749,074
338,609
15.64
275,438
9.92-18.68 105,461
706,784 12.53-18.68
9,006
Number
Number
Price (£)
Number
Price (£) Number
Number
Price (£)
Number
International Sharesave
Plan
281,777
125,175
15.64
94,638 15.36-18.68 33,778
278,536 15.56-18.68
Irish Sharesave Plan
40,833
29,197
15.64
13,134 15.36-15.56 10,864
46,032 15.56-18.68
–
–
2004 LTIP Part A
2004 LTIP Part B
2,550,743
18,943
–
–
– 1,112,103
5.64-15.66
2,500 1,436,140 5.85-15.97 1,436,140
–
–
–
4,147
14,796
nil
14,796
2014 LTIP Part A
8,204,493 2,296,404 19.55-24.01 1,865,237 16.38-23.36 138,717 8,496,943 16.38-24.01 2,033,394
2014 LTIP Part B
1,270,302
390,367
nil
227,932
nil 369,595 1,063,142
nil
33,762
13,116,165 3,179,752
3,588,482
665,062 12,042,373
3,527,098
* Share option lapses relate to those which have either been forfeited or have expired during the year.
For the options outstanding at 31 December 2018, the weighted average fair values and the weighted average remaining contractual lives
(being the time period from 31 December 2018 until the lapse date of each share option) are set out below:
Sharesave Scheme (2011)
International Sharesave Plan
Irish Sharesave Plan
2004 LTIP and 2014 LTIP Part A
2004 LTIP and 2014 LTIP Part B
The outstanding share options and performance share awards are exercisable at various dates up to September 2028.
Weighted
average
fair value of
options
outstanding
Weighted
average
remaining
contractual
life
(years)
(£)
4.42
4.70
4.64
2.81
15.68
2.22
1.96
2.12
7.46
4.43
136
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
137
137
Financial statementsStrategic reportDirectors’ report
Notes continued
21 Retirement benefits
The Group operates a number of defined benefit and defined contribution retirement benefit schemes in the US, the UK and elsewhere in
Europe (including France, the Netherlands and the Republic of Ireland). 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. Contributions to all schemes are determined in line with actuarial advice and local
conditions and practices. Scheme assets for the purpose of IAS 19 ‘Employee Benefits’ are stated at their bid value.
Characteristics of defined benefit pension schemes
UK
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 since 2003. The valuation of the UK defined benefit pension scheme has been updated
to 31 December 2018 by the Group’s actuaries.
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.
The trustee, in agreement with the Company, has hedging in place to reduce the impact of inflation and interest rate movements on the
funding of the plan.
The last full triennial valuation on the UK defined benefit pension scheme was carried out by a qualified actuary as at 5 April 2015 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 2016 to 30 June 2022. The triennial valuation as at 5 April 2018 is ongoing.
US
The principal US defined benefit pension scheme is a non-contributory defined benefit pension scheme providing benefits based on
final pensionable pay. The scheme has been closed to new members since 2003. The valuation of the US defined benefit pension scheme
has been updated to 31 December 2018 by the Group’s actuaries.
The US scheme is a qualified pension scheme and is subject to standard regulations under the Employee Retirement Income Security Act
of 1974, the Pension Protection Act of 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 assets of the scheme are held in trust by an independent custodian. 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 delegates 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.
Annual actuarial valuations are performed on the US defined benefit pension scheme. The last annual review was carried out by a qualified
actuary as at 1 January 2018 and showed that there was a required annual contribution of $6.5m. In 2019, the Group plans to contribute
$8.0m for the 2018 plan year to cover prudently this required contribution and anticipate future funding needs. In 2018, the Group also paid
a contribution of $8.0m for the 2017 plan year. The annual review as at 1 January 2019 is ongoing.
Risks
The main risks to which the Group is exposed in relation to the defined benefit pension 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 the interest rate and also the inflation risk.
• Mortality risk – the assumptions adopted by the Group 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.
138
138
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report Notes continued
Strategic report
Directors’ report
Financial statements
21 Retirement benefits
The Group operates a number of defined benefit and defined contribution retirement benefit schemes in the US, the UK and elsewhere in
21 Retirement benefits continued
• 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.
Europe (including France, the Netherlands and the Republic of Ireland). The funds of the principal defined benefit schemes are administered
In the UK, the trustee implements partial currency hedging on the overseas assets to mitigate currency risk.
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. Contributions to all schemes are determined in line with actuarial advice and local
conditions and practices. Scheme assets for the purpose of IAS 19 ‘Employee Benefits’ are stated at their bid value.
Characteristics of defined benefit pension schemes
UK
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 since 2003. The valuation of the UK defined benefit pension scheme has been updated
to 31 December 2018 by the Group’s actuaries.
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.
funding of the plan.
US
The trustee, in agreement with the Company, has hedging in place to reduce the impact of inflation and interest rate movements on the
The last full triennial valuation on the UK defined benefit pension scheme was carried out by a qualified actuary as at 5 April 2015 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 2016 to 30 June 2022. The triennial valuation as at 5 April 2018 is ongoing.
The principal US defined benefit pension scheme is a non-contributory defined benefit pension scheme providing benefits based on
final pensionable pay. The scheme has been closed to new members since 2003. The valuation of the US defined benefit pension scheme
has been updated to 31 December 2018 by the Group’s actuaries.
The US scheme is a qualified pension scheme and is subject to standard regulations under the Employee Retirement Income Security Act
of 1974, the Pension Protection Act of 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 assets of the scheme are held in trust by an independent custodian. 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 delegates 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.
Annual actuarial valuations are performed on the US defined benefit pension scheme. The last annual review was carried out by a qualified
actuary as at 1 January 2018 and showed that there was a required annual contribution of $6.5m. In 2019, the Group plans to contribute
$8.0m for the 2018 plan year to cover prudently this required contribution and anticipate future funding needs. In 2018, the Group also paid
a contribution of $8.0m for the 2017 plan year. The annual review as at 1 January 2019 is ongoing.
The main risks to which the Group is exposed in relation to the defined benefit pension 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 the interest rate and also the inflation risk.
• Mortality risk – the assumptions adopted by the Group 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.
Risks
138
The risks mentioned above could lead to a material change to the deficit or surplus of the pension schemes. Given the long term time
horizon of the schemes’ cash flows, the assumptions used can lead to volatility in the scheme valuations from year to year. The Company
and the trustee seek to mitigate actively the risks associated with the schemes.
A higher defined 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 the income statement
Defined contribution pension schemes
Defined benefit pension schemes
current service cost (net of contributions by employees)
Total included in employee costs excluding past service cost
Defined benefit pension schemes
past service cost
Total included in employee costs
Amounts included in finance (income)/expense
Net interest income on defined benefit pension schemes in surplus
Net interest expense on defined benefit pension schemes in deficit
Total charge to the income statement
2018
£m
22.4
6.9
29.3
3.3
32.6
(0.1)
1.4
33.9
2017
£m
20.5
7.0
27.5
–
27.5
–
2.3
29.8
The past service cost in 2018 of £3.3m relates to the cost of the equalisation of guaranteed minimum pensions between male and female
members of the Group’s UK defined benefit pension scheme following the High Court judgment during the year in the case of Lloyds
Banking Group Pensions Trustees Limited vs Lloyds Bank plc and others.
Amounts recognised in the statement of comprehensive income
Actual return less expected return on pension scheme assets
Experience gain/(loss) on pension scheme liabilities
Impact of changes in financial assumptions relating to the present value of pension scheme liabilities
Impact of changes in demographic assumptions relating to the present value of pension scheme liabilities
Actuarial gain on defined benefit pension schemes
2018
£m
(25.6)
2.0
32.1
2.5
11.0
The cumulative amount of net actuarial losses arising since 1 January 2004 recognised in the statement of comprehensive income at
31 December 2018 was £91.5m (2017: £102.5m).
The principal assumptions used by the independent qualified actuaries for the purposes of IAS 19 were:
UK
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)
2018
22.2
23.6
21.7
2017
£m
31.5
(2.6)
(10.3)
8.4
27.0
2017
22.3
23.7
21.7
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
139
139
Financial statementsStrategic reportDirectors’ report
Notes continued
21 Retirement benefits continued
Rate of increase in salaries
Rate of increase in pensions
Discount rate
Inflation rate
2018
3.6%
2.2%
2.9%
2.2%
2017
3.6%
2.2%
2.6%
2.2%
UK
2016
3.7%
2.3%
2.7%
2.3%
2018
3.0%
–
4.2%
2.3%
2017
3.0%
–
3.6%
2.3%
US
2016
3.0%
–
4.1%
2.3%
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 (increase)/decrease that would arise on the overall net pension deficit as at 31 December 2018 as a result of reasonably possible
changes to key assumptions was:
UK
US
Impact of change
in longevity
–1 year
£m
11.2
3.5
+1 year
£m
(11.4)
(2.5)
Impact of change
in inflation rate
–0.25%
£m
8.3
0.1
+0.25%
£m
(8.2)
(0.1)
Impact of change
in discount rate
–0.25%
£m
(15.6)
(4.0)
+0.25%
£m
14.6
3.8
The market value of pension scheme assets and the present value of retirement benefit obligations at 31 December were:
2018
Equities
Bonds
Other
Total market value of pension scheme assets
Present value of funded obligations
Present value of unfunded obligations
Present value of funded and unfunded obligations
Defined benefit pension schemes in deficit
Defined benefit pension schemes in surplus
Total surplus/(deficit) before tax
Deferred tax
Total surplus/(deficit) after tax
2017
Equities
Bonds
Other
Total market value of pension scheme assets
Present value of funded obligations
Present value of unfunded obligations
Present value of funded and unfunded obligations
Total deficit before tax
Deferred tax
Total deficit after tax
UK
£m
101.0
231.1
0.4
332.5
(329.1)
–
(329.1)
–
3.4
3.4
(0.6)
2.8
UK
£m
118.3
227.7
0.3
346.3
(347.4)
–
(347.4)
(1.1)
0.2
(0.9)
US
£m
49.4
49.7
16.0
115.1
(131.1)
(11.8)
(142.9)
(27.8)
–
(27.8)
2.5
(25.3)
US
£m
53.1
46.8
14.4
114.3
(136.3)
(12.5)
(148.8)
(34.5)
7.2
(27.3)
Other
£m
4.7
5.6
11.3
21.6
(24.4)
(11.3)
(35.7)
(14.1)
–
(14.1)
3.7
(10.4)
Other
£m
5.7
4.2
10.0
19.9
(23.0)
(12.3)
(35.3)
(15.4)
4.5
(10.9)
Total
£m
155.1
286.4
27.7
469.2
(484.6)
(23.1)
(507.7)
(41.9)
3.4
(38.5)
5.6
(32.9)
Total
£m
177.1
278.7
24.7
480.5
(506.7)
(24.8)
(531.5)
(51.0)
11.9
(39.1)
Of the pension scheme assets, £449.4m (2017: £464.1m) are valued based on a quoted market prices.
140
140
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report
Notes continued
21 Retirement benefits continued
Rate of increase in salaries
Rate of increase in pensions
Discount rate
Inflation rate
2018
3.6%
2.2%
2.9%
2.2%
2017
3.6%
2.2%
2.6%
2.2%
UK
2016
3.7%
2.3%
2.7%
2.3%
2018
3.0%
–
4.2%
2.3%
2017
3.0%
–
3.6%
2.3%
US
2016
3.0%
–
4.1%
2.3%
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 (increase)/decrease that would arise on the overall net pension deficit as at 31 December 2018 as a result of reasonably possible
changes to key assumptions was:
Impact of change
in longevity
Impact of change
in inflation rate
Impact of change
in discount rate
+1 year
£m
(11.4)
(2.5)
–1 year
£m
11.2
3.5
+0.25%
£m
(8.2)
(0.1)
–0.25%
£m
8.3
0.1
+0.25%
£m
14.6
3.8
The market value of pension scheme assets and the present value of retirement benefit obligations at 31 December were:
UK
US
2018
Equities
Bonds
Other
2017
Equities
Bonds
Other
Total market value of pension scheme assets
Present value of funded obligations
Present value of unfunded obligations
Present value of funded and unfunded obligations
Defined benefit pension schemes in deficit
Defined benefit pension schemes in surplus
Total surplus/(deficit) before tax
Deferred tax
Total surplus/(deficit) after tax
Total market value of pension scheme assets
Present value of funded obligations
Present value of unfunded obligations
Present value of funded and unfunded obligations
Total deficit before tax
Deferred tax
Total deficit after tax
–0.25%
£m
(15.6)
(4.0)
Total
£m
155.1
286.4
27.7
469.2
(484.6)
(23.1)
(507.7)
(41.9)
3.4
(38.5)
5.6
(32.9)
Total
£m
177.1
278.7
24.7
480.5
(506.7)
(24.8)
(531.5)
(51.0)
11.9
(39.1)
UK
£m
101.0
231.1
0.4
332.5
(329.1)
(329.1)
–
–
3.4
3.4
(0.6)
2.8
UK
£m
118.3
227.7
0.3
346.3
(347.4)
–
(347.4)
(1.1)
0.2
(0.9)
US
£m
49.4
49.7
16.0
115.1
(131.1)
(11.8)
(142.9)
(27.8)
–
(27.8)
2.5
(25.3)
US
£m
53.1
46.8
14.4
114.3
(136.3)
(12.5)
(148.8)
(34.5)
7.2
(27.3)
Other
£m
4.7
5.6
11.3
21.6
(24.4)
(11.3)
(35.7)
(14.1)
–
(14.1)
3.7
(10.4)
Other
£m
5.7
4.2
10.0
19.9
(23.0)
(12.3)
(35.3)
(15.4)
4.5
(10.9)
Of the pension scheme assets, £449.4m (2017: £464.1m) are valued based on a quoted market prices.
Strategic report
Directors’ report
Financial statements
21 Retirement benefits continued
Movement in net deficit
Beginning of year
Acquisitions
Current service cost
Past service cost
Contributions
Net interest expense
Actuarial gain
Transfer to liabilities classified as held for sale
Currency translation
End of year
Changes in the present value of defined benefit pension scheme liabilities
Beginning of year
Acquisitions
Current service cost
Past service cost
Interest expense
Contributions by employees
Actuarial (gain)/loss
Benefits paid
Transfer to liabilities classified as held for sale
Currency translation
End of year
Changes in the fair value of defined benefit pension scheme assets
Beginning of year
Acquisitions
Interest income
Actuarial (loss)/gain
Contributions by employer
Contributions by employees
Benefits paid
Currency translation
End of year
2018
£m
(51.0)
–
(6.9)
(3.3)
14.9
(1.3)
11.0
–
(1.9)
(38.5)
2018
£m
531.5
0.7
6.9
3.3
14.6
0.7
(36.6)
(22.6)
–
9.2
507.7
2018
£m
480.5
0.7
13.3
(25.6)
14.9
0.7
(22.6)
7.3
469.2
2017
£m
(84.1)
(3.1)
(7.0)
–
15.3
(2.3)
27.0
0.3
2.9
(51.0)
2017
£m
536.2
3.1
7.0
–
15.6
0.8
4.5
(23.5)
(0.3)
(11.9)
531.5
2017
£m
452.1
–
13.3
31.5
15.3
0.8
(23.5)
(9.0)
480.5
The actual return on pension scheme assets was a loss of £12.3m (2017: gain of £44.8m).
The Group expects to pay approximately £15.6m in contributions to the defined benefit pension schemes in the year ending 31 December
2019 (expected as of 31 December 2017 for the year ending 31 December 2018: £15.5m) including £7.3m for the UK (expected as of
31 December 2017 for the year ending 31 December 2018: £7.5m).
The weighted average duration of the defined benefit pension scheme liabilities at 31 December 2018 was approximately 18.3 years
(2017: 19.3 years) for the UK and 11.4 years (2017: 12.0 years) for the US.
The total defined benefit pension scheme liabilities are divided between active members (£174.0m (2017: £196.4m)), deferred members
(£150.7m (2017: £156.4m)) and pensioners (£183.0m (2017: £178.6m)).
140
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
141
141
Financial statementsStrategic reportDirectors’ report
Notes continued
22 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
Pension costs excluding past service cost
Share based payments
GMP equalisation charge
2018
6,531
5,007
4,037
3,210
18,785
61
18,846
2018
£m
729.8
87.4
29.3
12.9
859.4
3.3
862.7
2017
6,071
4,414
3,937
3,112
17,534
61
17,595
2017
£m
686.5
74.6
27.5
11.8
800.4
–
800.4
In addition to the above, acquisition related items for the year ended 31 December 2018 include deferred consideration payments of £19.1m
(2017: £28.5m) relating to the retention of former owners of businesses acquired.
Key management remuneration
Salaries and short term employee benefits
Share based payments
Retirement benefits
2018
£m
7.1
1.7
0.9
9.7
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
2018
£m
0.8
2.7
2.3
5.8
2017
£m
6.7
2.0
0.9
9.6
2017
£m
0.7
2.6
2.1
5.4
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 £2.9m (2017: £0.8m). The aggregate
market value of performance share awards exercised by directors under long term incentive schemes during the year was £1.2m
(2017: £1.4m). The aggregate market value of share awards exercised by directors under the DASBS was £0.6m (2017: £1.0m).
142
142
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report
Notes continued
22 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
Pension costs excluding past service cost
Share based payments
GMP equalisation charge
Key management remuneration
Salaries and short term employee benefits
Share based payments
Retirement benefits
the Company.
Directors’ emoluments
Non-executive directors
Executive directors:
annual bonus
remuneration excluding performance related elements
2018
6,531
5,007
4,037
3,210
2018
£m
729.8
87.4
29.3
12.9
859.4
3.3
862.7
2018
£m
7.1
1.7
0.9
9.7
2018
£m
0.8
2.7
2.3
5.8
2017
6,071
4,414
3,937
3,112
2017
£m
686.5
74.6
27.5
11.8
800.4
–
800.4
2017
£m
6.7
2.0
0.9
9.6
2017
£m
0.7
2.6
2.1
5.4
In addition to the above, acquisition related items for the year ended 31 December 2018 include deferred consideration payments of £19.1m
(2017: £28.5m) relating to the retention of former owners of businesses acquired.
Strategic report
Directors’ report
Financial statements
23 Lease commitments
The Group leases certain property, plant, equipment and vehicles 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:
18,785
17,534
61
61
18,846
17,595
Within one year
Between one and five years
After five years
24 Cash and cash equivalents and net debt
Cash at bank and in hand
Bank overdrafts
Cash and cash equivalents
Interest bearing loans and borrowings – current liabilities
Interest bearing loans and borrowings – non-current liabilities
Derivatives managing the interest rate risk and currency profile of the debt
Net debt
Land &
buildings
£m
104.8
286.5
121.2
512.5
2018
Other
£m
36.8
70.1
4.3
111.2
Land &
buildings
£m
93.6
247.5
67.2
408.3
2018
£m
477.7
(333.5)
144.2
(74.9)
(1,456.3)
0.5
(1,386.5)
2017
Other
£m
31.9
61.7
4.3
97.9
2017
£m
333.6
(221.3)
112.3
(145.1)
(1,499.2)
8.4
(1,523.6)
The cash at bank and in hand and bank overdrafts amounts included in the table above include the amounts associated with the Group’s
cash pool. The cash pool enables the Group to access cash in its subsidiaries to pay down the Group’s borrowings. The Group has the legal
right of set-off of balances within the cash pool which is an enforceable right which the Group intends to use. The cash at bank and in hand
and bank overdrafts figures net of the amounts in the cash pool are disclosed below for reference:
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
Cash at bank and in hand net of amounts in the cash pool
Bank overdrafts net of amounts in the cash pool
Cash and cash equivalents
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 £2.9m (2017: £0.8m). The aggregate
market value of performance share awards exercised by directors under long term incentive schemes during the year was £1.2m
(2017: £1.4m). The aggregate market value of share awards exercised by directors under the DASBS was £0.6m (2017: £1.0m).
Movement in net debt
2018
Beginning of year
Net cash inflow
Realised gains on foreign exchange contracts
Currency translation
End of year
2017
Beginning of year
Net cash outflow
Realised losses on foreign exchange contracts
Currency translation
End of year
2018
£m
187.8
(43.6)
144.2
2017
£m
141.4
(29.1)
112.3
Net debt
£m
(1,523.6)
184.9
3.3
(51.1)
(1,386.5)
Cash and cash
equivalents
£m
112.3
31.3
–
0.6
144.2
Net debt
£m
(1,228.6)
(334.0)
(10.2)
49.2
(1,523.6)
Cash and cash
equivalents
£m
126.7
(12.8)
–
(1.6)
112.3
Other
components
£m
(1,635.9)
153.6
3.3
(51.7)
(1,530.7)
Other
components
£m
(1,355.3)
(321.2)
(10.2)
50.8
(1,635.9)
142
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
143
143
The net cash inflow (2017: outflow) on other components of net debt comprises an increase in borrowings of £71.6m (2017: £418.7m),
a repayment of borrowings of £228.5m (2017: £87.3m) and the impact of a realised gain of £3.3m on foreign exchange contracts (2017:
loss of £10.2m).
Financial statementsStrategic reportDirectors’ report
Notes continued
25 Acquisitions
Acquisitions involving the purchase of the acquiree’s share capital or, as the case may be, 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. There were no significant adjustments to the assets acquired and liabilities assumed in 2018 relating to
acquisitions completed in 2017, including for Groupe Hedis (‘Hedis’) which was considered to be an individually significant acquisition.
At 31 December 2018 the allocation period for all acquisitions completed since 1 January 2018 remained open and accordingly the fair
values presented are provisional.
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 retention of former owners of businesses acquired. IFRS 3 requires that any payments that are contingent on
future employment, including payments which are contingent on the retention of former owners of businesses acquired, 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 to 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.
For each of the businesses acquired during the year, the name of the business, the market sector served, its location and date of acquisition,
as well as the estimated annualised revenue it would have contributed to the Group for the year if such acquisitions had been made at the
beginning of the year, are separately disclosed. The remaining disclosures required by IFRS 3 are provided separately for those individual
acquisitions that are considered to be material and in aggregate for individually immaterial acquisitions. An acquisition would generally
be considered individually material if the impact on the Group’s revenue or profit measures (on an annualised basis) or the relevant amounts
on the balance sheet is greater than 5%. Management also applies judgement in considering whether there are any material qualitative
differences from other acquisitions made.
2018
Summary details of the businesses acquired or agreed to be acquired during the year ended 31 December 2018 are shown in the table
below:
Business
Aggora
Talge
Revco
QS◊
Monte Package Company
Enor
CM Supply
Acquisitions completed in the current year
Aggora*
Talge*
Volk do Brasil†
Acquisitions agreed in the current year
◊ Acquisition of 85% of share capital.
* Acquisitions committed at 31 December 2017.
† Acquisition committed at 31 December 2018.
Sector
Foodservice
Foodservice
Safety
Cleaning & hygiene
Foodservice
Foodservice
Foodservice
Country
UK
Brazil
US
Netherlands
US
Norway
Denmark
Foodservice
Foodservice
Safety
UK
Brazil
Brazil
Acquisition date
2018
2 January
3 January
9 January
1 March
9 March
12 July
11 December
2 January 2018
3 January 2018
2 January 2019
Annualised
revenue
£m
27.0
28.4
28.6
4.9
43.4
25.7
4.0
162.0
(27.0)
(28.4)
41.5
148.1
Although not considered to be individually material, Revco accounts for approximately 25% of the total cash outflow in respect of
acquisitions during the year.
144
144
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report
Notes continued
25 Acquisitions
Acquisitions involving the purchase of the acquiree’s share capital or, as the case may be, 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. There were no significant adjustments to the assets acquired and liabilities assumed in 2018 relating to
acquisitions completed in 2017, including for Groupe Hedis (‘Hedis’) which was considered to be an individually significant acquisition.
At 31 December 2018 the allocation period for all acquisitions completed since 1 January 2018 remained open and accordingly the fair
values presented are provisional.
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 retention of former owners of businesses acquired. IFRS 3 requires that any payments that are contingent on
future employment, including payments which are contingent on the retention of former owners of businesses acquired, 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 to 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.
For each of the businesses acquired during the year, the name of the business, the market sector served, its location and date of acquisition,
as well as the estimated annualised revenue it would have contributed to the Group for the year if such acquisitions had been made at the
beginning of the year, are separately disclosed. The remaining disclosures required by IFRS 3 are provided separately for those individual
acquisitions that are considered to be material and in aggregate for individually immaterial acquisitions. An acquisition would generally
be considered individually material if the impact on the Group’s revenue or profit measures (on an annualised basis) or the relevant amounts
on the balance sheet is greater than 5%. Management also applies judgement in considering whether there are any material qualitative
differences from other acquisitions made.
Summary details of the businesses acquired or agreed to be acquired during the year ended 31 December 2018 are shown in the table
2018
below:
Business
Aggora
Talge
Revco
QS◊
Acquisitions completed in the current year
Monte Package Company
Enor
CM Supply
Aggora*
Talge*
Volk do Brasil†
Acquisitions agreed in the current year
◊ Acquisition of 85% of share capital.
* Acquisitions committed at 31 December 2017.
† Acquisition committed at 31 December 2018.
acquisitions during the year.
Cleaning & hygiene
Netherlands
Sector
Foodservice
Foodservice
Safety
Foodservice
Foodservice
Foodservice
Foodservice
Foodservice
Safety
Country
UK
Brazil
US
US
Norway
Denmark
UK
Brazil
Brazil
Acquisition date
2018
2 January
3 January
9 January
1 March
9 March
12 July
11 December
2 January 2018
3 January 2018
2 January 2019
Annualised
revenue
£m
27.0
28.4
28.6
4.9
43.4
25.7
4.0
162.0
(27.0)
(28.4)
41.5
148.1
Strategic report
Directors’ report
Financial statements
25 Acquisitions continued
There were no significant acquisitions in 2018. In 2017 Hedis was considered to be individually significant due to its impact on intangible
assets and was disclosed separately.
A summary of the effect of acquisitions completed in 2018 and 2017 is shown below:
Customer relationships
Property, plant and equipment and software
Inventories
Trade and other receivables
Trade and other payables
Net cash
Provisions
Defined benefit pension liabilities
Income tax payable and deferred tax liabilities
Fair value of net assets acquired
Goodwill
Consideration
Satisfied by:
cash consideration
deferred consideration
Contingent payments relating to retention of former owners
Net cash acquired
Transaction costs and expenses
Total committed spend in respect of acquisitions completed in the current year
Spend on acquisitions committed but not completed at the year end
Spend on acquisitions committed at prior year end but completed in the current year
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 cash acquired
Deferred consideration in respect of prior year acquisitions
Net cash outflow in respect of acquisitions
Transaction costs and expenses paid
Payments relating to retention of former owners
Total cash outflow in respect of acquisitions
2018
£m
96.7
3.2
26.8
23.5
(21.0)
3.6
(5.3)
–
(10.8)
116.7
33.9
150.6
148.5
2.1
150.6
12.7
(3.6)
5.5
165.2
39.5
(22.0)
182.7
2018
£m
148.5
(3.6)
25.4
170.3
7.8
6.1
184.2
2017
Total
£m
338.3
5.3
66.4
103.2
(78.9)
29.1
(14.6)
(3.1)
(61.9)
383.8
217.8
601.6
594.2
7.4
601.6
23.3
(29.1)
12.1
607.9
32.6
(24.4)
616.1
2017
Total
£m
594.2
(29.1)
9.5
574.6
9.2
4.7
588.5
2017
Hedis
£m
131.7
1.3
10.6
38.1
(25.2)
11.0
(3.1)
(3.1)
(36.4)
124.9
119.0
243.9
243.9
–
243.9
2.2
(11.0)
2.2
237.3
–
–
237.3
2017
Hedis
£m
243.9
(11.0)
–
232.9
0.8
–
233.7
2017
Other
£m
206.6
4.0
55.8
65.1
(53.7)
18.1
(11.5)
–
(25.5)
258.9
98.8
357.7
350.3
7.4
357.7
21.1
(18.1)
9.9
370.6
32.6
(24.4)
378.8
2017
Other
£m
350.3
(18.1)
9.5
341.7
8.4
4.7
354.8
Acquisitions completed in the year ended 31 December 2018 contributed £151.2m (2017: £297.4m) to the Group’s revenue and £19.2m
(2017: £25.4m) to the Group’s adjusted operating profit for the year ended 31 December 2018.
The estimated contributions from acquisitions completed during the year to the results of the Group for the year ended 31 December if such
acquisitions had been made at the beginning of the year, are as follows:
Although not considered to be individually material, Revco accounts for approximately 25% of the total cash outflow in respect of
Revenue
Adjusted operating profit
2018
£m
162.0
20.7
2017
£m
587.7
57.0
144
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
145
145
The estimated revenue which would have been contributed by the acquisitions agreed during the current year to the results for the year
ended 31 December 2018 if such acquisitions had been made at the beginning of the year is £148.1m (2017: £620.9m).
Financial statementsStrategic reportDirectors’ report
Notes continued
25 Acquisitions continued
2017
Summary details of the businesses acquired or agreed to be acquired during the year ended 31 December 2017 are shown in the table below:
Business
Sæbe Compagniet
Packaging Film Sales
LSH
Prorisk and GM Equipement
ML Kishigo
Neri
DDS
AMFAS
Western Safety
Tecnopacking
Pixel Inspiration
HSESF
Interpath
Groupe Hedis
Lightning Packaging
Acquisitions completed in 2017
Sæbe Compagniet*
Prorisk and GM Equipement*
Aggora†
Talge†
Acquisitions agreed in 2017
* Acquisitions committed at 31 December 2016.
† Acquisitions committed at 31 December 2017.
Sector
Foodservice
Foodservice
Safety
Safety
Safety
Safety
Retail
Safety
Safety
Foodservice, retail, other
Retail
Safety
Healthcare
Cleaning & hygiene, foodservice
Retail
Foodservice
Safety
Foodservice
Foodservice
Country
Denmark
US
Singapore
France
US
Italy
US
Canada
Canada
Spain
UK
China
Australia
France
UK
Denmark
France
UK
Brazil
Acquisition date
2017
2 January
9 January
31 January
31 January
31 March
31 March
23 May
31 May
31 May
31 May
30 June
1 August
31 October
22 November
30 November
2 January 2017
31 January 2017
2 January 2018
3 January 2018
Annualised
revenue
£m
13.3
4.7
5.1
6.8
26.0
41.2
241.9
5.8
4.2
37.5
7.3
25.6
13.4
140.2
14.7
587.7
(13.3)
(6.8)
27.0
26.3
620.9
Although the acquisition of DDS in 2017 was not considered to be individually material, it was nevertheless a larger acquisition and
accounted for approximately 22% of the total cash outflow in respect of acquisitions in 2017.
26 Disposal of businesses
During the year the Group completed the disposal of two businesses which were no longer considered to be a strategic fit within the
portfolio of the Group’s businesses. OPM, the assets and liabilities of which were classified as held for sale at 31 December 2017, was
considered to be a non-core business which has most recently focused on the distribution and sale of SodaStream products to retailers
throughout France. Marketing Services was also a non-core group of businesses focused on marketing services in the UK with limited
opportunities to expand overseas.
The disposals were completed on 2 February 2018 and 7 June 2018 respectively. As a result, the net assets of the Group increased by
£10.8m representing the profit on disposal of £13.6m offset by an associated tax charge of £2.8m. The profit on disposal reflects the cash
consideration received of £59.1m and a gain of £2.4m from amounts held in the translation reserve within equity, offset by the net book
value of the assets disposed (£45.4m), including the associated customer relationships intangible assets (£12.0m) and the carrying value
of allocated goodwill (£14.2m) less the associated transaction costs of £2.5m.
The net cash inflow in the period in respect of disposal of businesses comprised:
Cash flow from disposal of businesses
Cash consideration received
Cash and cash equivalents disposed
Net cash proceeds
Transaction costs paid
Net cash inflow
2018
£m
59.1
(2.4)
56.7
(1.6)
55.1
146
146
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report
Strategic report
Directors’ report
Financial statements
27 Items classified as held for sale
At 31 December 2018, the Group did not have any assets and liabilities held for sale (2017: net assets held for sale of £12.4m related
to OPM, a non-core subsidiary in France, the disposal of which completed on 2 February 2018).
28 Cash flow from operating activities
The tables below give further details on the adjustments for non-cash items and the working capital movement shown in the Consolidated
cash flow statement.
Non-cash items
Depreciation and software amortisation
Share based payments
Provisions
Retirement benefit obligations
Other
Working capital movement
Increase in inventories
Increase in trade and other receivables
Increase in trade and other payables
2018
£m
32.6
12.9
(6.4)
(8.0)
0.7
31.8
2018
£m
(96.6)
(44.6)
102.5
(38.7)
2017
£m
31.3
11.8
(7.5)
(8.3)
1.6
28.9
2017
£m
(94.3)
(62.8)
141.5
(15.6)
29 Related party disclosures
The Group has identified the directors of the Company, their close family members, the Group’s defined benefit 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 21 and Note 22 respectively. All transactions with subsidiaries
are eliminated on consolidation.
Summary details of the businesses acquired or agreed to be acquired during the year ended 31 December 2017 are shown in the table below:
Notes continued
25 Acquisitions continued
2017
Business
Sæbe Compagniet
Packaging Film Sales
LSH
Prorisk and GM Equipement
ML Kishigo
Neri
DDS
AMFAS
Western Safety
Tecnopacking
Pixel Inspiration
HSESF
Interpath
Groupe Hedis
Lightning Packaging
Acquisitions completed in 2017
Sæbe Compagniet*
Prorisk and GM Equipement*
Aggora†
Talge†
Acquisitions agreed in 2017
* Acquisitions committed at 31 December 2016.
† Acquisitions committed at 31 December 2017.
Sector
Foodservice
Foodservice
Safety
Safety
Safety
Safety
Retail
Safety
Safety
Retail
Safety
Retail
Foodservice
Safety
Foodservice
Foodservice
Country
Denmark
US
Singapore
France
US
Italy
US
Canada
Canada
Spain
UK
China
Australia
UK
Denmark
France
UK
Brazil
Acquisition date
2017
2 January
9 January
31 January
31 January
31 March
31 March
23 May
31 May
31 May
31 May
30 June
1 August
31 October
22 November
30 November
2 January 2017
31 January 2017
2 January 2018
3 January 2018
Annualised
revenue
£m
13.3
4.7
5.1
6.8
26.0
41.2
241.9
5.8
4.2
37.5
7.3
25.6
13.4
140.2
14.7
587.7
(13.3)
(6.8)
27.0
26.3
620.9
Foodservice, retail, other
Healthcare
Cleaning & hygiene, foodservice
France
Although the acquisition of DDS in 2017 was not considered to be individually material, it was nevertheless a larger acquisition and
accounted for approximately 22% of the total cash outflow in respect of acquisitions in 2017.
26 Disposal of businesses
During the year the Group completed the disposal of two businesses which were no longer considered to be a strategic fit within the
portfolio of the Group’s businesses. OPM, the assets and liabilities of which were classified as held for sale at 31 December 2017, was
considered to be a non-core business which has most recently focused on the distribution and sale of SodaStream products to retailers
throughout France. Marketing Services was also a non-core group of businesses focused on marketing services in the UK with limited
opportunities to expand overseas.
The disposals were completed on 2 February 2018 and 7 June 2018 respectively. As a result, the net assets of the Group increased by
£10.8m representing the profit on disposal of £13.6m offset by an associated tax charge of £2.8m. The profit on disposal reflects the cash
consideration received of £59.1m and a gain of £2.4m from amounts held in the translation reserve within equity, offset by the net book
value of the assets disposed (£45.4m), including the associated customer relationships intangible assets (£12.0m) and the carrying value
of allocated goodwill (£14.2m) less the associated transaction costs of £2.5m.
The net cash inflow in the period in respect of disposal of businesses comprised:
Cash flow from disposal of businesses
Cash consideration received
Cash and cash equivalents disposed
Net cash proceeds
Transaction costs paid
Net cash inflow
2018
£m
59.1
(2.4)
56.7
(1.6)
55.1
146
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
147
147
Financial statementsStrategic reportDirectors’ report
Company balance sheet
at 31 December 2018
Fixed assets
Tangible assets
Intangible assets
Investments
Defined benefit pension asset
Current assets
Deferred tax asset
Debtors: amounts falling due after more than one year
Debtors: amounts falling due within one year
Cash at bank and in hand
Current liabilities
Creditors: amounts falling due within one year
Net current assets
Total assets less current liabilities
Non-current liabilities
Provisions
Defined benefit pension liability
Net assets
Capital and reserves
Share capital
Share premium
Other reserves
Capital redemption reserve
Profit and loss account†
Total shareholders’ funds
Notes
2018
£m
2017
£m
3
3
4
9
5
6
6
7
8
9
10
11
11
0.3
1.2
695.9
3.4
700.8
1.0
952.4
604.8
0.7
1,558.9
(110.1)
1,448.8
2,149.6
0.3
1.3
687.5
–
689.1
1.7
1,209.0
429.9
0.5
1,641.1
(106.6)
1,534.5
2,223.6
(1.7)
–
(1.7)
(1.1)
2,147.9
2,220.8
108.1
178.5
5.6
16.1
1,839.6
2,147.9
108.0
171.4
5.6
16.1
1,919.7
2,220.8
Approved by the Board of directors of Bunzl plc (Company registration number 358948) on 25 February 2019 and signed on its behalf by
Frank van Zanten, Chief Executive and Brian May, Finance Director.
The Accounting policies and other Notes on pages 150 to 154 form part of these financial statements.
† Profit and loss account includes a net profit after tax of £6.3m (2017: £38.9m). As permitted by section 408(3) of the Companies Act 2006, the profit and loss account of the
Company has not been separately presented in these financial statements.
148
148
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report
Company balance sheet
at 31 December 2018
Fixed assets
Tangible assets
Intangible assets
Investments
Current assets
Deferred tax asset
Defined benefit pension asset
Debtors: amounts falling due after more than one year
Debtors: amounts falling due within one year
Cash at bank and in hand
Current liabilities
Creditors: amounts falling due within one year
Net current assets
Total assets less current liabilities
Non-current liabilities
Defined benefit pension liability
Provisions
Net assets
Capital and reserves
Share capital
Share premium
Other reserves
Capital redemption reserve
Profit and loss account†
Total shareholders’ funds
Notes
2018
£m
2017
£m
3
3
4
9
5
6
6
7
8
9
10
11
11
0.3
1.2
695.9
3.4
700.8
1.0
952.4
604.8
0.7
0.3
1.3
687.5
–
689.1
1.7
1,209.0
429.9
0.5
1,558.9
1,641.1
(110.1)
1,448.8
2,149.6
(106.6)
1,534.5
2,223.6
(1.7)
–
(1.7)
(1.1)
2,147.9
2,220.8
108.1
178.5
5.6
16.1
1,839.6
2,147.9
108.0
171.4
5.6
16.1
1,919.7
2,220.8
Approved by the Board of directors of Bunzl plc (Company registration number 358948) on 25 February 2019 and signed on its behalf by
Frank van Zanten, Chief Executive and Brian May, Finance Director.
The Accounting policies and other Notes on pages 150 to 154 form part of these financial statements.
† Profit and loss account includes a net profit after tax of £6.3m (2017: £38.9m). As permitted by section 408(3) of the Companies Act 2006, the profit and loss account of the
Company has not been separately presented in these financial statements.
Strategic report
Directors’ report
Financial statements
Company statement of changes in equity
for the year ended 31 December 2018
At 1 January 2018
Profit for the year
Other comprehensive income
Contributions to pension scheme
by participating subsidiaries
Actuarial gain on defined benefit
pension scheme
Income tax charge on other
comprehensive income
Total comprehensive income
2017 interim dividend
2017 final dividend
Issue of share capital
Employee trust shares
Movement on own share reserves
Share based payments
At 31 December 2018
At 1 January 2017
Profit for the year
Other comprehensive income
Contributions to pension scheme
by participating subsidiaries
Actuarial gain on defined benefit
pension scheme
Income tax charge on other
comprehensive income
Total comprehensive income
2016 interim dividend
2016 final dividend
Issue of share capital
Employee trust shares
Movement on own share reserves
Share based payments
At 31 December 2017
Share
capital
£m
108.0
Share
premium
£m
171.4
Other
reserves
£m
5.6
Capital
redemption
reserve
£m
16.1
Profit and loss account
Retained
Own
earnings
shares
£m
£m
2,042.6
(122.9)
6.3
Total
shareholders’
funds
£m
2,220.8
6.3
4.5
3.1
(0.4)
13.5
(46.2)
(106.0)
(13.4)
13.0
1,903.5
4.5
3.1
(0.4)
13.5
(46.2)
(106.0)
7.2
45.6
–
13.0
2,147.9
0.1
7.1
45.6
13.4
108.1
178.5
5.6
16.1
(63.9)
Share
capital
£m
107.9
Share
premium
£m
167.5
Other
reserves
£m
5.6
Capital
redemption
reserve
£m
16.1
Profit and loss account
Retained
Own
earnings
shares
£m
£m
2,139.8
(132.4)
38.9
Total
shareholders’
funds
£m
2,304.5
38.9
4.6
20.3
(4.2)
59.6
(42.8)
(95.4)
(30.3)
11.7
2,042.6
4.6
20.3
(4.2)
59.6
(42.8)
(95.4)
4.0
(20.8)
–
11.7
2,220.8
0.1
3.9
(20.8)
30.3
108.0
171.4
5.6
16.1
(122.9)
148
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
149
149
Financial statementsStrategic reportDirectors’ report
Notes to the Company financial statements
1 Basis of preparation
Bunzl plc (the ‘Company’) is a company incorporated and domiciled in the United Kingdom. These financial statements present information
about the Company as an individual undertaking and not about its Group. The financial statements of the Company have been prepared
on a going concern basis and under the historical cost convention with the exception of certain items which are measured at fair value as
described in the accounting policies below.
These financial statements were prepared in accordance with Financial Reporting Standard 101 ‘Reduced Disclosure Framework’ (‘FRS
101’) and the Companies Act 2006 as applicable to companies using FRS 101. The Company has adopted IFRS 9, ‘Financial Instruments’
from 1 January 2018 and as a result has reflected the new expected credit loss impairment model for financial assets in relation to its
intercompany receivables. This did not have a material impact on the Company’s results for the year or financial position at the year end
and prior year comparatives have not been restated. There are no other new standards, amendments or interpretations that are applicable to
the Company for the year ended 31 December 2018. IFRS 16 ‘Leases’ is effective for the year ending 31 December 2019 but is not expected
to have a material impact on the Company’s financial statements. In preparing these financial statements the Company has applied the
exemptions available under FRS 101 in respect of:
• a cash flow statement and related notes;
• comparative period reconciliations for share capital and tangible fixed assets;
• disclosures relating to transactions with wholly owned subsidiaries and capital management;
• the effects of new but not yet effective IFRSs; and
• disclosures relating to the compensation of key management personnel.
As the consolidated financial statements of the Company include the equivalent disclosures, the Company has also applied the exemptions
available under FRS 101 in respect of:
• certain disclosures required by IFRS 2 ‘Share Based Payments’ in respect of Group settled share based payments; and
• certain disclosures required by IFRS 13 ‘Fair Value Measurement’ and disclosures required by IFRS 7 ‘Financial Instruments’.
2 Accounting policies
The accounting policies of the Company have, unless otherwise stated, been applied consistently to all periods presented in these financial
statements. In most cases the accounting policies for the Company are fully aligned with the equivalent accounting policies for the Group
as stated on pages 108 to 113 in Note 2 to the consolidated financial statements. The accounting policies of the Company which are aligned
with those of the Group are the policies for tangible assets, intangible assets, income tax, trade and other payables, provisions, retirement
benefits, investment in own shares, dividends and leases. The accounting policies that are specific to the Company are set out below.
a Investment in subsidiary undertakings
Investments in subsidiary undertakings are held at cost less any provision for impairment. The subsidiary undertakings which the
Company held at 31 December 2018 are disclosed in the Related undertakings note in the Shareholder information section on pages 162
to 164.
b Share based payments
The Company operates a number of equity settled share based payment compensation plans. Details of these plans are outlined in Note 17
to the consolidated financial statements 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.
Where the Company grants options over its own shares to the employees of its subsidiaries and it has not recharged the cost to the relevant
subsidiaries, it recognises, in its individual financial statements, an increase in the cost of investment in its subsidiaries equivalent to the
equity settled share based payment charge recognised in its consolidated financial statements, with the corresponding credit being
recognised directly in equity.
c Financial guarantee contracts
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within its 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.
d Intercompany and other receivables
Intercompany and other receivables are initially measured at fair value. Subsequent to initial recognition these assets are measured at
amortised cost less any provision for impairment losses. The Group measures impairment losses using the expected credit loss model
in accordance with IFRS 9. The adoption of IFRS 9 on 1 January 2018 had no material impact on the Company.
150
150
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report
Notes to the Company financial statements
1 Basis of preparation
Bunzl plc (the ‘Company’) is a company incorporated and domiciled in the United Kingdom. These financial statements present information
about the Company as an individual undertaking and not about its Group. The financial statements of the Company have been prepared
on a going concern basis and under the historical cost convention with the exception of certain items which are measured at fair value as
described in the accounting policies below.
These financial statements were prepared in accordance with Financial Reporting Standard 101 ‘Reduced Disclosure Framework’ (‘FRS
101’) and the Companies Act 2006 as applicable to companies using FRS 101. The Company has adopted IFRS 9, ‘Financial Instruments’
from 1 January 2018 and as a result has reflected the new expected credit loss impairment model for financial assets in relation to its
intercompany receivables. This did not have a material impact on the Company’s results for the year or financial position at the year end
and prior year comparatives have not been restated. There are no other new standards, amendments or interpretations that are applicable to
the Company for the year ended 31 December 2018. IFRS 16 ‘Leases’ is effective for the year ending 31 December 2019 but is not expected
to have a material impact on the Company’s financial statements. In preparing these financial statements the Company has applied the
exemptions available under FRS 101 in respect of:
• a cash flow statement and related notes;
• comparative period reconciliations for share capital and tangible fixed assets;
• disclosures relating to transactions with wholly owned subsidiaries and capital management;
• the effects of new but not yet effective IFRSs; and
• disclosures relating to the compensation of key management personnel.
As the consolidated financial statements of the Company include the equivalent disclosures, the Company has also applied the exemptions
available under FRS 101 in respect of:
• certain disclosures required by IFRS 2 ‘Share Based Payments’ in respect of Group settled share based payments; and
• certain disclosures required by IFRS 13 ‘Fair Value Measurement’ and disclosures required by IFRS 7 ‘Financial Instruments’.
2 Accounting policies
The accounting policies of the Company have, unless otherwise stated, been applied consistently to all periods presented in these financial
statements. In most cases the accounting policies for the Company are fully aligned with the equivalent accounting policies for the Group
as stated on pages 108 to 113 in Note 2 to the consolidated financial statements. The accounting policies of the Company which are aligned
with those of the Group are the policies for tangible assets, intangible assets, income tax, trade and other payables, provisions, retirement
benefits, investment in own shares, dividends and leases. The accounting policies that are specific to the Company are set out below.
a Investment in subsidiary undertakings
Investments in subsidiary undertakings are held at cost less any provision for impairment. The subsidiary undertakings which the
Company held at 31 December 2018 are disclosed in the Related undertakings note in the Shareholder information section on pages 162
to 164.
b Share based payments
The Company operates a number of equity settled share based payment compensation plans. Details of these plans are outlined in Note 17
to the consolidated financial statements 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.
Where the Company grants options over its own shares to the employees of its subsidiaries and it has not recharged the cost to the relevant
subsidiaries, it recognises, in its individual financial statements, an increase in the cost of investment in its subsidiaries equivalent to the
equity settled share based payment charge recognised in its consolidated financial statements, with the corresponding credit being
recognised directly in equity.
c Financial guarantee contracts
the guarantee.
d Intercompany and other receivables
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within its 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
Intercompany and other receivables are initially measured at fair value. Subsequent to initial recognition these assets are measured at
amortised cost less any provision for impairment losses. The Group measures impairment losses using the expected credit loss model
in accordance with IFRS 9. The adoption of IFRS 9 on 1 January 2018 had no material impact on the Company.
Strategic report
Directors’ report
Financial statements
2 Accounting policies continued
e Defined benefit pension schemes
The Company is the sponsoring company of the UK defined benefit pension scheme. As there is no contractual agreement or stated Group
policy for charging the net defined benefit cost of the scheme to participating subsidiaries, the net defined benefit pension cost or benefit is
recognised fully by the Company. The contributions paid by the participating subsidiaries other than the Company are credited to profit or
loss of the Company where the amounts relate to service and are independent of the number of years of service or to other comprehensive
income if not linked to service.
f Judgements made in applying the Company’s accounting policies
In the course of preparing the financial statements, other than judgements involved in determining estimates and assumptions (see Note 2g
below), no judgements have been made in the process of applying the Company’s accounting policies that have had a significant effect on
the amounts recognised in the financial statements.
g Sources of estimation uncertainty
In applying the Company’s accounting policies various transactions and balances are valued using estimates or assumptions. Should these
estimates or assumptions prove incorrect, there may be an impact on the following year’s financial statements. As at 31 December 2018,
sources of estimation uncertainty that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and
liabilities within the next financial year are the carrying value of investments, as explained below, and the measurement of the defined
benefit pension scheme liability which is explained in Note 2 to the consolidated financial statements.
Recoverability of investments
The carrying amounts of the Company’s non-financial assets, in particular the investments in subsidiary undertakings, 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 are the greater of their fair value less the costs of disposal and their 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 exceeds its estimated recoverable amount with impairment losses being recognised
in profit or loss.
3 Tangible and intangible assets
Cost
Beginning of year
Additions
End of year
Accumulated depreciation
Beginning of year
Charge in year
End of year
Net book value at 31 December 2018
Net book value at 31 December 2017
4 Investments
Investments in subsidiary undertakings
Cost
Beginning of year
Additions
End of year
Impairment provisions
Beginning and end of year
Net book value at 31 December
Short
leasehold
improvement
£m
Fixtures,
fittings and
equipment
£m
Total
tangible
assets
£m
Total
intangible
assets
£m
0.1
–
0.1
0.1
–
0.1
–
–
1.5
0.1
1.6
1.2
0.1
1.3
0.3
0.3
1.6
0.1
1.7
1.3
0.1
1.4
0.3
0.3
2018
£m
690.8
8.4
699.2
1.7
0.1
1.8
0.4
0.2
0.6
1.2
1.3
2017
£m
684.4
6.4
690.8
3.3
3.3
695.9
687.5
150
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
151
151
Financial statementsStrategic reportDirectors’ report
Notes to the Company financial statements continued
5 Deferred tax asset
Recognised deferred tax assets net of deferred tax liabilities are attributable to the following:
1 January 2017
Recognised in profit or loss
Recognised in other comprehensive income or directly in equity
31 December 2017/1 January 2018
Recognised in profit or loss
Recognised in other comprehensive income or directly in equity
31 December 2018
Defined benefit
pension scheme
£m
4.3
0.1
(4.2)
0.2
(0.4)
(0.4)
(0.6)
Share based
payments
£m
1.5
–
(0.1)
1.4
–
0.1
1.5
Other
£m
0.1
–
–
0.1
–
–
0.1
Net deferred
tax asset
£m
5.9
0.1
(4.3)
1.7
(0.4)
(0.3)
1.0
Deferred tax is calculated in full on temporary differences under the liability method. The UK corporation tax rate will be reduced from 19%
to 17% from 1 April 2020. Accordingly, the UK tax rate used for measuring deferred tax reflects the rate expected to be applied when the
temporary differences reverse. It is probable that the deferred tax assets recognised will be realised and the recovery of the net deferred
tax asset will be over more than one year. No deferred tax asset has been recognised in respect of unutilised capital losses of £70.6m
(2017: £70.6m).
6 Debtors
Debtors: amounts falling due within one year
Amounts owed by Group undertakings
Prepayments and other debtors
Debtors: amounts falling due after more than one year
Amounts owed by Group undertakings
2018
£m
603.6
1.2
604.8
2017
£m
428.8
1.1
429.9
952.4
1,209.0
The carrying amount of the amounts owed by Group undertakings falling due after more than one year is a reasonable approximation of its
fair value. These amounts have a fixed repayment date and are interest bearing at an interest rate which is reset periodically based on the
Bank of England base rate.
7 Creditors: amounts falling due within one year
Trade creditors
Amounts owed to Group undertakings
Other tax and social security contributions
Income tax payable
Accruals
Amounts due to Group undertakings are repayable on demand and are not interest bearing.
8 Provisions
Beginning of year
Utilised or released
End of year
2018
£m
1.5
82.4
0.4
14.2
11.6
110.1
2018
£m
1.7
–
1.7
2017
£m
0.7
82.4
0.9
10.5
12.1
106.6
2017
£m
1.7
–
1.7
The provisions relate to properties, where amounts are held against liabilities for repairs and dilapidations, and other claims.
152
152
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report
Notes to the Company financial statements continued
5 Deferred tax asset
Recognised deferred tax assets net of deferred tax liabilities are attributable to the following:
Recognised in other comprehensive income or directly in equity
1 January 2017
Recognised in profit or loss
31 December 2017/1 January 2018
Recognised in profit or loss
Recognised in other comprehensive income or directly in equity
31 December 2018
Defined benefit
Share based
pension scheme
payments
Net deferred
tax asset
£m
4.3
0.1
(4.2)
0.2
(0.4)
(0.4)
(0.6)
£m
1.5
–
(0.1)
1.4
–
0.1
1.5
Other
£m
0.1
0.1
–
–
–
–
0.1
£m
5.9
0.1
(4.3)
1.7
(0.4)
(0.3)
1.0
Deferred tax is calculated in full on temporary differences under the liability method. The UK corporation tax rate will be reduced from 19%
to 17% from 1 April 2020. Accordingly, the UK tax rate used for measuring deferred tax reflects the rate expected to be applied when the
temporary differences reverse. It is probable that the deferred tax assets recognised will be realised and the recovery of the net deferred
tax asset will be over more than one year. No deferred tax asset has been recognised in respect of unutilised capital losses of £70.6m
The carrying amount of the amounts owed by Group undertakings falling due after more than one year is a reasonable approximation of its
fair value. These amounts have a fixed repayment date and are interest bearing at an interest rate which is reset periodically based on the
(2017: £70.6m).
6 Debtors
Debtors: amounts falling due within one year
Amounts owed by Group undertakings
Prepayments and other debtors
Debtors: amounts falling due after more than one year
Amounts owed by Group undertakings
Bank of England base rate.
7 Creditors: amounts falling due within one year
Trade creditors
Amounts owed to Group undertakings
Other tax and social security contributions
Income tax payable
Accruals
8 Provisions
Beginning of year
Utilised or released
End of year
Amounts due to Group undertakings are repayable on demand and are not interest bearing.
The provisions relate to properties, where amounts are held against liabilities for repairs and dilapidations, and other claims.
2018
£m
603.6
1.2
604.8
2017
£m
428.8
1.1
429.9
952.4
1,209.0
110.1
106.6
2018
£m
1.5
82.4
0.4
14.2
11.6
2018
£m
1.7
–
1.7
2017
£m
0.7
82.4
0.9
10.5
12.1
2017
£m
1.7
–
1.7
Strategic report
Directors’ report
Financial statements
9 Retirement benefits
The Company operates a number of retirement benefit schemes in the UK, including both a defined benefit and defined contribution
schemes. A description of the characteristics and risks to which the Company is exposed in relation to the UK defined benefit pension
scheme together with the principal assumptions used and sensitivity to changes in assumptions are detailed in Note 21 to the consolidated
financial statements. The amounts included in the Company financial statements relating to the defined benefit pension scheme at
31 December were:
Amounts included in profit for the year
Current service cost (net of contributions by employees)
Past service cost
Net interest (income)/expense
Contributions paid by participating subsidiaries linked to service
Total charge to profit for the year
2018
£m
2.5
3.3
(0.1)
(1.4)
4.3
2017
£m
2.8
–
0.6
(1.5)
1.9
The past service cost in 2018 of £3.3m relates to the cost of the equalisation of guaranteed minimum pensions between male and female
members of the Group’s UK defined benefit pension scheme following the High Court judgment during the year in the case of Lloyds
Banking Group Pensions Trustees Limited vs Lloyds Bank plc and others.
Amounts recognised in other comprehensive income
Actual return less expected return on pension scheme assets
Experience gain/(loss) on pension scheme liabilities
Impact of changes in assumptions relating to the present value of pension scheme liabilities
Actuarial gain on defined benefit pension scheme
Contributions paid by participating subsidiaries not linked to service
Total credit to other comprehensive income
Movement in defined benefit pension scheme surplus/(deficit)
Beginning of year
Current service cost
Past service cost
Contributions
Net interest income/(expense)
Actuarial gain
End of year
Changes in the present value of defined benefit pension scheme liabilities
Beginning of year
Current service cost
Past service cost
Interest expense
Contributions by employees
Actuarial (gain)/loss
Benefits paid
End of year
Changes in the fair value of defined benefit pension scheme assets
Beginning of year
Interest income
Actuarial (loss)/gain
Contributions by the Company
Contributions by participating subsidiaries
Contributions by employees
Benefits paid
End of year
2018
£m
(18.3)
0.4
21.0
3.1
4.5
7.6
2018
£m
(1.1)
(2.5)
(3.3)
7.1
0.1
3.1
3.4
2018
£m
347.4
2.5
3.3
8.9
0.6
(21.4)
(12.2)
329.1
2018
£m
346.3
9.0
(18.3)
1.2
5.9
0.6
(12.2)
332.5
2017
£m
21.0
(2.0)
1.3
20.3
4.6
24.9
2017
£m
(25.3)
(2.8)
–
7.3
(0.6)
20.3
(1.1)
2017
£m
347.6
2.8
–
9.2
0.7
0.6
(13.5)
347.4
2017
£m
322.3
8.6
20.9
1.2
6.1
0.7
(13.5)
346.3
152
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
153
153
Financial statementsStrategic reportDirectors’ report
Notes to the Company financial statements continued
9 Retirement benefits continued
The actual return on pension scheme assets was a loss of £9.3m (2017: gain of £29.5m). The market value of scheme assets and the present
value of retirement benefit obligations at 31 December are detailed in Note 21 to the consolidated financial statements.
The total defined benefit pension liability is divided between active members (£74.6m (2017: £91.5m)), deferred members (£127.8m (2017:
£132.7m)) and pensioners (£126.7m (2017: £123.2m)).
10 Share capital
Issued and fully paid ordinary shares of 321⁄7p each
Number of ordinary shares in issue and fully paid
Beginning of year
Issued – option exercises
End of year
2018
£m
108.1
2017
£m
108.0
2018
2017
335,931,546 335,607,091
324,455
336,425,304 335,931,546
493,758
11 Reserves
Included in the profit and loss account within retained earnings is £952.4m (2017: £1,209.0m) relating to dividends which were declared
from the Company’s subsidiary undertakings during the year ended 31 December 2016 but which were not settled in cash and are therefore
unrealised. Until these outstanding balances are settled in cash the relevant amounts outstanding are not distributable as dividends to the
Company’s shareholders. Excluding these amounts the Company has substantial distributable reserves as explained further in the Financial
review on page 23.
The own shares reserve includes ordinary shares of the Company held by the Company in an employee benefit trust. The assets, liabilities
and expenditure of the trust are included in the Company financial statements. Details of the trust and investment in own shares reserve are
set out in Note 17 to the consolidated financial statements.
The dividends paid and declared in the current and prior year are detailed in Note 18 to the consolidated financial statements.
The capital redemption reserve as presented in the statement of changes in equity records the aggregate nominal value of treasury shares
that have been cancelled.
12 Contingent liabilities and commitments
Contingent liabilities
Borrowings by subsidiary undertakings totalling £1,525.6m (2017: £1,633.2m) which are included in the Group’s borrowings have been
guaranteed by the Company.
Commitments
Non-cancellable operating lease rentals of £2.5m (2017: £3.2m) are payable in relation to a lease with a duration of between one and five years.
13 Employees’ and directors’ remuneration
The average number of persons employed by the Company during the year (including directors) was 53 (2017: 51) and the aggregate
employee costs relating to these persons were:
Wages and salaries
Social security costs
Share based payments
Pension costs
2018
£m
8.8
2.2
2.3
1.1
14.4
2017
£m
8.1
2.2
1.7
1.0
13.0
Conditional awards of executive share options and performance shares are granted to executive directors and other senior employees
of the Company. Employees of the Company can also participate in the Company’s Sharesave Scheme. Further information on the
Company’s share plans is disclosed in Note 17 to the consolidated financial statements.
14 Related party disclosures
The Company has identified the directors of the Company, their close family members, the UK pension scheme 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 and Note 21 and Note 22 to the consolidated financial statements respectively.
154
154
Bunzl plc Annual Report 2018
Bunzl plc Annual Report 2018
Financial statementsStrategic reportDirectors’ report
Statement of directors’ responsibilities
The directors are responsible for preparing the Annual Report, which
includes the Directors’ remuneration report and the financial
statements, in accordance with applicable law and regulations.
The directors are also responsible for safeguarding the assets of the
Group and the Company and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
Company law requires the directors to prepare financial statements
for each financial year. Under that law the directors have prepared
the Group financial statements in accordance with International
Financial Reporting Standards (‘IFRSs’) as adopted by the European
Union and the parent company financial statements in accordance
with United Kingdom Generally Accepted Accounting Practice
(United Kingdom Accounting Standards, comprising FRS 101
‘Reduced Disclosure Framework’, and applicable law). In preparing
the Group financial statements, the directors have also elected to
comply with IFRSs, issued by the International Accounting
Standards Board (‘IASB’). 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 the
Company and of the profit or loss of the Group and the Company for
that period. In preparing the financial statements, the directors are
required to:
• select suitable accounting policies and then apply them
consistently;
• state whether applicable IFRSs as adopted by the European Union
and IFRSs issued by IASB have been followed for the Group
financial statements and United Kingdom Accounting Standards,
comprising FRS 101, have been followed for the Company financial
statements, subject to any material departures disclosed and
explained in the financial statements;
• make judgements and accounting estimates that are reasonable
and prudent; and
• prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the Group and the Company will
continue in business.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group and the
Company’s transactions and disclose with reasonable accuracy
at any time the financial position of the Group and the Company
and enable them to ensure that the financial statements and
the Directors’ remuneration report comply with the Companies
Act 2006 and, as regards the Group financial statements,
Article 4 of the IAS Regulation.
The directors are responsible for the maintenance and integrity of the
Company’s website. Legislation in the United Kingdom governing
the preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
The directors consider that the Annual Report, taken as a whole,
is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Group and the Company’s
performance, business model and strategy.
Each of the directors, whose names and functions are set out on
pages 56 and 57 of the Annual Report confirm that, to the best of
their knowledge:
• the Company financial statements, which have been prepared in
accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, comprising FRS
101 ‘Reduced Disclosure Framework’, and applicable law), give a
true and fair view of the assets, liabilities, financial position and
profit of the Company;
• the Group financial statements, which have been prepared in
accordance with IFRSs as adopted by the European Union – Dual
IFRS (European Union and IASB), give a true and fair view of the
assets, liabilities, financial position and profit of the Group; and
• the Annual Report includes a fair review of the development and
performance of the business and the position of the Group and the
Company, together with a description of the principal risks and
uncertainties that they face.
On behalf of the Board
Frank van Zanten
Chief Executive
25 February 2019
Brian May
Finance Director
Bunzl plc Annual Report 2018
155
Directors’ reportFinancial statementsStrategic report
Independent auditors’ report to the members of Bunzl plc
Report on the audit of the financial statements
Opinion
In our opinion:
• Bunzl plc’s Group financial statements and Company financial statements (the ‘financial statements’) give a true and fair view of the state of
the Group’s and of the Company’s affairs as at 31 December 2018 and of the Group’s profit and cash flows for the year then ended;
• the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (‘IFRSs’) as
adopted by the European Union;
• the Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, comprising FRS 101 ‘Reduced Disclosure Framework’, and applicable law); 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.
We have audited the financial statements, included within the Annual Report, which comprise: the Consolidated and Company balance
sheets as at 31 December 2018; the Consolidated income statement and Consolidated statement of comprehensive income, the Consolidated
cash flow statement, and the Consolidated and Company statements of changes in equity for the year then ended; and the Notes to the
financial statements, which include a description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
Separate opinion in relation to IFRSs as issued by the IASB
As explained in Note 1 to the financial statements, the Group, in addition to applying IFRSs as adopted by the European Union, has also
applied IFRSs as issued by the International Accounting Standards Board (‘IASB’).
In our opinion, the Group financial statements have been properly prepared in accordance with IFRSs as issued by the IASB.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law. Our responsibilities
under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe
that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements
in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided to the
Group or the Company.
Other than those disclosed in Note 5 to the financial statements, we have provided no non-audit services to the Group or the Company in the
period from 1 January 2018 to 31 December 2018.
Our audit approach
Overview
Materiality
• Overall Group materiality: £28 million (2017: £20 million), based on 5% of adjusted profit before tax (2017: 5% of profit before tax).
• Overall Company materiality: £6 million (2017: £5 million), based on 0.5% of net assets (2017: approximately 0.25% of net assets).
Audit scope
• We performed audits of the financial information of 88 components in 29 different countries across North America, Continental
Europe, UK & Ireland and Rest of the World.
• Specific audit procedures over central functions and areas of significant judgement, including taxation, pensions, acquisitions
and the impairment of goodwill and other intangible assets, were performed by the Group audit team centrally.
Key audit matters
• Corporate tax exposures (Group).
• Business combinations (Group).
• Impairment of goodwill and other intangible assets (Group).
• Defined benefit pension schemes (Group and Company).
156
Bunzl plc Annual Report 2018
Directors’ reportFinancial statementsStrategic report The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements.
Capability of the audit in detecting irregularities, including fraud
Based on our understanding of the Group and industry, we identified that the principal risks of non-compliance with laws and regulations
related to breaches of environmental regulations and unethical and prohibited business practices, and we considered the extent to which
non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct
impact on the preparation of the financial statements such as the Companies Act 2006 and the UK Listing Rules. We evaluated management’s
incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined
that the principal risks were related to posting inappropriate journal entries to manipulate financial results and management bias in
accounting estimates.
The Group engagement team shared this risk assessment with the component auditors so that they could include appropriate audit
procedures in response to such risks in their work. Audit procedures performed by the Group engagement team and/or component auditors
included discussions with in-house legal counsel, assessment of matters reported on the Group’s whistleblowing helpline, challenging
assumptions and judgements made by management in their significant accounting estimates and testing journal entries.
There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and regulations
is from the events and transactions reflected in the financial statements, the less likely we would become aware of it. Also, the risk of not
detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate
concealment by, for example, forgery or intentional misrepresentations, or through collusion.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit;
and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon,
were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide
a separate opinion on these matters. This is not a complete list of all risks identified by our audit.
Key audit matter
Corporate tax exposures – Group
How our audit addressed the key audit matter
Refer to page 70 (Audit Committee report), page 109 (Accounting policies)
and pages 119 and 120 (Note 7).
We assessed management’s process for identifying uncertain tax positions
and the related accounting policy of providing for tax exposures.
The Group operates in a number of countries with complex taxation rules
and regulations. The interpretation of these complex regulations and the
unknown future outcome of pending judgements by the tax authorities result
in the need to provide against a number of uncertain tax positions.
We focused on this area because of the risk surrounding the level of estimation
and judgement that is necessary in determining the provisions required.
We engaged our taxation specialists to assist us in challenging the
appropriateness of management’s judgements in relation to these positions
and to understand the current status of tax assessments and investigations,
including monitoring developments in ongoing disputes and regulatory
changes. We read recent correspondence with local tax authorities to satisfy
ourselves that the tax provisions had been appropriately recorded or adjusted
to reflect the latest external developments. We also considered factors such
as possible penalties and interest.
These procedures assisted in our corroboration of management’s position on
the amount of significant tax exposures and the provisions and disclosures
made in the financial statements.
We then determined whether the calculations were in line with the
accounting standards and that the methodology and principles had been
applied consistently.
Based on the procedures performed, we determined the provisions reflect
management’s current best estimate of the expected economic outflows.
We considered the appropriateness of the related disclosures in Note 7 to the
financial statements.
Based on the procedures performed, we noted no material issues arising
from our work.
Bunzl plc Annual Report 2018
157
Directors’ reportFinancial statementsStrategic report Independent auditors’ report to the members of Bunzl plc continued
Key audit matter
Business combinations – Group
Refer to page 70 (Audit Committee report), page 108 (Accounting policies)
and pages 144 to 146 (Note 25).
Given that the Group continues to make significant investment in
acquisitions, accounting for business combinations is an area of focus
due to the level of judgement involved.
Business combinations can involve judgements in relation to the value of
assets and liabilities that are recognised on acquisition, particularly the
allocation of purchase consideration to goodwill and separately identified
intangible assets.
Impairment of goodwill and other intangible assets – Group
Refer to page 70 (Audit Committee report), page 110 (Accounting policies)
and pages 123 and 124 (Note 10).
The Group has material goodwill balances of £1,420.4m (2017: £1,378.0m)
and customer relationship intangible assets of £941.2m (2017: £954.6m)
spread across multiple geographies and relating to multiple cash generating
units (‘CGUs’).
In assessing whether the carrying amount of the goodwill assets has been
impaired, management considers forecast cash flows of the 11 individual
CGUs which are identified on a market or geographical basis.
We focused our goodwill impairment procedures on the CGUs with the
lowest levels of headroom between each respective value in use model
and carrying value.
We also focused our impairment procedures for other intangible assets on
recently acquired businesses or in circumstances where a triggering event
occurred during the year and where a further impairment assessment was
performed by management.
Management’s impairment assessments involves significant estimation,
principally relating to short and long term revenue growth, future profitability
and discount rates. Due to the acquisitive nature of the Group and the
magnitude of the aggregated related goodwill and intangible assets, together
with the subjectivity of the principal assumptions, a significant amount of audit
effort was required, particularly as some of these assumptions are dependent
on economic factors and trading conditions specific to overseas territories.
Defined benefit pension schemes – Group and Company
Refer to page 70 (Audit Committee report), page 112 (Accounting policies),
pages 138 to 141 (Note 21) and pages 153 and 154 (Note 9 of the Company).
The Group has defined benefit pension schemes (with material schemes in
the US and the UK) with a net surplus in the UK of £3.4m in both the
Consolidated and Company balance sheet and a net deficit across remaining
schemes of £41.9m at the current year end (2017: net deficit of £51.0m) in the
Consolidated balance sheet. The overall deficit is material in the context of
the Consolidated balance sheet.
Management estimation is required in relation to the measurement of
pension scheme obligations, and management employs independent
actuarial experts to assist it in determining appropriate assumptions such
as inflation levels, discount rates, salary increases and mortality rates.
Movements in these assumptions can have a material impact on the
determination of the liability and, therefore, the extent of any surplus or deficit.
How our audit addressed the key audit matter
Management relies on external valuation specialists for larger acquisitions
to value significant intangibles acquired in business combinations. Where
management has relied on such specialists, we assessed their objectivity and
competence and tested the results of their work and found no material issues.
We focused in particular on the following areas:
• We evaluated the consideration paid or payable in respect of acquisitions made;
• We challenged the methodology and key assumptions used in determining the
value of the customer relationship assets for the more significant acquisitions;
• We determined whether the cash flows applied within the valuation models
and the key assumptions such as the discount rates, growth rates,
customer attrition and period for amortisation, were appropriate; and
• We assessed material adjustments made to prior period acquisitions.
Based on the procedures performed, we noted no material issues arising
from our work.
In our testing of management’s annual goodwill and other intangible
assets impairment calculations, we used valuation experts to assist our
evaluation of the appropriateness of the models and the key assumptions
used by management.
We evaluated the reasonableness of the directors’ cash flow forecasts
by comparing the assumptions made to internal and external data.
In particular:
• We compared short term revenue growth rates to the latest strategic plans
and found them to be consistent;
• We determined that long term growth rates are generally consistent when
compared to third party nominal growth GDP rates;
• We found the achievability of future margins to be plausible based on past
and current performance and consistent with budgets;
• We challenged the discount rate used to determine the present value
by assessing the cost of capital for the Company and comparable
organisations and considered them to be acceptable; and
• We obtained evidence to assess historical accuracy in management’s
forecasting process.
We also evaluated management’s triggering event assessment regarding
other intangible assets.
As described in Note 10 to the consolidated financial statements,
management concluded that, based on their own sensitivity calculations,
no reasonable change in assumptions would lead to an impairment of
goodwill or other intangible assets.
Having ascertained the extent of changes in key assumptions either
individually or collectively that would be required for goodwill and other
intangible assets to be materially impaired, we considered such a change
in those key assumptions to be unlikely.
We used our own actuarial experts to satisfy ourselves that the assumptions
used in calculating the US and UK pension scheme liabilities are appropriate,
including confirming that salary increases and mortality rate assumptions
were consistent with relevant benchmarks. We determined that the discount
and inflation rates used in the valuation of the pension scheme liabilities were
consistent with our internally developed benchmarks and, where available,
with those disclosed in the published financial statements of other companies
as at 31 December 2018. In each case we considered the assumptions made
by management to be reasonable in light of the available evidence.
158
Bunzl plc Annual Report 2018
Directors’ reportFinancial statementsStrategic report How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole,
taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in which they operate.
The Group is organised geographically into four business areas, being North America, Continental Europe, UK & Ireland and Rest of the World.
We identified one financially significant component, being North America, where a full scope audit has been performed. In addition to this,
we identified four components across Continental Europe, UK & Ireland and Rest of the World for which a full scope audit of their financial
information was required. In order to satisfy the request of the Audit Committee and management, we performed full scope audits and other
procedures on a further 83 components. The components where we performed audit procedures covered over 94% of Group revenue, adjusted
profit before taxation and total assets.
Where work was performed by component auditors, detailed instructions were issued by us and the Group audit team visited North America,
Brazil, France, Belgium, Austria, Australia, China and the UK. Telephone discussions were also held with component auditors at these
locations and a number of other component teams that the Group audit team did not visit in person. In addition, specific audit procedures
over central functions and areas of significant judgement, including taxation, pensions, acquisitions and the impairment of goodwill and
other intangible assets, were performed by the Group audit team centrally.
The Group audit team also performed the audit of the standalone Company financial statements, for which all work was performed by the
Group audit team.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together
with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the
individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on
the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall materiality
£28 million (2017: £20 million).
Group financial statements
Company financial statements
£6 million (2017: £5 million).
How we determined it
5% of adjusted profit before tax.
0.5% of net assets.
Rationale for
benchmark applied
Given that the Group’s businesses are profit oriented and
the directors use adjusted profit measures to assess the
performance of the business, we believe that adjusted profit
before tax is the best benchmark to use. We changed to
this benchmark in 2018 to remove volatility in profits
(and materiality) and because the Group’s performance is
monitored on this measure, both internally and externally.
Considering the nature of the business and activities in Bunzl
plc (holding activities) we use the Company net assets as a
basis for the calculation of the overall materiality level.
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of
materiality allocated across components ranged up to £25 million. Certain components were audited to a local statutory audit materiality that
was also less than our overall Group materiality.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £1.4 million (Group audit)
(2017: £1 million) and £1.4 million (Company audit) (2017: £1 million) as well as misstatements below those amounts that, in our view,
warranted reporting for qualitative reasons.
Going concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
Outcome
We are required to report if we have anything material to add or draw
attention to in respect of the directors’ statement in the financial statements
about whether the directors considered it appropriate to adopt the going
concern basis of accounting in preparing the financial statements and the
directors’ identification of any material uncertainties to the Group’s and the
Company’s ability to continue as a going concern over a period of at least
12 months from the date of approval of the financial statements.
We have nothing material to add or to draw attention to.
However, because not all future events or conditions can be predicted, this
statement is not a guarantee as to the Group’s and Company’s ability to
continue as a going concern. For example, the terms on which the United
Kingdom may withdraw from the European Union, which is currently due to
occur on 29 March 2019, are not clear, and it is difficult to evaluate all of the
potential implications on the Company’s trade, customers, suppliers and the
wider economy.
We are required to report if the directors’ statement relating to going concern
in accordance with Listing Rule 9.8.6R(3) is materially inconsistent with our
knowledge obtained in the audit.
We have nothing to report.
Bunzl plc Annual Report 2018
159
Directors’ reportFinancial statementsStrategic report Independent auditors’ report to the members of Bunzl plc continued
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon.
The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and,
accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to
be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to
conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on
the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report based on these responsibilities.
With respect to the Strategic report and Directors’ report, we also considered whether the disclosures required by the UK Companies Act
2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006 (‘CA06’), ISAs
(UK) and the Listing Rules of the Financial Conduct Authority (‘FCA’) require us also to report certain opinions and matters as described
below (required by ISAs (UK) unless otherwise stated).
Strategic report and Directors’ report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and Directors’ report
for the year ended 31 December 2018 is consistent with the financial statements and has been prepared in accordance with applicable legal
requirements. (CA06)
In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit, we did not
identify any material misstatements in the Strategic report and Directors’ report. (CA06)
The directors’ assessment of the prospects of the Group and of the principal risks that would threaten the solvency or liquidity
of the Group
We have nothing material to add or draw attention to regarding:
• The directors’ confirmation on page 52 of the Annual Report that they have carried out a robust assessment of the principal risks facing the
Group, including those that would threaten its business model, future performance, solvency or liquidity.
• The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.
• The directors’ explanation on page 55 of the Annual Report as to how they have assessed the prospects of the Group, over what period they
have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that
the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any
related disclosures drawing attention to any necessary qualifications or assumptions.
We have nothing to report having performed a review of the directors’ statement that they have carried out a robust assessment of the
principal risks facing the Group and statement in relation to the longer-term viability of the Group. Our review was substantially less in scope
than an audit and only consisted of making inquiries and considering the directors’ process supporting their statements; checking that the
statements are in alignment with the relevant provisions of the UK Corporate Governance Code (the ‘Code’); and considering whether the
statements are consistent with the knowledge and understanding of the Group and Company and their environment obtained in the course
of the audit. (Listing Rules)
Other Code Provisions
We have nothing to report in respect of our responsibility to report when:
• The statement given by the directors, on page 155, that they consider the Annual Report taken as a whole to be fair, balanced and
understandable, and provides the information necessary for the members to assess the Group’s and Company’s position and performance,
business model and strategy is materially inconsistent with our knowledge of the Group and Company obtained in the course of performing
our audit.
• The section of the Annual Report on pages 69 and 70 describing the work of the Audit Committee does not appropriately address matters
communicated by us to the Audit Committee.
• The directors’ statement relating to the Company’s compliance with the Code does not properly disclose a departure from a relevant
provision of the Code specified, under the Listing Rules, for review by the auditors.
160
Bunzl plc Annual Report 2018
Directors’ reportFinancial statementsStrategic report Directors’ remuneration
In our opinion, the part of the Directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act
2006. (CA06)
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of directors’ responsibilities set out on page 155, the directors are responsible for the preparation of
the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors
are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the Company’s ability to continue as a going
concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors
either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of
Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our
prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches
not visited by us; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• the Company financial statements and the part of the Directors’ remuneration report to be audited are not in agreement with the accounting
records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Audit Committee, we were appointed by the directors on 19 May 2014 to audit the financial statements
for the year ended 31 December 2014 and subsequent financial periods. The period of total uninterrupted engagement is five years, covering
the years ended 31 December 2014 to 31 December 2018.
Paul Cragg (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
25 February 2019
Bunzl plc Annual Report 2018
161
Directors’ reportFinancial statementsStrategic report Shareholder information
Related undertakings
In accordance with section 409 of the Companies Act 2006 a full list of Bunzl plc’s subsidiary undertakings and other shares held by the
Company as at 31 December 2018 is disclosed below. The registered office address of each entity or, in the case of unincorporated entities,
the principal place of business, is disclosed on pages 165 to 167. Unless otherwise stated the subsidiary undertakings listed are wholly owned
and held indirectly by Bunzl plc with ordinary shares issued (or the equivalent of ordinary shares in the relevant country of incorporation).
In some of the jurisdictions in which the Group operates share classes are not defined and in these instances, for the purposes of this disclosure,
the shares issued have been classified as ordinary shares. Bunzl plc does not have any joint venture companies or associated undertakings.
Registered
office address*
Registered
office address*
Subsidiary
undertakings
Argentina
Vicsa Steelpro S.A.
Australia
Atlas Health Care Pty Limited
Bunzl Australasia Holdings Pty Limited
Bunzl Australasia Limited
Bunzl Brands & Operations Pty Limited
Bunzl Catering Supplies Limited
Bunzl Food Processor Supplies Pty Limited
Bunzl Outsourcing Services Limited
Interpath Services Pty. Ltd.
Network Packaging Pty Limited
Protect-A-Clean Pty Ltd
Robertsons Lifting & Rigging Pty Limited
Sanicare Australia Pty Limited
Star Wholesale Distribution Pty Limited
Worksense Workwear and Safety Pty Limited
Austria
Bunzl Holdings Austria GmbH
Meier Verpackungen GmbH
Belgium
Établissements Glorieux SA
King Belgium NV
Polaris Chemicals SPRL
Total Safety Supply Belgium BVBA
Varia-Pack NV
Brazil
B2B Web Distribuicao De Produtos Ltda
Bunzl Armazenagem, Logística e Prestação de Serviços
Administrativos Ltda.
Bunzl Equipamentos para Proteção Individual Ltda.
Bunzl Higiene E Limpeza Ltda
Dental Sorria Ltda.
DVS Equipamentos de Proteção Individual Ltda
Labor Import Comercial Importadora Exportadora Ltda
Talge Descartáveis do Brasil Ltda.
Canada
462482 B.C. Ltd.
Atlas Environmental Facilities, Ltd.
Bunzl Canada, Inc.
Emballages Maska Inc. (iii)
Jan-Mar Sales Limited (ii)
Plus II Sanitation Supplies Inc. (iii)
Wesclean Equipment & Cleaning Supplies Limited (ii)
Western Safety Products Ltd.
Subsidiary
undertakings
Chile
B2B Web Distribuicao de Produtos Chile SpA
Bunzl Chile Holdings SpA
DPS Chile Comercial Limitada
Tecno Boga Comercial Limitada
Vicsa Safety Comercial Limitada
China
Beijing HSESF Safety Technology Co., Ltd.
Bunzl Trading (Shanghai) Limited
Diversified Distribution Systems Trading (Shanghai) Ltd.
Keenpac (Shenzhen) Trading Company Limited
Shanghai BeiZhi Industrial Technology Co., Ltd.
Shanghai Cosafety Technology Co., Ltd.
Shanghai HSESF Safety Technology Co., Ltd.
Shanghai Mai Xi Protection Technology Co., Ltd.
Shanghai Yinghao Protection Technology Co., Ltd.
Suzhou Sai Wo Trading Co., Ltd.
Vicsa Commerce and Trading (Shanghai) Co., Ltd.
Colombia
Importadores Exportadores Solmaq
Tecnoboga Colombia S.A.S.
Vicsa Steelpro Colombia S.A.S.
Czech Republic
Blyth s.r.o.
Bunzl CS s.r.o.
Denmark
Bunzl Distribution Danmark A/S
Bunzl Holding Danmark A/S
Bunzl Properties Danmark A/S
Clean Care A/S
CM Supply ApS
MultiLine A/S
Saebe Compagniet ApS
France
Alpes Entretien Distribution SAS
Blanc SAS
Bourgogne Hygiene Entretien SAS
Bunzl Catering Développement SAS
Bunzl Holdings France SAS
Comatec SAS
Comptoir de Bretagne SAS
Daugeron & Fils SAS
Fichot Hygiene SAS
France Sécurité SAS
Gama 29 SAS
Générale Collectivités SAS
GM Equipement S.A.S.
Groupe Pierre Le Goff - Ile de France - Allodics - Adage SAS
1
5
4
4
3
5
2
5
4
3
5
3
4
5
3
6
6
7
11
9
10
8
13
16
15
12
17
19
18
14
20
23
25
22
23
21
24
20
27
27
26
28
27
34
31
37
38
33
30
29
36
32
39
35
40
40
41
43
42
44
44
44
45
46
47
48
63
78
76
51
57
64
73
65
54
61
59
72
49
55
162
Bunzl plc Annual Report 2018
Directors’ reportFinancial statementsStrategic report Subsidiary
undertakings
Groupe Pierre Le Goff - Ile de France - ODI SAS
Groupe Pierre Le Goff - Ile de France-Adage SAS
Groupe Pierre Le Goff Bourgogne Franche-Comte SAS
Groupe Pierre Le Goff Grand Ouest SAS
Groupe Pierre Le Goff Méditerranée SAS
Groupe Pierre Le Goff Nord-Est SAS
Groupe Pierre Le Goff Normandie SAS
Groupe Pierre Le Goff Rhône-Alpes Centre SAS
Groupe Pierre Le Goff Sud-Ouest SAS
Hedis SAS
Hygiadis SAS
Industrie du Compactage Alimentaire Hygiene ICA Hygiene
Registered
office address*
77
57
70
74
60
79
53
67
66
51
56
L’image du Propre SAS
Keenpac France SAS
Ligne T SAS
Mat’hygiene SAS
Nicolas Entretien SAS
ORRU SAS
PLG Finances SAS
Prorisk S.A.S.
SCI des Saules SCI
Société Civile Immobilière Sainte Claire Deville SC
Sodiscol SAS
Sopecal Hygiene SAS
Germany
Bäumer Betriebshygiene Vertriebsgesellschaft mbH (iii)
Bunzl Holding GmbH (iii)
Bunzl Verpackungen GmbH
Inkozell Zellstoff-Vertrieb GmbH
Logmed GmbH
Majestic GmbH
Mo Ha Ge Mommsen Handelsgesellschaft mbH
MoHaGe Holdings GmbH
PKA Klöcker Gmbh (iii)
Protemo GmbH
Hong Kong
Bunzl Asia Limited (iii)
DDS of Hong Kong Limited
Keenpac Asia Limited
Hungary
Bunzl Magyarország Kft.
Propack Kereskedelmi Korlátolt Felelősségű Társaság
Silwell Kereskedelmi Korlátolt Felelősségű Társaság
Ireland
Bunzl Finance Ireland Unlimited Company (ii)
Bunzl Ireland Limited
Latharna Ireland Finance No. 1 Unlimited Company
Latharna Ireland Finance No. 2 Unlimited Company (ii)
Thomas McLaughlin (Ireland) Limited
Yorse Ireland Unlimited Company
Israel
M.S. Global Limited
Meichaley Zahav Packages Ltd
Silco (Utensils) A.S. Limited (iii)
Italy
B2B Distribution Italy Holdings S.r.l.
Keenpac Italia S.r.l.
Neri S.p.A.
Secure Line S.r.l.
Secure Service S.r.l.
Bunzl plc Annual Report 2018
69
52
58
62
75
68
57
49
56
56
50
71
84
81
81
83
83
80
83
81
82
84
85
86
87
90
90
89
91
91
91
91
91
91
92
93
92
95
94
95
97
96
Subsidiary
undertakings
Mexico
Bunzl de Mexico S.A. de C.V. (ii)(iii)
Bunzl Servicios, SA. De CV
Cool Pak AG Packaging, S. de R. L. de C.V.
Cool Pak Exports S. de R.L. de C.V.
CP AG Servicios, S. de R.L. de C.V.
Diversified DS of Mexico, S. DE R.L. DE C.V.
Espomega S. de R.L. de C.V. (iii)
Proepta, S.A. DE C.V. (iii)
Steelpro S.A de C.V. (iii)
Netherlands
Allshoes Benelux B.V.
Bunzl Outsourcing Services B.V.
Bunzl Verpakkingen Arnhem B.V.
De Ridder B.V.
King Nederland B.V.
Majestic Products B.V.
QS Nederland B.V. (85%)
Worldpack Trading B.V.
New Zealand
Bunzl Food Processor Supplies (NZ) Limited
Bunzl Outsourcing Services NZ Limited
Corded Strap (NZ) Limited
ICB Cleaning Supplies Limited
Nelson Packaging Supplies Limited
Norway
Art Trading AS
Culina AS
Enor AS
Riise & G G Storkjøkken AS
Skien Storkjøkken AS (51%)
Peru
Vicsa Safety Peru S.A.C.
Puerto Rico
Melissa Sales Corp.
Romania
Bunzl Distributie SRL
Singapore
LSH Industrial Solutions Pte. Ltd
Slovakia
Eurobal, spol. s.r.o.
Spain
Bunzl Distribution Spain, S.A.U.
Bunzl Mallorca 2018, S.L.U.
Faru, S.L.U.
Guantes Juba, S.A.U.
Juba Personal Protective Equipment, S.L.U.
Lovilia Spain, S.L.U.
Marca Proteccion Laboral, S.L.U.
Marvel Proteccion Laboral, S.L.U.
Quirumed, S.L.U.
Tecnopacking, S.L.U.
Switzerland
Distrimondo AG
Keenpac (Switzerland) SA
MMH Holding AG
Uehlinger AG
Weita AG
Weita Holding AG
WGS AG
Registered
office address*
98
101
105
102
105
100
104
103
99
106
112
109
111
113
108
107
110
116
115
116
114
116
118
118
119
119
117
120
121
122
123
124
126
127
131
132
132
126
128
129
130
125
137
133
137
134
136
136
135
163
Directors’ reportFinancial statementsStrategic report Shareholder information continued
Related undertakings continued
Subsidiary
undertakings
Turkey
138
Bursa Pazari İnşaat Sanayi Ve Ticaret Anonim Şirketi (80%)
İstanbul Ticaret Hırdavat Sanayi A.Ş.
140
İstanbul Ticaret İş Güvenliği ve Endüstriyel Sanayi Ürünler A.Ş 139
Kullanatmarket Elektronik Pazarlama Ticaret Anonim
Registered
office address*
Şirketi (80%)
United Kingdom
365 Healthcare Limited
Aggora (Technical) Limited (iii)
Aggora Group Ltd (iii)
Aggora Limited
Aggora Projects Ltd (iii)
Bunzl American Holdings (No.1) Limited
Bunzl American Holdings (No.2) Limited
Bunzl Australia Forex LLP
Bunzl Finance Public Limited Company (i)
Bunzl Group Services Limited (i)
Bunzl Overseas Holdings (No. 2) Limited (i)
Bunzl Overseas Holdings (No. 3) Limited (ii)
Bunzl Overseas Holdings (No.4) Limited
Bunzl Overseas Holdings Limited
Bunzl Pension Trustees Limited (i)
Bunzl Plastics Limited (i)
Bunzl Properties Limited (i)
Bunzl Retail & Healthcare Supplies Limited
Bunzl UK Limited
Classic Bag Company Holdings Limited
Continental Chef Supplies Limited
Dialene Limited
Greenham Trading Limited (i)
GrowModule 365 Limited
Guardsman Limited
Henares Limited (i)
Howper 800 Limited (iii)
Kingsbury Packaging (Limavady) Ltd
Lee Brothers Bilston Limited
Lightning Packaging Supplies Limited
Lockhart Catering Equipment Limited
London Bio Packaging Limited
Packaging 2 Buy Limited
Portabottle Limited
Portabrands Limited
Selectuser Limited (ii)
The Classic Printed Bag Company Limited
The Porta Group Limited
Thomas McLaughlin
Tri-Star Packaging Supplies Limited
Woodway Packaging Limited
Woodway UK Limited
Woodway UK South Limited (iii)
Wycombe Marsh Paper Mills Limited (i)
Yorse No. 1 Limited
Yorse No. 3 Limited (i)
United States
Arch Logistics, LLC
Bunzl Corporate Holdings, Inc.
Bunzl Distribution California, LLC
Bunzl Distribution Leasing, Inc.
Bunzl Distribution Midatlantic, LLC
Bunzl Distribution Midcentral, Inc.
138
143
143
143
143
143
143
143
143
143
143
143
143
143
143
143
143
143
143
143
143
143
143
143
143
143
143
143
142
143
143
143
143
143
143
143
143
143
143
141
143
143
143
143
143
143
143
148
148
158
157
146
148
Subsidiary
undertakings
Bunzl Distribution Northeast, LLC
Bunzl Distribution Oklahoma, Inc.
Bunzl Distribution Southeast, LLC
Bunzl Distribution Southwest, L.P.
Bunzl Distribution USA, LLC
Bunzl Holdings Inc.
Bunzl International Services, Inc.
Bunzl Mexican Holdings II, LLC
Bunzl Mexican Holdings, LLC
Bunzl Midatlantic, LLC
Bunzl Minneapolis, LLC
Bunzl North American Holdings, Inc.
Bunzl Northeast, LLC
Bunzl Processor Distribution, LLC
Bunzl Retail Services, LLC
Bunzl Retail, LLC
Bunzl Southwest Holdings, LLC
Bunzl US Holdings LLC
Bunzl USA Holdings LLC
Bunzl USA LLC
Bunzl Utah, LLC
Bunzl Western Holdings, Inc.
Cool-Pak, LLC
Destiny Packaging, LLC
Earthwise Bag Company, Inc.
Foodhandler Inc.
Green Source, LLC
Hi-Valu, LLC
International Sourcing Company Inc. (iii)
John Tillman Company
Keenpac, LLC
Keepsafe, LLC
M.L. Kishigo Manufacturing Company, LLC
Masteragents LLC
Papercraft Southwest, LLC
Prime Source, LLC
R3 Safety, LLC
R3, LLC
Revco Industries, Inc. (iii)
SAS Safety Corporation
Steiner Industries, Inc.
TSN East, LLC
TSN West, LLC
U.S. Glove Co., Inc.
Western Glove Manufacturing, Inc.
Uruguay
Steelpro Safety S.A.
Other shareholdings
Viner-Pack Gyártó Kereskedelmi és Szolgáltató
Korlátolt Felelősségű Társaság (iii) (20%)
Registered
office address*
148
156
148
151
158
158
158
148
148
148
144
158
148
148
158
148
154
158
158
158
152
148
158
158
147
149
148
148
150
158
148
145
154
148
158
148
148
153
147
158
155
148
148
159
147
160
Registered
office address*
88
* For the list of registered office addresses and principal places of business, refer to the following
section headed ‘List of registered office addresses’ which forms part of these financial statements.
Classifications key
(i) Directly owned by Bunzl plc
(ii) Holding of ordinary and preference shares
(iii) Holding of more than one class of ordinary share
(iv) Holding of preference shares
164
Bunzl plc Annual Report 2018
Directors’ reportFinancial statementsStrategic report List of registered office addresses
Address
Maipú 1300, piso 13, Ciudad de Buenos Aires, Argentina
34-48 Cosgrove Road, Enfield NSW 2136, Australia
55 Sarah Andrews Close, Erskine Park NSW 2759, Australia
Level 2, 700 Springvale Road, Mulgrave VIC 3170, Australia
Unit 1, 52 Fox Drive, Dandenong South VIC 3175, Australia
Diepoldsauer Straße 37, 6845, Hohenems, Austria
1 Rue du Bois des Hospices, 2iémé étage, 7522 Tournai,
Key
1
2
3
4
5
6
Belgium
Aarschotsesteenweg 114 3012 Leuven (Wilsele), Belgium
Avenue Sabin 23, 1300 Wavre, Belgium
Oudenaardsesteenweg 19 9000 Ghent, Belgium
Rue du Cerf 190 1332 Genval, Belgium
Avenida Doutor Alberto Jackson Byington, 1435 Jardim Santa
Fe, City of Osasco, São Paulo, CEP 06273-050, Brazil
Avenida Dr. Alberto Jackson Byington, 1435 Industrial
Anhanguera, City of Osasco, São Paulo, CEP 06276-000,
Brazil
City of Itajaí, State of Santa Catarina, at Rua João Thomaz
Pinto, No. 1570, Shed A, Modules 6, 7 and 8 Condominium
Byblos, district of Canhanduba, 88.313-045, Brazil
Estrada Velha de Guarulhos - São Miguel, 5135, Box 301 -
Jardim Arapongas, city of Guarulhos, São Paulo, CEP
07210-250, Brazil
Estrada Velha de Guarulhos - São Miguel, 5135, Box 311 -
Jardim Arapongas, city of Guarulhos, São Paulo, CEP
07210-250, Brazil
Rua Crepusculo, No 58 Bairro California, City of Belo
Horizonte, Minas Gerais, CEP 30855-435, Brazil
Rua Padre Damaso 165, 173 e 189, Osasco, São Paulo, CEP
06016-010, Brazil
Rua São Domingos da Prata, 200, Bairro Vila Barros, CEP
07193-160, Guarulhos, São Paulo, Brazil
2920 Murray Street, Port Moody BC V3H 1X2, Canada
3900-1 Place Ville-Marie, Montréal Québec H3B 4M7, Canada
7450 Pion Avenue , Saint-Hyacinthe QC J2R 1R9, Canada
77 King Street West, Suite 400, Toronto, Ontario M5K0A1,
Canada
Dentons Canada LLP, 2900, 10180 - 101 Street, Edmonton AB
T5J 3V5, Canada
SNR Dentons LLP, 77 King Street West, Suite 400, Toronto ON
M5K 0A1, Canada
Antiguo Camino a Coquimbo S/N Lote 1-3/ 1-9, Colina,
Santiago, Chile
Av. Presidente Eduardo Frei Montalva 5151, Conchalí, 8550678
Santiago, Chile
Avenida Boulevard, Aeropuerto Norte #9649, Pudahuel,
Santiago, Chile
2F, Building 4, No. 115 Lane 1276, Nanle Road, Songjiang
District, Shanghai, China
3F, Building 4, No. 115 Lane 1276, Nanle Road, Songjiang
District, Shanghai, China
Floor 9, Xinpeng Plaza, No. 200, Lane 91, E’shan Road ,
Pudong New Area , Shanghai, 200127, China
No. 181 Zhongshe Road, Maogag Town, Songjiang District,
Shanghai, China
No. 301 Rongle East Road, Songjiang District, Shanghai,
China
No. 9 Fuqian Road, Shandong Zhuang Town, Pinggu District,
Beijing, China
Room 3123, Building 3, 112-118 Gaoyi Road, Baoshan District,
Shanghai, China
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
Bunzl plc Annual Report 2018
Address
Room 368, Part 302, No. 211 Fute North Road, Free Trade
Key
Zone, Shanghai, China
Room 850, No. 1111 Chang Shou Rd, Jingan District,
Shanghai, China
Room 912, Central Business Tower, 88 Fuhua 1st Road,
Futian, Shenzhen, China
Southwest of No. 1 House, 3F, Building A, Tower 2, Xinhaiyi,
No. 58 Heshun Road, Suzhou Industrial Park, Jiangsu,
China
Carrera 30 No. 15-30, Bogota D.C., Colombia
Km 7 Vía Medellín, Parque Empresarial Celta, Módulo 1,
Bodega 49, Funza (Cundinamarca),Colombia
Dolnokrčská 2029/54a, Krč, Praha 4, 140 00, Czech Republic
Přátelstvi 1011/17, Uhřiněves, Praha 10, 10 400, Czech
Republic
Greve Main 30, 2670 Greve, Denmark
Indkildevej 2 c, DK-9210, Aalborg SØ, Denmark
Jydekrogen 7, DK-2625 , Vallensbaek, Denmark
Kirkebjergvej 17, 4180 Sorø, Denmark
Vesterlundvej 5-7, DK-2730 Herlev, Denmark
11 C rue des Aulnes, 69410 Champagne-au-Mont-d’or, France
13 rue des Battants RN 20, 31140, Saint-Alban, France
140 rue Victor Hugo, 92300 Levallois-Perret, France
191-195 Avenue Charles de Gaulle, 9220 Neuillly-sur-Seine,
Paris, France
2 Rue Paul Vaillant Couturier, 76120 Le Grand Quevilly, France
26/28 rue Jean Perrin, 28300, Mainvilliers, France
29 avenue des Morillons, ZA des Doucettes, 95140 Garges les
Gonesses, France
440 route de Rosporden, Le Grand Guelen, 29000 Quimper,
France
5 avenue Gutenberg, ZA Pariwest, 78310 Maurepas, France
50 Avenue d’Allemagne, Rond Point de L’Europe ZA Albasud,
82000 Montauban, France
530 rue Jacqueline Auriol ZA de Saint Thudon, 29490,
Guipavas, France
556 Chemin du Mas de Cheylon, CAP Delta 30941, Nimes,
France
585, Rue Alain Colas, 29200, Brest, France
7 route de Villiers, 77780, Bourron-Marlotte, France
725 Route des Vernes Pringy, 74370, Annecy, France
Boulevard François-Xavier Faffeur, Zone Industrielle Lannolier,
11000, Carcassonne, France
Lieudit la Trentaine, 77690, La Genevraye, France
Parc d’activité Des Lacs , 22 rue Saint Exupéry , 33 290
Blanquefort, France
Quai Louis Aulagne, 69 190 Saint Fons, France
Route Nationale 97, ZA Les Plantades, 83130 La Garde, France
Route Nationale, 57420, Louvigny, France
Rue Charles Remi Arnoult, 21700 Nuits Saint Georges, France
Rue de Pau, 40500 Saint-Server, France
Rue Edouard Branly, ZAC des Chamonds 58640 Varennes-
Vauzelles, France
Rue Jean-Marie David, ZA la Teillais, 35740, Pacé, France
Rue Nungesser et Coli d2A Nantes Atlantique, 44860 Saint-
Aignan de Grand Lieu, France
Rue Pierre Pascal Fauvelle, 66000 Perpignan, France
ZI Maison Dieu RN 74, 21220 Fixin, France
ZI Val de Seine, 17 avenue Nobel, 92390 Villeneuve la Garenne,
France
Zone Artisanale Maritime du Bassin de Thau, Route de Séte,
34540 Ballaruc Les Bains, France
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
165
Directors’ reportFinancial statementsStrategic report Shareholder information continued
List of registered office addresses continued
Address
Zone d’activité Sud Saint Jean, 57130 Jouy aux Arches, France
Bahnhofstrasse 72, 27404 Zeven, Germany
Elbestraße 1-3, 45768 Marl, Germany
Friedrichstrasse 2, 40699 Erkrath, Germany
Malteserstrasse 139-143, 12277, Berlin, Germany
Maysweg 11, 47918 Tönisvorst, Germany
11th Floor, One Pacific Place, 88 Queensway, Hong Kong
Room 2103, Futura Plaza, 111 How Ming Street, Kwun Tun,
Key
79
80
81
82
83
84
85
Hong Kong
Unit 3-4 18F Tower 6, China Hong Kong City, Tsim Sha Tsui,
Kowloon, Hong Kong
2336 Dunavarsány, 071/33 hrsz, Hungary
H-1097 Budapest, Gyáli út 37/A, Hungary
Vendel Park, Erdőalja út 3., 2051 Biatorbágy, Hungary
10 Earlsfort Terrace, Dublin 2, D02 T380, Ireland
4 Kinneret Street, POB 1139, Airport City, Ben Gurion Airport,
7019802, Israel
Emek Ha’Ela 250, Modi’in, P.O.B 553, LOD 7110601, Israel
Corsa Italia n.6, 50123 Florence, Italy
Via 8 Marzo 6, 42025 Corte Tegge di Cavriago, Reggio Emilia,
Italy
Via Brigata Reggio no. 24, Reggio Emilia, Italy
Via Guglielmo Marconi no. 35, Rozzano, Italy
Arzipe Valdes & Marco, Ave. Batallón de San Patricio #111,
Piso 28, Despacho 2801, Colonia Valle Oriente, San Pedro
Garza Garcia, Nuevo León, C.P. 66269, Mexico
Ave. Bonifacio Salinas 203, Col Central de Carga, CP67129,
CD Guadalupe, Nuevo León, Mexico
Avenida Cafetales No. 1702, Interior 201, between streets
Rancho Recoveco and Rancho Estopila, Hacienda de
Coyoacán, Coyoacán, 04970, Mexico
Carretera Miguel Alemán KM21 Edificio 4C Prologis Park,
86
87
88
89
90
91
92
93
94
95
96
97
98
99
Address
1 Penjuru Close, 608617, Singapore
Na pántoch 18, 831 06 Bratislava, Slovakia
Calle Castilla-León, Parcela 45 Onda, 12200, Castellón, Spain
Calle Filats, 8 Polg. Industrial Prologis Park, Sant Boi de
Llobregat, Barcelona, Spain
Calle las Palmeras 7, Polígono Industrial La Sendeilla, 28350
Ciempozuelos, Spain
Cartagena, Murcia, Polígono Industrial Cabezo Beaza, Avenida
Bruselas, 30353, esquina calle Amsterdam, parcela R 100,
Spain
Cartagena, Murcia, Polígono Industrial Cabezo Beaza, Avenida
Luxemburgo, calle Artes y Oficios, nave B-3, Spain
Corretger No 115-117-119, Parque Empresarial Táctica,
Paterna, 46980, Valencia, Spain
Edificio Plaza, Nave 5, Ali-4 Plataforma Logistica de Zaragoza,
50197, Zaragoza, Spain
Santo Domingo De La Calzada, La Rioja, 26250, Carretera De
Logrono, Spain
c/o ALR Fiduciaire Rummel SA, ch. Valmont 224, 1260,
NYON, Switzerland
c/o Weita AG, Nordring 2, 4147 Aesch, Switzerland
Güterstrasse, 4313 Möhlin, Switzerland
Nordring 2, 4147 Aesch, Switzerland
Oberebenestrasse 53, CH-5620 Bremgarten, Switzerland
Akçaburgaz Mahallesi, 3137. Sokak, No. 19 Esenyert, İstanbul,
Turkey
Şerifali Mah., Turgut Özal Blv, B Blok No:170, Ümraniye,
İstanbul, Turkey
Tersane Cad. No:115 Karaköy, İstanbul, Turkey
72 Cathedral Road, Armagh, BT61 8AG
Arthur Cox, Victoria House, 15-17 Gloucester Street, Belfast,
100
BT1 4LS, United Kingdom
Apodaca, N.L., México C.P, 66627, Mexico
101
York House, 45 Seymour Street, London, W1H 7JT, United
Felipe Eugenio Marrón Montané, Avenida Pablo Neruda No.
2839, Colonia Providencia. C.P. 44630, Guadalajara,
Jalisco, Mexico
Galileo # 11, Colonia Polanco V Secc., Delagación Miguel
Hidalgo, 11560, Ciudad de México, Mexico
Pablo A. Gonzalez Garza Pte., 820, Chepevera, Monterrey,
Nuevo León, 64030, Mexico
Pablo Neruda #2839, Colonia Providencia, 44639 Guadalajara,
Jalisco, Mexico
Barnsteenstraat 1-A, 1812 SE Alkmaar, Netherlands
Bijsterhuizen 3005C, (6604) Wijchen, Netherlands
Curieweg 19, 3208, KJ Spijkenisse, Netherlands
Delta 2, 6825 MR Arnhem, Netherlands
Esp 125, 5633 AA Eindhoven, Netherlands
Oosterwerf 4, 1911 JB, Uitgeest, Netherlands
Rondebeltweg 82, 1329 BG Almere, Netherlands
Stephensonstraat 5, 4004JA Tiel, Netherlands
686 Rosebank Road, Avondale, Auckland, 1026, New Zealand
97 Sawyers Arm Road, Christchurch, 8052, New Zealand
KPMG Level 5, 79 Cashel Street, Christchurch, 8140, New
Zealand
Bedriftsveien 24, 3735 Skien, Norway
c/o Enor AS, Holmaveien 20, 1339 Vøyenenga, Norway
Holmaveien 20, 1339 Vøyenenga, Norway
Av. Santa Rosa 350. Ate., Lima, Peru
PO Box 6494 , PR 00914-6494, San Juan, Puerto Rico
Sat Dragomiresti-Deal, Comuna Dragomiresti-Vale, DE 287/1,
Bucharest West Logistic Park, Cladirea C, Unitatea C01,
Ilfov, Romania
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
Kingdom
701 Emerson #500, St Louis MO 63141-9111, United States
7503 Nottoway Place, Springfield VA 22150, United States
Corporate Creations Network Inc., 1001 State Street #1400, Erie
PA 16501, United States
Corporate Creations Network Inc., 11380 Prosperity Farms Rd
#221E, Palm Beach Gardens FL 33410, United States
Corporate Creations Network Inc., 12747 Olive Boulevard,
Suite 300, Saint Louis, MO 63141, United States
Corporate Creations Network Inc., 15 North Mill Street, Nyack
NY 10960, United States
Corporate Creations Network Inc., 205 Powell Place,
Brentwood TN 37027-7522, United States
Corporate Creations Network Inc., 2425 W Loop South #200,
Houston TX, United States
Corporate Creations Network Inc., 2825 East Cottonwood
Parkway #500, Salt Lake City UT 84121 , United States
Corporate Creations Network Inc., 3106 Ingersoll Avenue, Des
Moines, IA 50321 IL, United States
Corporate Creations Network Inc., 3411 Silverside Road,
Tatnall Building Ste 104, Wilmington DE 19810, United
States
Corporate Creations Network Inc., 350 S. Northwest Highway
#300, Park Ridge IL 60068, United States
Corporate Creations Network Inc., 406 South Boulder #400,
Tulsa OK 74103, United States
Corporate Creations Network Inc., 5200 Willson Road #150,
Edina MN 55424, United States
Key
123
124
125
126
127
128
129
130
131
132
133
134
135
136
137
138
139
140
141
142
143
144
145
146
147
148
149
150
151
152
153
154
155
156
157
166
Bunzl plc Annual Report 2018
Directors’ reportFinancial statementsStrategic report Address
Corporate Creations Network Inc., 6802 Paragon Place #410,
Richmond, VA 23230, Henrico, United States
Corporate Creations Network, Inc., West 505 Riverside Avenue
#500, Spokane WA 99201, United States
César Cortinas 2037, Montevideo, Uruguay
Key
158
159
160
Financial calendar
Annual General Meeting
Results for the half year to 30 June 2019
Results for the year to 31 December 2019
Annual Report circulated
2019
17 April
27 August
2020
February
March
Dividend payments are normally made on these dates or the
following working day:
Ordinary shares (final)
Ordinary shares (interim)
1 July
2 January
Analysis of ordinary shareholders
At 31 December 2018 the Company had 4,920 (2017: 4,895)
registered shareholders who held 336.4 million (2017: 335.9 million)
ordinary shares between them, analysed as follows:
Size of holding
0 – 10,000
10,001 – 100,000
100,001 – 500,000
500,001 – 1,000,000
1,000,001 and over
Number of
shareholders
4,234
413
183
35
55
4,920
% of issued
share capital
2
4
13
7
74
100
Registrar
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS99 6ZZ
Telephone +44 (0) 370 889 3257
Fax +44 (0) 370 703 6101
Email webqueries@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, seven days a week,
where the following services are available:
• elect for electronic communications;
• 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 confirmations.
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. To use this method
of payment please contact our registrar on +44 (0) 370 889 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. Shareholders who have elected to have
their dividends paid by BACS and who have registered a valid
email address with the registrar will be able to access their dividend
confirmations electronically at www.investorcentre.co.uk. If no such
email address has been registered, shareholders will receive their
dividend confirmations by post.
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.
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 programme that trades on the over-the-counter
market in the US with ticker BZLFY. Citibank N.A. acts as
the Depositary Bank.
Telephone Citibank +1 781 575 4555
Email citibank@shareholders-online.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) 370 889 3257
to request further information about the currencies for which this
service is available.
Bunzl plc Annual Report 2018
167
Directors’ reportFinancial statementsStrategic report Shareholder information continued
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) 370 703 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 and at
www.fca.org.uk/scamsmart. Details of any share dealing facilities
that the Company endorses will be included in Company mailings.
Auditors
PricewaterhouseCoopers LLP
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.
168
Bunzl plc Annual Report 2018
Directors’ reportFinancial statementsStrategic report Five year review
Revenue
Operating profit
Finance income
Finance expense
Disposal of businesses
Profit before income tax
Income tax
Profit for the year attributable to the Company’s equity holders
2018
£m
9,079.4
466.2
11.6
(66.6)
13.6
424.8
(98.3)
326.5
2017
£m
8,580.9
456.0
10.6
(57.3)
–
409.3
(98.8)
310.5
2016
£m
7,429.1
409.7
7.1
(53.9)
–
362.9
(97.0)
265.9
2015
£m
6,489.7
366.5
4.8
(48.6)
–
322.7
(90.0)
232.7
2014
£m
6,156.5
341.8
4.0
(46.0)
–
299.8
(89.1)
210.7
Basic earnings per share
98.4p
94.2p
80.7p
71.0p
64.5p
Alternative performance measures†
Adjusted operating profit
Adjusted profit before income tax
Adjusted profit for the year
Adjusted earnings per share
† See Note 3 on page 114 for further details of the alternative performance measures.
614.0
559.0
429.9
129.6p
589.3
542.6
393.4
119.4p
525.0
478.2
349.6
106.1p
455.0
411.2
298.1
91.0p
429.8
387.8
281.6
86.2p
Printed by Park Communications on
FSC® certified paper. Park is an EMAS
certified company and its Environmental
Management System is certified to ISO
14001. 100% of the inks used are vegetable
oil based, 95% of press chemicals are
recycled for further use and, on average
99% of any waste associated with this
production will be recycled. This document
is printed on Revive 100 Offset, a paper
containing 100% post consumer recycled
fibre certified by the FSC®. The pulp used
in this product is bleached using a totally
chlorine free (TCF) process.
Designed and produced by
Bunzl plc Annual Report 2018
169
Directors’ reportFinancial statementsStrategic report Strategic report
Bunzl plc
York House
45 Seymour Street
London
W1H 7JT
www.bunzl.com
Financial statementsDirectors’ report